FROCH — Annual Report 2020

Nov 8, 2021

Stock code: 2030

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2020 Annual Report

Annual Report available at: MOPS website http：//mops.twse.com.tw Company website http：//www.froch.com

Date of Publication: May 6, 2021

NOTES TO READERS

This document is presented in both Chinese version and English version. In case when any discrepancies and/or differences between these two versions, the Chinese version shall prevail.

I. Name, Title, Contact Number, and E-Mail Address of Spokesperson and Deputy Spokesperson:

Name of Spokesperson: Stan Shih Title: General Manager of Finance Division Tel: (05)5571668 ext. 621 E-Mail: stan.shih@froch.com

Name of Deputy Spokesperson: Ivan Lee Title: General Manager of Audit Division Tel: (05)5571668 ext. 651 E-Mail: ivan.lee@froch.com

II. Company Addresses:

Headquarters: No. 122 Industrial Road, Tou-Liu City, Yun-Lin 640 Plant: No. 122 Industrial Road, Tou-Liu City, Yun-Lin 640 Tel: (05)5571668 North Regional Office: 2F, No. 5, Alley 3, Lane 103, Xiu-Feng Street, Zhong-He District, New Taipei City

Tel: (02)22965973 South Regional Office: No. 431, Da-Jung 1st Road, Zuo-Ying District, Kaohsiung City Tel: (07)3412867

III. Name, Address, Contact Number, and Website of Share Transfer Agency:

Name: KGI Securities Co., Ltd. Address: 4F, No. 2, Section 1, Chung-Ching South Road, Taipei City 100 Tel: (02)2314-8800

Website: http ： //www.kgi.com.tw

IV. Financial Report Auditor:

Names of CPA: Mr. Ting-Chien Su, Ms. Li-Tong Wu Accounting Firm: Deloitte & Touche Taiwan Address: 22F, No. 88, Section 1, Hui-Zhong Road, Xi-Tun District, Taichung City 407 Tel: (04)3705-9988 Website:http ： //www.deloitte.com.tw

• V. Name of Overseas Share Exchange Authority Where Securities are Listed, and Method of Inquiry: N/A

• VI. Company Website: http://www.froch.com

Table of Contents

				Page
One.		Letter to Shareholders -----------------------------------------------------		1
Two.		Company Profile ------------------------------------------------------------		4
Three.		Corporate Governance Report -------------------------------------------		6
	I.		Organization ---------------------------------------------------------------	6
	II.		Background Information of Directors, President, Vice Presidents,
			and Heads of Divisions and Branches ----------------------------------	7
	III.		Corporate Governance ----------------------------------------------------	16
	IV.		Information of CPAs------------------------------------------------------	37
	V.		Change of CPA ------------------------------------------------------------	38
	VI.		Any of the Company's Chairman, President, or any Manager
			Involved in Financial or Accounting Affairs Being Employed by
			the Accounting Firm or Any of Its Affiliated Company in the Last
			Year -------------------------------------------------------------------------	39
	VII.		Details of Shares Transferred or Pledged by Directors, Executives,
			or Shareholders with more than 10% Ownership Interest in the Last
			Year, up until April 18, 2021. -------------------------------------------	39
	VIII.		The Relationships among Top-10 Shareholders ----------------------	40
	IX.		Investments Jointly Held by the Company, the Company's
			Directors, Managers, and Enterprises Directly or Indirectly
			Controlled by the Company; the Shareholding in Aggregate of the
			above Parties---------------------------------------------------------------	41
Four.		Capital Overview -----------------------------------------------------------		42
	I.		Capital and Outstanding Shares -----------------------------------------	42
	II.		Corporate Bonds-----------------------------------------------------------	50
	III.		Preferred Shares -----------------------------------------------------------	50
	IV.		Global Depository Receipts ---------------------------------------------	50
	V.		Employee Share Subscription Rights -----------------------------------	50
	VI.		New Employee Restricted Shares ---------------------------------------	50
	VII.		New Shares Issued for Merger or Acquisition ------------------------	50
	VIII.		Progress on Planned Use of Capital ------------------------------------	50
Five.		Operational Overview----------------------------------------------------		51
	I.		Business Activities ------------------------------------------------------	51
	II.		Market, Production and Sales Overview -------------------------------	56
	III.		Employee Information in the Last 2 Years up Until Publication
			Date of This Annual Report ---------------------------------------------	59
	IV.		Expenditure for Environmental Protection ----------------------------	59
	V.		Labor Relations -----------------------------------------------------------	61
	VI.		Insider Material Information Handling Procedures ------------------	64
	VII.		Major Contracts -----------------------------------------------------------	64
Six.		Financial Overview---------------------------------------------------------		65
	I.		Concise Balance Sheet and Statement of Comprehensive Income

	for the Last 5 Years -------------------------------------------------------	65
II.	Financial Analysis for the Last 5 Years --------------------------------	69
III.	Audit Committee's Review Report on the Latest Financial
	Statements----------------------------------------------------------------	72
IV.	Latest Individual Financial Statements and Independent Auditor's
	Report -----------------------------------------------------------------------	73
V.	Latest Consolidated Financial Statements and Independent
	Auditor's Report -----------------------------------------------------------	73
VI.	Financial Distress Encountered by the Company and Affiliated
	Enterprises in the Last Year, up until the Publication Date of This
	Annual Report --------------------------------------------------------------	205
Seven.	Review of Financial Situation, Operating Results, and Risk
	Management -----------------------------------------------------------------	205
I.	Financial Situation Review and Analysis Chart -----------------------	205
II.	Operating Results ----------------------------------------------------------	206
III.	Cash Flow -------------------------------------------------------------------	207
IV.	Major Capital Expenditures in the Last Year and Their Impact on
	Financial and/or Business Performance --------------------------------	208
V.	Major Reasons of the Profit or Loss Arising from Other Business
	Investments in the Last Year, Their Improvement Plans. And
	Investments Plans for the Next Year ------------------------------------	208
VI.	Evaluation of Risk Factors -----------------------------------------------	209
VII.	Other Major Issues --------------------------------------------------------	211
Eight.	Special Disclosures ---------------------------------------------------------	212
I.	Information of Affiliated Companies -----------------------------------	212
II.	Private Placement of Securities in the Last Year up until the
	Publication Date of This Annual Report -------------------------------	214
III.	Holding or Disposal of the Company's Shares by Subsidiaries in
	the Last Year, up until the Publication Date of This Annual Report	214
IV.	Other Material Supplementary Information ----------------------------	214
V.	Events Significant to Shareholders' Interests or the Company’s
	Securities Price, as Defined in Subparagraph 2, Paragraph 2, Article
	36 of the Securities and Exchange Act, in the Last Year up until the
	Publication Date of this Annual Report --------------------------------	214

One. Letter to Shareholders

The Company is primarily involved in the production and sales of stainless steel tubes and pipes and stainless steel sheets and coils. For consolidated numbers in 2020, the Company sold 122,120 tonnes of stainless steel tubes and pipes, slightly down by 2.42% from the previous year, and 35,144 tonnes of stainless steel sheets and coils in 2020, slightly down by 5.35% from the previous year, among which 28% of products were sold in Taiwan while the other 72% were sold overseas, with Americas, Europe, and Mainland China making up the majority of oversea sales. The Company adopts a sales strategy that focuses on long-term relationship, diversified markets, diversified customers, and overall risk reduction.

Predominately affected by the COVID-19 pandemic, the Company’s consolidated operating performance in 2020, compared to 2019, was slightly decreased in terms of either sales amount or sales quantity. In the beginning, Mainland China, along with other European and American countries, had exercised country lockdowns or stringent moving restrictions. The customers buying attitude turned look-and-wait. The lockdown situation had relieved in the second half of the year, though, the transportation of the products faced another challenge. The sea freight prices sky rocketed and the shipping spaces were extremely scarce. All the above dragged the overall operating performance lower than 2019. Thanks to the prices of the materials heading upwards in the second half of the year, the gross margin could maintain at the similar lever of 10% in 2019. The following is a report of the Company's 2020 operating performance and 2021 business prospect:

I. 2020 Operating Results

(I) Results of Business Plans Unit: NTD thousands

Products Stainless Steel Tubes and Pipes Stainless Steel Sheets and Coil Others Total Revenue	2020 Performance	2019 Performance	Performance Comparison	Growth Rate %
	8,458,282	9,507,939	(1,049,657)	(11.04)
	2,074,486	2,414,132	(339,646)	(14.07)
	28,179	62,135	(33,956)	(54.65)
	10,560,947	11,984,206	(1,423,259)	(11.88)

(II) Budget Execution Unit: tonne

(II)Budget Execution			Unit:tonne
Products	2020 Performance	2020 Forecast	Growth Rate %
Stainless Steel Tubes and Pipes	119,165	144,010	(17.25)
Stainless Steel Sheets and Coils	35,144	39,600	(11.25)
Tonnage Sold	154,309	183,610	(15.96)

(III) Profitability Analysis

(III) Profitability Analysis
Aspects	2020	2019
Operating Profit to Paid-up Capital (%)	8.37	17.38
Pre-tax Income as a Percentage of Paid-up Capital (%)	6.71	13.73
Return on Assets (%)	2.74	3.47
Return on Shareholders’Equity (%)	2.74	6.69
Net Profit Margin (%)	1.03	2.24
Earnings per Share (NTD)	0.38	0.94

(III)Income and Expenses		Unit: NTD thousands	Unit: NTD thousands	Unit: NTD thousands
Aspects	2020	2019	Variation	Note
Net Cash Inflow (Outflow) from Operating Activities	(209,785)	744,514	(954,299)	1
Net Cash Inflow (Outflow) from Investing Activities	(447,794)	(365,050)	(82,744)	2
Net Cash Inflow (Outflow) from Financing Activities	862,943	(82,086)	945,029	3

Note 1: Net cash outflow from operating activities increased mainly due to more purchase on inventory in the corresponding period. Note 2: Net cash outflow from investing activities increased mainly due to additional property, plant, and equipment acquired in the corresponding period.

Note 3: Net cash inflow from financing activities increased mainly due to increase of bank borrowings both in short and long terms.

• 1 -

(V) Research and Development

The Company's R&D efforts were primarily focused toward production procedure development, product quality improvement, and new product development. With respect to production procedure development, the Company either introduced advanced equipment and molds locally and abroad, or designed its own advanced equipment and molds to improve production technology, capability, and product quality.

For product quality improvement, the Company actively adopted various quality assurance management systems, and engaged the industry-academia cooperation in R&D projects to introduce smart devices to increase product quality. As for new product development, the Company actively conducted market surveys, introduced advanced equipment and molds locally and abroad, recruited professional talents for R&D, arranged intensive training for existing researchers, and actively tested and developed new product items. In pursuit of reducing production costs, our research personnel took the initiative to develop new accessories and consumables that have the potential to add value to existing products.

II. Summary of 2021 Business Plan

(I) Operational Guidelines and Strategies

1. Sales Plan: The Company will proactively develop oversea markets, strengthen customers' loyalty, and diversify industry and customer. Thus, the Company will be less vulnerable to the impact of economic cycle with one single industry or one single type of customers.

2. Production Plan:

3. (1) Further Utilization of Production Capacity

4. The Company is a professional manufacturer of stainless steel tubes and pipes. Adding pipe mills will help the Company achieve economies of scale and lift production efficiency.

5. (2) Reduction of Costs and Expenses

6. The Company will focus on making improvements to production procedures and controlling over the unit cost of associated equipment and secondary materials proactively. Consequently the inventory turnover will be increased and the cost of capital on slow-moving inventory will be reduced.

7. Financial Structure Planning:

8. The Company will focus on increasing revenue and profit from its core business activities, and will continue expanding the scale of its business activities and increasing earnings, for the purpose of making improvements to financial structure.

9. (II) Sales Forecast and Bases

10. The Company's sales forecast for 2021 is presented below:

Sales Forecast and Bases The Company's sales forecast for 2021 is presented	Sales Forecast and Bases The Company's sales forecast for 2021 is presented	below:
			Unit: tonnes
Year Item	Taiwan Parent Company	Mainland Subsidiaries	2021 Consolidated Sales Forecast
Stainless Steel Tubes and Pipes	88,450	57,200	145,650
Stainless Steel Sheets and Coils	40,000	0	40,000
Total	128,450	57,200	185,650

2. Bases:

The price of nickel has reversed in the second half of 2020 and continued stably upwards in the beginning of 2021. Although the pandemic is continuing, after one year of adaption and the arrival of the vaccines, the world economy is expected to recover gradually and the business prospect is optimistic. However, ongoing trade protectionism in some economies around the world has disrupted the market and caused volatilities. This is the key uncertainty to the market. As prices of stainless steel and nickel are stabilizing in 2021, the Company will gain better control of inventory cost and see lower volatility in its product selling price. Meanwhile, the Company will continue its research and development of high value-adding

• 2 -

products as a means to improve competitiveness and profitability.

The Company's core competitive advantage lies in its ability to develop high value-adding solutions and to develop advanced production processes ahead of competitors, such as in-line polishing of circular/rectangular tubes, in-line heat treatment, etc., which the Company has had significant success. From the product perspective, Froch has the most comprehensive product range to satisfy customers' diverse needs and deliver the ultimate one-stop shopping experience. From the quality perspective, in addition to the Company’s ISO-9001 and ISO-14001 being certified by Lloyd's Register of Shipping in 1993 and 1999, respectively, the Company's quality assurance laboratory was also certified by Chinese National Laboratory Accreditation (CNLA) in 2001 (the same certificate in 2004 was issued by Taiwan Accreditation Foundation). The Company subsequently received quality certification from JIS in 2009, acquired multiple certificates by TUV by 2014. In terms of sales channels, the Company has a global distribution network that serves thousands of domestic customers and sells to more than 100 countries worldwide. The Company's diversified market exposure helps its competitiveness, it also lessens regulatory and economic impacts of a single market.

• (III) Key Production and Sales Policies:

  • In 2021, the Company will continue enhancing inventory management and inventory turnover and reducing production costs and expenses. Through optimizing production and sales, the Company is expected to gear up overall competitiveness and increase market share.

• III. Impacts of the External Competitiveness Environment, Regulations, and Macroeconomies:

• (I) Public infrastructures and major private investments may affect the development of the stainless steel industry.

• (II) Demand for stainless steel may be affected by the macroeconomic environment situations.

• (III) The regulatory environment has less impact on company operations, relative to other factors.

• 3 -

Two. Company Profile

(I) Date of Establishment: October 5, 1984

(II) Company History:

1984:◎ The Company was founded on October 5 with a capital of NTD4.2 million. It later acquired factory land totaling 32,572 square meters at Tou-Liu Industrial Park, Yun-Lin County, during the same year. 1985:◎ The Company completed Phase 1 of its factory construction, and purchased steel pipe arc welding and plasma arc welding equipment from Japan. 1986:◎ Chairman Ping-Yao Chang won the 9th Model of Young Entrepreneur 1987:◎ The Company completed Phase 2 of its factory and laboratory construction, purchased a 30-tonnes of testing equipment including universal material tension tester, hardness tester, hydraulic tester, and chemical composition analyzer, and assembled a Quality Control Committee. 1988:◎ The Company completed Phase 3 of its warehouse and factory construction. 1988:◎ The Company was named Class A Quality Control Factory by the Product Inspection Bureau, Ministry of Economic Affairs, and was awarded certification mark for stainless steel pipes. 1988:◎ Stainless steel angle bars, stainless steel pipes for boiler heat exchangers, and health grade steel pipes were awarded certification mark by the National Bureau of Standards. 1990:◎ New office building was completed and commissioned into use. ◎ The Company completed its Phase 4 factory construction, made process improvements, and acquired new machinery and equipment. ◎ The Company arranged a package plant export to Malaysia, paving way for international collaboration. 1991:◎ Replaced outdated production machinery in February for improved efficiency. ◎ Received approval from the Securities Commission in September to convert into a public company. ◎ Bank of Communications participated in the Company's investments. A NTD102-million cash issue was made, increasing share capital to NTD300 million. 1993:◎ Quality management system was certified for ISO-9002 by Lloyd's Register of Shipping. 1995:◎ Capitalized NTD75 million of retained earnings, increasing share capital to NTD375 million. ◎ Phase 1 and Phase 2 construction of Tou-Liu second plant were completed. 1996:◎ Quality system was certified for ISO-9002/CNS 2682 by Merchandise Testing Bureau, Ministry of Economic Affairs, in February. ◎ Capitalized NTD93,750,000 of retained earnings in September, increasing share capital to NTD468,750,000. 1997:◎ Capitalized NTD46,875,000 of retained earnings, increasing share capital to NTD515,625,000. ◎ 1 Plans for the construction of Yuanlin Plant began in October. 1998:◎ Production Management Section was re-organized into Production Management Department; furthermore, the organization was expanded to comprise 6 departments and 2 offices. ◎ Phase 1 construction of Yuanlin Plant commenced in April. ◎ Capitalized NTD51,562,000 of retained earnings in September, increasing share capital to NTD567,187,000. ◎ The Company's shares were listed for trading in December. 1999:◎ Organization was expanded to comprise 8 departments and 2 offices in March. ◎ Capitalized NTD85,079,000 of retained earnings in June, increasing share capital to NTD652,266,000. ◎ Environmental management system was certified for ISO-14001 by Lloyd's Register of Shipping in July.

• 4 -

2000:◎Capitalized NTD78,272,000 of retained earnings in September, increasing
share capital to NTD730,537,000.
◎Founded Froch Metal Industry (Suzhou) Co., Ltd. in the Mainland in
November.
2001:◎Capitalized NTD73,054,000 of retained earnings in July, increasing share
capital to NTD803,591,000.
◎The Company's quality assurance laboratory was certified for Chinese National
Laboratory Accreditation (CNLA) in September.
2003:◎Capitalized NTD40,179,000 of retained earnings in July, increasing share
capital to NTD843,770,000.
◎Founded Century Nova Steel Co., Ltd. in the Mainland in February.
2004:◎Made the first domestic issue of unsecured convertible corporate bonds for a
sum of NTD1 billion in June.
◎Capitalized NTD126,566,000 of retained earnings in September, increasing
share capital to NTD970,337,000.
◎NTD439,209,000 of corporate bonds were converted into common shares,
increasing share capital to NTD1,409,546,000.
2005:◎NTD122,584,000 of corporate bonds were converted into common shares,
increasing share capital to NTD1,532,130,000.
◎Capitalized NTD275,783,000 of retained earnings in September, increasing
share capital to NTD1,807,913,000.
2006:◎Capitalized NTD90,396,000 of retained earnings in July, increasing share
capital to NTD1,898,309,000.
2007:◎Capitalized NTD474,577,000 of retained earnings in July, increasing share
capital to NTD2,372,886,000.
2008:◎Capitalized NTD355,933,000 of retained earnings in August, increasing share
capital to NTD2,728,819,000.
2009:◎ "JIS G3459 Stainless Steel Pipe" products passed certification for JIS mark
(JQA) in March.
◎ "CNS13517 G3259 Large Diameter Stainless Steel Pipe" products were
awarded certification mark by Bureau of Standards, Metrology and Inspection,
Ministry of Economic Affairs, in August.
2010:◎The Company's laboratory passed TAF certification for ISO-17025 in January.
2011:◎The Company's Wuxi Plant in the Mainland became a key subsidiary.
2013:◎The Company's Suzhou Plant in the Mainland became a key subsidiary.
2014:◎Founded Froch Stainless Co., Ltd. in the Mainland in May.
2015:◎Capitalized NTD136,441,000 of retained earnings in August, increasing share
capital to NTD2,865,260,000.
2018:◎Construction of new Yuanfu Plant commenced in November.
2019:◎Froch Stainless Co., Ltd. became the Company’s key subsidiary in the
Mainland.
2020:◎Share capital reduction of NTD60,000,000 by invalidating treasury shares was
conducted. The Company’s share capital became NTD2,805,260,000.

• 5 -

Three. Corporate Governance Report

I. Organizational Structure

(I) Organizational Chart:

Three. Corporate Governance Report I. Organizational Structure (I) Organizational Chart:	Three. Corporate Governance Report I. Organizational Structure (I) Organizational Chart:
Administrative Department (II) Responsibilities of Main Departments: Shareholders Board of Directors Audit Committee Internal Audit Office Group Administration Division Chairman President ~~Presid~~ent's Office Sales Department ~~Pr~~oduction Department Production Control Department Quality Assurance Department Technology Development Department OSHA Office Finance Department Renumeration Committee
Department	Main Responsibilities
Group Administration Division	Oversees rules of headquarters and subsidiaries policies: financial planning, human resources planning, legal affairs, marketing, information management, and computer system management.
President's Office	Responsible for devising company rules, project planning, computer systems maintenance, and computer data management throughout the Company.
Internal Audit Office	Responsible for the reinforcement of audit practices and improvement actions across all units.
Administrative Department	Responsible for personnel, security guard, maintenance, general procurement, and general affairs.
Sales Department	Responsible for domestic and oversea sales, customer credit control, credit investigation, and market analysis.
Production Department	Responsible for production of stainless steel tubes and pipes and stainless steel sheets and coils.
Finance Department	Responsible for budgeting, accounting, fund scheduling and control, disbursement, property management, and tax and share-related matters.
Production Control Department	Responsible for production scheduling, production-sale coordination, and purchasing of raw materials.
Quality Assurance Department	Responsible for product quality control and maintenance of the quality systems.
Technology Development Department	Responsible for product development, machinery improvement, equipment purchase, and technology research and development.
OSHAOffice	Responsible forworkers’safetyand health management.

• 6 -

April 18, 2021

II. Background Information of Directors, President, Vice Presidents, and Heads of Divisions and Branches

(I) Directors' Background

1. Directors

Title	Nationality or Place of Registration	Name	Gender	Date Elected/ Appointed	Date First Elected	Service Term	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Shares Held by Spouse and Underage Children	Shares Held by Spouse and Underage Children	Shareholding in the Name of a Third Party	Shareholding in the Name of a Third Party	Main Career (Academic) Backgrounds	Concurrent Duties in the Company and in Other Companies	Spouse or Relatives of Second Degree or Closer Acting as Managers or Directors	Spouse or Relatives of Second Degree or Closer Acting as Managers or Directors	Spouse or Relatives of Second Degree or Closer Acting as Managers or Directors	Remarks
							No. of shares	Shareholding percentage	No. of shares	Shareholding percentage	No. of shares	Shareholding Percentage	No. of Shares	Shareholding Percentage			Title	Name	Relationship
Chairman	Taiwan, Republic of China	Ping-Yao Chang	Male	2019.06.13	1984.09.15	3 years	17,547,946	6.12	17,547,946	6.26	8,388,978	2.99	None	None	Pacific Western University Froch Enterprise Co.,Ltd. - Chairman	Shin Chieh Shin Co., Ltd. - Supervisor	Vice Chairman	Hsin-Ta Chang	Father and Son	Concurrent Position as President
Director	Taiwan, Republic of China	Shin Chieh Shin Co., Ltd.	Corporate Entity	2019.06.13	2007.06.13	3 years	28,206,372	9.84	28,206,372	10.05	無	無	None	None	None	None	None	None	None	None
Vice Chairman	Taiwan, Republic of China	Representative of Shin Chieh Shin Co., Ltd. - Hsin-Ta Chang	Male	None	None	None	21,648,931	7.56	21,648,931	7.72	840,830	0.30	None	None	Graduated from the Department of International Business, The University of Denver,U.S.A.	Shin Chieh Shin Co., Ltd. - Director	Chairman	Ping-Yao Chang	Father and Son	1st Degree Relative to the Chairman
Director	Taiwan, Republic of China	Representative of Shin Chieh Shin Co., Ltd. - Tsao-Chi Yang	Male	None	None	None	0	0.00	0	0.00	無	無	None	None	Graduated from the Department of Chemical Engineering, Chinese Culture University	Froch Enterprise Co., Ltd. – General Manager of Procurement Division	None	None	None	None
Director	Taiwan, Republic of China	Yi-Cheng Shih	Male	2019.06.13	1994.05.27	3 years	2,008,206	0.70	1,948,206	0.69	96,381	0.03	None	None	Department of Business Administration, National Yunlin University of Science and Technology	Froch Enterprise Co., Ltd. – General Manager of Finance Division	None	None	None	None
Independent Director	Taiwan, Republic of China	Shun-Te Wen	Male	2019.06.13	2016.06.21	3 years	0	0.00	0	0.00	無	無	None	None	Head of Fengyuan Branch, National Taxation Bureau of the Central Area, Ministryof Finance	None	None	None	None	None
Independent Director	Taiwan, Republic of China	Ying-Fang Lee	Male	2019.06.13	2019.06.13	3 years	0	0.00	0	0.00	無	無	None	None	Section Chief of Huwei Branch, National Taxation Bureau of the Central Area, Ministryof Finance	None	None	None	None	None
Independent Director	Taiwan, Republic of China	Shu-Fu Wang	Male	2019.06.13	2019.06.13	3 years	0	0.00	0	0.00	無	無	None	None	Section Chief of the National Taxation Bureau of the Central Area, Ministryof Finance	None	None	None	None	None

Explanation: Chairman acts concurrently as the President: Stainless steel is a mature industry; having the Chairman act concurrently as President enables greater control over raw material purchase and various corporate operations, whereas adopting a flatter organization allows the Company to make faster decisions and be more responsive to changes.

To avoid over-concentration of power in co-heading roles, the Company introduced finance- and tax-specialized independent directors to the board, whose purposes are to enhance supervision and check & balance within the organization, and offer recommendations where appropriate.

• 7 -

2. Major Shareholders of Corporate Shareholders:

Name of Corporate shareholder	Corporate Shareholder's Major Shareholders
Shin Chieh Shin Co., Ltd.	MICHAEL J CHANG 26.0%
	Ping-Yao Chang 13.2%
	Hsiu-Miao Lee 12.4%
	Hsin-Ta Chang 15.2%
	Li-Shen Chang 15.2%
	Hsi-Chen Chang 15.2%
	Gen Lee 2.8%

3. Major Shareholders of Major Corporate Shareholders: Not Applicable

Name of corporate entity	Corporate Entity's Major Shareholders
None	None

• 8 -

4. Disclosure on Directors' Independence:

	4. Disclosure on Directors'Independence:	4. Disclosure on Directors'Independence:	4. Disclosure on Directors'Independence:
Criteria Name	Having More than 5 Years Work Experience and Professional Qualifications Listed Below				Compliance of Independence (Note 1)									Number of Positions as Independent Director in Other Public Companies
	Lecturer (or above) of commerce, law, finance, accounting, or any subject relevant to the Company’s operations in a public or private tertiary institution	Judge, prosecutor, lawyer, accountant, or holder of national exam or professional qualification relevant to the Company’s operations	Commercial, legal, financial, accounting or other work experiences required to perform the assigned duties	1	2	3	4	5	6	7	8	9	10
Ping-Yao Chang	No	No	Yes					�		�		�	�	None
Representative of Shin Chieh Shin Co., Ltd. - Hsin-Ta Chang	No	No	Yes					�		�		�	�	None
Representative of Shin Chieh Shin Co., Ltd. - Tsao-Chi Yang	No	No	Yes		�			�	�	�	�	�	�	None
Yi-Cheng Shih	No	No	Yes		�	�	�	�	�	�	�	�	�	None
Shun-Te Wen	No	Yes	Yes	�	�	�	�	�	�	�	�	�	�	None
Ying-Fang Lee	No	Yes	Yes	�	�	�	�	�	�	�	�	�	�	None
Shu-Fu Wang	No	Yes	Yes	�	�	�	�	�	�	�	�	�	�	None

Note 1: "�" is placed in the box below if the member met the following criteria at any time during active duty and two years prior to the date of appointment.

• (1) Not employed by the Company or by any of its affiliated companies.

• (2) Not a director or supervisor of any affiliated company (not applicable if the position is an independent director of the parent company or subsidiary in which the Company holds more than 50% direct or indirect voting rights).

• (3) Does not hold more than 1% of the Company's outstanding shares in their own names or under the name of spouse, underage children, or proxy shareholder; nor is a top-10 natural-person shareholder of the Company.

• (4) Not a spouse, relative of second degree, or direct kin of fifth degree or closer to persons described in the three preceding criteria.

• (5) Not a director, supervisor, or employee of any company that has 5% or higher ownership interest in the Company; nor a director, supervisor, or employee of any of the top-5 corporate shareholders.

• (6) Not a director, supervisor, manager, or shareholder with more than 5% ownership interest in any companies or institutions that have financial or business relationship with the Company.

• (7) Not a professional who provides commercial, legal, financial, accounting, or consulting services to the Company or its affiliate, nor is an owner, partner, director, supervisor, or manager, or the spouse of any of the above, of a sole proprietorship, partnership, company, or organization that provides such services to the Company or its affiliated companies. However, this does not apply to members of the remuneration committee who have been appointed to exercise duties in accordance with Article 7 of Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter.

• (8) Not a spouse or relative of second degree or closer to any other directors.

• (9) Does not meet any of the conditions stated in Article 30 of The Company Act.

• (10) Not elected as a government or corporate representative according to Article 27 of The Company Act.

• 9 -

(II) Background Information of President, Vice Presidents, and Heads of Divisions and Branches

Unit: shares; %

April 18, 2021

													April 18,2021	April 18,2021	April 18,2021
Title	Nationality	Name	Gender	Date Elected/Appointed	Current Shareholding		Shares Held by Spouse and Underage Children		Shareholding in the Name of a Third Party		Main Career (Academic) Backgrounds	Concurrent Positions in Other Companies	Spouse or Relatives of Second Degree or Closer Acting as Managers			Remarks
					No. of Shares	Shareholding Percentage	No. of Shares	Shareholding Percentage	No. of Shares	Shareholding Percentage			Title	Name	Relationship
President	Taiwan, Republic of China	Ping-Yao Chang	Male	1984.10.05	17,547,946	6.26	8,388,978	2.99	None	None	Pacific Western University Beittia Metals Co., Ltd. - Plant Manager	Shin Chieh Shin Co., Ltd. - Supervisor	Vice President	Hsin-Ta Chang	Father and Son	Concurrent Position as Chairman
Vice President	Taiwan, Republic of China	Hsin-Ta Chang	Male	2021.01.01	21,648,931	7.72	1,178,380	0.30	None	None	Graduated from the Department of International Business, The University of Denver, U.S.A.	Shin Chieh Shin Co., Ltd. - Director	President	Ping-Yao Chang	Father and Son	1st Degree Relative to the Chairman
Vice President	Taiwan, Republic of China	Ren-Hsiang Lee	Male	1993.08.01	730,390	0.26	0	0	None	None	Business Administration Program, Tunghai University Beittia Metals Co., Ltd. - Business Manager	None	None	None	None	None
Division Head	Taiwan, Republic of China	Yi-Cheng Shih	Male	2014.01.01	1,948,206	0.69	96,381	0.03	None	None	Department of Business Administration, National Yunlin University of Science and Technology Formosa Taffeta Co., Ltd. - Accounting Section Chief	None	None	None	None	None
Division Head	Taiwan, Republic of China	Wen-Chih Lee	Male	2014.01.01	191,029	0.07	9,770	0.00	None	None	Graduated from Postgraduate Program of Business Administration, Da-Yeh University	None	None	None	None	None
Division Head	Taiwan, Republic of China	Chang-Chieh Huang	Male	2014.01.01	123,557	0.05	0	0	None	None	Graduated from AGSM, The University of New South Wales, Australia Yuen Foong Paper-Manager	None	None	None	None	None
Division Head	Taiwan, Republic of China	Tsao-Chi Yang	Male	2017.04.01	0	0	0	0	None	None	Graduated from the Department of Chemical Engineering, Chinese Culture University	None	None	None	None	None
Division Head	Taiwan, Republic of China	Wen-Hsiou Lee	Male	2017.04.01	138,182	0.05	0	0	None	None	Mechanical Design Engineering, National Formosa University	None	None	None	None	None
Division Head	Taiwan, Republic of China	Han-Lin Chang	Male	2014.01.01	0	0.00	0	0	None	None	Graduated from the Department of Chemistry, National Taiwan University Xiamen Wei Mon Environmental Materials Co., Ltd.-Assistant Vice President	None	None	None	None	None
Corporate Governance Manager	Taiwan, Republic of China	Ming-Chieh Lai	Male	2014.01.01	0	0.00	0	0	None	None	Administration Department Manager, Froch Enterprise Co., Ltd.	None	None	None	None	None

Explanation: The Vice President being a first degree relative of the Chairman: The Company assigns personnel solely on the basis of professional capacity; this arrangement is considered justified and reasonable. The Company expects to add one independent director during the next board re-election to further enhance the board's supervisory duties.

• 10 -

(III) Compensation to Directors, the President, and Vice Presidents in the Last Year

December 31, 2020 Unit: NTD thousands

1-1. Compensation to Directors

Title	Name				Directors' Compensation	Directors' Compensation	Directors' Compensation	Directors' Compensation		Sum of A, B, C, and D as a Percentage of Net Income after Tax (%)	Sum of A, B, C, and D as a Percentage of Net Income after Tax (%)					Compensation Receiv	Compensation Receiv	ed as Employee	ed as Employee	ed as Employee				Sum of A, B, C, D, E, F, and G as a Percentage of Net Income after Tax (%)	Sum of A, B, C, D, E, F, and G as a Percentage of Net Income after Tax (%)	Compensation from Parent Company or Business Investments other than Subsidiaries
		B	enefits (A)	P	ension (B)	Rem	Director uneration (C)	Fee R	s for Services endered (D)			Salaries, Bonuses, Special Allowances etc. (E)		P	ension (F)	Employee Re		muneration (G)		T E	otal Shares xercisable through Employee Warrants	Number of New Restricted Shares Acquired as an Employee
		The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company		All Companies Included in the Financial Statements		The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements
																Amt Paid in Cash	Amt Paid in Shares	Amt Paid in Cash	Amt Paid in Shares
Chairman	Ping-Yao Chang	0	0	0	0	500	500	201	201	0.65	0.65	3,855	3,855	0	0	26	0	26	0	0	0	0	0	4.23	4.23	None
Vice Chairman	Shin Chieh Shin Co., Ltd.	0	0	0	0	604	604	0	0	0.56	0.56	0	0	0	0	0	0	0	0	0	0	0	0	0.56	0.56	None
Vice Chairman	Shin Chieh Shin Co., Ltd. Representative: Hsin-Ta Chang	0	0	0	0	0	0	201	201	0.19	0.19	2,089	2,089	0	0	22	0	22	0	0	0	0	0	2.13	2.13	None
Director	Shin Chieh Shin Co., Ltd. Representative Tsao-Chi Yang	0	0	0	0	0	0	201	201	0.19	0.19	1,566	1,566	0	0	19	0	19	0	0	0	0	0	1.65	1.65	None
Director	Yi-Cheng Shih	0	0	0	0	330	330	201	201	0.49	0.49	2,340	2,340	0	0	19	0	19	0	0	0	0	0	2.67	2.67	None
Independent Director	Shun-Te Wen	820	820	0	0	0	0	201	201	0.94	0.94	0	0	0	0	0	0	0	0	0	0	0	0	0.94	0.94	None
Independent Director	Ying-Fang Lee	420	420	0	0	0	0	201	201	0.57	0.57	0	0	0	0	0	0	0	0	0	0	0	0	0.57	0.57	None
Independent Director	Shu-Fu Wang	420	420	0	0	0	0	201	201	0.57	0.57	0	0	0	0	0	0	0	0	0	0	0	0	0.57	0.57	None

• 11 -

1-2. Compensation Brackets Table

Range of Compensation Paid to Directors	Name of	Name of	Directors	Directors
	Sum of First 4 Compensations (A+B+C+D)		Sum of First 7 Compensations (A+B+C+D+E+F+G)
	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements
Below NTD 1,000,000	Ping-Yao Chang, Hsin-Ta Chang, Yi-Cheng Shih, Tsao-Chi Yang, Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co.,Ltd.	Ping-Yao Chang, Hsin-Ta Chang, Yi-Cheng Shih, Tsao-Chi Yang, Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co.,Ltd.	Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co., Ltd.	Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co., Ltd.
NTD 1,000,000 (inclusive) - NTD 2,000,000 (non-inclusive)	Shun-Te Wen	Shun-Te Wen	Shun-Te Wen, Tsao-Chi Yang	Shun-Te Wen, Tsao-Chi Yang
NTD 2,000,000 (inclusive) - NTD 3,500,000 (non-inclusive)			Hsin-Ta Chang, Yi-Cheng Shih	Hsin-Ta Chang, Yi-Cheng Shih
NTD 3,500,000 (inclusive) - NTD 5,000,000 (non-inclusive)			Ping-Yao Chang	Ping-Yao Chang
NTD 5,000,000 (inclusive) - NTD 10,000,000(non-inclusive)
NTD 10,000,000 (inclusive) - NTD 15,000,000 (non-inclusive)
NTD 15,000,000 (inclusive) - NTD 30,000,000 (non-inclusive)
NTD 30,000,000 (inclusive) - NTD 50,000,000 (non-inclusive)
NTD 50,000,000 (inclusive) - NTD 100,000,000 (non-inclusive)
NTD 100,000,000 and above
Total	Ping-Yao Chang, Hsin-Ta Chang, Yi-Cheng Shih, Tsao-Chi Yang, Shun-Te Wen, Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co., Ltd.	Ping-Yao Chang, Hsin-Ta Chang, Yi-Cheng Shih, Tsao-Chi Yang, Shun-Te Wen, Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co., Ltd.	Ping-Yao Chang, Hsin-Ta Chang, Yi-Cheng Shih, Tsao-Chi Yang, Shun-Te Wen, Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co., Ltd.	Ping-Yao Chang, Hsin-Ta Chang, Yi-Cheng Shih, Tsao-Chi Yang, Shun-Te Wen, Ying-Fang Lee, Shu-Fu Wang, Shin Chieh Shin Co., Ltd..

• 12 -

2. Compensation to the President and Vice Presidents

2-1. Compensation to the President and Vice Presidents

Title	Name	Salary (A)	Salary (A)	Pension (B)	Pension (B)	Bonuses and Allowances (C)	Bonuses and Allowances (C)	Employee Remuneration (D)	Employee Remuneration (D)	Employee Remuneration (D)	Employee Remuneration (D)	Sum of A, B, C, and D as a Percentage of Net Income after Tax (%)	Sum of A, B, C, and D as a Percentage of Net Income after Tax (%)	Compensation from Parent Company or Business Investments other than Subsidiaries
		The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements	The Company		All Companies Included in the Financial Statements		The Company	All Companies Included in the Financial Statements
								Amount Paid in Cash	Amount Paid in Shares	Amount Paid in Cash	Amount Paid in Shares
President	Ping-Yao Chang	2,455	2,455	0	0	1,400	1,400	26	0	26	0	3.58	3.58	None
Vice President	Hsin-Ta Chang	1,459	1,459	0	0	630	630	22	0	22	0	1.95	1.95
Vice President	Ren-Hsiang Lee	1,388	1,388	0	0	630	630	22	0	22	0	1.88	1.88

Salaries of the Company's senior management are determined according to the Employee Management Policy. Performance bonus is proposed after taking into consideration the Company's overall operating performance, individual skills, special contributions, and other factors, which are subject to review and approval of the Remuneration Committee.

2-2. Compensation Brackets Table

2-2. Compensation Brackets Table
Range of Compensation to the President and Vice Presidents	Names of President and Vice Presidents
	Sum of First 4 Compensations (A+B+C+D)
	The Company	All Companies Included in the Financial Statements
Below NTD 1,000,000
NTD 1,000,000 (inclusive)-NTD 2,000,000 (non-inclusive)
NTD 2,000,000 (inclusive)-NTD 3,500,000 (non-inclusive)	Hsin-Ta Chang, Ren-Hsiang Lee	Hsin-Ta Chang, Ren-Hsiang Lee
NTD 3,500,000(inclusive)- NTD 5,000,000(non-inclusive)	Ping-Yao Chang	Ping-Yao Chang
NTD 5,000,000 (inclusive)-NTD 10,000,000 (non-inclusive)
NTD 10,000,000(inclusive)- NTD 15,000,000(non-inclusive)
NTD 15,000,000 (inclusive)-NTD 30,000,000 (non-inclusive)
NTD 30,000,000 (inclusive)-NTD 50,000,000 (non-inclusive)
NTD 50,000,000(inclusive)- NTD 100,000,000(non-inclusive)
NTD 100,000,000 and above
Total	Ping-Yao Chang, Hsin-Ta Chang,Ren-HsiangLee	Ping-Yao Chang, Hsin-Ta Chang, Ren-HsiangLee

• 13 -

3-1. Compensation for Top-5 Paid Managers in a TWSE/TPEx Listed Company

Title	Title	Title	Name	Salary (A)	Salary (A)	Salary (A)	Pension (B)	Pension (B)	Pension (B)	Bonus and Allowances (C) (Note 3)	Bonus and Allowances (C) (Note 3)	Bonus and Allowances (C) (Note 3)		Employee Remuneration (D)	Employee Remuneration (D)	Employee Remuneration (D)	Employee Remuneration (D)	Sum of A, B, C, and D as a Percentage of Net Income after Tax(%)	Sum of A, B, C, and D as a Percentage of Net Income after Tax(%)	Compensation from Parent Company or Business Investments other than Subsidiaries
				The Company		All Companies Included in the Financial Statements	The Company	All Companies Included in the Financial Statements		The Company	All Companies Included in the Financial Statements		The	Company		All Companies Included in the Financial Statements (Note 5)		The Company	All Companies Included in the Financial Statements
													Amount Paid in Cash		Amount Paid in Shares	Amount Paid in Cash	Amount Paid in Shares
President			Ping-Yao Chang	2,455		2,455	0	0		1,400	1,400		26		0	26	0	3.58	3.58	None
Head of Finance Division			Yi-Cheng Shih	949		949	0	0		1,393	1,393		19		0	19	0	2.18	2.18	None
Head of Marketing Division			Chang-Chieh Huang	978		978	0	0		1,303	1,303		19		0	19	0	2.12	2.12	None
Vice President			Ren-Hsiang Lee	1,459		1,459	0	0		630	630		22		0	22	0	1.95	1.95	None
Vice President			Hsin-Ta Chang	1,386		1,386	0	0		630	630		22		0	22	0	1.88	1.88	None
3.2 Name of Managers Entitled to Employee Remuneration and Amount Entitled 2020 Title Name Amount Paid in Shares Amount Paid in Cash Executives President Ping-YaoChang 0 26 Vice President Hsin-TaChang 0 22 Vice President Ren-HsiangLee 0 22 Division Head Yi-Cheng Shih 0 19 Division Head Wen-Chih Lee 0 19 Division Head Chang-Chieh Huang 0 19 Division Head Tsao-Chi Yang 0 19 Division Head Wen-Hsiou Lee 0 19 Division Head Han-Lin Chang 0 19
					2020											Unit: NTD thousands
		Title			Name				Amount Paid in Shares			Amount Paid in Cash			Total	Total as a Percentage of Net Income after Tax (%)
	Executives	President			Ping-YaoChang				0			26			26	0.024%
		Vice President			Hsin-TaChang				0			22			22	0.020%
		Vice President			Ren-HsiangLee				0			22			22	0.020%
		Division Head			Yi-Cheng Shih				0			19			19	0.018%
		Division Head			Wen-Chih Lee				0			19			19	0.018%
		Division Head			Chang-Chieh Huang				0			19			19	0.018%
		Division Head			Tsao-Chi Yang				0			19			19	0.018%
		Division Head			Wen-Hsiou Lee				0			19			19	0.018%
		Division Head			Han-Lin Chang				0			19			19	0.018%

• 14 -

• Severance Pay and Pension

• (1) Amount Paid in the Most Recent Year (2020):

None of the Company's Directors, President, or Vice Presidents had retired during the year; hence no such payment was made.

• (2) Severance Pay and Pension Provided and Expensed in the Most Recent Year (2020):

  • a. For employees who adopt the pension system introduced under the "Labor Pension Act" (i.e. the new scheme), the Company made pension contributions equal to 6% of employees' monthly salaries to the Bureau of Labor Insurance, and a sum of NTD15,685,000 was contributed in the current year.

  • b. For employees who adopt the pension system introduced under the "Labor Standards Act" (i.e. the old scheme), the Company made pension contributions equal to 2% of employees' monthly salaries into an account held under Bank of Taiwan (formerly Central Trust of China, which was merged into Bank of Taiwan in 2007) in the Labor Pension Supervisory Committee's name, and a sum of NTD2,205,000 was contributed in the current year.

  • c. Managers who do not have pension provided or contributed under either systems will be omitted from the above disclosure; for this reason, the Company should collectively disclose the sums provided or contributed for all managers (including those under the new and old schemes) and the amount of pension benefits or severance pay (which is different from redundancy pay in the case of layoff) payable in one lump sum or on a yearly basis as agreed in the respective contract for all managers retired in 2020: Does not apply to the Company.

• (3) Actual Payment of Pension Benefit or Severance Pay, or Amount of Pension Provision or Contribution Expensed In 2020: a. NTD2,530,000 of severance pay and pension benefit were paid in 2020.

  • b. The Company had no other provision or contribution of pension or severance pay that was expensed during the year.

• (IV) Amount of Compensation Paid in the Last 2 Years by the Company and All Companies Included in the Consolidated Financial Statements to the Company's Directors, President, and Vice Presidents, and Their Respective Proportions to Individual and Consolidated Net Income, as Well as the Policies, Standards, and Packages by which they were Paid, the Procedures through which Compensations Were Determined, and Their Association with Business Performance and Future Risks.

			Unit: %	Unit: %
Aspect		2020		2019
	The Company	Consolidated	The Company	Consolidated
Directors	13.32	13.32	5.21	5.21
President and Vice Presidents	7.41	7.41	3.09	3.09

Directors' compensation comprise remuneration allocated from earnings and travel allowances for participating in board meetings. Directors' compensation are paid according to the terms of the Articles of Incorporation. President's and Vice Presidents' compensation are paid according to the Company's grade-based payment approval principles.

The Company reported NTD140,529,216 of pre-tax profit in 2020, and according to Article 10 of the Articles of Incorporation, profits must first be taken to reimburse previous losses if any, followed by employee remuneration of 1% and board-approved director remuneration of no higher than 3%. For the corresponding year, director and employee remuneration have been proposed at 1% or NTD1,433,972 each.

• 15 -

III. Corporate Governance

(I) Functionality of the Board of Directors

The 14th Board of Directors was elected on June 13, 2019. The new board held a total of 13 meetings during the year; below are directors' attendance records:

Title		Name		Attendance in Person		Attendance by Proxy	In-person Attendance Rate(%)		Remarks
Chairman		Ping-Yao Chang		13		0	100		Re-elected
Director		Yi-ChengShih		13		0	100		Re-elected
Vice Chairman		Representative of Shin Chieh Shin Co., Ltd.-Hsin-Ta Chang		11		0	85		Newly elected
Director		Representative of Shin Chieh Shin Co., Ltd.-Tsao-Chi Yang		13		0	100		Re-elected
Independent Director		Shun-Te Wen		13		0	100		Re-elected
Independent Director		Ying-Fang Lee		13		0	100		Newly elected
Independent Director		Shu-Fu Wang		13		0	100		Newly elected
Other Mandatory Disclosures: I. For Board of Directors meetings that meet any of the following descriptions, state the date, session, the discussed motions, independent directors' opinions and how the Company has responded to such opinions: Please see p.35-p.36 for detailed motions. All motions raised during the year have been approved as proposed without objection by all directors and independent directors. (I) Conditions described in Article 14-3 of the Securities and Exchange Act. (II) Any other documented objections or reservations raised by independent director against board resolution in relation to matters other than those described above: None. II. Disclosure regarding avoidance of interest-conflicting motions to the directors, including the names of directors concerned, the motions, the nature of conflicting interests, and the voting process: Meeting Date (Session) Motion Details and Follow-up Direcotor(s)’ Name Reason for Conflict Avoidance 11thMeeting of 14thBoard 2020.10.16 Purchased 2/5 Title of the Property of South Regional Office Ping-Yao Chang Hsin-Ta Chang Tsao-Chi Yang Interests Parties, 2ndDegree Relative, Directors’ Controlling Related Company Motion passed without objection after Independent Director Shun-Te Wen Inquired all Other Presented Directors. 13thMeeting of 14thBoard 2020.12.10 Promoted Hsin-Ta Chang as the Vice Chairman of the Company Ping-Yao Chang Hsin-Ta Chang Tsao-Chi Yang Interests Parties, 2ndDegree Relative, Directors’ Controlling Related Company Motion passed without objection after Independent Director Shun-Te Wen Inquired all Other Presented Directors.
	Meeting Date (Session)		Motion Details and Follow-up		Direcotor(s)’ Name			Reason for Conflict Avoidance
	11thMeeting of 14thBoard 2020.10.16		Purchased 2/5 Title of the Property of South Regional Office		Ping-Yao Chang Hsin-Ta Chang Tsao-Chi Yang			Interests Parties, 2ndDegree Relative, Directors’ Controlling Related Company
	**Motion passed without objection after Independent Director Shun-Te Wen Inquired all Other Presented Directors.
	13thMeeting of 14thBoard 2020.12.10		Promoted Hsin-Ta Chang as the Vice Chairman of the Company		Ping-Yao Chang Hsin-Ta Chang Tsao-Chi Yang			Interests Parties, 2ndDegree Relative, Directors’ Controlling Related Company
	**Motion passed without objection after Independent Director Shun-Te Wen Inquired all Other Presented Directors.

• 16 -

III. Enhancement goal to the functionality of the Board of Directors in the corresponding and the most recent year (e.g. establishment of an Audit Committee, improvement of information transparency etc.), and the progress of such enhancements: Please see section (III) - "VI. Functionality of Remuneration Committee and other Functional Committees" in page 24.

IV. Execution of Board Performance Evaluation	IV. Execution of Board Performance Evaluation	IV. Execution of Board Performance Evaluation	IV. Execution of Board Performance Evaluation
Assessment Cycle	Assessment Period	Subject Assessed	Assessment Method	Assessment Context
Once a Year, Finished by 1stQuarter Next Year	2010.01.01~ 2010.12.31	Board of Directors	Self-assessment of the Board	1. Degree of Involvement to Company’s Operations. 2. Promote the Quality of Board’s Decisions 3. The Composition and Structure of the Board 4. The Selection of Directors and Their On-going Study. 5. Internal Control.
Once a Year, Finished by 1stQuarter Next Year	2010.01.01 ~ 2010.12.31	Board Members	Self-assessment of the Board Members	1. The Understanding of Company’s Target and Missions. 2. Director’s Recognition of Responsibilities. 3. Level of Involvement to Company’s Operations. 4. Management of Internal Relationships and Communication. 5. Director’s Professional Knowledge and On-going Study. 6. Internal Control.
Once a Year, Finished by 1stQuarter Next Year	2010.01.01 ~ 2010.12.31	Functional Committees	Self-assessment of the Functional Committees (Audit Committee and Renumeration Committee)	1. Level of Involvement to Company’s Operations. 2. Recognition of the Responsibilities of the Functional Committees. 3. Promote the Decision Quality of the Functional Committees. 4. The Composition and Selection of the Members of the Functional Committees. 5. Internal Control.

• 17 -

(II) Functionality of the Audit Committee:

Functionality of the Audit Committee

A total of 13 Audit Committee meetings (A) were held in the last year; independent directors' attendance records are summarized below:

	Title	Name	No. of In-person Attendance (B)	Attendance by Proxy	In-person Attendance Rate (%)(B/A)(Note)	Remarks
	Independent Director	Shun-Te Wen	13	0	100	Re-elected on 2019/06/13
	Independent Director	Ying-Fang Lee	13	0	100	Newly elected on 2019/06/13
	Independent Director	Shu-Fu Wang	13	0	100	Newly elected on 2019/06/13
	Other Mandatory Disclosures: I. For Audit Committee meetings that meet any of the following descriptions, state the date and session of Board of Directors meeting held, the discussed topics, the Audit Committee's resolution, and how the Company has responded to Audit Committee's opinions. (I) Conditions described in Article 14-5 of the Securities and Exchange Act. Date Session Motion Independent Directors'Opinions 2020.03.16 2020 1st Meeting 1. Passed the 2019 financial statements year-end accounts. Passed by all attending members of the Audit Committee 2. Passed the 2019 Declaration of Internal Control System Self-assessment. 3. Passed the change ofCPA. 4. Passed to propose endorsement and guarantee proposal for Century NovaSteelCo.,Ltd. 5. Passed amendments to the Company's "Asset Acquisition and Disposal Procedures." 2020.05.07 2020 2nd Meeting 1. Passed issuance of endorsement and guarantee for Century Nova SteelCo.,Ltd. 2. Passed amendments to the Company's "Article of Incorporation." 2020.08.06 2020 4th Meeting 1. Passed the Company's 2020 second-quarter consolidated financial statements. 2020.10.16 2020 5th Meeting 1. Passed the purchase 2/5 Title of the Property of South Regional Office. 2020.11.03 2020 6th Meeting 1. Passed issuance of endorsement and guarantee for Century Nova Steel Co. Ltd. 2. Passed the sale of the land and attached buildings located on Jio-Zhuangand Tsao-Hu sessions,Lun-Bei,Yun-Lin. 2020.12.10 2020 7th meeting 1. Passed amendments to the Company's "Regulation for Expense Approval." (II) Other than those described above, there is not any resolutions unapproved by the Audit Committee but passed by more than two-thirds of directors. II. Avoidance of involvements in interest-conflicting motions by independent directors, including details such as the name of independent director, the motion, the nature of conflicting interests, and the voting process: None of the Company's independent directors was required to avoid interest-conflicting motion. III. Independent Directors’ and the Chief Internal Auditor’s Communication with CPA (Include the Communications for the major issues, means, and results over the Company’s Financial and Business Situations: 1. Independent directors and the Chief Internal Auditor have communicated on audit issues for

• 18 -

the current year.

1. CPAs and independent directors have communicated on the scope of financial planning, key audit issues, and regulation updates.

2. The date of resignation shall be specified for independent directors who had resigned prior to the end of the financial year. The in-person attendance rate (%) is calculated based on the number of Audit Committee meetings held and the number of meetings attended in-person during active duty.

3. If a re-election of independent directors had taken place prior to the end of the financial year, both the previous and current independent directors shall be listed; the remarks column shall address the re-election date and specify whether the independent director was current or newly elected or re-elected. The in-person attendance rate (%) is calculated based on the number of Audit Committee meetings held and the number of in-person attendances made during active duty.

4. 19 -

(III) Deviation and Causes of Deviation from Corporate Governance Practice Principles for TWSE/TPEx Listed Companies

Assess Criteria			Actual Governance	Deviation and Causes of Deviation from Corporate Governance Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary
I. Has the Company established and disclosed its corporate governance principles based on "Corporate Governance Practice Principles for TWSE/TPEx Listed Companies?"	V		The Company's "Corporate Governance Principles" was passed during the Board of Directors meeting held on December 17, 2015 and has been disclosed to the public.	No Deviation
II. Shareholding Structure and Shareholders' Interests (I) Has the Company created a set of internal procedures to handle shareholders' suggestions, queries, disputes, and litigations, and enforced them accordingly? (II) Is the Company constantly informed of the identities of its major shareholders and the ultimate controller? (III) Has the Company established and implemented risk management practices and firewalls between the Company and related companies? (IV) Has the Company established internal policies that prevent insiders from trading securities against non-public information?	V V V	V	(I) The Company has not implemented such procedures; shareholders' recommendations and queries are collectively investigated and responded by the spokesperson. Disputes and litigations are referred to the Legal Affairs Department. (II) The Company has a solid shareholding structure, and performs monthly checks to monitor ownership changes among major shareholders. (III) All related companies are financially independent from each other; matters concerning endorsement, guarantee, and routine transactions between related companies are strictly controlled and regulated in the internal control system. (IV) The Company has a set of Material Insider Information Handling Procedures in place that outlines the relevant rules, training, and penalties.	(I) Not applicable (II) No Deviation (III) No Deviation (IV) No Deviation
III. Composition and Responsibilities of the Board of Directors (I) Has the board devised and implemented policies to ensure diversity of its members?		V	(I) No such policy has been established, but current board members are adequately diverse to	(I) Not applicable

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Assess Criteria			Actual Governance	Deviation and Causes of Deviation from Corporate Governance Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary
(II) Apart from the Remuneration Committee and Audit Committee, has the Company assembled other functional committees at its own discretion? (III) Has the Company established a set of policies and assessment tools for evaluating board performance, and conducted performance evaluation on yearly basis? Are performance evaluation results reported to the Board of Directors and used as reference for compensation, remuneration and nomination decisions? (IV) Are external auditors' independence assessed on regular basis?	V	V V	contribute different perspectives to the Company's operating decisions. (II) Assessment is in progress. (III) No such policy has been established. Compensations are currently evaluated and recommended by the Remuneration Committee. (IV) The Company conducts regular independence assessments in the first half of each year to determine whether its financial statement auditors have any direct or indirect financial interest, commercial dealing, employment relationship, family relationship, or exchange of consideration with the Company. These assessments are approved by the Board of Directors.	(II) Not applicable (III) Not applicable (IV) No Deviation
IV. Has the TWSE/TPEx listed company allocated adequate number of competent corporate governance staff and appointed a corporate governance officer to oversee corporate governance affairs (including but not limited to providing directors/supervisors with the information needed to perform their duties, assistingdirectors/supervisorswith compliance	V		The Company's corporate governance affairs are handled by the Administrative Department.	No Deviation

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Assess Criteria			Actual Governance	Deviation and Causes of Deviation from Corporate Governance Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary
issues, convention of board meetings and shareholder meetings, and preparation of board/shareholder meeting minutes)?
V. Has the Company provided proper communication channels and created dedicated sections on its website to address corporate social responsibility issues that are of significant concern to stakeholders (including but not limited to shareholders, employees, customers, and suppliers)?	V		The Company has a stakeholder section created on its website to disclose communication channels for different stakeholders, including: Investor Relations - Yi-Cheng Shih Customers - Chang-Chieh Huang Suppliers - Tsao-Chi Yang Employees - Ping-Hsien Hsieh All issues that are of concern to stakeholders are being addressed by dedicated personnel. No issue was reflected by stakeholders in 2019.	No Deviation
VI. Does the Company engage a share service agency to handle shareholder meeting affairs?	V		Shareholder meeting affairs are primarily handled by the Stock Administration Department of KGI Securities Co., Ltd.	No Deviation
VII. Information Disclosure (I) Has the Company established a website that discloses financial, business, and corporate governance-related information? (II) Has the Company adopted other means to disclose information (e.g. English website, assignment of specific personnel to collect and disclose corporate information, implementation of a spokesperson system, and broadcasting of institutional investor conferences via the Company website)? (III) Does the Company publish and make official filingof annual financial reportwithin two months	V V	V	(I) The Company has a website that promptly discloses financial information, board decisions, and stakeholders' information to investors and the general public. (II) The Company adopts a spokesperson and deputy spokesperson system; dedicated personnel have been assigned to gather information relating to the Company to facilitate accurate response for the spokesperson. (III) The Company currently announces its financial reportsjust oneweek earlier than the deadline	(I) No Deviation (II) No Deviation (III) Under Discussion

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Assess Criteria	Actual Governance	Actual Governance	Actual Governance	Deviation and Causes of Deviation from Corporate Governance Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary
after the end of an accounting period, and publish/file Q1, Q2 and Q3 financial reports along with monthly business performance before the designated due dates?			specified in the Securities and Exchange Act. Will discuss to publish annual financial reports at an earlier time.
VIII. Does the Company have other information that enables a better understanding of its corporate governance practices (including but not limited to employee rights, employee care, investor relations, supplier relations, stakeholders' interests, continuing education of directors/supervisors, implementation of risk management policies and risk measurements, implementation of customer policy, and purchase of liability insurance for directors and supervisors)?	V		In addition to pursuing innovation, excellence, and offering the most suitable products and services to customers, the Company also encourages employees to participate in the fulfillment of social responsibilities and charitable activities. We consider giving back to the society a part of our obligations as a business. The Company also purchases liability insurance for directors and supervisors, and in doing so to protect shareholders' interest.	No Deviation
IX. Please explain the improvements made, based on the latest Corporate Governance Evaluation results published by TWSE Corporate Governance Center, and propose enhancement measures for any issues that are yet to be rectified.	1. Does the Company have the internal auditor who is either an international Certified Internal Auditor, or an international certified computer auditor, or a CPA? The Company encourages its financial and auditing personnel to pursue the relevant certifications. 2. Does the company assign a corporate governance supervisor to handle related issues, and publishes over the website and annual report regarding the supervisor’s duty extent, his/her corresponding year’s execution focus, and on-going study? The Company will assign a corporate governance supervisor in 2021 and publish the supervisor’s dutyextent,the corresponding year’s execution focus,and on-goingstudy.

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(IV) Disclose the Composition, Responsibilities, and Functionality of the Remuneration Committee, if Available:

1. Information of Remuneration Committee Members:

Role	Criteria Name	Having More than 5 Years Work Experience and Professional Qualifications Listed below	Having More than 5 Years Work Experience and Professional Qualifications Listed below	Having More than 5 Years Work Experience and Professional Qualifications Listed below		Compliance of Independence	Compliance of Independence	Compliance of Independence	Compliance of Independence	Compliance of Independence	(Note 1)	(Note 1)	Number of Positions as Remuneration Committee Member in Other Public Companies	Remarks
		Lecturer (or Above) of Commerce, Law, Finance, Accounting, or Any Subjects Relevant to the Company's Operations in a Public or Private Tertiary Institution	Judge, Prosecutor, Lawyer, Accountant, or Holder of National Exam or Professional Qualification Relevant to the Company's Operations	Commercial, Legal, Financial, Accounting or Other Work Experiences Required to Perform the Assigned Duties	1	2	3	4	5	6	7	8
Convener	Shun-Te Wen	No	Yes	Yes	�	�	�	�	�	�	�	�	None	None
Independent Director	Ying-Fang Lee	No	Yes	Yes	�	�	�	�	�	�	�	�	None	None
Independent Director	Shu-Fu Wang	No	Yes	Yes	�	�	�	�	�	�	�	�	None	None

Note 1: Members who meet the following conditions at any time during active duty and two years prior to the date of appointment will have a "�" placed in the corresponding boxes.

• (1) Not employed by the Company or any of its affiliated companies.

• (2) Not a director or supervisor of the Company or any of its affiliates. This does not apply to independent director positions in the Company's directly or indirectly held subsidiaries (with more than 50% voting interest).

• (3) Does not hold more than 1% of the Company's outstanding shares in their own names or under the names of spouse, underage children, or proxy shareholder; nor is a top-10 natural-person shareholder of the Company.

• (4) Not a spouse, a relative of second degree or closer, or a direct kinship of third degree or closer to anyone listed in the three preceding criteria.

• (5) Not a director, supervisor, or employee of any company that has 5% or higher ownership interest in the Company; nor a director, supervisor, or employee of any of the top-5 corporate shareholders.

• (6) Not a director, supervisor, manager, or shareholder with more than 5% ownership interest in any company or institution that has financial or business

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relationship with the Company.

• (7) Not a professional who provides commercial, legal, financial, accounting, or consulting services to the Company or its affiliates, nor is an owner, partner, director, supervisor or manager, or the spouse of any of the above, of a sole proprietorship, partnership, company, or organization that provides such services to the Company or its affiliates.

• (8) Does not meet any of the conditions stated in Article 30 of The Company Act.

2. Functionality of the Remuneration Committee

• I. The Company's Remuneration Committee consists of 3 members.

• II. Service duration of the 3rd committee: The Remuneration Committee held 2 meetings between June 13, 2019 and June 12, 2022; details of members' attendance are as follows:

Title	Name	No. of in-person attendance (B)	Attendance by proxy	In-person attendance rate (%)(B/A)(Note)	Remarks
Convener	Shun-Te Wen	2	0	100%	Re-elected on 2019/06/13
Committee Member	Ying-Fang Lee	2	0	100%	Newly elected on 2019/06/13
Committee Member	Shu-Fu Wang	2	0	100%	Newly elected on 2019/06/13
Other Mandatory Disclosures: I. In the event where the Remuneration Committee's proposal is rejected or amended in a Board of Directors meeting, please describe the date and session of the meeting, details of the motion, the board's resolution, and how the Company had handled the Remuneration Committee's proposals (describe the differences and reasons, if any, should the Board of Directors approve a solution that was more favorable than the one proposed by the Remuneration Committee): None. II. Should any committee member object or express reservation to the resolution made by the Remuneration Committee, whether on-record or in writing, please describe the date and session of the meeting, details of the motion, the entire members' opinions, and how their opinions were addressed: None.

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(V) Fulfillment of Social Responsibilities, and Deviation and Causes of Deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies:

TWSE/TPEx Listed Companies:
Assess Criteria			Actual Governance (Note 1)	Deviation and Causes of Deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary (Note 2)
I. Has the Company conducted risk assessment on environmental, social and corporate governance issues that are relevant to its operations, and implemented risk management policies or strategies based on principles of materiality?	V		The Company has several corporate responsibility task forces in place to identify stakeholders, gather and examine stakeholders' concerned issues, and make sure that all material aspects are properly addressed.	No Deviation
II. Does the Company have a unit that specializes (or is involved) in CSR practices? Is the CSR unit run by senior management and does the unit report its progress to the Board of Directors?		V	The Administrative Department is currently the unit responsible for enforcing corporate responsibilities within the Company. It keeps abreast of popular CSR issues in recent years and plans actions to meet the public's expectations. The Department makes ad-hoc reports to the Board of Directors whenever a new issue arises or whenever material impact is likely to occur.	Under Discussion
III. Environmental Issues (I) Has the Company developed an appropriate environmental management system, given its distinctive characteristics? (II) Is the Company committed to achieving efficient use of resources, and using renewable materials that produce less impact on the environment?	V V		(I) The Company has been certified by Lloyd's Register of Shipping for ISO-14001 - Environmental management system. Actions are being taken to treat and reuse wastewater and improve raw material efficiency for energy conservation and waste reduction. (II) Waste sorting, recycling, and reduction measures are being implemented throughout the organization. Uses of key resources are being monitored and controlled to ensure optimal efficiency and avoid wastage. Furthermore, solar panels have been installed	(I) No Deviation (II) No Deviation

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(III) Does the Company assess potential risks and opportunities associated with climate change, and undertake measures in response to climate issues? (IV) Does the Company maintain statistics on greenhouse gas emission, water usage and total waste volume in the last two years, and implement policies aimed at reducing energy, carbon, greenhouse gas, water and waste?	V V		on rooftop to generate green energy and to minimize impact on the environment. (III) In addition to purchasing business interruption insurance, the Company also evaluates the effect climate change has on market risk, supply disruption risk, and disaster risk, and will continue coordinating with stakeholders to minimize impact. (IV) Emission volume of nitrogen oxides, sulfur oxides, and other gases of significant concern as well as water usage volume, waste volume etc. have been disclosed in the corporate social responsibility report. In addition, monthly and quarterly statistics on waste output, waste disposal, air pollution, wastewater treatment, and soil remediation are also included in the report.	(III) No Deviation (IV) No Deviation
IV. Social Issues (I) Has the Company developed its policies and procedures in accordance with laws and International Bill of Human Rights? (II) Has the Company developed and implemented reasonable employee welfare measures (including compensation, leave of absence, and other benefits), and appropriately reflected business performance or outcome in employees' compensations? (III) Does the Company provide employees with a safe and healthy work environment? Are	V V V		(I) The Company complies with the Labor Standards Act, values gender equality, and has grievance channels in place to protect employees' work rights. (II) In addition to granting parental leaves as required by law, the Company also offers birth subsidies as an incentive for childbirth. Meanwhile, regular birthday cake, domestic trips, and specific-years-of-service foreign tours are arranged as part of employees' benefits. Employees are further entitled to 1% share of profits earned by the Company, as stipulated in the Articles of Incorporation, which is paid in the form of remuneration. (III) The Company has a dedicated unit in place to inspect the work environment and prevent	(I) No Deviation (II) No Deviation (III) No Deviation

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employees trained regularly on safety and health issues? (IV) Has the Company implemented an effective training program that helps employees develop skills over their career? (V) Has the Company complied with laws and international standards with respect to customers' health, safety, and privacy, marketing and labeling in all products and services offered, and implemented consumer protection policies and complaint procedures? (VI) Has the Company implemented a supplier management policy that regulates suppliers' conducts with respect to environmental protection, occupational safety and health, or work rights/human rights issues, and tracked suppliers'performance on a regular basis?	V V V		work safety accidents. Ventilation and cooling systems have been installed to reduce the stuffiness and heat of the factory environment; in addition, electrolyte supplements have been placed at drinking water machines to help replenish energy. Apart from annual health examinations, the Company organizes extra health examinations for employees working in special areas and hires nurse for emergency treatment and health seminar within plant premises. (IV) In addition to regular skills training, the Company arranges external training programs as a way to improve employees' skills, and also implements a rotation system to complete employees' work experience. (V) All of the Company's products are manufactured in compliance with relevant rules and standards, and have been covered by product liability insurance. In terms of consumers' interest, the Company has a set of standard procedures for handling customers' grievance and feedback, and communicates with customers through a single contact window for speed and efficiency. (VI) The Company assesses its suppliers on a regular basis. Suppliers that commit violation will have purchases reduced until corrections are made.	(IV) No Deviation (V) No Deviation (VI) No Deviation
V. Does the Company prepare corporate social responsibility report or any report of non-financial information based on		V	The Company expects to complete preparation and publication of its 2020 corporate social responsibility report by June 2021; however, the	Progressing

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• international reporting standards or guidelines? report is neither prepared using the latest GRI Are the abovementioned reports supported by Standards nor assured by a third-party certifier. -

• assurance or opinion of a third party certifier?

• VI. If the Company has established CSR principles in accordance with "Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies," please describe its current practices and any deviations from the Best Practice Principles: The Company has implemented its own corporate responsibility code of conduct to guide its duties as a corporate citizen and fulfill its commitments to employees, shareholders, and consumers. In addition to making transparent disclosures, the Company also makes proactive efforts to participate in green actions, environmental protection initiatives, charity, and community activities. All above actions are in alignment with the Company's "Corporate Social Responsibility Code of Conduct."

• VII. Other information useful to the understanding of corporate social responsibilities: 1. Environmental Protection: Treatment and recycling measures have been implemented for wastewater, waste soil, and waste. 2. Community Involvement and Community Service: Services such as neighborhood watch and neighborly activities are arranged on regular basis.

• 1. Contribution to the Society: The Company continues to practice corporate social responsibilities with its corporate mission of Rooting Humanity, Respecting Customer, Protecting Earth, and Securing Life.
• 1. Charity: Donations are made to charity organizations from time to time. 5. Consumers' interest: A 0800 consumer service hotline have been setup. 6. Human rights: The Company subscribes to public liability insurance and employee group insurance coverage.

• Note 1: If Actual Governance is specified "Yes," please explain the key policies, strategies and measures taken and the execution progress; if Actual Governance is specified "No," please provide reasons and explain any policy, strategy and measure planned for the future.

• Note 2: If the Company has prepared a CSR report, Actual Governance may be completed by providing page references to the CSR report instead. Note 3: Material principles refer to environmental, social and corporate governance issues that are of material impact to the Company's investors and stakeholders.

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(VI) Fulfillment of Social Responsibilities and Deviation and Causes of Deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies.

1. Business Integrity Management

Principles for TWSE/TPEx Listed Companies. 1. Business Integrity Management
Assess Criteria			Actual Governance	Deviation and Causes of Deviation from Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary
I. Establishment of Integrity Policies and Solutions (I) Has the Company stated in its internal policy or external correspondence about the policies and practices it has to maintain business integrity? Are the Board of Directors and the management committed in fulfilling this commitment? (II) Has the Company developed systematic practices for assessing integrity risks? Does the Company perform regular analyses and assessments on business activities that are prone to higher risk of dishonesty, and implement preventions against dishonest conducts that include at least the measures mentioned in Paragraph 2, Article 7 of "Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies"? (III) Has the Company taken steps to prevent occurrences listed in Paragraph 2, Article 7 of "Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies" or other business conducts that are prone to integrity risks?	V V	V	(I) The Company has specified in its "Employee Management Policy" that all workers must duly perform their duties and maintain confidentiality of any secret gained at work. Employees are also bound to protect reputation of the Company, and may not speak or conduct private activity in the Company's name without authorization. (II) The Company provides proper training for employees to ensure that they fully understand the Company's policies and applicable laws. (III) New recruits are subject to credit background investigation prior to hiring; employees who are prone to risk of dishonesty given their work duties are required to sign confidentiality agreements .It has been stipulated in the Company's policies that employeeswhoprofit from acts of dishonesty will	(I) No Deviation (II) No Deviation (III) No Deviation

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Assess Criteria			Actual Governance	Deviation and Causes of Deviation from Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary
			be required to compensate counterparties for the losses suffered; in addition, the Company will also terminate employment contract and pursue legal actions against such employees for criminal liabilities.
II. Enforcement of Business Integrity (I) Does the Company evaluate the integrity of all counterparties it has business relationships with? Are there any integrity clauses in the agreements it signs with business partners? (II) Does the Company have a unit that enforces business integrity directly under the Board of Directors? Does this unit report its progress regarding implementation of business integrity policy and prevention against dishonest conducts to the Board of Directors on a regular basis (at least once a year)? (III) Does the Company have any policy that prevents conflict of interest, and channels that facilitate the report of conflicting interests, and actively execute the policies?	V V	V	(I) Agreements signed between the Company and suppliers do not contain an integrity clause; however, the underlying business arrangements are fair and transparent, and work in favor of ensuring integrity on both sides. (II) The Company has designated its Administrative Department to be the unit responsible for business integrity. The Division reports its progress to directors after each year. (III) The Company prefers making purchase from independent parties and avoids transacting and trading with stakeholders where possible. Transaction with stakeholder may be conducted under exceptional circumstances, but will still be subject to proper procedures such as open price inquiry and comparison. When transacting with a stakeholder that has voting right in the Company, the stakeholder will have the right to explain the	(I) Not applicable (II) No Deviation (III) No Deviation

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Assess Criteria			Actual Governance	Deviation and Causes of Deviation from Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies
	Yes	No	Summary
(IV) Has the Company implemented effective accounting and internal control systems for the purpose of maintaining business integrity? Are these systems reviewed by internal or external auditors on a regular basis? (V) Does the Company organize internal or external training on a regular basis to maintain business integrity?	V V		transaction, but must be absent and recuse from the voting process. (IV) The Company has adopted effective accounting and internal control systems to support business integrity. Internal auditors have been assigned to perform audits on the above systems and report to the Board of Directors on a regular basis. (V) The Company promotes its integrity code of conduct in weekly and monthly meetings, so that employees are made aware and may enforce accordingly.	(IV) No Deviation (V) No Deviation
III. Whistleblowing System (I) Does the Company provide incentives and means for employees to report misconducts? Does the Company assign dedicated personnel to investigate the reported misconducts? (II)Has the Company implemented any standard procedures for handling reported misconducts, and subsequent actions and confidentiality measures to be undertaken upon completion of an investigation?	V	V	(I) The Company has a set of "Employee Grievance Handling Guidelines" in place. Awareness on grievance rules is promoted regularly, and a grievance/opinion mailbox has been created to serve as a complaint channel. The Human Resource Division receives complaints and convenes personnel/grievance review meetings afterwards to discuss how complaints are to be handled; these decisions are subject to President's approval. (II) The Company has specified in its standard operating procedures that all grievances are to be investigated and handled in a confidential manner that protects the privacy and character of the parties involved.	(I) No Deviation (II) Not Applicable

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==> picture [749 x 253] intentionally omitted <==

----- Start of picture text -----

Actual Governance Deviation and Causes of
Deviation from Ethical
Corporate Management
Assess Criteria
Yes No Summary Best Practice Principles
for TWSE/TPEx Listed
Companies
(III) Does the Company have appropriate measures in place V (III) The Company maintains confidentiality over (III) No Deviation
to protect whistleblowers from retaliation? informant's identity to protect them from
retaliation. In addition, employees are constantly
informed on legitimate grievance channels that are
available to them.
IV. Enhanced Information Disclosure
(I) Has the Company disclosed its integrity principles and V (I) The corporate website discloses not only the (I) No Deviation
progress onto its website and MOPS? Company's operational information, but also its
integrity code of conduct.
V. If the Company has established business integrity policies in accordance with "Ethical Corporate Management Best Practice Principles for
TWSE/TPEx-Listed Companies," please describe its current practices and any deviations from the Best Practice Principles: No Deviation.
VI. Other information relevant to understanding the Company's business integrity (e.g. review of business integrity principles): None.
----- End of picture text -----

• (VII) If the Company has established corporate governance principles or related guidelines, references to such principles should be disclosed: Please visit www.froch.com > Corporate Governance > Key Internal Policies.

(VIII) Other important information material to the understanding of corporate governance within the Company: None.

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• (IX) Disclosures Relating to the Execution of Internal Control System:

• Declaration of Internal Control System

Froch Enterprise Co., Ltd.

Declaration of Internal Control System

Date: March 23, 2021

The following declaration has been made based on the 2020 self-assessment of the Company's internal control system:

• I. The Company acknowledges and understands that establishment, implementation and maintenance of the internal control system are the responsibility of the Board of Directors and executives, and that such a system has been implemented within the Company. The goals of this system are to provide reasonable assurance for business performance and efficiency (including profitability, performance, asset security etc.), reliable financial reporting, and regulatory compliance.

• II. There are inherent limitations to even the most well-designed internal control system. As such, an effective internal control system can only reasonably assure achievement of the goals mentioned above. Furthermore, changes in the environment and circumstances may all affect the effectiveness of the internal control system. However, internal control system of the Company features a self-monitoring mechanism that enables immediate rectification of deficiencies upon discovery.

• III. The Company evaluates the design and execution of its internal control system based on the criteria specified in "Regulations Governing Establishment of Internal Control Systems by Public Companies" (hereinafter referred to as "The Governing Principles") to determine whether existing policies continue to be effective. The criteria introduced by "The Governing Principles" consisted of five major elements, each representing a different stage of internal control: 1. Control environment, 2. Risk evaluation and response, 3. Procedural control, 4. Information and communication, 5. Supervision. Each element further encompasses several sub-elements. Please refer to "The Governing Principles" for details.

• IV. The Company has adopted the abovementioned criteria to validate the effectiveness, design and execution of its internal control system.

• V. Based on the assessments described above, the Company considers the design and execution of its internal control system to be effective from January 1 to December 31, 2020. This system (including supervision and management of subsidiaries) has provided reasonable assurance with regards to the Company's operational performance, efficiency, target accomplishment, reliability, timeliness and transparency of reported financial information, and compliance with relevant laws.

• VI. This declaration constitutes part of the Company's annual report and prospectus, and must be disclosed to the public. Any illegal misrepresentation or omission in the public statement above are subject to the legal consequences described in Articles 20, 32, 171, and 174 of the Securities and Exchange Act.

• VII. This declaration was passed unanimously during the Board of Directors meeting held on March 23, 2021.

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• If the internal control system was reviewed by an external CPA, the result of such review

shall be disclosed: None.

• (X) Penalties imposed against the Company for regulatory violation, or penalties against insiders for violation of internal control policy in the most recent year up until the publication date of this annual report; describe areas of weakness and any corrective actions taken: None.

• (XI) Major Resolutions Passed in Shareholder Meetings and Board of Directors Meetings Held in the Last Year up until the Publication Date of this Annual Report:

1. Significant Shareholder Meeting Resolutions:

Date	Major Resolutions	Execution
2020.06.12	1. Acknowledgment of 2019 business report and financial statements. 2. Acknowledgment of 2019 earnings appropriation. 3. Amendments to the Company's "Articles of Incorporation."	Cash dividends were paid at NTD 0.510694196 per share. Ex dividend date: July 29, 2020; cash dividend payment date: August 14, 2020.

2. Significant Board of Directors Meeting Resolutions:

(1)	Significant	Resolutions Made by the Board of Directors in 2020 are as Follows:
Board Meeting	Date	Major Resolutions
Board Meeting	2020.03.16	1. Passed the 2019 financial statements year-end accounts. 2. Passed the 2019 earnings appropriation proposal. 3. Passed the 2019 Declaration of Internal Control System Self Assessment. 4. Passed the change of financial statement auditor (CPA). 5. Passed independence assessment for the Company's financial statement auditors. 6. Passed endorsement and guarantee proposal for Century Nova Steel Co., Ltd. 7. Passed amendments to the Company's "Board of Directors Meeting Rules." 8. Passed the motion of “Share Buyback to Maintain the Company’s Credit and Shareholders' Rights and Interests." 9.Set the date and agenda for theCompany's 2020annualgeneral meeting.
Board Meeting	2020.05.07	1. Passed the Company's 2020 Q1 consolidated financial statements. 2. Passed issuance of endorsement and guarantee for Century Nova Steel Co., Ltd. 3. Passed the motion of “Share Buyback to Maintain the Company’s Credit and shareholders' rights and interests." 4. Passed the Amendments to the Company’s “Articles of Incorporation.” 5. Passed the motion of “Uplifting the Credit Line for Exporting Contracts from the Banks.”
Board Meeting	2020.07.08	1. Passed the Motion of Adjusting Cash and Share Dividends due to Executing Treasury Shares. 2. Passed the Ex-dividend Date and BookClosure Date for 2019.
Board Meeting	2020.08.06	1. Passed the Company's 2020 Q2 consolidated financial statements. 2. Passed the Motion of Treasure Share Writeoff and Capital Reduction Baseline Date.
Board Meeting	2020.10.16	1. Passed the Motion of Purchasing 2/5 Title of the Property of South Regional Office.
Board Meeting	2020.11.03	1. Passed the Company's 2020 Q3 Consolidated Financial Statements. 2. Passed endorsement and guarantee proposal for Froch Steel (Wuxi) Co., Ltd. 3. Passed the Amendments to “The Company’s Board of Directors Meeting Rules.” 4. Passed the Sale of the Land and Attached Buildings Located on Jio-Zhuang and Tsao-HuSessions,Lun-Bei,Yun-Lin.
Board Meeting	2020.12.10	1. Passed the Amendments to the Company's "Regulation for Expense Approval." 2. Passed the Company’s 2021 Auditing Plan. 3. Passed the Company's 2020 Salary Proposal Pre-discussed by the Remuneration Committee. 4. Passed the Motion to Promote Hsin-Ta Chang as the Vice Chairman of the Company.

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		5. Passed the Decision to Apply for Renewal of Bank Credit limit that is due to expire. 6Passed theCompany’s Board of Directors Performance Assessment Policy.
(2) Board Meeting Board Meeting
	Date	Major Resolutions
	2021.03.16	1. Passed the 2020 financial statements annual accounts. 2. Passed the 2020 earnings appropriation proposal. 3. Passed the 2020 Declaration of Internal Control System Self Assessment. 4. Passed independence assessment for the Company's financial statement auditors. 5. Passed the Appointment of the Company's Corporate Governance Manager.. 6. Passed the Amendments to the Company’s “Articles of Incorporation.” 7. Passed the Amendments to the Company’s “Annual General Meeting of Shareholders Meeting Rule.” 8. Passed issuance of endorsement and guarantee for Century Nova Steel Co., Ltd. 9. Set the Date and Agenda for the Company's 2021 Annual General Meeting of Shareholders.

For related announcements, please visit "MOPS" (http://mops.twse.com.tw)

• (XII) Documented Opinions or Declarations Made by Directors or Independent Directors Against Board Resolutions in the Most Recent Year, up until he Publication Date of this Annual Report: None.

(XIII) Resignation or Dismissal of the Chairman, President, Head of Accounting, Head of Finance, Chief Internal Auditor, or Head of R&D in the Most Recent Year up until the Publication Date of this Annual Report:

Board Resolutions in the Most Recent Year, up until he Publication Date of this Annual Report: None. XIII) Resignation or Dismissal of the Chairman, President, Head of Accounting, Head of Finance, Chief Internal Auditor, or Head of R&D in the Most Recent Year up until the Publication Date of this Annual Report:	Board Resolutions in the Most Recent Year, up until he Publication Date of this Annual Report: None. XIII) Resignation or Dismissal of the Chairman, President, Head of Accounting, Head of Finance, Chief Internal Auditor, or Head of R&D in the Most Recent Year up until the Publication Date of this Annual Report:	Board Resolutions in the Most Recent Year, up until he Publication Date of this Annual Report: None. XIII) Resignation or Dismissal of the Chairman, President, Head of Accounting, Head of Finance, Chief Internal Auditor, or Head of R&D in the Most Recent Year up until the Publication Date of this Annual Report:	Board Resolutions in the Most Recent Year, up until he Publication Date of this Annual Report: None. XIII) Resignation or Dismissal of the Chairman, President, Head of Accounting, Head of Finance, Chief Internal Auditor, or Head of R&D in the Most Recent Year up until the Publication Date of this Annual Report:	Board Resolutions in the Most Recent Year, up until he Publication Date of this Annual Report: None. XIII) Resignation or Dismissal of the Chairman, President, Head of Accounting, Head of Finance, Chief Internal Auditor, or Head of R&D in the Most Recent Year up until the Publication Date of this Annual Report:
April 18,2021 Title Name Date Onboard Date Departed Reasons for Resignation or Departure None for this Year
Title	Name	Date Onboard	Date Departed	Reasons for Resignation or Departure
None for this Year

• 36 -

IV. Information of CPAs

(I) Disclosure of CPAs’ Remuneration:

Name of Accounting Firm	Name of Accounting Firm	Name of CPA	Name of CPA	Audit Period	Remarks
Deloitte & Touche Taiwan		Ting-Chien	Su/Li-Tong Wu	2020/1/1-2020/12/31
				Unit: NTD thousands
Amount Range		Fee Category	Audit Remuneration	Non-audit Remuneration	Total
1	Below NTD 2 million			240	240
2	NTD 2 million(inclusive)~ NTD 4 million		2,940		2,940
3	NTD 4 million(inclusive)~ NTD 6 million
4	NTD 6 million(inclusive)~ NTD 8 million
5	NTD8 million(inclusive)~ NTD 10 million
6	NTD10 million and above

1. Non-audit Remuneration to External Auditors, Accounting Firms, and Related Businesses that Amounts to 25% or Higher of Audit Remuneration: Not Applicable

nit: NTD thousands

Name of Accounting Firm	Name of CPA	Audit Remuneration		Non-audit Remuneration	Non-audit Remuneration	Non-audit Remuneration		Period of Audit Service	Remarks
			System Design	Business Registration	Human Resources	Others	Subtotal
Deloitte & Touche Taiwan	Ting-Chien Su	2,940	0	0	0	240	240	2020/01/0 1~ 2020/12/3 1	Mainly Consists of Business Travel Expenses Paid on Behalf.
	Li-Tong Wu

1. Any Replacement of Accounting Firm and Reduction in Audit Remuneration Paid Compared with the Previous Year: None.

2. Any Reduction in Audit Remuneration y More than 15% Compared to the Previous Year: None.

3. 37 -

V. Change of CPA:

1. Information Relating to the Former CPA

Date of Reappointment	2019 Q4	2019 Q4	2019 Q4	2019 Q4	2019 Q4
Reasons and Details of the Reappointment	An Internal Rotation within Deloitte & Touche Taiwan
Whether the termination of audit service was initiated by the client or by the auditor	Parties Involved Situation		CPA		Client
	Service Terminated by		Not Applicable		Not Applicable
	Service not Accepted/ Continued by		Not Applicable		Not Applicable
Reasons for Issuing Opinions other than Unmodified Opinion in the Last 2 Years	None
Any Disagreement with the Issuer	Yes			Accounting Policy or Practice
				Disclosure of Financial Statements
				Audit Coverage or Procedures
				Others
	None	�
	Explanation
Other Disclosures (Disclosures Deemed Necessary under Item 1-4 to Item 1-7, Subparagraph 6, Article 10 of the Guidelines)	None

2. Information Relating to the Succeeding CPA:

2. Information Relating to the Succeeding CPA:
Name of Accounting Firm	Deloitte & Touche Taiwan
Name of CPA	CPA Ting-Chien Su CPA Li-Tong Wu
Date of Appointment	2020 Q4
Inquiries and replies relating to the accounting practices or accounting principles of certain transactions, or any audit opinions the auditors were likely to issue on the financial reports prior to reappointment	Not applicable
Written Disagreements from the Succeeding Auditor against Opinions Made by the Former CPA	None

1. Former CPA's Reply to Note 3, Items 1 and 2, Subparagraph 2, Article 20-2 of the Guidelines: None.

2. 38 -

3. VI. Any of the Company's Chairman, President, or any Executive Involved in Financial or Accounting Affairs being Employed by the Accounting Firm or any of Its Affiliated Company in the last Year: None.

4. VII. Details of Shares Transferred or Pledged by Directors, Executives, or Shareholders with more than 10% Ownership Interest in the Last Year, up until April 18, 2021.

5. (I) Details of Shares Transferred or Pledged by Directors, Executives, or Shareholders with more than 10% Ownership Interest:

Note 1: Shareholders with more than 10% ownership interest shall be highlighted as major shareholders and listed separately.

Title	Name	2020	2020	2021 upuntil April 18	2021 upuntil April 18
		Increase (decrease) in Shares Held	Increase (decrease) in Shares Pledged	Increase (decrease) in Shares Held	Increase (decrease) in Shares Pledged
Chairman	Ping-Yao Chang	0	0	0	0
Directors	Yi-ChengShih	0	0	(60,000)	0
Vice Chairman	Shin Chieh Shin Co.,Ltd.	0	4,000,000	0	0
Vice Chairman	Shin Chieh Shin Co., Ltd. Representative: Hsin-Ta Chang	0	0	0	0
Director	Shin Chieh Shin Co., Ltd. Representative: Tsao-Chi Yang	0	0	0	0
Independent Director	Shun-Te Wen	0	0	0	0
Independent Director	Ying-Fang Lee	0	0	0	0
Independent Director	Shu-Fu Wang	0	0	0	0
Vice President	Ren-HsiangLee	0	0	0	0
Division Head	Wen-Chih Lee	0	0	0	0
Division Head	Chang-Chieh Huang	(5,000)	0	(9,000)	0
Division Head	Wen-Hsiou Lee	0	0	0	0
Division Head	Han-Lin Chang	(83,000)	0	(5,000)	0

(II) Disclosure of Share Transfer or Pledge where the Counterparty is a Related Party: None.

• 39 -

VIII. The Relationships among Top-10 Shareholders

Name	Shares Held in Own Name	Shares Held in Own Name	Shares Held by Spouse and Underage Children	Shares Held by Spouse and Underage Children	Shares Held in the Names of Others	Shares Held in the Names of Others	Relationship Characterized as Spouse or Relative of Second Degree or Closer among the Top-10 Shareholders.(Note 2)	Relationship Characterized as Spouse or Relative of Second Degree or Closer among the Top-10 Shareholders.(Note 2)	Remarks
	No. of Shares	Shareholding Percentage	No. of Shares	Shareholding Percentage	No. of Shares	Shareholding Percentage	Name	Relationship
Shin Chieh ShinCo.,Ltd.	28,206,372	10.05	0	0	None	None	None	None	None
Person-in-charge of Shin Chieh Shin Co., Ltd. - Chia-Chi Fan Spouse – Yu-Hua Chang Underage child - Ching-Chun Fan	43,854	0.02	45,653	0.02	None	None	None	None	None
Representative of Shin Chieh Shin Co., Ltd. - Tiao-Chi Yang Spouse - Hsuan-Chi Lin Underage child - Han-ShengYang	0	0	0	0	None	None	None	None	None
Hsin-Ta Chang	21,648,931	7.71	840,830	0.30	None	None	Ping-Yao Chang	Father	Hsiu-Miao Lee: Mother
Ping-Yao Chang	17,547,946	6.26	8,388,978	2.99	None	None	Hsiu-Miao Lee	Spouse	Hsin-Ta Chang: Son
Li Chieh Shin Co.,Ltd.	15,676,885	5.59	0	0	None	None	None	None	None
Person-in-charge of Li Chieh Shin. Co., Ltd. - Li-Shen Chang Spouse – Shu-Yu Pai Underage child - Chen-Wei Chang	13,101,121	4.67	0	0	None	None	Ping-Yao Chang	Father	Hsiu-Miao Lee: Mother
Li-Shen Chang	13,101,121	4.67	0	0	None	None	Ping-Yao Chang	Father	Hsiu-Miao Lee: Mother
Hsiu-Miao Lee	8,388,978	2.99	17,547,946	6.26	None	None	Ping-Yao Chang	Spouse	Hsin-Ta Chang: Son Li-Shen Chang: Son
Guan Ling Enterprise Co.,Ltd.	8,219,000	2.93	0	0	None	None	None	None	None
HSBC in its Capacity as Master Custodian for Arcadia Emerging Market Small Cap Equity Fund	2,959,000	1.05	0	0	None	None	None	None	None
Citibank in its Capacity as Master Custodian for Investment Account of DFA Emerging Markets Core EquityPortfolio	2,199,384	0.78	0	0	None	None	None	None	None

• 40 -

Yi-Cheng Shih 1,978,206 0.71 96,381 0.03 None None None None None
Note 1: All top-10 shareholders shall be listed. For corporate shareholders, the name of the corporate entity and the name of the representative shall be
shown separately.
Note 2: Percentages of shares held under own name, spouse's name, underage children's names, or in the names of others are calculated separately.
Note 3: Relationships among the abovementioned shareholders (including corporate and natural-person shareholders) shall be disclosed.
IX. Investments Jointly Held by the Company, the Company's Directors, Executives,
and Businesses Directly or Indirectly Controlled by the Company; Disclose
Shareholding in Aggregate of the above Parties:

Yi-Cheng Shih	1,978,206	1,978,206	0.71	96,381	96,381	0.03	0.03	None	None	None	None	None	None	None	None
Note 1: All top-10 shareholders shall be listed. For corporate shareholders, the name of the corporate entity and the name of the representative shall be shown separately. Note 2: Percentages of shares held under own name, spouse's name, underage children's names, or in the names of others are calculated separately. Note 3: Relationships among the abovementioned shareholders (including corporate and natural-person shareholders) shall be disclosed. IX. Investments Jointly Held by the Company, the Company's Directors, Executives, and Businesses Directly or Indirectly Controlled by the Company; Disclose Shareholding in Aggregate of the above Parties:
							December31,2020;unit: shares
Business Investments		Held by the Company					Held by Directors, Executives, and Directly or Indirectly Controlled Businesses					Aggregate		Ownership
		No. of Shares			Shareholding Percentage (%)		No. of Shares			Shareholding Percentage (%)		No. of Shares		Shareholding Percentage (%)
Century Nova SteelCo.,Ltd.		49,000,000			100		0			0		49,000,000		100
Froch Enterprise InternationalCo.,Ltd.		3,550,000			100		0			0		3,550,000		100
Froch Stainless Co., Ltd.		500,000			100		0			0		500,000		100
Froch Metal (Suzhou) Co.,Ltd.		0			100		0			0		0		100
Century Nova SteelCo.,Ltd.(Wuxi)		0			100		0			0		0		100
Froch International Trading Co.,Ltd.		0			100		0			0		0		100
Froch Stainless Co.,Ltd.(Wuxi)		0			100		0			0		0		100

• 41 -

Four. Capital Overview

I. Capital and Outstanding Shares

(I) Source of Capital

1. Changes in Share Capital: April 18, 2021

Unit: thousand shares; NTD thousands

Year / Month	Face Value per Share (NTD)	Authorized Capital	Authorized Capital	Paid-up capital	Paid-up capital	Remarks	Remarks
		No. of Shares	Amount	No. of Shares	Amount	Sources of Share Capital	Paid with Properties other than Cash	Others
September 1984	1,000	4,200	4,200	4,200	4,200	Share Capital Paid in Cash 4,200	None	None
June 1986	1,000	28,000	28,000	28,000	28,000	Cash Issuance 23,800	None	None
August 1988	1,000	53,000	53,000	53,000	53,000	Cash Issuance 25,000	None	None
June 1989	10	13,800	138,000	13,800	138,000	Cash Issuance 85,000	None	None
September 1989	10	19,800	198,000	19,800	198,000	Cash Issuance 60,000	None	None
May 1991	10	30,000	300,000	30,000	300,000	Cash Issuance 102,000	None	None
April 1995	10	37,500	375,000	37,500	375,000	Capitalization of Earnings 75,000	None	(Note 1)
March 1996	10	46,875	468,750	46,875	468,750	Capitalization of Earnings 93,750	None	(Note 2)
May 1997	10	51,562	515,625	51,562	515,625	Capitalization of Earnings 46,875	None	(Note 3)
March 1998	10	56,718	567,187	56,718	567,187	Capitalization of Earnings 51,562	None	(Note 4)
May 1999	10	65,226	652,265	65,226	652,265	Capitalization of Earnings 85,078	None	(Note 5)
May 2000	10	73,053	730,537	73,053	730,537	Capitalization of Earnings 78,272	None	(Note 6)
May 2001	10	80,359	803,591	80,359	803,591	Capitalization of Earnings 73,054	None	(Note 7)
May 2003	10	96,377	963,771	84,377	843,771	Capitalization of Earnings 40,179	None	(Note 8)
July 2004	10	200,000	2,000,000	97,034	970,336	Capitalization of Earnings 126,565	None	(Note 9)
September 2004	10	200,000	2,000,000	124,842	1,248,422	Conversion from Corporate Bonds 278,086	None	None
December 2004	10	200,000	2,000,000	140,954	1,409,545	Conversion from Corporate Bonds 161,123	None	None
March 2005	10	200,000	2,000,000	153,213	1,532,130	Conversion from Corporate Bonds 122,584	None	(Note 10)
June 2005	10	300,000	3,000,000	180,791	1,807,913	Capitalization of Earnings 275,783	None	(Note 11)
July 2006	10	300,000	3,000,000	189,830	1,898,309	Capitalization of Earnings 90,396	None	(Note 12)
July 2007	10	300,000	3,000,000	237,288	2,372,886	Capitalization of Earnings 474,577	None	(Note 13)
July 2008	10	300,000	3,000,000	272,881	2,728,819	Capitalization of Earnings 355,932	None	(Note 14)
September 2015	10	300,000	3,000,000	286,526	2,865,260	Capitalization of Earnings 136,441	None	(Note 15)
August 2020	10	400,000	4,000,000	280,526	2,805,260	Capital Reduction with Treasury Share 60,000	None	(Note 16)

• 42 -

Note 1: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (84)-Tai-Tsai-Cheng-(1)-29969 issued on May 23, 1995. Note 2: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (85)-Tai-Tsai-Cheng-(1)-56672 issued on September 16, 1996. Note 3: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (86)-Tai-Tsai-Cheng-(1)-69840 issued on September 6, 1997. Note 4: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (87)-Tai-Tsai-Cheng-(1)-82228 issued on September 25, 1998. Note 5: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (88)-Tai-Tsai-Cheng-(1)-59754 issued on July 1, 1999. Note 6: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (89)-Tai-Tsai-Cheng-(1)-61339 issued on July 24, 2000. Note 7: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (90)-Tai-Tsai-Cheng-(1)-143951 issued on July 10, 2001. Note 8: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (92)-Tai-Tsai-Cheng-(1)-0920130134 issued on July 7, 2003. Note 9: This increase of capital was approved by the Security and Futures Commission, Ministry of Finance, under Letter No. (93)-Tai-Tsai-Cheng-(1)-0930129506 issued on July 5, 2004. Note 10: Change of capital was approved by the Ministry of Economic Affairs under Letter No. Jing-Shou-Shang-09401064070 dated April 18, 2005. Note 11: This increase of capital was approved by Financial Supervisory Commission, Executive Yuan, under Letter No. Jin-Guan-Zheng-1-0940124958 dated June 22, 2005. Note 12: This increase of capital was approved by Financial Supervisory Commission, Executive Yuan, under Letter No. Jin-Guan-Zheng-1-0950127961 dated July 3, 2006. Note 13: This increase of capital was approved by Financial Supervisory Commission, Executive Yuan, under Letter No. Jin-Guan-Zheng-1-0960036624 dated July 16, 2007. Note 14: This increase of capital was approved by Financial Supervisory Commission, Executive Yuan, under Letter No. Jin-Guan-Zheng-1-0970039263 dated August 14, 2008. Note 15: This increase of capital was approved by Financial Supervisory Commission under Letter No. Jin-Guan-Zheng-Fa-1040026146 dated July 15, 2015.

Note 16: This reduction was approved by Department of Commerce, MOEA under Letter No. Jing-Shou-Shang-10901157460 dated August 31, 2020.

2. Categories of Outstanding Shares:

April 18, 2021 Unit: shares; NTD thousands

Share Category		Authorized Capital		Remarks
	Outstanding Shares	Unissued Shares	Total
Registered Common Shares	280,526,027	119,473,973	400,000,000

3. Information Relevant to the Aggregate Reporting Policy: Not Applicable

(II) Shareholder Structure: April 18, 2021

Shareholder Structure	Government Institutions	Financial Institutions	Other Legal Entities	Natural Persons	Foreign Institutions and Foreigners	Total
Number of Shareholders	0	2	119	33,203	37	33,361
Number of Shares Held	0	73,228	52,402,458	217,880,457	10,169,884	280,526,027
Shareholding Percentage (%)	0	0.03	18.68	77.66	3.63	100.00

Note: The Company has no Mainland investor; shareholding by Mainland investors is 0%. All TWSE/TPEx/Emerging Stock Market companies listing for the first time are required to disclose Chinese investors' holding interests. A Chinese investor refers to an individual, legal entity, organization, or institution of Mainland origin, or any company owned by the above party in a foreign location, as defined in Article 3 of Regulation Governing Mainland Residents' Investment in Taiwan.

• 43 -

(III) Diversity of Ownership:

1. Common Shares

(III) Diversity of Ownership: 1. Common Shares
		April 18, 2021 Unit:people;shares; %
Shareholding Range	Number of Shareholders	Number of Shares Held	Shareholding Percentage (%)
1 to 999	17,808	972,316	0.35
1,000 to 10,000	12,977	43,604,670	15.54
10,001 to 20,000	1,340	20,041,449	7.14
20,001 to 30,000	438	11,204,096	3.99
30,001 to 40,000	221	7,784,028	2.77
40,001 to 50,000	144	6,661,715	2.37
50,001 to 100,000	257	18,809,328	6.71
100,001 to 200,000	99	13,615,613	4.85
200,001 to 400,000	28	7,891,550	2.81
400,001 to 600,000	14	6,539,987	2.33
600,001 to 800,000	10	6,863,172	2.45
800,001 to 1,000,000	4	3,468,593	1.24
1,000,000 and above	21	133,069,510	47.45
Total		280,526,027	100.00

2. Diversity of Preferred Share Ownership: Not Applicable

(IV) List of Major Shareholders

Shows the Names of Top-10 Shareholders and Those with More than 5% Ownership, and the Quantity and Percentage of Shares Held.

		April 18,2021
Name of Major Shareholders	Number of Shares Held	Shareholding Percentage
Shin Chieh Shin Co., Ltd.	28,206,372	10.05
Hsin-Ta Chang	21,648,931	7.72
Ping-Yao Chang	17,547,946	6.26
Li Chieh Shin Co., Ltd.	15,676,885	5.59
Li-Shen Chang	13,101,121	4.67
Hsiu-Miao Lee	8,388,978	2.99
Guan LingEnterprise Co.,Ltd.	7,200,000	2.57
Chien-Liang Guo	2,668,000	0.95
JPMorganChase Bank Investment Account	2,134,000	0.76
HSBC in its Capacity as Master Custodian for Arcadia Emerging Market Small Cap Equity Fund	2,029,000	0.72

• 44 -

• (V) Information Relating to Market Price, Net Worth, Earnings, and Dividends per Share for the Last 2 Years

Unit: NTD

					Unit: NTD
Aspect	Year		2019	2020	Year-to-date March 31, 2021 (Note 8)
Market Price per Share (Note 1)	High		14.70	15.70	15.00
	Low		11.90	8.95	11.80
	Average		13.08	10.80	13.70
Net Worth per Share (Note 2)	Before dividend		13.94	13.94	-
	After dividend		13.44	13.44	-
EPS	Weighted Average Outstanding Shares (in thousands)		285,335	282,795	-
	Earnings (losses) per Share (Note 3)		0.94	0.38
Dividend per Share	Cash Dividend		0.5	0.5	-
	Stock Dividend	From Earnings	0	0	-
		From Capital Reserves	0	0	-
	Cumulative Undistributed Dividend (Note 4)		0	0	-
Analysis of Investment R	P/E ratio(Note 5)		13.91	28.42	-
	Price to Dividend Ratio (Note 6)		26.16	21.60	-
eturn	Cash Dividend Yield(Note 7)		3.82	4.63	-

• Note 1: The table shows the highest and lowest market price of common shares in each year; average market price is calculated by weighing transacted prices against transacted volumes in the respective years.

• Note 2: Calculated based on the number of outstanding shares at year-end; amount of distribution resolved in next year's annual general meeting of shareholders is presented in the table.

• Note 3: Where stock dividends were issued, EPS are disclosed in amounts before and after retrospective adjustments.

• Note 4: If equity securities are issued with terms that allow dividends to be accrued and accumulated until the year the Company makes profit, the amount of cumulative undistributed dividends up until the current year is disclosed separately.

• Note 5: P/E ratio = average closing price per share for the year / earnings per share.

• Note 6: Price to Dividends Ratio = average closing price per share for the year / cash dividend per share.

• Note 7: Cash Dividend Yield = cash dividend per share / average closing price per share for the corresponding year.

• Note 8: Net worth per share and earnings per share are based on audited (auditor-reviewed) data as at the latest quarter before the publication date of this annual report. For all other fields, calculations are based on data as at the publication date of this annual report.

• 45 -

• (VI) Dividend Policy and Execution

• The Company's Dividend Policy:

• Annual profit concluded by the Company are subject to employee remuneration of 1%, which the Board of Directors may decide to distribute in cash or in shares. Employees of subsidiaries who meet set criteria are entitled to receive remuneration. Up to 3% of the aforementioned profit may be distributed as directors' remuneration at the discretion of the Board of Directors. Employee and director remuneration proposals are to be raised for resolution during shareholder meetings.

Profits must first be reserved to offset against cumulative losses, if any, before the remainder can be distributed as employee or director remuneration in the above percentages.

Annual profit concluded by the Company are first subject to taxation and reimbursement of previous losses, followed by a 10% provision for legal reserves; however, no further provision is needed when legal reserves have accumulated to the same amount as the Company's paid-up capital. Any profit remaining must then be subject to provision or reversal of special reserves, as the laws may require. The residual balance can then be added to undistributed earnings carried from previous years and distributed as shareholder dividends or retained at Board of Directors' proposal, subject to resolution in a shareholder meeting.

The Company's dividend policy has been established to accommodate current and future development plans after taking into consideration the investment environment, capital requirement, domestic or foreign competition, and shareholders' interests. No less than 50% of distributable earnings must be paid as dividend for the current year, but the Company may decide to withhold earnings if the amount of distributable earnings is less than 10% of paid-up capital. Dividends can be paid in cash or in shares, with cash dividends amounting to no less than 20% of total dividends.

1. Dividend Distribution Proposed for the Coming Annual General Meeting of Shareholders:

2. The Company reported net income of NTD 108,351,219 for 2020; having considered future investment opportunities and industry characteristics, the Board of Directors passed a proposal during the meeting dated March 23, 2021 to pay cash dividends at NTD0.50 per share.

(VII) Impacts of Proposed Share Dividends on the Company's Business Performance and Earnings per Share.

Earnings per Share.	Earnings per Share.
Year Item		2020
Opening paid-upCapital(NTD thousands)		2,805,260
	Cash Dividendsper Share(NTD	0.50
Dividends for
the Current	Share Dividendsper Share from Capitalization of Earnings	－
Year	Share Dividendsper Share from Capitalization of Reserves)	－
	Operating profit(NTD thousands)	Not applicable
	Year-on-year Percentage Variation of OperatingProfit(%)	Not applicable
Changes in	Net Income after Tax(NTD thousands)	Not applicable
Business	Year-on-year Percentage Variation of Net Income(%)	Not applicable
Performance
	Earningsper Share(NTD)	Not applicable
	Year-on-year Percentage Variation of Earningsper Share(%)	Not applicable

• 46 -

	Yearly Average Return on Investment (a Reciprocal of Yearly	Yearly Average Return on Investment (a Reciprocal of Yearly
			Not applicable
	Average PE Ratio) (%)
	If Capitalized Earnings	Estimated EPS	Not applicable
	were Entirely
		Estimated Yearly Return on Investment
	Distributed as Cash		Not applicable
		(%)
	Dividends Instead
		Estimated EPS(NTD)	Not applicable
	Without Capitalization
Estimated		Estimated Yearly Return on Investment
	of Reserves		Not applicable
EPS and PE		(%)
Ratio	Without Capitalization	Estimated EPS(NTD)	Not applicable
	of Reserves and if
	Capitalized Earnings
		Estimated Yearly Return on Investment
	were Entirely		Not applicable
		(%)
	Distributed as Cash
	Dividends Instead

• (VIII) Allocation of Employee, and Director Remuneration from Previous Year's Earnings:

• Percentage or Range of Employee or Director Remuneration Stated in the Articles of Incorporation:

• According to the Company's Articles of Incorporation, earnings concluded from a year are to be allocated in the following order:

• (1) Reimbursement of losses from previous years,

• (2) Provision for or reversal of special reserve, if necessary; afterwards, the Board of Directors will propose an earnings appropriation plan based on the following principles for resolution in a shareholder meeting:

• a. Director remuneration no more than 3%

• b. Employee remuneration of 1%

• c. Any balance remaining will be added to undistributed earnings carried from previous years, which the Board of Directors may decide to retain partially and distribute the remainder, subject to resolution in a shareholder meeting. In principle, no less than 50% of current year's available earnings must be paid as dividends, and at least 20% of shareholders' dividends must be paid in cash.

• There was no change in the basis for estimating employee or director remuneration and share dividend; the amounts estimated were indifferent to the amounts paid.

• Employees' Remuneration Proposed and Resolved by the Board of Directors:

• (1) Board of Directors resolution date: 2021/3/23

• (2) Types and amount of dividends distributed:

• a. Proposed cash payment to employees - NTD 1,433,972

• b. Proposed director remuneration - NTD 1,433,972.

• (3) Disclose the amount, causes, and treatments of any differences between the amount paid and the amount estimated in the year the expense was recognized: None

• (4) Proposed employee share-based payment as a percentage of after-tax profit plus employees’ total compensation for the current period: Not Applicable

• (5) Earnings per share after taking into account the proposed employee remuneration and director remuneration: NTD 0.38.

• Actual payment of employee or director remuneration in the previous year (including the number of shares allocated, the sum of cash paid, and the price at which shares were issued), and any differences from the figures estimated (explain the amount, the cause, and treatment of such discrepancies): No Difference

• 47 -

• (1) Board of Directors resolution date: 2020/3/16

• (2) Types and amount of dividends distributed:

  • a. Proposed cash payment to employees - NTD 3,436,541.

  • b. Proposed director remuneration - NTD 3,436,541.

• (IX) Completed Buyback of the Company's Shares in the Most Recent Years and up until the Publication Date of this Annual Report: The Company has made a total of 17 share buybacks Since 2011; details are as follows.

Incidence	1st	2nd	3rd
Purposes of Buyback	transfer of shares to employees	transfer of shares to employees	transfer of shares to employees
Buyback Date	2011/11/30-2012/01/18	2012/03/03-2012/03/30	2012/04/17-2012/06/15
Type of Shares Bought Back	ordinaryshares	ordinaryshares	ordinaryshares
Buyback Volume	2,004,000 shares	2,300,000 shares	5,127,000 shares
Total Amount of Buyback (includingfees)	NTD 20,623,437	NTD 28,340,162	NTD 53,151,289
Amount of Shares Bought Back Quantity as a Percentage of Planned buyback (%)	20.04	23.00	85.45
Cumulative Holding of the Company's Shares	0	0	0
Number of Shares Retired and Transferred	2,004,000 shares	2,300,000 shares	5,127,000 shares
Cumulative Holding of the Company's Shares as a Percentage of Outstanding shares	0%	0%	0%
Incidence	4th	5th	6th
Purposes of Buyback	transfer of shares to employees	transfer of shares to employees	transfer of shares to employees
Buyback Date	2012/06/19-2012/08/17	2012/08/23-2012/10/22	2012/10/25-2012/12/14
Type of Shares Bought Back	ordinaryshares	ordinaryshares	ordinaryshares
Buyback Volume	2,174,000 shares	1,352,000 shares	2,817,000 shares
Total Amount of Buyback (includingfees)	NTD 21,559,837	NTD 14,169,303	NTD 26,478,837
Amount of Shares Bought Back Quantity as a Percentage of Planned buyback (%)	36.23	22.53	46.95
Cumulative Holding of the Company's Shares	0	0	0
Number of Shares Retired and Transferred	2,174,000 shares	1,352,000 shares	2,817,000 shares
Cumulative Holding of the Company's Shares as a Percentage of Outstanding	0%	0%	0%

• 48 -

shares
Incidence	7th	8th	9th
Purposes of Buyback	transfer of shares to employees	transfer of shares to employees	transfer of shares to employees
Buyback Date	2015/06/22-2015/08/17	2015/08/19-2015/10/16	2015/10/19-2015/12/15
Type of Shares Bought Back	ordinaryshares	ordinaryshares	ordinaryshares
Buyback Volume	1,668,000 shares	1,581,000 shares	1,776,000 shares
Total Amount of Buyback (includingfees)	NTD 18,102,591	NTD 14,611,468	NTD 16,678,343
Amount of Shares Bought Back Quantity as a Percentage of Planned buyback (%)	27.80	52.70	59.20
Cumulative Holding of the Company's Shares	0	0	0
Number of Shares Retired and Transferred	1,668,000 shares	1,581,000 shares	1,776,000 shares
Cumulative Holding of the Company's Shares as a Percentage of Outstanding shares	0%	0%	0%
Incidence	10th	11th	12th
Purposes of Buyback	transfer of shares to employees	transfer of shares to employees	transfer of shares to employees
Buyback Date	2015/12/18-2016/02/16	2016/02/18-2016/04/15	2016/04/19-2016/06/17
Type of Shares Bought Back	ordinaryshares	ordinaryshares	ordinaryshares
Buyback Volume	1,831,000 shares	1,480,000 shares	1,523,000 shares
Total Amount of Buyback (includingfees)	NTD 16,699,686	NTD 15,087,863	NTD 15,033,690
Amount of Shares Bought Back Quantity as a Percentage of Planned buyback (%)	61.03	49.33	50.77
Cumulative Holding of the Company's Shares	0	0	0
Number of Shares Retired and Transferred	1,831,000 shares	1,480,000 shares	1,523,000 shares
Cumulative Holding of the Company's Shares as a Percentage of Outstanding shares	0%	0%	0%
Incidence	13th	14th	15th
Purposes of Buyback	transfer of shares to employees	transfer of shares to employees	transfer of shares to employees
Buyback Date	2016/07/01-2016/08/26	2016/08/30-2016/10/28	2016/11/09-2017/01/06
Type of Shares Bought Back	ordinaryshares	ordinaryshares	ordinaryshares

• 49 -

Buyback Volume	1,669,000 shares	1,862,000 shares	1,227,000 shares
Total Amount of Buyback (includingfees)	NTD 16,736,948	NTD 17,833,122	NTD 12,924,624
Amount of Shares Bought Back Quantity as a Percentage of Planned buyback (%)	55.63	62.07	40.90
Cumulative Holding of the Company's Shares	0	0	0
Number of Shares Retired and Transferred	1,669,000 shares	1,862,000 shares	1,227,000 shares
Cumulative Holding of the Company's Shares as a Percentage of Outstanding shares	0%	0%	0%
Incidence	16th	17th
Purposes of Buyback	maintain company's credit standing and shareholders' equity	maintain company's credit standing and shareholders' equity
Buyback Date	2020/03/17-2020/5/06	2020/05/12-2020/07/06
Type of Shares Bought Back	ordinaryshares	ordinaryshares
Buyback Volume	3,000,000 shares	3,000,000 shares
Total Amount of Buyback (includingfees)	NTD 29,173,412	NTD 32,001,230
Amount of Shares Bought Back Quantity as a Percentage of Planned buyback (%)	100	100
Cumulative Holding of the Company's Shares	0	0
Number of Shares Retired and Transferred	3,000,000 shares	3,000,000 shares
Cumulative Holding of the Company's Shares as a Percentage of Outstanding shares	0%	0%

II. Corporate Bonds: None

III. Preferred Shares: None

IV. Global Depository Receipts: None

V. Employee Share Subscription Rights: None

VI. New Employee Restricted Shares: None

VII. New Shares Issued for Merger or Acquisition: None VIII. Progress on Planned Use of Capital:

Up until the quarter immediately preceding the publication date of annual report, the Company had no uncompleted securities offering or any securities offering completed in the last three years that had yet to yield the designed outcome.

• 50 -

Five. Operational Overview

I. Business Activities

• (I) Scope of Business

• Main Business Activities

• Iron and Steel Refining

• Steel Rolling and Extruding

• Iron and Steel Casting

• Iron and Steel Secondary Processing

• Other Metal Products Manufacturing

• Surface Treatments

• Propotions of Business Activities Unit: NTD thousands

ropotions of BusinessActivities		Unit: NTD thousands
Product	2020 Sales Amount	as a Percentage of Annual Sales(%)
Stainless Steel Tubes and Pipes	8,458,282	80.09
Stainless Steel Sheets and Coils	2,074,486	19.64
Others	28,179	0.27
Total	10,560,947	100.00

1. Current Products and Services of the Company

2. Industrial Stainless Steel Pipes

3. Stainless Steel Tubes for Mechanical Structure

4. Stainless Steel Angle Bars

5. Stainless Steel Sheets and Coils

6. Commissioned Processing

7. New Product Development Plans

8. Research and Production of Titanium Pipes

9. Development of New Materials and New Production Technologies

10. (II) Industry Overview

11. Current and Future Industry Prospects

The Company's main business activities are the production of stainless steel tubes, pipes, sheets, coils, and angle bars. Steel is an essential material in the modern society. From metal products manufacturing, machinery, transportation equipment, construction, to electrical equipment, virtually all the above industries rely on steel as the basic material, which is why growth of the steel industry is closely related to the overall economy.

From a global perspective, the U.S., Europe, and countries around the world have resolved to tariff as a way of protecting their own industries, which poses significant stress to Taiwan as an export-driven economy. The Company's Mainland subsidiaries, too, experienced slower growth due to a decline in local economic activities. However, the introduction of economic stimulus and initiatives such as the One Belt One Road initiative should prove beneficial in the future. Competition within the domestic market remains intense, but thanks to growing demands from emerging markets and the favorable investment environment the government has created, the Company will be looking to expand export sales while at the same time take advantage of increased local demand for stainless steel from new infrastructure projects. Lastly, given the rising environmental protection awareness around the world, the Company is optimistic about creating new opportunities by capitalizing on the high recyclability and reusability of stainless steel materials.

1. Association between Upstream, Midstream, and Downstream Industry Participants

2. 51 -

The Company manufactures industrial stainless steel pipes and structural stainless steel tubes, which places it in the midstream of the stainless steel supply chain. The stainless steel industry is closely connected to other industries such as construction, transportation equipment, petrochemical, pulp and paper, food and beverag, and machinery due to the favorable properties of stainless steel in resisting against oxidation and corrosion. The association among upstream/midstream/downstream of the stainless steel industry is as follows:

==> picture [509 x 350] intentionally omitted <==

----- Start of picture text -----

Pipe Manufacturing
Stainless Dining Utensils
Steel
Hot Rolled Cutting and
Stainless Steel Fabrication Kitchenware
Coil
Petrochemicals
Stainless
Steel
Slabs Food & Beverage
Cold Rolled
Stainless Steel Pulp & Paper
Coil
Stainless
Steel Tubes
and Pipes Chemical Engineering
Stainless Construction
Nuts and Bolts
Steel
Melting
Automobiles
Stainless Stainless
Steel Billets Steel Wire Food Processing
Rod
Ironware
Manufacturing
----- End of picture text -----

• 52 -

• Product Trends

• (1) Replacing Carbon Steel Pipes and Seamless Stainless Steel Pipes

• Stainless steel pipes possess several advantages over carbon steel pipes, including better resistance against heat, acid, and corrosion, and require no further surface treatment. As a result, stainless steel pipes are gradually replacing conventional carbon steel pipes around the world. Due to recent improvements in electric fusion welding technology, welded stainless steel pipes can now be made at quality no inferior than seamless stainless steel pipes, while offering advantages such as lower cost and greater flexibility, welded stainless steel pipes now have the potential to replace their seamless counterparts.

• (2) Increasing Dominance of Oversea Sales and the Mainland Market As product quality stabilizes within the domestic stainless steel pipes industry, participants are actively exploring oversea sales and turning to foreign markets for new growth opportunities. The domestic industry as a whole exported 159,160 tonnes in 2018, 133,251 tonnes in 2019, and 119,570 tonnes in 2020; although export volume of stainless steel products has declined in the last 3 years, Taiwan still has significant market share and influence in the global market.

• Domestic Product Competition

• The Company specializes in the manufacturing of stainless steel pipes, and the sales of which accounts for approximately 72.85% of the Company's individual revenue in 2020. Other local public-listed stainless steel pipe manufacturers include YC INOX and Ta Chen Stainless; sale of stainless steel pipes accounts for 53.80% of revenue in YC INOX and 49.53% of revenue in Ta Chen Stainless

Table 1: Domestic Production Value of Welded Stainless Steel Pipes Unit: NTD thousands

able 1	: Domestic Production Value of	: Domestic Production Value of	: Domestic Production Value of	Welded Stainless Steel Pipes	Welded Stainless Steel Pipes	Welded Stainless Steel Pipes	Unit: NTD thousands	Unit: NTD thousands	Unit: NTD thousands
		Froch			YC INOX		Ta	Chen Stainless
	Revenue	Stainless Steel Pipes		Revenue	Stainless steel pipes		Revenue	Stainless steel pipes
Year	Amount	Amount	Percentage	Amount	Amount	Percentage	Amount	Amount	Percentag e
2016	8,762,930	5,946,001	67.85%	17,624,922	7,471,744	42.39%	8,737,881	4,459,536	51.04%
2017	9,795,067	6,731,571	68.72%	19,265,629	8,723,659	45.28%	9,478,017	5,535,861	58.41%
2018	9,824,825	7,122,760	72.50%	19,129,638	9,036,533	47.24%	8,347,692	5,143,343	61.61%
2019	8,708,539	6,232,272	71.57%	16,308,739	7,681,747	47.10%	7,584,694	3,918,991	51.67%
2020	7,745,032	5,642,367	72.85%	12,717,152	6,841,412	53.80%	6,237,417	3,089,392	49.53%

Source: Audited Individual Financial Reports of Various Companies between 2016 and 2020

The Company has reached economies of scale in a competitive stainless steel pipe market. Not only the departments are capable of working closely with each other, the Company also adopts a market-driven approach that emphasizes on customers' needs, timely service, product R&D, and quality enhancement. The Company possesses competitive advantage in the following areas:

• (1) Comprehensive Product Range to Satisfy Customers' Diverse Needs

• The Company is dedicated to maintaining a comprehensive product range by expanding product items according to market demand, and has been constantly developing stainless steel pipes of various sizes. From 1/4-inch to 80-inch, the Company produces diversified products to satisfy customers' one-stop shopping needs and to support market expansion, and to minimize risks associated with single product items.

• (2) Strong R&D Capabilities; Leading in the Development of High Value-added Products

• 53 -

The Company has had emerging success with the automation of processes such as in-line polishing of circular/rectangular pipes, in-line annealing of pipe mills, automated measurement and cutting, etc.; all of which have the potential to improve capacity utilization and product quality. Meanwhile, new pipes featuring large diameters, thick walls, and new materials are being developed to maintain advantage over other manufacturers.

• (3) Best Product Quality in the Industry

• From the quality perspective, the Company's quality management system has been certified for ISO9001 and ISO14001 by Lloyd's Register of Shipping. Furthermore, the Company's quality assurance laboratory was certified by Chinese National Laboratory Accreditation (CNLA) in 2001 (which was later renamed Taiwan Accreditation Foundation or TAF in 2004). The Company leads other manufacturers not only in X-ray examination of large diameter welds, but also in terms of JIS mark (JQA) certification as well, and will continue researching for high quality products and procedure improvements in the future.

• (4) Complete Service Network

• Aside from increasing market share in the domestic stainless steel pipe industry, the Company also sells products to the rest of the world through Internet and amicable interaction with trade partners. In addition to building and maintaining a tight marketing network, the Company develops deep into the market needs, adapts to market dynamics, conducts differentiated market strategies in different markets.

• (III) Technological Research and Development

• The Company's R&D efforts are primarily focusing toward production procedure development, product quality improvement, operator techniques enhancement, and new product development. With respect to production procedure development, the Company introduced advanced equipment and molds locally and abroad, or designed its own advanced equipment and molds to improve production technology, capability, and product quality.

• For product quality improvement, the Company actively adopted product assurance systems and certifications, explored new production equipment and procedural improvements, and took actions to enhance product quality.

• In terms of operator techniques enhancement, the Company not only assigned employees to various local and abroad conferences, but also invited experts from around the world to train employees to keep them up to date with the latest professional knowledge and technical levels.

As for new production process, the Company actively conducted market surveys, introduced advanced equipment and molds locally and abroad, recruited professional talents for R&D, arranged intensive training for existing researchers, and actively tested and developed new product items.

Significant R&D accomplishments were made in 2009; in terms of product assurance, the Company adopted and passed certification for JIS; in terms of product development, the Company commenced production of steel sheets and coils and was successful in the development of new pickling technology.

2. R&D Personnel and Expense: Year R&D Expense People 2016 24,593 25 2017 37,121 47 2018 49,698 55 2020 18,870 53 2021 12,602 50	2. R&D Personnel and Expense: Year R&D Expense People 2016 24,593 25 2017 37,121 47 2018 49,698 55 2020 18,870 53 2021 12,602 50	2. R&D Personnel and Expense: Year R&D Expense People 2016 24,593 25 2017 37,121 47 2018 49,698 55 2020 18,870 53 2021 12,602 50	2. R&D Personnel and Expense: Year R&D Expense People 2016 24,593 25 2017 37,121 47 2018 49,698 55 2020 18,870 53 2021 12,602 50			Unit: NTD thousands College Senior High School 3 15 4 37 3 46 4 19 4 38	Unit: NTD thousands College Senior High School 3 15 4 37 3 46 4 19 4 38
	Year	R&D Expense	People	Post-graduates (Masters,Ph.D.)	University	College	Senior High School
	2016	24,593	25	0	7	3	15
	2017	37,121	47	0	6	4	37
	2018	49,698	55	0	6	3	46
	2020	18,870	53	0	8	4	19
	2021	12,602	50	0	8	4	38

• 54 -

3. Research Achievements:

3. Research Achievements:	3. Research Achievements:	3. Research Achievements:	ievements:	ievements:	ievements:
2005-2008 1. Circular tubes in-line polishing technology 2. Rectangular tubes in-line polishing technology 3. Pipe-making machine in-line annealing project 4. Titanium pipe development project 2009 1. Adoption and certification of JIS quality management system 2. Stainless steel sheets and coils production technology development project 3. Pickling process developmentproject 2010 1. Warehouse and logistics development project 2011 1. Improvement of polishing process 2014 1. Special materials manufacturing process improvement and redesign of existing equipment 4.R&D Projects: Project Project Focus Time Expected R&D Amount The Company is a manufacturer of stainless steel tubes and pipes and sheets and coils, and operates in a mature industry where breakthroughs in production technology and equipment are less frequent. For this reason, the Company's R&D budgets are mainly directed toward improvement of existing production procedures and machinery, and do not qualify as new "science, technology, quantitative tool, or statistical method" stipulated in Statute for Industrial Innovation. Expected investment: NTD14,000,000			1. Circular tubes in-line polishing technology 2. Rectangular tubes in-line polishing technology 3. Pipe-making machine in-line annealing project 4. Titanium pipe development project
			1. Adoption and certification of JIS quality management system 2. Stainless steel sheets and coils production technology development project 3. Pickling process developmentproject
			1. Warehouse and logistics development project
			1. Improvement of polishing process
			1. Special materials manufacturing process improvement and redesign of existing equipment
					Expected R&D Amount Expected investment: NTD14,000,000
	Project	Project Focus		Time	Expected R&D Amount
	The Company is a manufacturer of stainless steel tubes and pipes and sheets and coils, and operates in a mature industry where breakthroughs in production technology and equipment are less frequent. For this reason, the Company's R&D budgets are mainly directed toward improvement of existing production procedures and machinery, and do not qualify as new "science, technology, quantitative tool, or statistical method" stipulated in Statute for Industrial Innovation.				Expected investment: NTD14,000,000

(IV) Long and Short-term Business Plans

• 1.Short-term Business Plans

• Improvement and development of titanium pipe welding technology

• Research of new production procedures for stainless steel tubes and pipes

• Enhancement of employee training

• 2.Long-term Business Plans

• Position worldwide for increased sales and global market share

• Grow the stainless steel sheet and coils market for higher market share

• Systematic talent training for business sustainability

• 55 -

II. Market, Production and Sales Overview

• (I) Market Analysis

• Regions where Products are Mainly Sold Unit: NTD thousands

Year Sales Destination	Year Sales Destination	2018	2018	2019	2019	2020	2020
		Amount	%	Amount	%	Amount	%
Domestic Sale		3,687,865	27.51	3,645,782	30.42	3,519,410	33.32
Oversea Sales	Europe	1,394,281	10.40	1,364,123	11.38	1,039,153	9.84
	Asia	4,353,153	32.48	3,950,562	32.97	3,346,398	31.69
	America	2,006,180	14.97	1,435,677	11.98	1,392,745	13.19
	Others	1,962,880	14.64	1,588,062	13.25	1,263,241	11.96
	Total	13,404,359	100.00	11,984,206	100.00	10,560,947	100.00

2. Main Competitors and Market Share

• (1) Main Competitors

Domestic Market: YC INOX.

Oversea Markets: YC INOX, Ta Chen Stainless, KANZE Malaysia, LG Korea.

• (2) Market Share

Below is a comparison between Taiwan's total export volume of welded stainless steel pipes and the Company's export sales in the last two years, based on the 2020 steel product import and export statistics published by Taiwan Steel & Iron Industries Association:

Unit: tonnes

			Unit: tonnes	Unit: tonnes
Year Aspect	2019		2020
	Tonnage	Growth %	Tonnage	Growth %
Total Export Volume	133,251	(14.67)	119,570	(10.27)
Volume Sold by the Company	46,206	(13.82)	42,420	(8.19)
As a Percentage of Total Export (%)	34.67	2.91	35.48	2.34

3. Future Market Supply, Demand and Growth

The Company is a professional manufacturer of stainless steel tubes and pipes. The anti-corrosive, high temperature-resistant, and high pressure-resistant qualities combined with polished surface make stainless steel tubes and pipes increasingly popular among users. As income per capita and living standard increase, consumers increase demand for stainless steel. Growth of demand for stainless steel is especially rapid in China, stainless steel has become popular, and is now widely used in many industries. To capitalize on the world's increasing demand, the Company will continue looking for ways to reduce cost with the economies of scale, while at the same time develop high value-added products that would maximize profits.

1. The Favorable and Unfavorable Factors for Future Development and Response Strategies

2. (1) Favorable Factors

   • The Company is mainly involved in the manufacturing and sales of stainless steel tubes and pipes; having incorporated for more than 30 years, the Company prides itself for being a long standing, much experienced, and professionally managed businesses in the industry.

   • Backed by many years of experience, the Company constantly introduces new equipment and technology into production. With systematic production procedures, it applies strict quality control to ensure compliance with standards in the Republic of

3. 56 -

China, Japan, and the U.S. As a result, the Company's products are widely used by businesses local and abroad.

  - The Company was the first among other manufacturers to have quality management system certified for ISO-9001 by Lloyd's Register of Shipping and the nation's Product Inspection Bureau. The Company's environmental management system was certified for ISO-14001 by Lloyd's Register of Shipping in 1999, and its quality assurance laboratory passed certification for CNLA later in 2001. Having products certified by professional institutions local and abroad is beneficial to the Company's competitiveness in the market.

  - The Company not only has a sizable production capacity, but also possesses the flexibility to make products from 1/4-inch to 80-inch, and is therefore able to meet customers' diverse needs.

  - Demand for stainless steel is expected to grow consistently, driven by applications such as aeronautics, nuclear power, automobiles, and robotics. Additionally, Taiwan consumers' preference for higher quality goods grows on the yearly basis. In fact, Taiwan's infrastructures remain inadequate compared to other developed countries, hence there is still significant room for growth of stainless steel tubes and pipes.

• (2) Unfavorable Factors

  • Ongoing increase in local wages causes manufacturing costs to rise.

  • Nickel is a key material for making stainless steel, and the price of which is highly susceptible to international supply and demand. As a result, the price of stainless steel produced in Taiwan is easily affected by international nickel prices.

• (3) Response Strategies

  • Improve manufacturing procedures through automation and efficiency enhancement.

  • Closely monitor international markets for changes in nickel price, and prepare for change of stainless steel price.

• (II) Main Product Applications and Production Processes

• Main Product Applications

The Company's main products currently include: stainless steel tubes, stainless steel pipes, stainless steel angle bars, and stainless steel flat bars. Stainless tubes and pipes manufacturing forms part of the basic materials sector, as it offers wide range of applications that are crucial to living and industrial activities. It is an essential material to light and heavy industries from furniture, transportation equipment, machinery manufacturing, petrochemical, construction, to metal processing. Purposes and functions of the Company's key products are summarized below:

below:
Main Products	Purpose
Tubes	Mechanical Structure, Renovation, Furniture, Hand Railing, Anti-theft Window, Hygiene Equipment,Heat Exchanger,DairyIndustry,etc.
Pipes	Anti-corrosion, High Temperature-resistant, High pressure-resistant, Petrochemical,Food and Beverage,Pulpand Paper,Dyeing,etc.
Sheets and Coils	Buildings,Furniture,Renovation,Kitchen Ware,Tanks and Vessels,etc.

• 57 -

2.Production Process

==> picture [447 x 98] intentionally omitted <==

==> picture [447 x 98] intentionally omitted <==

3. Supply of Key Materials

• Cold-rolled and hot-rolled stainless steel plates and coils are the key materials used by the Company. Stainless steel coils are sourced from domestic suppliers including YUSCO and Walsin Lihwa, and foreign suppliers including TISCO and Fujian Fuxin in Mainland China. Raw materials are sourced mainly from domestic suppliers, and new suppliers are progressively added to ensure the consistency and quality of supply. Overall, the Company expects ample supply of resources in the future.

4. Main Suppliers and Customers List

• (1) Suppliers Representing More than 10% of Total Purchases in any of the Previous Two Years, and the Amount and Percentage of Purchase Unit: NTD thousands; %

		Years, and the Amount an	Years, and the Amount an	Years, and the Amount an	d Percentage of Purchase	d Percentage of Purchase	d Percentage of Purchase	d Percentage of Purchase	Unit: NTD thousands; %	Unit: NTD thousands; %	Unit: NTD thousands; %	Unit: NTD thousands; %
Item		2019			2020				2021 up until the First Quarter
	Name	Amount	As a Percentage of Annual Net Purchases (%)	Relationship with the Issuer	Name	Amount	As a Percentage of Annual Net Purchases (%)	Relationship with the Issuer	Name	Amount	As a Percentage of Annual Net Purchases (%)	Relationship with the Issuer
1	AAC	1,893,730	20.95	None	AAC	2,022,037	23.88	None	AAC	425,004	17.83	None
2	AAB	1,712,829	18.94	None	AAB	1,524,002	18.00	None	AAA	418,820	17.57	None
3	AAA	1,671,798	18.50	None	AAA	1,409,877	16.65	None	AAB	385,873	16.18	None
4	Others	3,761,631	41.61	None	Others	3,513,078	41.47	None	Others	1,154,547	48.42	None
	Net Purchase	9,039,988	100.00	-	Net Purchase	8,468,994	100.00	-	Net Purchase	2,384,244	100.00	-

• (2) Customers Representing More than 10% of Net Sales in any of the Previous Two Years, and the Amount and Percentage of Sale: None

• 58 -

• Production Volume and Value in the Last Two Years Unit: tonnes; NTD thousands

Year Production Volume/Value Main Products		2020			2019	2019
	Production Capacity	Production Volume	Production Value	Production Capacity	Production Volume	Production Value
Stainless Steel Tubes and Pipes	192,000	115,612	7,215,071	192,000	120,053	8,115,054
Stainless Steel Sheets and Coils	60,000	31,970	1,969,372	60,000	32,545	2,155,687
Total	252,000	147,582	9,184,443	252,000	152,598	10,270,741

1. Sales Volume and Value in the Last Two Years Unit: tonnes; NTD thousands

6. Sales Volume and	Value in the Last Two Years	Value in the Last Two Years	Value in the Last Two Years	Value in the Last Two Years	Unit: tonnes;NTD thousands	Unit: tonnes;NTD thousands	Unit: tonnes;NTD thousands	Unit: tonnes;NTD thousands
Year Sales Volume/Value Main Products	2020				2019
	Domestic Sale		Oversea Sale		Domestic Sale		Oversea Sale
	Volume	Value	Volume	Value	Volume	Value	Volume	Value
Stainless Steel Tubes and Pipes	35,858	2,542,640	83,307	5,915,642	33,152	2,481,401	88,968	7,026,538
Stainless steel Sheet and Coils	17,748	952,762	17,396	1,121,724	18,785	1,132,268	18,347	1,281,864
Others	327	24,008	41	4,171	460	32,113	600	30,022
Total	53,933	3,519,410	100,744	7,041,537	52,397	3,645,782	107,915	8,338,424

III. Employee Information in the Last 2 Years up until the Publication Date of This Annual Report

Employee Numbers in the Last 2 Years: March 31, 2021

Employee Numbers in the Last 2	Employee Numbers in the Last 2	Years:		March31,2021
Year		2019	2020	March 31, 2021
People	Indirect Labor	500	515	430
	Direct Labor	443	415	513
	Total	943	930	943
Average Age		38.01	39.17	39.33
Average Years of Service		6.75	8.21	8.37
Academic Background	Doctoral Degree	1	1	1
	Master’s Degree	9	9	9
	Bachelor’s Degree	270	275	285
	Senior High School	446	448	450
	Below Senior High School	217	197	198

IV. Expenditure for Environmental Protection

The Company is a professional manufacturer of stainless steel tubes and pipes; it has wastewater treatment and dust collection equipment in place to mitigate environmental impact of processes such as polishing and pickling. Dedicated personnel have been assigned to supervise pollution treatment and prevention works on site as required by the Occupational Safety and Health Act, while an Environmental Protection Administration-certified institution has been engaged to conduct unscheduled inspections. These severe pollution prevention efforts are what enabled the Company to fully comply with the discharge standards imposed by the Environmental Protection Administration.

(I) Description of Compliance Regarding Pollution Facility Installation Permit, Payment of

• 59 -

Pollution Prevention Expenses, or Appointment of Environmental Protection Personnel, where Required by Law:

	where Required by Law:
1.	Application for Pollutive Facility	Installation Permit or Pollutant Discharge Permit
	Aspect	Certificate No.	Permit Validity
	Permit for Handling of Stationary Pollution Sources	Fu-Huan-Kon-Cao-Zheng-P0327-05	2020.07.02-2025.07.01
	Permit for Handling of Stationary Pollution Sources	Fu-Huan-Kon-Cao-Zheng-P0326-05	2020.06.08-2025.06.07
	Permit for Handling of Stationary Pollution Sources	Fu-Huan-Kon-Cao-Zheng-P0324-04	2017.07.10-2022.07.09

1. Payment of Pollution Prevention Expenses: None

2. Assignment of Dedicated Environmental Protection Personnel

Name	Permit Category	Qualification Reference No.
Wen-Hsiou Lee	Class B Air Pollution Controller	88-Huan-Shu-Shun-Zheng-FB260955
Shu-Chen Lin	Class A Air Pollution Controller	95-Huan-Shu-Shun-Zheng-FA070234

• (II) Investment and Purpose in Pollution Prevention Equipment, and Possible Benefits

					December31,2020
Name of Equipment	Set	Date Acquired	Cost of Investment	Remaining Book Value	Purpose and Expected Benefits
Wastewater Treatment for Plant 1	1 set	1991.12	3,571,428	66,071	To Ensure that Discharge of Wastewater Complied with Environmental Protection Requirements
Wastewater Treatment for Plant 2	1 set	1996.06	12,292,306	1,767,837

• (III) Efforts Undertaken by the Company to Rectify Pollution in the Last Two Years and up until the Publication Date of Annual Report; in Case where Dispute had Arisen due to Pollution, Describe the Progress of Such Dispute: None

• (IV) Losses and Penalties Suffered due to Pollution of the Environment in the Last Two Years up until the Publication Date of Annual Report; Disclose Future Response Strategies and Possible Expenses:

The Company was fined NTD60,000 by Yunlin County Environmental Protection Bureau on April 17, 2020 for inconsistency of approved issues stated in its waste clearing proposal. This incident did not cause any pollution to the environment, but the Company was required to apply proper storage and labeling of such waste, and assign responsible personnel to undergo 2 hours of environmental training.

• (V) Describe the Current State of Pollution and how Improvements may Affect the Company's Earnings, Competitiveness, and Capital Expenditure; Estimate Major Capital Expenditures on Environmental Protection in the Next 3 Years: None

• (VI) Compliance with EU ROHS Directives:

• All of the Company's products comply with ROHS, hence the standard has no significant impact on the Company's business and financial performance.

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V. Labor Relations

• (I) Welfare Measures and Implementation

• The Company founded "Froch Enterprise Co., Ltd. Employee Welfare Committee" and created a set of Employee Welfare Committee Basic Principles in December 1994. The Employee Welfare Committee has a total of 9 members; one member position is reserved for the Chairman, whereas the remainder is elected by employees.

• Employee Welfare Committee meetings are held at least once every six months and may be called on an ad-hoc basis if necessary. The committee organizes various activities such as year-end party, lotteries, birthday celebration, and domestic and foreign trips, etc.

• Social Insurance Coverage and Protections are Provided for Employees who are Entitled Under Local Laws.

• The Company has always been mindful of employees' compensation and benefits, and strives to create a positive and joyful work environment through talent training, enforcement of labor regulations, and protection of employees' interests. Employees are able to communicate and resolve issues with the Company through channels such as departmental meetings and labor-management meetings. The Company adopts a people-oriented management approach, advocating unity and cohesiveness between labor and management as the key to ongoing performance enhancement and sustained growth.

• (II) Education and Training

• Training activities are arranged by the Education and Training Committee. The committee plans and executes training courses depending on the integrated needs of employees of different grades and functions, and is responsible for the evaluation and training of internal instructors as well as the selection of external instructors. 2020 Progress:

(1) All Employees:

2020 Progress: (1) All Employees:	2020 Progress: (1) All Employees:
Internal Training				External Training
Course	People	Course Duration(HR)	Expense	Course	People	Course Duration(HR)	Expense
Environmental Regulations	52	0.5	0	Auditing for Corporate Costs and Value Creation Seminar	3	6.0	10,312
Equipment Use and Maintenance	717	1.0	0	Breathing Protection Initiative for Businesses in the Industrial Zone Seminar	2	3.0	0
Occupational Safety and Health	138	2.5	0	Establishment of Self-management System and Safetyand Health Hazards Identification	2	4.0	0
Emergency Response for Malfunctioning of Air Pollution Prevention Equipment and Leakage of Pollutions	28	1.0	0	Occupational Disease Prevention and Operational Environment Evaluation Seminar	2	6.0	830
Heat Treatment Personnel Training	16	3.0	0	First Trainingof Fire Prevent Manager	1	12.0	3,200
Quality Standards Training	5	1.5	0	Dissemination of Working Environment Improvement of Businesses	1	6.0	0
Packaging Personnel Training	59	1.0	0	High Risk Operation Hazards Prevention Training	1	3.0	0
Information Security Training	163	1.0	0	Workfloor Hazards Prevention and Enhancement	1	6.0	1,450
Pickling Personnel Training	30	1.0	0	Labor Health Service Knowledge and Practice Seminar	2	6.0	0
Pipe Mills Personnel Training	160	7.0	0	Labor Regulations for AuditingPersonnel	2	6.0	0
PolishingOperations Training	28	2.0	0	Radiation Protection Training	10	6.0	3,751
				Occupational Safety and Health Officer Training	1	8.0	0
				Occupational Safetyand Health Seminar	2	16.0	0
				Occupational Safety and Health and Working Condition Seminar	1	7.0	0

• 61 -

(2) Executives:

Date	Course	Organizer	Participants	Title	Hours
2020/09/16	New Era Risk Management – Continuous Operation Risks Monitoring	Taiwan Corporate Governance Association	Ping-Yao Chang	President	6
2020/09/16	New Era Risk Management – Continuous Operation Risks Monitoring	Taiwan Corporate Governance Association	Hsin-Ta Chang	Vice President	6
2020/09/16	New Era Risk Management – Continuous Operation Risks Monitoring	Taiwan Corporate Governance Association	Tsao-Chi Yang	Division Head	6
2020/09/16	New Era Risk Management – Continuous Operation Risks Monitoring	Taiwan Corporate Governance Association	Yi-Cheng Shih	Division Head	6

1. The Company encourages employees to obtain certifications that are relevant to their work duties, and to share their knowledge, concepts, and techniques among colleagues. Any certificates obtained are updated onto professional employees' profile sheet and taken into consideration during performance evaluation.

2. (III) Pension System and Execution

3. The Company assembled its Labor Pension Supervisory Committee in October 1986 according to the Labor Standards Act. A set of Employee Retirement Rules has been created and is approved by Yunlin County Government under Letter No. Fu-Lao-Dong-0941502404. Following the implementation of new "Labor Pension Act" in July 1, 2005, employees who opted for the old scheme are still subject to the abovementioned retirement policy, whereas employees who opted for the new scheme have had monthly pension contributions paid at 6% of salary into their respective pension accounts.

4. (IV) Work Environment and Implementation of Employee Safety and Protection Measures

5. (1) Some of the Company's production equipment operate under environments such as high heat (e.g. annealing furnace), dust (e.g. polishing), and noise. These environments are tested by external service providers every six months as required by law. The Company deployed cooling equipment at appropriate locations to reduce environmental temperature that are susceptible to high heat; furthermore, saline supplements are provided and prevention awareness is being promoted to address safety concerns in high heat environment. As for dusty and noisy environments, the Company installed dust collection devices and makes proper adjustments to working hours and shifts so that workers are not exposed to a single environment for prolonged periods of time. Employees working in special environments are also entitled to specialized health examinations. Furthermore, employees are encouraged to communicate and reflect potential hazards in the working environment, and in doing so contribute to the creation of a zero-hazard workplace.

6. (2) The Company sees employees as its important asset, and therefore recognizes employees' secure life as one of its primary missions, for which it strives to create a workplace culture of safety, non-discrimination, and mutual respect.

7. (3) Equipment Safety:

   • Hazardous machines (cranes, pressure vessels etc.) are inspected by professional third parties on a yearly basis, and inspection results are retained on record.

   • Contractors are informed of safety and environmental protection issues when

8. 62 -

contracting and whenever work is performed on site. Contractors are also required to sign a "Contractor Pre-work Safety Notice" as acknowledgment.

• On-site workers are required to wear safety helmets and ear plugs.

• (4) Environmental Health:

• 5S random inspections are being performed.

• (5) Healthcare:

• Existing employees are subjected to general health examination once a year.

• Employees working in an X-RAY environment are subjected to special health examination once a year.

• Health examinations must be conducted by medical institutions jointly approved by the Ministry of Labor and the Ministry of Health and Welfare, Executive Yuan.

• Any occupational injury occurred at the workplace must be tended to immediately, and followed up with investigation and analysis and filed on record.

• (6) Fire Safety:

• The Company has complete fire safety system such as sprinklers, escape sling, emergency lighting etc. installed according to the Fire Services Act.

• (V) Corporate Social Responsibilities (CSR)

• The Company allocates resources to sponsor charity, the underprivileged, and development of cultural capacity in local areas. Examples of actions taken to promote CSR image include:

• Participating in the "Caring Library" program by Taiwan Reading Culture Foundation, where the Company purchased and donated 50 cartons of books to co-reading organizations, and organized the training of the head readers of reading clubs to promote reading habit and level among the public.

• Sponsoring concert performance featuring the Taichung City Symphony Orchestra, and in doing so spread the art of music to the local community and general public for a more harmonic society.

• Sponsoring Huashan Social Welfare Foundation and Genesis Social Welfare Foundation as a gesture of cohesiveness.

• (VI) Work and Professional Ethics

• The Company has a set of "Employee Management Policy" that outlines the level of work and professional ethics expected from employees. The following are the rules that employees are expected to follow:

• Comply with employee manual, internal regulations, announcements, and departmental instructions.

• Protect the Company's reputation, and refrain from commenting publicly on issues that concern the Company's interests unless permitted.

• Duly perform duties and maintain confidentiality of any business matters.

• Take good care of company properties and exercise cost awareness; no bringing company properties off premises unless permitted.

• Engage external parties with modesty; no despising or humiliating the counterpart nor conducting any action that compromises the Company's reputation.

• Teamworking and refrain from quarreling, fighting, slandering, or any action that disrupts the proper order.

• Avoid strike, sloppiness, and any action that undermines production or operations.

• Obligation to protect the Company. Take initiative in salvaging, rescuing, and performing security works in the event of natural disaster or accident.

• For the security of the Company's network environment, do not download image, video, or MP3 files over the internet or log in to websites that are irrelevant to work.

• Refrain from speaking or acting out of moral standards to the extent that violates or

• 63 -

degrades on the dignity, personal freedom, or job performance of other employees.

1. A sexual harassment complaint mailbox has been placed at the security office to be used as a grievance channel.

2. Employees are evaluated on a monthly basis using a variety of indicators to ensure compliance with the above rules and to promote proper values.

3. (VII) Employment Agreements and Disputes

4. The Company has always adopted a self management approach that involves all parties in business operations. Through proposals, monthly departmental meetings, and operational meetings, employees are able to communicate with the management on any issue from production-sales coordination, business performance, to workforce updates. The Company has been able to maintain harmonic employment relations, and hence no employment dispute or loss had occurred.

5. (VIII) Losses Arising as a Result of Employment Dispute in the Last Two Years up until the Ppublication Date of this Annual Report; Quantify the Estimated Losses and State any Response Actions, as well as Reasons if Losses cannot be Reasonably Estimated: According to the decision of Lao-Zhi-Shou 1100200192 issued on January 20, 2021, the Company did not follow the rule stipulated per Paragraph 1, Article 57, Occupational Safety Facility Regulation, to stop the machine running. It resulted Chin to suffer from occupational injury on December 9, 2020. The Company violated Subparagraph 1, Paragraph 1, Article 6 of the Occupational Safety Facility Regulation and was fined NTD60,000.

6. The Company will take proper care of Chin, pay for the medical expenses, apply insurance claim, and reconcile with Chin. He will resume work with the Company after recovery. The Company shall enhance the education of occupational safety and the installment of necessary safety and health facilities and endeavors.

7. (IX) Certification of Personnel Involved in Finance and Information System: Preparing

VI. Insider Material Information Handling Procedures:

The Company has established a set of "Insider Material Information Handling Procedures" to promote proper handling and disclosure while prevent improper leakage of insider material information, and thereby ensure the consistency and accuracy of information disseminated to the outside world. Furthermore, executives of the Company proactively participate in corporate governance-related training courses.

VII. Major Contracts:

Nature of Contract	Parties Involved	Contract Start/End Date	Key Content	Restrictive Clauses
Syndicated Loan Agreement	A syndicate of 10 lenders including Land Bank of Taiwan	2018.12.18 - 2025.12.17	Total credit limit: NTD4.5 billion	1. Current ratio must not fall below 100% (inclusive); 2. Debt ratio must not exceed 250% (inclusive); 3. Shareholders' equity must not fall below NTD2.8 billion; 4. Interest coverage ratio must be above 2 times (inclusive).

• 64 -

Six. Financial Overview

I. Concise Balance Sheet and Comprehensive Income Statement for the Last 5 Years (I) Concise Individual Balance Sheet - IFRS-compliant

Unit: NTD thousands

			Unit:	Unit:	Unit:	NTD thousands
Year Account			Financial Information for the Last 5 Years
		2016	2017	2018	2019	2020
Current Assets		4,288,166	4,404,719	4,561,915	4,069,936	4,498,188
Property, Plant and Equipment		2,941,473	2,893,887	2,856,862	2,985,737	3,215,921
Intangible Assets		0	0	0	0	0
Other Assets		2,302,193	2,353,381	2,525,428	2,710,378	2,834,897
Total Assets		9,531,832	9,651,987	9,944,205	9,766,051	10,549,006
Current Liabilities	before Dividend	3,964,020	4,218,996	4,172,735	3,038,848	3,541,001
	after Dividend	4,045,592	4,494,154	4,459,261	3,182,111	3,681,264
Non-current Liabilities		2,286,692	1,751,756	1,742,659	2,733,854	3,098,636
Total Liabilities	before Dividend	6,250,712	5,970,752	5,915,394	5,772,702	6,639,637
	after Dividend	6,332,285	6,245,910	6,201,920	5,915,965	6,779,900
Equity Attributable to Parent Company Shareholders		3,281,120	3,681,235	4,028,811	3,993,349	3,909,396
Share Capital		2,865,260	2,865,260	2,865,260	2,865,260	2,805,260
Capital Reserves		473,364	408,841	444,012	464,646	463,471
Retained Earnings (Cumulative Losses)	before Dividend	141,200	660,498	927,027	910,404	871,528
	after Dividend	124,150	385,340	640,501	767,141	731,265
Other Equities		(61,252)	(109,656)	(144,960)	(246,961)	(230,890)
TreasuryStock		(137,452)	(143,708)	(62,528)	0	0
Non-controllingInterests		0	0	0	0	0
	before Dividend	3,281,120	3,681,235	4,028,811	3,993,349	3,909,396
Total Equity	after Dividend	3,199,547	3,406,077	3,742,285	3,850,086	3,769,106

• 65 -

Unit: NTD thousands

(II) Concise Consolidated Balance Sheet - IFRS-compliant

			Unit: NTD	Unit: NTD	Unit: NTD	Unit: NTD	thousands
Year Account			Financial Information for the Last 5 Years (Note 1)
		2016	2017	2018	2019	2020	2021 Q1
Current Assets		6,086,788	6,289,379	6,356,586	6,257,013	7,066,286	7,169,605
Property, Plant and Equipment		4,210,711	4,063,746	3,988,659	4,145,835	4,376,031	4,357,298
Intangible Assets		0	0	0	0	0	0
Other Assets		205,956	122,895	174,028	232,399	225,675	240,411
Total Assets		10,503,455	10,476,020	10,519,273	10,635,247	11,667,992	11,767,314
Current Liabilities	before Dividend	4,928,158	5,035,543	4,739,598	3,895,107	4,643,101	4,535,664
	after Dividend	5,009,731	5,310,701	5,026,124	4,038,370	4,783,364	4,535,664
Non-current Liabilities		2,294,177	1,759,242	1,750,864	2,746,791	3,115,522	3,209,592
Total Liabilities	before Dividend	7,222,335	6,794,785	6,490,462	6,641,898	7,758,623	7,745,256
	after Dividend	7,303,908	7,069,943	6,776,988	6,785,161	7,898,886	7,745,256
Equity Attributable to Parent Company Shareholders		3,281,120	3,681,235	4,028,811	3,993,349	3,909,369	4,022,058
Share Capital		2,865,260	2,865,260	2,865,260	2,865,260	2,805,260	2,805,260
Capital Reserves		473,364	408,841	444,012	464,646	463,471	463,471
Retained Earnings (Cumulative Losses)	before Dividend	141,200	660,498	927,027	910,404	871,528	996,448
	after Dividend	124,150	385,340	640,501	767,141	731,265	996,448
Other Equities		(61,252)	(109,656)	(144,960)	(246,961)	(230,890)	(243,121)
TreasuryStock		(137,452)	(143,708)	(62,528)	0	0	0
Non-ControllingInterests		0	0	0	0	0	0
	before Dividend	3,281,120	3,681,235	4,028,811	3,993,349	3,909,369	4,022,058
Total Equity	after Dividend	3,199,547	3,406,077	3,742,285	3,850,086	3,769,106	4,022,058

Note 1: Financial information for 2021 Q1 was audited by CPA.

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(III) Concise Individual Comprehensive Income Statement - IFRS-compliant

Unit: NTD thousands except for earnings per share, which is in NTD

Year Account		Financial Information for the	Financial Information for the	Last 5 Years
	2016	2017	2018	2019	2020
Sales Revenue	8,762,930	9,795,067	9,824,825	8,708,539	7,745,032
Gross Profit	904,421	1,192,278	1,219,516	783,960	618,023
OperatingProfit(Loss)	384,542	600,844	582,040	257,686	82,379
Non Operating Income and Expenses	(19,058)	45,003	131,706	79,095	58,190
Pre-Tax Profit	365,484	645,847	713,746	336,781	140,529
Net Income from Continuing Operations	299,340	538,110	544,078	268,254	108,351
Loss from Discontinued Operations	0	0	0	0	0
Net Income(Loss)	299,340	538,110	544,078	268,254	108,351
Other Comprehensive Income	(172,576)	(50,166)	(37,695)	(100,352)	12,107
Total Comprehensive Income	126,764	487,944	506,383	167,902	120,458
Net Income Attributable to Parent CompanyShareholders	299,340	538,110	544,078	268,254	108,351
Net Income Attributable to Non-controllingEquities	0	0	0	0	0
Comprehensive Income Attributable to Parent Company Shareholders	126,764	487,944	506,383	167,902	120,458
Comprehensive Income Attributable to Non-controlling Equities	0	0	0	0	0
EPS	1.08	1.98	1.97	0.94	0.38

• 67 -

(IV) Concise Consolidated Comprehensive Income Statement - IFRS-compliant

Unit: NTD thousands except for earnings per share, which is in NTD

Year Account		Financial information for the last 5 years (Note 1)	Financial information for the last 5 years (Note 1)	Financial information for the last 5 years (Note 1)	Financial information for the last 5 years (Note 1)
	2016	2017	2018	2019	2020	2021 Q1
Sales Revenue	10,965,673	12,641,864	13,404,359	11,984,206	10,560,947	2,979,021
Gross Profit	1,285,431	1,609,992	1,788,611	1,219,082	938,028	425,903
OperatingProfit(Loss)	579,292	838,472	942,591	498,072	234,868	198,451
Non Operating Income and Expenses	(187,114)	(123,725)	(149,113)	(104,803)	(46,552)	(36,474)
Pre-Tax Profit	392,178	714,747	793,478	393,269	188,316	161,977
Net Income from Continuing Operations	299,340	538,110	544,078	268,254	108,351	124,920
Loss from Discontinued Operations	0	0	0	0	0	0
Net Income(Loss)	299,340	538,110	544,078	268,254	108,351	124,920
Other Comprehensive Income	(172,576)	(50,166)	(37,695)	(100,352)	12,107	(12,231)
Total Comprehensive Income	126,764	487,944	506,383	167,902	120,458	112,689
Net Income Attributable to Parent CompanyShareholders	299,340	538,110	544,078	268,254	108,351	124,920
Net Income Attributable to Non-controllingEquities	0	0	0	0	0	0
Comprehensive Income Attributable to Parent Company Shareholders	126,764	487,944	506,383	167,902	120,458	124,920
Comprehensive Income Attributable to Non-controlling Equities	0	0	0	0	0	0
EPS	1.08	1.98	1.97	0.94	0.38	0.45

Note 1: Financial information for 2021 Q1 was audited by CPA.

(V) Names of Financial Statements Auditors in the Last 5 Years and Audit Opinions

1. Names of Financial Statement Auditors in the Last 5 Years and Audit Opinions

Year	Accountingfirm	Name of CPA	Opinion
2016	Deloitte & Touche Taiwan	Shiao-FangYen, Li-TongWu	Unmodified Opinion
2017	Deloitte & Touche Taiwan	Shiao-FangYen, Li-TongWu	Unmodified Opinion
2018	Deloitte & Touche Taiwan	Ting-Chien Su,Shiao-FangYen	Unmodified Opinion
2019	Deloitte & Touche Taiwan	Ting-Chien Su, Li-TongWu	Unmodified Opinion
2020	Deloitte & Touche Taiwan	Ting-Chien Su, Li-TongWu	Unmodified Opinion

2. Reason for Change of CPA in the Last 5 Years

The change in the Company's financial statement auditor was due to internal rotation within the accounting firm.

• 68 -

II. Financial Analysis for the Last 5 Years

(I) Individual Financial Analysis - IFRS-compliant

Year Analysis	Year Analysis	Year Analysis	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)
			2016	2017	2018	2019	2020
Financial Structure		Debt to Assets Ratio(%)	65.58	61.86	59.49	59.11	62.94
		Long-Term Capital to Property, Plant and Equipment Ratio(%)	183.13	187.74	202.02	225.31	217.92
Solvency		Current Ratio(%)	108.18	104.40	109.33	133.93	127.03
		Quick Ratio(%)	35.64	33.79	31.52	36.93	34.68
		Times Interest Earned(Times)	4.12	6.82	7.22	4.19	2.45
Operating Efficiency		Receivables Turnover(Times)	9.56	10.54	10.66	10.50	10.00
		Average Cash Collection Days	38	35	34	35	36
		InventoryTurnover(Times)	2.74	2.95	2.81	2.59	2.32
		Accounts Payable Turnover (Times)	117.73	80.36	56.49	49.54	48.14
		Average Inventory Turnover Days	133	124	130	141	158
		Property, Plant and Equipment Turnover(Times)	2.93	3.36	3.42	2.98	2.50
		Total Asset Turnover(Times)	0.92	1.02	1.00	0.88	0.76
Profitability		Return on Assets(%)	4.15	6.57	6.49	3.58	1.83
		Return on Equity (%)	9.18	15.46	14.11	6.69	2.74
		Pre-tax Profit to Paid-up Capital (%)	12.76	22.54	24.91	11.75	5.01
		Net Profit Margin(%)	3.42	5.49	5.54	3.08	1.40
		EPS(NTD)	1.08	1.98	1.97	0.94	0.38
Cash Flow		Cash Flow Ratio(%)	7.56	13.32	11.64	17.92	(5.07)
		Cash Flow Adequacy Ratio (%)	205.62	132.86	111.87	134.88	86.44
		Cash Reinvestment Ratio(%)	3.02	6.60	2.72	3.03	(3.61)
Degree of Leverage		OperatingLeverage	1.29	1.18	1.18	1.55	2.77
		Financial Leverage	1.44	1.23	1.25	1.69	(5.75)
	Please Elaborate Reasons for Changes in Financial Ratio in the Last 2 Years. (Unnecessary if the Variation was Less than 20%) 1. Solvency and Profitability Times Interest Earned, Return on Assets, Return on Equity, Pre-tax Profit to Paid-up Capital, Net Profit Margin, and EPS have declined as they were all affected by adverse price changes that resulted in lower net income, due to nickel price fluctuations. 2. Cash Flow Cash Flow Ratio, Cash Flow Adequacy Ratio, Cash Reinvestment Ratio had decreased or become negative as they were affected by cash outflow from operating activities, due to the purchase increase of the inventory. 3. Degree of Leverage Operating Leverage increased, due to the decrease of operating profits. Financial Leverage turned negative, due to larger decline of operating profits than financial cost savings, mainly.

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(II) Consolidated Financial Analysis - IFRS-compliant

Year Analysis	Year Analysis	Year Analysis	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)	Financial Information for the Last 5 Years (Note 1)
			2016	2017	2018	2019	2020	2021Q1
Financial Structure		Debt to Assets Ratio(%)	68.76	64.86	61.70	62.45	64.11	65.82
		Long-Term Capital to Property, Plant and Equipment Ratio (%)	132.41	133.88	144.90	162.58	161.04	165.97
Solvency		Current Ratio(%)	123.51	124.90	134.12	160.64	151.97	158.07
		Quick Ratio(%)	53.59	47.09	49.44	61.90	46.20	57.95
		Times Interest Earned(Times)	3.81	6.44	6.68	4.19	(0.54)	5.78
Operating Efficiency		Receivables Turnover(Times)	9.75	11.11	11.01	10.55	9.15	11.39
		Average Cash Collection Days	37	33	33	35	40	32
		InventoryTurnover(Times)	2.73	3.04	2.97	2.76	2.13	2.36
		Payables Turnover(Times)	141.88	99.58	74.09	65.17	31.53	105.17
		Average Inventory Turnover Days	134	120	123	132	171	155
		Property, Plant and Equipment Turnover (Times)	2.73	3.06	3.33	2.92	2.31	2.86
		Total Asset Turnover(Times)	1.03	1.21	1.28	1.13	0.87	1.02
Profitability		Return on Assets(%)	3.90	6.17	6.25	3.47	(0.95)	4.98
		Return On Equity (%)	9.18	15.46	14.11	6.69	(5.06)	12.60
		Pre-tax Profit to Paid-up Capital (%)	13.69	24.94	27.69	13.73	(6.55)	17.81
		Net Profit Margin(%)	2.73	4.26	4.06	2.24	(2.14)	4.19
		EPS(NTD)	1.08	1.98	1.97	0.94	(0.17)	0.45
Cash Flow		Cash Flow Ratio(%)	12.29	9.20	18.04	19.11	(6.90)	0.72
		Cash Flow AdequacyRatio(%)	204.56	128.52	121.92	145.65	(142.01)	75.15
		Cash Reinvestment Ratio(%)	7.80	4.85	6.92	4.97	(3.22)	0.32
Degree of Leverage		OperatingLeverage	1.34	1.22	1.19	1.45	(1.34)	1.32
		Financial Leverage	1.32	1.19	1.17	1.33	0.30	1.15
	Please Elaborate Reasons for Changes in Financial Ratio in the Last 2 Years. (Unnecessary if the Variation was Less than 20%) 1. Solvency and Profitability Times Interest Earned, Return on Assets, Return on Equity, Pre-tax Profit to Paid-up Capital, Net Profit Margin, and EPS have declined as they were all affected by adverse price changes that resulted in lower net income, due to nickel price fluctuations. 2. Cash Flow Cash Flow Ratio, Cash Flow Adequacy Ratio, Cash Reinvestment Ratio had decreased or become negative as they were affected by cash outflow from operating activities, due to the purchase increase of the inventory. 3. Degree of Leverage Operating Leverage increased, due to the decrease of operating profits. Financial Leverage increased,due to larger decline of operating profits than financial cost savings,mainly.

Times Interest Earned, Return on Assets, Return on Equity, Pre-tax Profit to Paid-up Capital, Net Profit Margin, and EPS have declined as they were all affected by adverse price changes that resulted in lower net income, due to nickel price fluctuations. 2. Cash Flow Cash Flow Ratio, Cash Flow Adequacy Ratio, Cash Reinvestment Ratio had decreased or become negative as they were affected by cash outflow from operating activities, due to the purchase increase of the inventory. 3. Degree of Leverage Operating Leverage increased, due to the decrease of operating profits. Financial Leverage increased, due to larger decline of operating profits than financial cost savings, mainly.

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(III) Formula of Financial Analysis

1. Financial Structure

2. (1) Debt to asset ratio = total liabilities/ total assets.

3. (2) Long-term capital to property, plant and equipment ratio ＝ (total equity ＋ non-current liabilities)／net property, plant and equipment.

4. Solvency

5. (1) Current ratio = current assets / current liabilities.

6. (2) Quick ratio = (current assets - inventory - prepayments) / current liabilities.

7. (3) Times Interest Earned = net profit before interest and tax / interest expenses for the current period.

8. Operating Efficiency

9. (1) Receivables turnover (including accounts receivable and notes receivable from business activities) = net sales / average receivables balance (including accounts receivable and notes receivable from business activities).

10. (2) Average cash collection days = 365 / receivables turnover.

11. (3) Inventory turnover = cost of sales / average inventory balance.

12. (4) Payables turnover (including accounts payable and notes payable for business activities) = cost of sales / average payables balance (including accounts payable and notes payable for business activities).

13. (5) Average inventory turnover days = 365 / inventory turnover.

14. (6) Property, plant and equipment turnover = net sales / average net property, plant and equipment balance.

15. (7) Total asset turnover = net sales / average total assets.

16. Profitability

17. (1) Return on assets = (after tax net income + interest expenses x (1- tax rate)) / average asset balance.

18. (2) Return on equity = after tax net income / average shareholders' equity.

19. (3) Net profit margin = after tax net income / net sales.

20. (4) Earnings per share = (net income attributable to parent company shareholders - preferred share dividends) / weighted average outstanding shares.

5. Cash flow

• (1) Cash flow ratio = net cash flow from operating activities / current liabilities.

• (2) Cash flow adequacy ratio = net cash flow from operating activities for the last 5 years / (capital expenditure + increase in inventory + cash dividends) for the last 5 years.

• (3) Cash reinvestment ratio = (net cash flow from operating activities - cash dividends) / (gross property, plant and equipment + long-term investments + other non-current assets + working capital).

• Degree of leverage:

• (1) Degree of operating leverage = (net sales - variable operating costs and expenses) / operating profit.

• (2) Degree of financial leverage = operating profit / (operating profit - interest expense).

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III. Audit Committee's Review Report on the Latest Financial Statements

Froch Enterprise Co., Ltd. Audit Committee's Review Report

We have reviewed the Company's 2020 business report, financial statements (including individual and consolidated financial statements), and earnings appropriation proposal prepared by the Board of Directors. The financial statements (including individual and consolidated financial statements) have been audited by CPAs Ting-Chien Su and Li-Tong Wu of Deloitte & Touche Taiwan, with which they issued an independent auditor's report of unmodified opinion. The Audit Committee has found no misstatement in the above business reports, financial statements, or earnings appropriation. We hereby report as presented above in accordance with Article 14-4 of the Securities and Exchange Act and Article 219 of The Company Act.

Hereby presented for approval.

The 2021 Annual General Meeting

Froch Enterprise Co., Ltd.

==> picture [86 x 45] intentionally omitted <==

------------------------------------Audit Committee convener March 23, 2021

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• IV. Latest Individual Financial Statements and Independent Auditor's Report: Please see pages 74 to 143 of this annual report

• V. Latest Consolidated Financial Statements and Independent Auditor's Report: Please see pages 144 to 204 of this annual report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Froch Enterprise Co., Ltd.

Opinion

We have audited the accompanying financial statements of Froch Enterprise Co., Ltd. (the “Company”), which comprise the balance sheets as of December 31, 2020 and 2019, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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 Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The key audit matter identified in the audit of the Company’s financial statements as of and for the year ended December 31, 2020 is as follows:

Inventory Valuation

The Company’s inventory amount is significant to the financial statements. The accounting estimation of net realizable value of inventory involves significant management judgments. These estimates are based on the current market conditions and historical sales experience of similar products. Change in market conditions may significantly affect the estimations. Therefore, we

• • 74 - -

identified the inventory valuation as a key audit matter; refer to Notes 4, 5 and 9 to the financial statements.

Our audit procedures performed in respect of inventory valuation included the following:

1. We understood and evaluated the Company’s policies and procedures for recognition of inventory write-downs;

2. We obtained the inventory evaluation form, checked the selling price by sampling and recalculated to confirm the completeness and accuracy of the data;

3. We obtained the obsolete inventory statement, reviewed the relevant assessment data, understood its impact on the net realizable value, and confirmed the reasonableness of the relevant obsolescence amount.

4. We observed the year-end inventory counts and assessed the inventory status to confirm whether costs associated with obsolete and damaged inventory have been appropriately written down.

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

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

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

1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision, and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2020 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audits resulting in this independent auditors’ report are Ting-Chien Su and Lie-Dong Wu.

Deloitte & Touche Taipei, Taiwan Republic of China March 23, 2021

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and financial statements shall prevail.

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FROCH ENTERPRISE CO., LTD.

BALANCE SHEETS DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash (Notes 4 and 6) Financial assets at fair value through profit or loss - current (Notes 4 and 7) Notes receivable (Notes 4, 8 and 17) Trade receivables from unrelated parties (Notes 4, 8 and 17) Trade receivables from related parties (Notes 4, 17 and 23) Other receivables (Note 23) Current tax assets (Notes 4 and 19) Inventories (Notes 4, 5 and 9) Prepayments Other current assets Total current assets NON-CURRENT ASSETS Investments accounted for using the equity method (Notes 4 and 10) Property, plant and equipment (Notes 4, 11 and 24) Right-of-use asset (Notes 4 and 12) Deferred tax assets (Notes 4 and 19) Prepayments for equipment Refundable deposits (Note 23) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note13) Contract liabilities - current (Notes 4 and 17) Notes payable to unrelated parties Trade payables to unrelated parties Trade payables to related parties (Note 23) Other payables (Notes 14 and 23) Lease liability - current (Notes 4, 12 and 23) Current portion of long-term borrowings (Notes 13 and 24) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Notes 13 and 24) Lease liability - non-current (Notes 4, 12 and 23) Deferred tax liabilities (Notes 4 and 19) Net defined benefit liabilities - non-current (Notes 4 and 15) Guarantee deposits (Note 23) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY Ordinary shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Other equity Total equity TOTAL		2020 Amount % $ 447,342 4 16,357 - 133,242 1 637,495 6 1,090 - 31,343 1 2,439 - 3,189,398 30 38,939 1 543 - 4,498,188 43 2,695,408 26 3,215,921 30 33,180 - 31,837 - 61,366 1 13,106 - 6,050,818 57 $ 10,549,006 100 $ 2,628,726 25 129,417 1 10,959 - 102,639 1 24,558 - 166,591 2 17,806 - 456,895 5 3,410 - 3,541,001 34 2,760,529 26 15,927 - 256,360 2 65,085 1 735 - 3,098,636 29 6,639,637 63 2,805,260 27 463,471 4 198,107 2 246,961 2 426,460 4 (230,890) (2) 3,909,369 37 $ 10,549,006 100		2019
				Amount % $ 388,919 4 12,943 - 106,614 1 644,312 7 21,524 - 24,304 - 3,641 - 2,835,134 29 25,695 1 6,850 - 4,069,936 42 2,524,171 26 2,985,737 30 68,388 1 28,604 - 75,129 1 14,086 - 5,696,115 58 $ 9,766,051 100 $ 2,348,029 24 68,138 1 19,494 - 138,469 1 - - 145,814 2 35,224 - 280,835 3 2,845 - 3,038,848 31 2,406,715 25 33,733 - 225,971 2 66,445 1 990 - 2,733,854 28 5,772,702 59 2,865,260 29 464,646 5 171,117 2 144,960 1 594,327 6 (246,961) (2) 3,993,349 41 $ 9,766,051 100

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

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FROCH ENTERPRISE CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4, 17 and 23) OPERATING COSTS (Notes 9, 18 and 23) GROSS PROFIT OPERATING EXPENSES (Notes 18 and 23) Selling and marketing expenses General and administrative expenses Total operating expenses PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Interest income Other income (Notes 18 and 23) Other gains and losses (Note 18) Finance costs (Notes 18 and 23) Share of profit or loss of subsidiaries accounted for using the equity method (Notes 4 and 10) Total non-operating income and expenses PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 19) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) (Note 4) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 15) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 19)		2020 Amount % $ 7,745,032 100 7,127,009 92 618,023 8 410,493 5 125,151 2 535,644 7 82,379 1 453 - 7,522 - (8,279) - (96,712) (1) 155,166 2 58,150 1 140,529 2 32,178 - 108,351 2 (4,955) - 991 - (3,964) -		2019
				Amount % $ 8,708,539 100 7,924,579 91 783,960 9 374,439 4 151,835 2 526,274 6 257,686 3 2,146 - 4,460 - 5,837 - (105,618) (1) 172,270 2 79,095 1 336,781 4 68,527 1 268,254 3 2,061 - (412) - 1,649 - (Continued)

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FROCH ENTERPRISE CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of the financial statements of foreign operations Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE (Note 20) Basic Diluted		2020 Amount % $ 16,071 - 12,107 - $ 120,458 2 $ 0.38 $ 0.38		2019
				Amount % $ (102,001) (1) (100,352) (1) $ 167,902 2 $ 0.94 $ 0.94

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

(Concluded)

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FROCH ENTERPRISE CO., LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2019 Appropriation of 2018 earnings Legal reserve Special reserve Cash dividends distributed by the Company Net profit for the year ended December 31, 2019 Other comprehensive income (loss) for the year ended December 31, 2019, net of income tax Total comprehensive income (loss) for the year ended December 31, 2019 Share-based payment arrangements Disposal of treasury shares BALANCE AT DECEMBER 31, 2019 Appropriation of 2019 earnings Legal reserve Special reserve Cash dividends distributed by the Company Net profit for the year ended December 31, 2020 Other comprehensive income (loss) for the year ended December 31, 2020, net of income tax Total comprehensive income (loss) for the year ended December 31, 2020 Buy-back of ordinary shares Cancelation of treasury shares BALANCE AT DECEMBER 31, 2020	Ordinary Shares (Note 16) Capital Surplus (Note 16) $ 2,865,260 $ 444,012 - - - - - - - - - - - - - 20,634 - - 2,865,260 464,646 - - - - - - - - - - - - - - (60,000) (1,175) $ 2,805,260 $ 463,471		Retained Earnings (Note 16) Legal Reserve Special Reserve Unappropriated Earnings $ 116,709 $ 109,656 $ 700,662 54,408 - (54,408) - 35,304 (35,304) - - (286,526) - - 268,254 - - 1,649 - - 269,903 - - - - - - 171,117 144,960 594,327 26,990 - (26,990) - 102,001 (102,001) - - (143,263) - - 108,351 - - (3,964) - - 104,387 - - - - - - $ 198,107 $ 246,961 $ 426,460	Other Equity Exchange Differences on Translation of the Financial Statements of Foreign Operations $ (144,960) - - - - (102,001) (102,001) - - (246,961) - - - - 16,071 16,071 - - $ (230,890)	Treasury Shares (Note 16) $ (62,528) - - - - - - - 62,528 - - - - - - - (61,175) 61,175 $ -	Total Equity $ 4,028,811 - - (286,526) 268,254 (100,352) 167,902 20,634 62,528 3,993,349 - - (143,263) 108,351 12,107 120,458 (61,175) - $ 3,909,369

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

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FROCH ENTERPRISE CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expense Expected credit loss recognized (reversed) on trade receivables Net gain on fair value changes of financial assets at fair value through profit or loss Finance costs Interest income Compensation costs of employee share options Share of profit of subsidiaries Gain on disposal of property, plant and equipment Write-down of inventories Reversal of write-down of inventories Net loss (gain) on foreign currency exchange Changes in operating assets and liabilities Notes receivable Trade receivables Other receivables Inventories Prepayments Other current assets Contract liabilities Notes payable Trade payables Other payables Other current liabilities Net defined benefit liabilities Cash generated from (used in) operations Interest received Interest paid Income tax paid Net cash generated from (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at fair value through profit or loss Proceeds from sale of financial assets at fair value through profit or loss Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease in refundable deposits Increase in prepayments for equipment Net cash used in investing activities	2020 $ 140,529 146,178 484 (820) 96,712 (453) - (155,166) - - (45,279) (9,829) (26,897) 32,074 (7,037) (308,985) (13,244) 6,307 61,279 (8,535) (10,845) 29,351 565 (6,315) (79,926) 453 (97,056) (2,829) (179,358) (18,070) 15,476 (298,479) - 980 (37,142) (337,235)	2019 $ 336,781 140,449 (29,872) (1,145) 105,618 (2,146) 20,634 (172,270) (66) 6,456 - 7,848 50,207 53,099 5,393 284,631 14,259 (4,890) 8,537 (39,685) 33,014 (11,474) (30,571) (8,878) 765,929 2,146 (107,724) (115,722) 544,629 (25,092) 24,759 (220,416) 1,384 9,789 (73,459) (283,035) (Continued)

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FROCH ENTERPRISE CO., LTD.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (repayments of) short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Proceeds from (refund of) guarantee deposits received Repayment of the principal portion of lease liabilities Dividends paid to owners of the Company Payments for buy-back of ordinary shares Proceeds from reissuance of treasury shares Net cash generated from (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE (DECREASE) IN CASH CASH AT THE BEGINNING OF THE YEAR CASH AT THE END OF THE YEAR	2020 $ 280,697 900,000 (370,126) (255) (35,224) (143,263) (61,175) - 570,654 4,362 58,423 388,919 $ 447,342	2019 $ (1,267,885) 1,215,400 (61,355) 246 (34,640) (286,526) - 62,528 (372,232) (799) (111,437) 500,356 $ 388,919

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

(Concluded)

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NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

FROCH ENTERPRISE CO., LTD.

1. GENERAL INFORMATION

Froch Enterprise Co., Ltd. (the “Company”) was incorporated in October 1984. It mainly manufactures and sells various stainless steel tube, steel tube, copper tube and aluminium tube.

The Company’s shares have been listed on the Taiwan Stock Exchange (TWSE) since December 1998.

The financial statements are presented in the Company’s functional currency, the New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s board of directors on March 23, 2021.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

• a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

The initial application of the IFRSs endorsed and issued into effect by the FSC did not have material impact on the Company’s accounting policies.

• b. The IFRSs endorsed by the FSC for application starting from 2021

New IFRSs Amendments to IFRS 4 “Extension of the Temporary Exemption from Applying IFRS 9” Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 “Interest Rate Benchmark Reform - Phase 2” Amendment to IFRS 16 “Covid-19-Related Rent Concessions”	Effective Date Announced by IASB
	Effective immediately upon promulgation by the IASB January 1, 2021 June 1, 2020

• c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs “Annual Improvements to IFRS Standards 2018-2020” Amendments to IFRS 3 “Reference to the Conceptual Framework” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”	Effective Date Announced by IASB (Note 1)
	January 1, 2022 (Note 2) January 1, 2022 (Note 3) To be determined by IASB

(Continued)

• 84 -

Effective Date Announced by IASB (Note 1)y IASB (Note 1) IASB (Note 1)(Note 1)Note 1))

New IFRSs Announced by IASB (Note 1)y IASB (Note 1) IASB (Note 1)(Note 1)Note 1)) IFRS 17 “Insurance Contracts” January 1, 2023 Amendments to IFRS 17 January 1, 2023 Amendments to IAS 1 “Classification of Liabilities as Current or January 1, 2023 Non-current” Amendments to IAS 1 “Disclosure of Accounting Policies” January 1, 2023 (Note 4) Amendments to IAS 8 “Definition of Accounting Estimates” January 1, 2023 (Note 5) Amendments to IAS 16 “Property, Plant and Equipment - Proceeds January 1, 2022 (Note 6) before Intended Use” Amendments to IAS 37 “Onerous Contracts - Cost of Fulfilling a January 1, 2022 (Note 7) Contract” (Concluded)

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual reporting periods beginning on or after their respective effective dates.

• Note 2: The amendments to IFRS 9 will be applied prospectively to modifications and exchanges of financial liabilities that occur on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IAS 41 “Agriculture” will be applied prospectively to the fair value measurements on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IFRS 1 “First-time Adoptions of IFRSs” will be applied retrospectively for annual reporting periods beginning on or after January 1, 2022.

• Note 3: The amendments are applicable to business combinations for which the acquisition date is on or after the beginning of the annual reporting period beginning on or after January 1, 2022.

• Note 4: The amendments will be applied prospectively for annual reporting periods beginning on or after January 1, 2023.

• Note 5: The amendments are applicable to changes in accounting estimates and changes in accounting policies that occur on or after the beginning of the annual reporting period beginning on or after January 1, 2023.

• Note 6: The amendments are applicable to property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after January 1, 2021.

• Note 7: The amendments are applicable to contracts for which the entity has not yet fulfilled all its obligations on January 1, 2022.

As of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

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• b. Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

• 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

• 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

• 3) Level 3 inputs are unobservable inputs for an asset or liability.

When preparing these parent company only financial statements, the Company used the equity method to account for its investments in subsidiaries. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owners of the Company in its consolidated financial statements, adjustments arising from the differences in accounting treatments between the parent company only basis and the consolidated basis were made to investments accounted for using the equity method, the share of profit or loss of subsidiaries, the share of other comprehensive income of subsidiaries and the related equity items, as appropriate, in these parent company only financial statements.

• c. Classification of current and non-current assets and liabilities

Current assets include:

• 1) Assets held primarily for the purpose of trading;

• 2) Assets expected to be realized within 12 months after the reporting period; and

• 3) Cash unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

• 1) Liabilities held primarily for the purpose of trading;

• 2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue; and

• 3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Assets and liabilities that are not classified as current are classified as non-current.

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d. Foreign currencies

In preparing the Company’s financial statements, transactions in currencies other than the Company’s functional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income; in which case, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary item denominated in a foreign currency and measured at historical cost is stated at the reporting currency as originally translated from the foreign currency.

For the purpose of presenting financial statements, the financial statements of the Company’s foreign operations (including subsidiaries and branches in other countries ) that are prepared using functional currencies which are different from the currency of the Company are translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate).

In preparing the financial statements, assets and liabilities of the Company’s foreign operations are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated into the New Taiwan dollar at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income.

• e. Inventories

Inventories consist of raw materials, supplies, work-in-progress and finished goods and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at the weighted-average cost on the balance sheet date.

f. Investments in subsidiaries

The Company uses the equity method to account for its investments in subsidiaries.

A subsidiary is an entity that is controlled by the Company.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company’s share of equity of subsidiaries.

Changes in the Company’s ownership interest in a subsidiary that do not result in the Company losing control of the subsidiary are accounted for as equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the fair value of the consideration paid or received.

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Profits or losses resulting from downstream transactions is eliminated in full only in the parent company’s financial statements. Profit or loss resulting from upstream transactions and transactions between subsidiaries is recognized only in the parent company’s financial statements and only to the extent of interests in the subsidiaries that are not related to the Company.

g. Property, plant and equipment

Property, plant and equipment are initially measured at cost and subsequently measured at cost less accumulated depreciation and accumulated impairment loss.

Property, plant and equipment in the course of construction are measured at cost less any recognized impairment loss. Cost include professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use.

Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

• h. Impairment of property, plant and equipment and right-of-use assets

At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment and right-of-use assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized on the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

• i. Financial instruments

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

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss (FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

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Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

• a. Measurement categories

• 1) Financial assets at FVTPL

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

Financial assets at FVTPL are subsequently measured at fair value, and any dividends, interest earned and remeasurement gains or losses on such financial assets are recognized in other gains or losses. Fair value is determined in the manner described in Note 22.

• 2) Financial assets at amortized cost

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

• a) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash, notes receivable at amortized cost, trade receivables, other receivables, and other financial assets - current and refundable deposits, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for:

• a) Purchased or originated credit-impaired financial asset, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial asset; and

• b) Financial assets that are not credit-impaired on purchase or origination but have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

A financial asset is credit-impaired when one or more of the following events have occurred: significant financial difficulty of the issuer or the borrower; breach of contract, such as a default; it is becoming probable that the borrower will enter bankruptcy or undergo a financial reorganization; or the disappearance of an active market for that financial asset because of financial difficulties.

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b. Impairment of financial assets

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables).

The Company always recognizes lifetime expected credit loss (ECLs) for trade receivables. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECL represents the expected credit loss that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The impairment loss of all financial assets is recognized in profit or loss by a reduction in their carrying amounts through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and the carrying amounts of such financial assets are not reduced.

• c. Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

On derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

Financial liabilities

• a. Subsequent measurement

All the financial liabilities are measured at amortized cost using the effective interest method.

• b. Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

j. Revenue recognition

The Company identifies contracts with customers, allocates the transaction price to the performance obligations, and recognizes revenue when performance obligations are satisfied.

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Revenue from the sale of goods comes from sales of various stainless steel tube. Sales of various stainless steel tube are recognized as revenue and trade receivables when the primary responsibility for sales to future customers has been transferred according to the transaction terms agreed with individual customers. The transaction price received is recognized as a contract liability until the goods have been delivered to the customer.

k. Leasing

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease.

1) The Company as lessor

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

Lease payments (less any lease incentives payable) from operating leases are recognized as income on a straight-line basis over the terms of the relevant leases. Initial direct costs incurred in obtaining operating leases are added to the carrying amounts of the underlying assets and recognized as expenses on a straight-line basis over the lease terms.

When a lease includes both land and building elements, the Company assesses the classification of each element separately as a finance or an operating lease based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the lessee. The lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of a contract. If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with its lease classification. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases; in which case, the entire lease is classified as an operating lease.

2) The Company as lessee

The Company recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease incentives received. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented on a separate line in the balance sheets.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the Company uses the lessee’s incremental borrowing rate.

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Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term, the Company remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line in the balance sheets.

l. Borrowing costs

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

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

• m. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services.

• 2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur. Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Company’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

n. Share-based payment arrangements

The fair value at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s best estimates of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. It is recognized as an expense in full at the grant date if vested immediately. The grant date of treasury shares transferred to employees is the date on which the board of directors approves the transaction.

o. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

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• 1) Current tax

Income tax payable (recoverable) is based on taxable profit (loss) for the year determined according to the applicable tax laws of each tax jurisdiction.

According to the Income Tax Law in the ROC, an additional tax on unappropriated earnings is provided for in the year the shareholders approve to retain earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

• 2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.

Deferred tax assets are generally recognized for all deductible temporary differences and unused loss carryforwards to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are recognized only to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

• 3) Current and deferred taxes

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity; in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company's accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

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The Company considers the economic implications of the COVID-19 when making its critical accounting estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods.

Key Sources of Estimation Uncertainty - Write-down of inventories

The net realizable value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The estimation of net realizable value is based on current market conditions and historical experience with product sales of a similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value.

6. CASH

Cash on hand Bank deposits FINANCIAL INSTRUMENTS AT FVTPL Financial assets-current Mutual funds NOTES RECEIVABLE AND TRADE RECEIVABLES Notes receivable Notes receivable - operating Less: Allowance for impairment loss Trade receivables At amortized cost Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2020 2019 $ 760 $ 760 446,582 388,159 $ 447,342 $ 388,919 December 31
		2020 2019 $ 16,357 $ 12,943 December 31
		2020 $ 134,588 (1,346) $ 133,242 $ 638,486 (991) $ 637,495	2019 $ 107,691 (1,077) $ 106,614 $ 645,411 (1,099) $ 644,312

7. FINANCIAL INSTRUMENTS AT FVTPL

8. NOTES RECEIVABLE AND TRADE RECEIVABLES

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a. Notes receivable

The aging of notes receivable is as follows:

Not past due Past due		December 31	December 31
		2020 $ 134,588 - $ 134,588	2019 $ 107,691 - $ 107,691

The above aging schedule was based on the past due days.

b. Trade receivables

The average credit period of sales of goods was 30-120 days. No interest was charged on trade receivables and notes receivable for the first 30-120 days from the date of the invoice. The Company uses other publicly available financial information or its own trading records to rate its major customers.

In order to minimize credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the year to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Company’s credit risk was significantly reduced.

The Company measures the loss allowance for trade receivables at an amount equal to lifetime ECLs. The expected credit losses on trade receivables are estimated by reference to the past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecasted direction of economic conditions at the reporting date. As the Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Company’s different customer base.

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

The following table details the loss allowance of trade receivables:

December 31, 2020

Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECLs) Amortized cost	Not Past Due - $630,743 - $630,743	1 to 30 Days 1% $ - - $ -	31 to 60 Days 5% $ 5,872 (294) $ 5,578	61 to 90 Days 15% $ 482 (72) $ 410	91 to 120 Days 30% $ - - $ -	121 to 180 Days 45% $ 1,389 (625) $ 764	181 to 365 Days 70% $ - - $ -	Total $638,486 (991) $637,495

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December 31, 2019

Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECLs) Amortized cost	Not Past Due - $639,260 - $639,260	1 to 30 Days 1% $ - - $ -	31 to 60 Days 5% $ 3,502 (175) $ 3,327	61 to 90 Days 15% $ - - $ -	91 to 120 Days 30% $ 2,326 (698) $ 1,628	121 to 180 Days 45% $ - - $ -	181 to 365 Days 70% $ 323 (226) $ 97	Total $645,411 (1,099) $644,312

The Company’s expected credit loss rate for notes receivable is 1%.

The movements of the loss allowance of trade receivables and notes receivable were as follows:

Balance at January 1 Add (less): Net remeasurement of loss allowance Less: Amounts written off Balance at December 31		December 31	December 31
		2020 $ 2,176 484 (323) $ 2,337	2019 $ 32,261 (29,872) (213) $ 2,176

9. INVENTORIES

Finished goods Work in progress Raw materials Supplies Inventory in transit		December 31	December 31
		2020 $ 978,317 744,785 1,232,192 35,665 198,439 $ 3,189,398	2019 $ 924,924 546,095 1,186,322 33,440 144,353 $ 2,835,134

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2020 and 2019 was $7,127,009 thousand and $7,924,579 thousand, respectively. The cost of goods sold included (reversal of write-downs) inventory write-downs of $(45,279) thousand and $6,456 thousand, respectively. Inventory write-downs were reversed as a result of increased selling prices in certain markets.

10. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investee Century Nova Steel Co., Ltd. Froch Enterprise International Co., Ltd. Froch Stainless Co., Ltd.		December 31	December 31	December 31
		2020 Amount % $ 2,205,362 100 415,152 100 74,894 100 $ 2,695,408		2019
				Amount % $ 2,039,873 100 412,953 100 71,345 100 $ 2,524,171

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The investments in subsidiaries accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2020 and 2019 were based on the subsidiaries’ financial statements which have been audited for the same years.

11. PROPERTY, PLANT AND EQUIPMENT

Assets used by the Company Assets leased under operating leases		December 31	December 31
		2020 $ 3,058,627 157,294 $ 3,215,921	2019 $ 2,831,529 154,208 $ 2,985,737

a. Assets used by the Company

Cost Land Buildings Machinery and equipment Transportation equipment Other equipment Property under construction Accumulated depreciation Buildings Machinery and equipment Transportation equipment Other equipment			For the Year Ended December 31, 2020	For the Year Ended December 31, 2020	For the Year Ended December 31, 2020
		Beginning Balance $ 1,269,527 617,367 2,247,416 72,053 543,990 144,133 4,894,486 229,008 1,483,251 60,716 289,982 2,062,957 $ 2,831,529	Additions $ 52,095 26,003 93,780 355 88,590 23,524 $ 284,347 $ 11,899 74,308 2,857 19,090 $ 108,154	Disposals $ - - (2,572) (19) (45) - $ (2,636) $ - (2,572) (19) (45) $ (2,636)	Reclassified Ending Balance $ - $ 1,321,622 124,182 767,552 49,653 2,388,277 - 72,389 16,718 649,253 (139,648) 28,009 $ 50,905 5,227,102 $ - 240,907 - 1,554,987 - 63,554 - 309,027 $ - 2,168,475 $ 3,058,627

Cost Land Buildings Machinery and equipment Transportation equipment Equipment under finance leases Other equipment Property under construction Accumulated depreciation Buildings Machinery and equipment Transportation equipment Equipment under finance leases Other equipment	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019
	Beginning Balance Adjustments on Initial Application of IFRS 16 $ 1,269,419 $ - 616,767 - 2,207,522 - 69,701 - 207,348 (207,348) 468,360 - 39,927 - 4,879,044 $ (207,348) 217,409 $ - 1,420,758 - 58,220 - 50,786 (50,786) 275,009 - 2,022,182 $ (50,786) $ 2,856,862	Additions $ 108 600 38,605 2,705 - 75,681 104,581 $ 222,280 $ 11,599 72,748 2,860 - 15,680 $ 102,887	Disposals $ - - (11,573) (364) - (707) - $ (12,644) $ - (10,255) (364) - (707) $ (11,326)	Reclassified $ - - 12,862 11 - 656 (375) $ 13,154 $ - - - - - $ -	Ending Balance $ 1,269,527 617,367 2,247,416 72,053 - 543,990 144,133 4,894,486 229,008 1,483,251 60,716 - 289,982 2,062,957 $ 2,831,529

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In September 2005, the Company signed a contract with unrelated parties and paid $16,047 thousand to purchase land located on Liuzhong Rd., Douliu City, Yunlin County, Taiwan, and the land is used for the storage and water tank of the Company. Since the land belongs to agricultural and animal husbandry land classification and its ownership was registered in the name of the chairman of the board, the Company has performed some necessary procedures to acquire the related rights.

The above items of property, plant and equipment used by the Company are depreciated on a straight-line basis over their estimated useful lives as follows:

Buildings
Main buildings	15-60 years
Others	6-60 years
Machinery and equipment	3-36 years
Transportation equipment	3-15 years
Other equipment	3-60 years

Property, plant and equipment used by the Company and pledged as collateral for bank borrowings are set out in Note 24.

b. Assets leased under operating leases

Cost Land Land improvement Buildings Other equipment Accumulated depreciation Land improvement Buildings Other equipment		For the Year Ended December 31, 2020	For the Year Ended December 31, 2020
		Beginning Balance $ 70,040 4,312 117,961 13,373 205,686 2,534 38,203 10,741 51,478 $ 154,208	Additions Ending Balance $ - $ 70,040 - 4,312 - 117,961 5,902 19,275 $ 5,902 211,588 $ 86 2,620 2,077 40,280 653 11,394 $ 2,816 54,294 $ 157,294

• 98 -

Cost Land Land improvement Buildings Other equipment Accumulated depreciation Land improvement Buildings Other equipment		For the Year Ended December 31, 2019	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019
		Beginning Balance Adjustments on Initial Application of IFRS 16 $ - $ 70,040 - 4,312 - 117,961 - 15,035 - $ 207,348 - $ 2,448 - 36,126 - 12,212 - $ 50,786 $ -	Additions $ - - - - $ - $ 86 2,077 191 $ 2,354	Disposals $ - - - (1,662) $ (1,662) $ - - (1,662) $ (1,662)	Ending Balance $ 70,040 4,312 117,961 13,373 205,686 2,534 38,203 10,741 51,478 $ 154,208

Operating leases relate to leases of the factory in Yuanlin with lease terms of 12 years. The lessees do not have bargain purchase options to acquire the assets at the expiry of the lease periods.

The maturity analysis of lease payments receivable under operating lease payments was as follows:

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 onwards		December 31	December 31
		2020 $ 2,743 2,743 2,743 2,743 2,743 1,829 $ 15,544	2019 $ 2,743 2,743 2,743 2,743 2,743 4,572 $ 18,287

The above items of property, plant and equipment leased under operating leases are depreciated on a straight-line basis over their estimated useful lives as follows:

Land improvement	30 years
Buildings	30-60 years
Other equipment	5-60 years

Property, plant and equipment leased under operating leases and pledged as collateral for bank borrowings are set out in Note 24.

• 99 -

12. LEASE ARRANGEMENTS

a. Right-of-use assets

Carrying amount Land Buildings Depreciation charge for right-of-use assets Land Buildings Lease liabilities Carrying amount Current Non-current Range of discount rate for lease liabilities was as follows:		December 31	December 31
	2020 2019 $ 30,120 $ 64,540 3,060 3,848 $ 33,180 $ 68,388 For the Year Ended December 31
		2020 2019 $ 34,420 $ 34,420 788 788 $ 35,208 $ 35,208 December 31
		2020 $ 17,806 $ 15,927	2019 $ 35,224 $ 33,733

b. Lease liabilities

Land Buildings	December 31
	2020 2019 1.67% 1.67% 1.67% 1.67%

• c. Material leasing activities and terms - as lessee

The Company leases certain land and buildings for the use of factories and offices with lease terms of 3 to 10 years. The Company does not have bargain purchase options to acquire the leasehold land and buildings at the end of the lease terms.

d. Other lease information

Expenses relating to short-term leases Expenses relating to low-value asset leases Total cash outflow for leases	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ - $ 667 $ (36,775)	2019 $ - $ 1,321 $ (37,429)

• 100 -

The Company’s leases of certain assets qualify as short-term leases and low-value asset leases. The Company has elected to apply the recognition exemption and thus, did not recognize right-of-use assets and lease liabilities for these leases.

13. BORROWINGS

• a. Short-term borrowings

Unsecured borrowings Letter of credit borrowings Line of credit borrowings Interest rates Letter of credit borrowings Line of credit borrowings		December 31
	2020 2019 $ 1,228,726 $ 1,348,029 1,400,000 1,000,000 $ 2,628,726 $ 2,348,029 1.25%-1.35% 1.55%-1.75% 0.88%-1.41% 0.81%-1.70%

• b. Long-term borrowings

Mortgage borrowings (with maturity date from December 2025 to December 2035) Less: Current portion Long-term borrowings Interest rates Mortgage borrowings		December 31	December 31
	2020 $ 3,217,424 (456,895) $ 2,760,529 1.25%-1.96%		2019 $ 2,687,550 (280,835) $ 2,406,715 1.85%-2.11%

Mortgage borrowings are secured by the Company's land and buildings. See Note 24.

In December 2018, the Company signed a syndicated loan contract with a syndicate of banks, including Land Bank of Taiwan and seven financial institutions, with a total loan amount of $4.5 billion. Subject to the terms of the contract, the Company shall maintain the following ratios in the standalone financial statements for each year during the loan period:

• 1) The current ratio shall not be less than 100% (inclusive);

• 2) The debt ratio shall not be higher than 250% (inclusive);

• 3) Times interest earned (i.e., the sum of pre-tax net income plus depreciation, amortization and interest expense, divided by interest expense) shall be maintained at least 2 times (inclusive) from 2018;

• 4) Shareholders' equity shall not be less than $2.8 billion (inclusive).

• 101 -

In accordance with the provisions of the syndicated loan agreement, if the Company's annual standalone financial statements do not meet the above financial ratios, the Company shall not be deemed to be in breach of its financial commitment if the improvement is completed within 6 months from April 1 of the following year (the improvement period), provided that the interest rate for the period from April 1 to the improvement date shall be increased by 0.125% per annum; however, if the borrower fails to complete the improvement within the improvement period, it shall (1) pay a penalty at the rate of 0.125% of the principal balance on the expiration date of the improvement period, and (2) increase the interest rate by 0.05% per annum from the expiration date of the improvement period to the actual improvement date. If the improvement is not completed and is notified by the lead bank, it shall be adjusted within 3 months through capital increase by cash or such other means as the lead bank agrees. A breach of the financial ratio shall not be deemed to be a breach if the borrower fully complies with the foregoing agreement.

14. OTHER PAYABLES

Payables for salaries or bonuses Payables for freight Payables for purchases of equipment Payables for compensation of employees and remuneration of directors and supervisors Payables for commission Others		December 31	December 31
		2020 $ 69,369 37,034 2,016 2,868 830 54,474 $ 166,591	2019 $ 70,658 17,797 10,246 6,874 1,168 39,071 $ 145,814

15. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

b. Defined benefit plans

The defined benefit plans adopted by the Company in accordance with the Labor Standards Law are operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the 6 months before retirement. The Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (the “Bureau”); the Company has no right to influence the investment policy and strategy.

• 102 -

The amounts included in the balance sheets in respect of the Company’s defined benefit plans are as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liabilities		December 31	December 31
		2020 $ 146,188 (81,103) $ 65,085	2019 $ 140,381 (73,936) $ 66,445

Movements in net defined benefit liabilities were as follows:

Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets Balance at January 1, 2019 $ 140,143 $ (62,759) Service cost Net interest expense (income) 1,384 (621) Recognized in profit or loss 1,384 (621) Remeasurement Return on plan assets (excluding amounts included in net interest) - (2,224) Actuarial (gain) loss Changes in demographic assumptions 63 - Changes in financial assumptions 3,351 - Experience adjustments (3,251) - Recognized in other comprehensive income (loss) 163 (2,224) Contributions from the employer - (9,641) Benefits paid (1,309) 1,309 Balance at December 31, 2019 140,381 (73,936) Service cost Net interest expense (income) 1,041 (551) Recognized in profit or loss 1,041 (551) Remeasurement Return on plan assets (excluding amounts included in net interest) - (2,341) Actuarial (gain) loss Changes in demographic assumptions 65 - Changes in financial assumptions 5,739 - Experience adjustments 1,492 - Recognized in other comprehensive income (loss) 7,296 (2,341) Contributions from the employer - (6,805) Benefits paid (2,530) 2,530 Balance at December 31, 2020 $ 146,188 $ (81,103)

Net Defined Benefit Liabilities $ 77,384 763 763 (2,224) 63 3,351 (3,251) (2,061) (9,641) - 66,445 490 490 (2,341) 65 5,739 1,492 4,955 (6,805) - $ 65,085

• 103 -

Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks:

• 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

• 2) Interest risk: A decrease in the government/corporate bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plans’ debt investments.

• 3) Salary risk: The present value of the defined benefit obligation is calculated using the future salaries of plan participants. As such, an increase in the salaries of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations are as follows:

Discount rate(s) Expected rate(s) of salary increase	December 31
	2020 2019 0.30% 0.75% 2% 2%

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

Discount rate(s) 0.25% increase 0.10% increase 0.10% decrease 0.25% decrease Expected rate(s) of salary increase 0.25% increase 0.25% decrease		December 31	December 31
		2020 $ (3,235) $ (1,308) $ 1,326 $ 3,350 $ 3,285 $ (3,190)	2019 $ (3,353) $ - $ - $ 3,476 $ 3,424 $ (3,321)

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

Expected contributions to the plans for the next year Average duration of the defined benefit obligation		December 31	December 31
		2020 $ 2,208 9 years	2019 $ 2,197 9 years

• c. Froch Enterprise International Co., Ltd., Century Nova Steel Co., Ltd., and Froch Stainless Co., Ltd. have no employee pension plan.

• 104 -

16. EQUITY

a. Ordinary shares

Shares authorized (in thousands of shares) Shares authorized Shares issued and fully paid (in thousands of shares)		December 31	December 31
		2020 400,000 $ 4,000,000 280,526	2019 400,000 $ 4,000,000 286,526

The change in the Company's share capital is mainly due to the cancelation of treasury shares. A holder of issued ordinary share with a par value of $10 is entitled to vote and receive dividends.

• b. Capital surplus

Issuance of ordinary shares Treasury share transactions		December 31	December 31
		2020 $ 370,809 92,662 $ 463,471	2019 $ 378,740 85,906 $ 464,646

Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and to once a year).

c. Retained earnings and dividends policy

Under the dividends policy as set forth in the Articles, where the Company made a profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders.

The Company’s dividends policy shall be made based on the following: the current and future developments, investment environment, capital needs and domestic and foreign competition, and the interests of shareholders and other factors should also been taken into account. The distributable earnings shall be allocated with not less than 50% distributed as dividends to shareholders; however, dividends may not be distributed if the total dividends are less than 10% of the Company’s paid-in capital; the distribution of dividends to shareholders shall be allowed by cash or stock, and the cash dividends shall not be less than 20% of the total dividends.

Appropriations of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset a deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Items referred to under Rule No. 1010012865 issued by the FSC and in the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reversed from special reserve by the Company.

• 105 -

The appropriations of earnings for 2019 and 2018 approved in the shareholders’ meetings in June 2020 and 2019, respectively, were as follows:

Legal reserve Special reserve Cash dividends Cash dividends per share (NT$)	Appropriation of Earnings
	For the Year Ended December 31
	2019 2018 $ 26,990 $ 54,408 102,001 35,304 143,263 286,526 0.50 1.00

The appropriations of earnings for 2020 proposed by the Company’s board of directors in March 2021 were as follows:

	Appropriation	Appropriation
	of	Earnings
Legal reserve	$	10,439
Special reserve		(16,071)
Cash dividends		140,263
Cash dividends per share (NT$)		0.50

The appropriations of earnings for 2020 are subject to the resolution of the shareholders in the shareholders’ meeting to be held in June 2021.

• d. Treasury shares

	Shares
	Transferred	to	Shares
	Employees		Cancelled		Total
	(In Thousands		(In Thousands		(In Thousands
Purpose of Buy-back	of Shares)		of Shares)		of Shares)
Number of shares at January 1, 2020		-		-	-
Increase during the year		-	6,000		6,000
Decrease during the year		-	(6,000)		(6,000)
Number of shares at December 31, 2020		-		-	-
Number of shares at January 1, 2019	6,281			-	6,281
Decrease during the year	(6,281)			-	(6,281)
Number of shares at December 31, 2019		-		-	-

Under the Securities and Exchange Act, the Company shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as the rights to dividends and to vote.

The decision of the board of directors of the Company in March 2019 was to distribute the treasury shares, totaling 6,281 thousands shares,which were repurchased in April, June, August and November, 2016 for employees’ subscription. According to the evaluation using the Black-Scholes model, the employee share option price per share was $3.3690, $3.2121, $3.6630 and $2.7072 and the total price of the employee share options was $20,634 thousand. The inputs and parameters to the model are as follows:

• 106 -

Delivery price (market price adjustment)	$13.2388
Exercise price	$9.578 -$10.534
Expected volatility	23.31%
Expected duration	0.0466 years
Prospective dividend rate	0%
Risk-free rate	0.4838%

17. REVENUE

Revenue from contracts with customers Revenue from sale of goods Other operating revenue Revenue from sale of electricity Revenue from processing service a. Contract balances December 31, 2020 Notes receivable and trade receivables $ 771,827 Contract liabilities - current Sale of goods $ 129,417	For the Year Ended December 31	For the Year Ended December 31
	2020 $ 7,727,374 17,349 309 $ 7,745,032 December 31, 2019 $ 772,450 $ 68,138	2019 $ 8,698,666 8,013 1,860 $ 8,708,539 January 1, 2019 $ 852,114 $ 59,601

The changes in the balance of contract liability primarily result from the timing difference between the Company’s performance and the customer’s payment.

• b. Disaggregation of revenue

Asia America Europe Middle East Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 4,049,583 1,392,745 1,039,153 777,075 468,818 $ 7,727,374	2019 $ 4,323,711 1,431,914 1,363,254 1,002,559 577,228 $ 8,698,666

• 107 -

18. COMPREHENSIVE INCOME FOR THE YEAR

Net profit comprised of the following items:

• a. Other income

Rental income (Note 23) Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 3,143 4,379 $ 7,522	2019 $ 2,743 1,717 $ 4,460

• b. Other gains and losses

Gain on disposal of property, plant and equipment Fair value changes of financial assets at FVTPL Net foreign exchange gains (losses) Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ - 820 (8,709) (390) $ (8,279)	2019 $ 66 1,145 4,630 (4) $ 5,837

• c. Finance costs

Interest on bank loans Interest on lease liabilities Less: Capitalized interest	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 98,752 884 (2,924) $ 96,712	2019 $ 105,799 1,468 (1,649) $ 105,618

Information about capitalized interest was as follows:

Capitalized interest amount Capitalization rate Depreciation and amortization An analysis of depreciation by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2020 2019 $ 2,924 $ 1,649 1.60%-1.95% 1.95% For the Year Ended December 31
		2020 $ 122,746 23,432 $ 146,178	2019 $ 119,330 21,119 $ 140,449

• d. Depreciation and amortization

• 108 -

e. Employee benefits expense

Salary expenses Labor and health insurance costs Post-employment benefits Defined contribution plan Defined benefit plans (Note 15) Remuneration of directors Share-based payments (equity-settled) Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 406,109 37,442 15,758 490 1,434 - 15,598 $ 476,831 $ 308,101 168,730 $ 476,831	2019 $ 414,064 37,867 15,616 763 3,437 20,634 16,668 $ 509,049 $ 313,590 195,479 $ 509,069

The average number of employees in 2020 and 2019 was 651 and 684, respectively. The average number of directors who were not employees was 3 in both years. The number of employees and directors is based on the records of employee benefits..

The average employee benefit expense in 2020 and 2019 was $734 and $742 thousand, respectively, and the average employee salary expense was $627 and $608 thousand, respectively. The average employee salary increase was 3%.

The supervisors’ emoluments in 2019 were $3,437 thousand, and the supervisors were replaced by the audit committee in June 2019.

The remuneration, emoluments and business execution expenses of the directors of the Company are based on the industry norm, the attendance situation of the directors and the Company’s Articles; the remuneration of managers and employees included salaries, retirement pensions, bonuses and compensation. The remuneration is determined in accordance with the individual contributions, qualifications, operating performance, degree of responsibility and industry norm. The remuneration of directors and key executives, according to the Company’s Articles, is determined by the board of directors and the remuneration committee based on the Company’s overall operation performance, future trends, the individual participation in the Company’s operation and the contribution value. Relevant performance appraisal and remuneration reasonableness are reviewed in a timely manner and submitted to the remuneration committee and the board of directors, in order to achieve a balance between the Company’s sustainable operation and risk control.

• f. Compensation of employees and remuneration of directors and supervisors

If the Company makes a profit in the year, 1% of the profit should be allocated for the compensation of employees, which should be resolved by the board of directors and distributed in the form of stock dividends or cash dividends. The employees of the Company and its subsidiaries who meet certain requirements will receive the compensation. Less than 3% of the profit will be allocated for the remuneration of directors and supervisors; the allocation should be resolved by the board of directors. The compensation of employees and remuneration of directors and supervisors should be reported to the shareholders' regular meeting. However, if the Company has accumulated losses, any profit should be first used to offset losses before making allocation for the compensation and remuneration according to the above-mentioned percentage.

• 109 -

The compensation of employees and the remuneration of directors and supervisors for the years ended December 31, 2020 and 2019, which were approved by the Company’s board of directors in March 2021 and 2020, respectively, were as follows:

Cash Compensation of employees Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2020 Accrual Rate Amount 1% $ 1,434 1% 1,434	2019
		Accrual Rate Amount 1% $ 3,437 1% 3,437

If there is a change in the amounts after the annual financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate.

There was no difference between the actual amounts of compensation of employees and remuneration of directors and supervisors paid and the amounts recognized in the financial statements for the years ended December 31, 2019 and 2018.

Information on the compensation of employees and remuneration of directors and supervisors resolved by the Company’s board of directors is available at the Market Observation Post System website of the Taiwan Stock Exchange.

19. INCOME TAXES

• a. Income tax recognized in profit or loss

Major components of income tax expense are as follows:

Current tax In respect of the current year Adjustments for prior year Deferred tax In respect of the current year Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ - 4,031 28,147 $ 32,178	2019 $ 27,854 1,292 39,381 $ 68,527

A reconciliation of accounting profit and income tax expense is as follows:

Profit before tax from continuing operations Income tax expense calculated at the statutory rate Nondeductible expenses in determining taxable income Tax-exempt income Adjustments for prior years’ tax Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 140,529 $ 28,106 125 (84) 4,031 $ 32,178	2019 $ 336,781 $ 67,356 1 (122) 1,292 $ 68,527

• 110 -

b. Current tax assets and liabilities

Current tax assets Prepaid income tax Tax refund receivable		December 31	December 31
		2020 $ 57 2,382 $ 2,439	2019 $ 57 3,584 $ 3,641

c. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities are as follows:

For the year ended December 31, 2020

Deferred tax assets Temporary differences Allowance for impairment loss Defined benefit obligations Others Tax losses Deferred tax liabilities Temporary differences Foreign investment income Land appreciation tax Others	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income $ 17,387 $ (9,056) $ - 9,749 (1,263) 991 1,468 (1,468) - 28,604 (11,787) 991 - 14,029 - $ 28,604 $ 2,242 $ 991 $ 178,979 $ 31,033 $ - 45,775 - - 1,217 (644) - $ 225,971 $ 30,389 $ -	Closing Balance $ 8,331 9,477 - 17,808 14,029 $ 31,837 $ 210,012 45,775 573 $ 256,360

• 111 -

For the year ended December 31, 2019

Deferred tax assets Temporary differences Allowance for impairment loss Defined benefit obligations Others Deferred tax liabilities Temporary differences Foreign investment income Land appreciation tax Others	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income $ 16,095 $ 1,292 $ - 11,937 (1,776) (412) 4,795 (3,327) - $ 32,827 $ (3,811) $ (412) $ 144,525 $ 34,454 $ - 45,775 - - 101 1,116 - $ 190,401 $ 35,570 $ -	Closing Balance $ 17,387 9,749 1,468 $ 28,604 $ 178,979 45,775 1,217 $ 225,971

d. Information about unused loss carryforwards

Loss carryforwards as of December 31, 2020 comprised:

Unused	Amount	Expiry Year
$	70,146	2030

• e. Income tax assessments

The Company’s income tax returns through 2018 have been assessed by the tax authorities.

• 112 -

20. EARNINGS PER SHARE

			Number of
			Shares
		Amount	Denominator
	(Numerator)		(In Thousands)	EPS (NT$)
For the year ended December 31, 2020
Basic EPS
Net income available to ordinary shareholders
of the parent	$	108,351	282,795	$ 0.38
Effect of potentially dilutive ordinary shares
Compensation of employees		-	174
Diluted EPS
Net income available to ordinary shareholders
of the parent (including effect of potentially
dilutive ordinary shares)	$	108,351	282,969	$ 0.38
For the year ended December 31, 2019
Basic EPS
Net income available to ordinary shareholders
of the parent	$	268,254	285,335	$ 0.94
Effect of potentially dilutive ordinary shares
Compensation of employees		-	374
Employee share options		-	353
Diluted EPS
Net income available to ordinary shareholders
of the parent (including effect of potentially
dilutive ordinary shares)	$	268,254	286,062	$ 0.94

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

21. CAPITAL MANAGEMENT

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. The Company's overall strategy remains unchanged.

The capital structure of the Company consists of net debt (borrowings offset by cash) and equity of the Company (comprising issued capital, capital surplus, retained earnings and other equity).

The key management personnel of the Company review the capital structure regularly. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Company may adjust the amount of dividends paid to shareholders, the number of new shares issued or repurchased, and the amount of new debt issued or existing debt redeemed.

• 113 -

22. FINANCIAL INSTRUMENTS

• a. Fair value of financial instruments not measured at fair value

The management of the Company believes that the carrying amounts of financial assets and financial liabilities are close to fair value or the fair value cannot be measured reliably.

• b. Fair value of financial instruments measured at fair value on recurring basis

Fair value hierarchy

		Level 1		Level 2		Level 3		Total
December 31, 2020
Financial assets at FVTPL
Mutual funds	$	16,357	$	-	$	-	$	16,357
December 31, 2019
Financial assets at FVTPL
Mutual funds	$	12,943	$	-	$	-	$	12,943
There were no transfers between Level 1	and	Level 2 in	2020 and 2019.
Categories of financial instruments
						December 31
					2020			2019
Financial assets
Financial assets at FVTPL				$	16,357		$	12,943
Financial assets at amortized cost (1)					1,263,618		1,199,759
Financial liabilities
Financial liabilities at amortized cost (2)					6,151,632		5,340,346

There were no transfers between Level 1 and Level 2 in 2020 and 2019.

• c. Categories of financial instruments

• 1) The balances include financial assets at amortized cost, which comprise cash, notes receivable, trade receivables, other receivables and refundable deposits.

• 2) The balances include financial liabilities at amortized cost, which comprise short-term and long-term loans, notes payable, trade payables, other payables, and guarantee deposits.

• d. Financial risk management objectives and policies

The Company’s major financial instruments include notes receivable and payable, trade receivables and payables, borrowings and lease liabilities. The Company’s corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the Company through internal risk reports that analyze exposures by degree and magnitude of risks. These risks include market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.

• 114 -

The Company seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Company’s policies approved by the Company’s board of directors. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The corporate treasury function reports quarterly to the Company’s risk management committee.

1) Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Company entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk.

There has been no change to the Company’s exposure to market risks or the manner in which these risks are managed and measured.

• a) Foreign currency risk

The Company has foreign currency denominated sales and purchases, which expose the Company to foreign currency risk.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities (including monetary items that have been written off in the financial statements) are set out in Note 27.

Sensitivity analysis

The Company is mainly exposed to the US dollar. If the exchange rate of the functional currency changed by 1% against the US dollar, the net profit before tax would have changed by $4,940 thousand and $4,092 thousand respectively for the years ended December 31, 2020 and 2019, respectively.

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign currency risk because the exposure at the end of the year does not reflect the exposure during the period.

• b) Interest rate risk

The Company is exposed to interest rate risk because the Company borrows funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix of fixed and floating rate borrowings.

The carrying amounts of the Company’s financial assets and financial liabilities with exposure to interest rates at the end of the year were as follows.

Fair value interest rate risk Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities	December 31
	2020 2019 $ 33,733 $ 68,957 446,522 378,499 5,846,150 5,035,579

• 115 -

Sensitivity analysis

For financial assets and liabilities, assuming all other variables were held constant, a hypothetical increase in interest rates of 25 basis point (0.25%) would have resulted in a decrease in the interest expense before tax by approximately $13,499 thousand and $11,643 thousand for the years ended December 31, 2020 and 2019, respectively.

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Company. At the end of the year, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to the failure of the counterparty to discharge an obligation and financial guarantees provided by the Company could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets.

The Company transacts with a large number of unrelated customers and thus, credit risk is not highly concentrated.

• 3) Liquidity risk

The Company manages liquidity risk by monitoring and maintaining a level of cash deemed adequate to finance the Company’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the Company’s short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, and continuously monitoring forecasted and actual cash flows as well as matching the maturity profiles of financial assets and liabilities. As of December 31, 2020 and 2019, the Company had available unutilized short-term bank loan facilities set out in (2) below.

• a) Liquidity and interest rate risk tables for non-derivative financial liabilities

The following table details the Company’s remaining contractual maturities for its non-derivative financial liabilities with agreed upon repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows. Specifically, bank loans with a repayment on demand clause were included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities were based on the agreed upon repayment dates.

To the extent that interest flows are at floating rates, the undiscounted amount was derived from the interest rate curve at the end of the year.

Non-derivative Financial Liabilities On Demand or Less than 1 Month 1-3 Months 3 Months to 1 Year December 31, 2020 Non-interest bearing $ 299,196 $ 5,551 $ - Lease liabilities 3,009 6,018 10,881 Variable interest rate liabilities 250,330 436,213 2,399,078 $ 552,535 $ 447,782 $2,409,959	1-5 Years $ 235 13,728 2,077,647 $2,091,610	5+ Years $ 500 2,858 682,882
		$ 686,240

• 116 -

Non-derivative Financial Liabilities On Demand or Less than 1 Month 1-3 Months 3 Months to 1 Year December 31, 2019 Non-interest bearing $ 299,687 $ 4,090 $ - Lease liabilities 3,009 6,018 27,081 Variable interest rate liabilities 100,330 775,501 1,753,033 $ 403,026 $ 785,609 $1,780,114	1-5 Years $ 490 28,764 1,917,862 $1,947,116	5+ Years $ 500 5,930 488,853
		$ 495,283

Additional information about the maturity analysis for lease liabilities is as follows:

December 31, 2020 December 31, 2019 b) Financing facilities Amount used Amount unused	Less than 1 Year $ 19,908 $ 36,108		1-5 Years 5-10 Years $ 13,728 $ 2,858 $ 28,764 $ 5,930 December 31	1-5 Years 5-10 Years $ 13,728 $ 2,858 $ 28,764 $ 5,930 December 31
			2020 $ 6,022,475 7,067,504 $ 13,089,979	2019 $ 5,317,005 7,001,144 $ 12,318,149

23. TRANSACTIONS WITH RELATED PARTIES

Besides information disclosed elsewhere in the other notes, details of transactions between the Company and other related parties are disclosed below.

• a. Related party name and category

Related Party Name Century Noya Steel Co., Ltd. Santorics Metals Co., Ltd. Beittia Metals Co., Ltd Ren-Xiang Li Ping-Yiao Chang	Related Party Category
	Subsidiary Others Others Others Others

• b. Sales of goods

Line Item Related Party Category Sales Others Subsidiary	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 433,015 5,848 $ 438,863	2019 $ 501,734 11,676 $ 513,410

• 117 -

There was no significant difference in sales prices and terms between related and third parties. The term of payment is generally 60 days from the date of the transaction. Ordinary customers were required to make payment according to the period agreed in the contract, and a few important customers have a collection period within 60 to 90 days.

• c. Purchases of goods

Related Party Category Others	For the Year Ended December 31 2020 2019 $ 840,185 $ 782,889	For the Year Ended December 31 2020 2019 $ 840,185 $ 782,889	For the Year Ended December 31 2020 2019 $ 840,185 $ 782,889
		2020 $ 840,185	2019 $ 782,889

The terms of purchases from related parties were payments by L/C within 45 to 50 days and have no significant difference with the third parties.

• d. Rental income

Line Item Related Party Category/Name Rental income Others Santorics Metals Co., Ltd.	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 2,743	2019 $ 2,743

The above rental income is based on the factory lease agreement signed between the Company and the related party, and the contract period is from September 1, 2014 to August 31, 2026. The rental rates are based on the rental rates in the nearby area and subject to agreements between the two parties. The related party provided a guarantee deposit of $500 thousand as deposit for the lease.

• e. Receivables from related parties

Line Item Related Party Category Trade receivables Others Subsidiary Other receivables Others Subsidiary		December 31	December 31
		2020 $ - 1,090 $ 1,090 $ 1,786 1,182 $ 2,968	2019 $ 21,348 176 $ 21,524 $ 1,359 243 $ 1,602

• f. Payables to related parties

Line Item Related Party Category Notes payable Others Other payables Others		December 31	December 31
		2020 $ 24,558 5 $ 24,563	2019 $ - 9 $ 9

• 118 -

g. Lease arrangements as lessee

Line Item Related Party Category/Name Lease liabilities Others Beittia Metals Co., Ltd. Santorics Metals Co., Ltd. Others Related Party Category Finance costs Others		December 31	December 31
	2020 2019 $ 16,359 $ 48,434 14,263 16,643 3,075 3,809 $ 33,697 $ 68,886 For the Year Ended December 31
		2020 $ 883	2019 $ 1,468

The above is the factory lease agreement signed between the Company and the related parties, and the contract period is from July 1, 2016 to June 30, 2021. The rental rates are based on the rental rates in the nearby area and subject to agreements between the two parties. The Company provided a refundable deposit of $5,000 thousand as deposit for the lease.

• h. Endorsements and guarantees：Refer to Table 2

• i. Compensation of key management personnel

Short-term employee benefits	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 15,282	2019 $ 20,393

The remuneration of directors and key executives, as determined by the remuneration committee, was based on the performance of individuals and market trends.

24. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings:

Property, plant and equipment		December 31	December 31
		2020 $ 1,774,997	2019 $ 1,261,312

25. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

• a. As of December 31, 2020 and 2019, unused letters of credit for purchases of raw materials amounted to approximately $167,460 thousand and $270,827 thousand, respectively.

• 119 -

• b. Unrecognized commitments were as follows:

Acquisition of property, plant and equipment		December 31	December 31
		2020 $ 102,982	2019 $ 69,244

26. OTHER ITEMS

Due to the impact of the COVID-19 pandemic, there was substantial decline in operating revenue in 2020. With the easing of the epidemic and loosening of government policies, the Company expects that operations will gradually return to normal.

27. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Company’s significant financial assets and liabilities denominated in foreign currencies aggregated by the foreign currencies other than functional currency of the Company and the related exchange rates between foreign currencies and the functional currency were as follows:

Financial assets Monetary items USD Investments accounted for using the equity method USD Financial liabilities Monetary items USD	December 31, 2020 Foreign Currency Exchange Rate Carrying Amount $ 20,443 28.48 $ 582,217 94,674 28.48 2,696,316 3,098 28.48 88,231	December 31, 2019
		Foreign Currency Exchange Rate Carrying Amount $ 17,846 29.98 $ 535,023 84,243 29.98 2,525,605 4,197 29.98 125,826

The significant realized and unrealized foreign exchange gains (losses) were as follows:

For the Year Ended December 31

Foreign Currency USD	2020 Exchange Rate Net Foreign Exchange Losses 29.549 (USD:NTD) $ (8,709)	2019
		Exchange Rate Net Foreign Exchange Gains 30.912 (USD:NTD) $ 4,630

28. SEPARATELY DISCLOSED ITEMS

• a. Information about significant transactions and investees

• 1) Financing provided to others: Table 1.

• 2) Endorsements/guarantees provided: Table 2.

• 120 -

• 3) Marketable securities held (excluding investments in subsidiaries: Table 3.

• 4) Marketable securities acquired or disposed of at costs or prices at least NT$300 million or 20% of the paid-in capital: None.

• 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital: None.

• 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital: None.

• 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 4.

• 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 5.

• 9) Trading in derivative instruments: None.

• 10) Information on investees: Table 6.

• b. Information on investments in mainland China

• 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area: Table 7.

• 2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses:

  • a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the year: Table 4.

  • b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the year: Table4.

  • c) The amount of property transactions and the amount of the resultant gains or losses: None.

  • d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the year and the purposes: Table 2.

  • e) The highest balance, the ending balance, the interest rate range, and total current period interest with respect to financing of funds: Table 1.

  • f) Other transactions that have a material effect on the profit or loss for the year or on the financial position, such as the rendering or receipt of services: None.

• c. Information on major shareholders: List all shareholders with ownership of 5% or greater showing the name of the shareholder, the number of shares owned, and percentage of ownership of each shareholder. See Table 8.

• 121 -

TABLE 1

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Lender	Borrower	Financial Statement Account	Related Party	Highest Balance for the Period	Ending Balance (Note 2)	Actual Borrowing Amount	Interest Rate	Nature of Financing	Business Transaction Amount	Reasons for Short-term Financing	Allowance for Bad Debt	Collateral	Collateral	Financing Limit for Each Borrower	Aggregate Financing Limit	Note
													Item	Value
1	Froch Enterprise International Co., Ltd.	Century Nova Steel Co., Ltd. - CN	Other receivables	Yes	$ 161,092	$ 125,095	$ 56,743	0%	Short-term financing	$ -	Operation	$ -	-	$ -	$ 415,152 (Note 1)	$ 415,152 (Note 1)

Note 1: The total amount of loans made by the Company and the amount of loan made to a single enterprise that is directly or indirectly 100% owned by the Company shall not exceed 100% of the net value of the borrower based on financial statements for the period audited or reviewed by an accountant.

Note 2: If the relevant figures in this table involve foreign currencies, they shall be converted into the New Taiwan dollar at the exchange rate on the balance sheet date.

• 122 -

TABLE 2

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorser/Guarantor	Endorsed/Guaranteed Party	Endorsed/Guaranteed Party	Limits on Endorsement/ Guarantee Given on Behalf of Each Party (Note 2)	Maximum Amount Endorsed/ Guaranteed During the Period	Outstanding Endorsement/ Guarantee at the End of the Period	Actual Borrowing Amount	Amount Endorsed/ Guaranteed by Collateral	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Aggregate Endorsement/ Guarantee Limit (Note 2)	Endorsement / Guarantee Given by Parent on Behalf of Subsidiaries	Endorsement / Guarantee Given by Subsidiaries on Behalf of Parent	Endorsement / Guarantee Given on Behalf of Companies in Mainland China	Note
		Name	Relationsh ip
0 1	Froch Enterprise Co., Ltd. Century Nova Steel Co., Ltd. - CN	Century Nova Steel, Co., Ltd. - CN Froch Metal (Suzhou) Co., Ltd. Froch Stainless Co., Ltd. - CN	2. 1. 1.	$ 1,876,497 529,490 529,490	$ 1,240,250 21,916 21,916	$ 1,167,680 21,824 21,824	$ 939,840 1,055 5,346	$ - - -	30 1 1	$ 1,876,497 1,058,981 1,058,981	Yes - -	- - -	Yes Yes Yes

Note 1: The relationship between guarantor and guaranteed party:

1. Companies that do business with each other.

2. Subsidiary which is directly or indirectly held over 50% of the issued share capital.

3. Note 2: The total amount of the Company’s external endorsement guarantee and the amount of the Company’s endorsement guarantee for a single 100% owned enterprise shall not exceed 48% of the net value of the endorsing company based on financial statements for the current period audited or reviewed by an accountant; for a single enterprise that is not 100% owned, the amount of the endorsement guarantee shall be limited to 24% of the net value of the endorsing company based on financial statements for the period that were audited or reviewed by an accountant.

Note 3: If the relevant figures in this table involve foreign currencies, they shall be converted into the New Taiwan dollar at the exchange rate on the balance sheet date.

• 123 -

TABLE 3

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name	Type and Name of Marketable Securities	Relationship with the Holding Company	Financial Statement Account		December 31, 2020	December 31, 2020		Note
				Number of Shares	Carrying Amount	Percentage of Ownership (%)	Fair Value
Froch Enterprise Co., Ltd.	Mutual funds Fidelity Asia High Yield Bond Fund Type A Accumulated (NTD) Shin Kong US Harvest Balance Fund Type A without Dividends (NTD) Berry Emerging Border High Yield Bond Fund Type A Without Dividends (NTD) Hua Nan WE Multi-Asset Fund (NTD) TCB US shout Duration High Yield Bond Fund without Dividends (NTD) TCB US shout Duration High Yield Bond Fund without Dividends (NTD)	None None None None None None	Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current	300,000 200,000 200,000 300,000 300,000 300,000	$ 3,149 2,138 2,087 3,045 2,969 2,969	- - - - - -	$ 3,149 2,138 2,087 3,045 2,969 2,969

Note 1: The term “securities” as used in this table refers to the securities derived from stocks, bonds, beneficiary notes and the above items which fall within the scope of IFRS 9 “Financial Instruments”.

Note 2: For information on investments in subsidiaries, refer to Notes 6 and 7.

• 124 -

TABLE 4

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Purchaser or Seller	Related Party	Relationship	Transaction Details	Transaction Details	Transaction Details	Transaction Details	Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Note
			Purchase/S ale	Amount	% of Total	Payment/Collection Terms	Unit Price	Payment/Collection Terms	Ending Balance	% of Total
Froch Enterprise Co., Ltd. Froch Enterprise Co., Ltd. Century Nova Steel, Co., Ltd. - CN Century Nova Steel, Co., Ltd. - CN Froch Metal (Suzhou) Co., Ltd. Froch Stainless Co., Ltd. - CN	Santorics Metals Co., Ltd. Beittia Metals Co., Ltd. Froch Metal (Suzhou) Co., Ltd. Froch Stainless Co., Ltd. - CN Century Nova Steel, Co., Ltd. - CN Century Nova Steel, Co., Ltd. - CN	Others Others Subsidiary Subsidiary Subsidiary Subsidiary	Sale Purchase Purchase Sale Sale Purchase Purchase	$ (433,015) 596,549 243,636 (555,980) (2,106,006) 555,980 2,106,006	(6) 9 4 (20) (77) 99 100	Note 1 Note 1 Note 1 Note 2 Note 2 Note 2 Note 2	Note 1 Note 1 Note 1 Note 2 Note 2 Note 2 Note 2	Note 1 Note 1 Note 1 Note 2 Note 2 Note 2 Note 2	$ - (24,558) - - 102,396 - (102,396)	- (18) - - 98 - (100)

Note 1: There is no material difference in the sales price to related and the non-related party, and the collection term is within 60 days after the transaction; payment is by 45-50 days L/C.

Note 2: Subject to the market price agreement between the parties, the terms of collection are 90 days after the transaction.

• 125 -

TABLE 5

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF PAID-IN CAPITAL DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Related Party	Relationship	Trade Receivables - Related Parties (Note)	Turnover Rate	Overdue	Overdue	Amount Received in Subsequent Period	Allowance for Doubtful Accounts
					Amount	Actions Taken
Century Nova Steel, Co., Ltd. - CN	Froch Stainless Co., Ltd. - CN	Subsidiary	$ 102,396	19	$ -	-	$ 102,396	$ -

• 126 -

TABLE 6

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Businesses and Products	Original Investment Amount	Original Investment Amount	As of December 31, 2020	As of December 31, 2020	As of December 31, 2020	Net Income (Loss) of the Investee	Share of Profit (Loss)	Note
				December 31, 2020	December 31, 2019	Number of Shares	Percentage of Ownership	Carrying Amount
Froch Enterprise Co., Ltd.	Century Nova Steel Co., Ltd. Froch Enterprise International Co., Ltd. Froch Stainless Co., Ltd.	British Virgin Islands British Cayman Islands British Samoa	International investment business International investment business International investment business	$ 1,530,998 115,366 14,959	$ 1,530,998 115,366 14,959	49,000,000 3,550,000 500,000	100% 100% 100%	$ 2,205,362 415,152 74,894	$ 131,008 21,773 2,385	$ 131,008 21,773 2,385	Subsidiary Subsidiary Subsidiary

Note: For information on investments in mainland China, see Table 7.

• 127 -

TABLE 7

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars, U.S. Dollars, Unless Stated Otherwise)

Investee Company	Main Businesses and Products	Paid-in Capital	Paid-in Capital	Method of Investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2020	Remittance of Funds	Remittance of Funds	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2020	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss) (Notes 3 and 6)	Carrying Amount as of December 31, 2020 (Notes 3 and 6)	Accumulated Repatriation of Investment Income as of December 31, 2020
						Outward	Inward
Froch Metal (Suzhou) Co., Ltd. Century Nova Steel, Co., Ltd. - CN Zhangjiagang Free Trade Zone Froch International Trading Co., Ltd. Froch Stainless Co., Ltd. - CN	Operating stainless steel and other steel pipe production and sales businesses Operating stainless steel and other steel pipe production and sales businesses Import and export business, entrepot trade and trade between enterprises in bonded areas Operating stainless steel and other steel pipe production and sales businesses	$ 103,236 (US$ 3,000) 1,680,898 (US$ 54,000) (Note 1) 16,250 (US$ 500) 17,951 (US$ 600)		The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China. The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China. The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China. The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China.	$ 110,492 (US$ 3,400) 1,530,998 (US$ 49,000) 4,875 (US$ 150) 14,959 (US$ 500)	$ - - - -	$	- $ 110,492 (US$ 3,400) - 1,530,998 (US$ 49,000) - 4,875 (US$ 150) - 14,959 (US$ 500)	$ 12,682 130,474 548 2,863	100% 100% 100% (Note 2) 100% (Note 5)	$ 12,682 130,474 548 2,863	$ 157,402 2,206,209 23,268 89,872	$ - - - -
Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2020			Investment Amounts Authorized by Investment Commission, MOEA		Upper Limited on the Amount of Investment Stipulated by Investment Commission, MOEA
$ 1,457,176 (US$ 46,950)			$ 1,672,697 (US$ 58,000)		$ 2,345,621

Note 1: The equipment is priced at US$6,100, and the rest is invested in cash.

Note 2: The Company established Zhangjiagang Free Trade Zone Froch International Trading Co., Ltd. as a joint venture between Froch Enterprise International Co., Ltd. and Froch Metal (Suzhou) Co., Ltd., holding 30% and 70% equity respectively.

Note 3: The Company recognized its investment gain (loss) based on the audited financial statements as of and for the year ended December 31, 2020.

Note 4: According to the “Regulations for Screening of Application to Engage in Technical Cooperation in Mainland China” issued by the Investment Commission of the Ministry of Economic Affairs, the amount is calculated using 60% of net worth or combined net worth.

Note 5: The Company established Froch Stainless Co., Ltd. - CN as a joint venture between Froch Stainless Co., Ltd. - CN and Century Nova Steel, Co., Ltd. - CN, holding 83% and 17% equity, respectively.

• 128 -

TABLE 8

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

INFORMATION OF MAJOR SHAREHOLDERS DECEMBER 31, 2020

Name of Major Shareholder	Shares	Shares
	Number of Shares	Percentage of Ownership (%)
Shin Chieh Shin Co., Ltd. Hsin-Ta Chang Ping-Yiao Chang Li Chieh Shin Co., Ltd.	28,206,372 21,648,931 17,547,946 15,676,885	10.05 7.71 6.25 5.58

• Note 1: The information of major shareholders presented in this table is provided by the Taiwan Depository & Clearing Corporation based on the number of ordinary shares and preference shares held by shareholders with ownership of 5% or greater, that have been issued without physical registration (including treasury shares) by the Company as of the last business day for the current quarter. The share capital in the financial statements may differ from the actual number of shares that have been issued without physical registration because of different preparation basis.

• Note 2: If a shareholder delivers the shareholdings to the trust, the above information will be disclosed by the individual truster who opened the trust account. For shareholders who declare insider shareholdings with ownership greater than 10% in accordance with the Security and Exchange Act, the shareholdings include shares held by shareholders and those delivered to the trust over which shareholders have rights to determine the use of trust property. For information relating to insider shareholding declaration, please refer to Market Observation Post System.

• 129 -

THE CONTENTS OF STATEMENTS OF MAJOR ACCOUNTING ITEMS

ITEM	STATEMENT INDEX
MAJOR ACCOUNTING ITEMS IN ASSETS, LIABILITIES AND
EQUITY
STATEMENT OF CASH	1
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT	2
OR LOSS - CURRENT
STATEMENT OF NOTES RECEIVABLE	3
STATEMENT OF ACCOUNTS RECEIVABLE	4
STATEMENT OF INVENTORIES	5
STATEMENT OF CHANGES IN INVESTMENTS	6
ACCOUNTED FOR USING THE EQUITY METHOD
STATEMENT OF CHANGES IN PROPERTY, PLANT AND	Note 11
EQUIPMENT
STATEMENT OF CHANGES IN ACCUMULATED	Note 11
DEPRECIATION OF PROPERTY, PLANT AND
EQUIPMENT
STATEMENT OF DEFERRED TAX ASSETS	Note 19
STATEMENT OF SHORT-TERM BANK LOANS	7
STATEMENT OF NOTES PAYABLE	8
STATEMENT OF ACCOUNTS PAYABLE	9
STATEMENT OF OTHER PAYABLES	Note 14
STATEMENT OF LONG-TERM BANK LOANS	10
STATEMENT OF DEFERRED TAX LIABILITIES	Note 19
MAJOR ACCOUNTING ITEMS IN PROFIT OR LOSS
STATEMENT OF NET REVENUE	11
STATEMENT OF COST OF REVENUE	12
STATEMENT OF OPERATING EXPENSES	13
STATEMENT OF EMPLOYEE BENEFITS EXPENSES AND	Note 18
DEPRECIATION EXPENSES BY FUNCTION

• 130 -

STATEMENT 1

Froch Enterprise Co., Ltd.

STATEMENT OF CASH DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars and Foreign Currencies)

Item Cash in banks Demand deposits Foreign currency deposits (Note) Checking deposits Cash on hand and petty cash	Amount $ 177,454 269,068 60 446,582 760 $ 447,342

Note: Include US$9,333 thousand and EUR94 thousand; exchange rate is US$1=NT$28.48 and EUR1=NT$35.02.

• 131 -

STATEMENT 2

Froch Enterprise Co., Ltd.

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS - CURRENT DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Number of Acquisition Type and Name of Marketable Securities Shares/Unit s Cost Mutual funds Fidelity Asia High Yield Bond Fund Type A Accumulated (NTD) 300,000 $ 3,018 Shin Kong US Harvest Balance Fund Type A without Dividends (NTD) 200,000 2,000 Berry Emerging Border High Yield Bond Fund Type A Without Dividends (NTD) 200,000 2,000 Hua Nan WE Multi-Asset Fund (NTD) 300,000 3,018 TCB US shout Duration High Yield Bond Fund without Dividends (NTD) 300,000 3,009 TCB US shout Duration High Yield Bond Fund without Dividends (NTD) 300,000 3,014 $ 16,059

Market Value

Unit Price Total Amount 10.4939 $ 3,149 10.6900 2,138 10.4361 2,087 10.1500 3,045 9.8979 2,969 9.8979 2,969 $ 16,357

Note：Fair value of mutual funds is calculated based on the value of net assets on the balance sheet date.

• 132 -

STATEMENT 3

Froch Enterprise Co., Ltd.

STATEMENT OF NOTES RECEIVABLE DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Client Name CH0035 company Others (Note) Less: Allowance for impairment loss Total	Amount $ 9,203 125,385 134,588 (1,346) $ 133,242

Note: The amount of individual client included in others does not exceed 5% of the account balance.

• 133 -

STATEMENT 4

Froch Enterprise Co., Ltd.

STATEMENT OF ACCOUNTS RECEIVABLE DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Client Name Non-related parties CI0049 company AR001B company Others (Note) Less: Allowance for impairment loss Total	Amount $ 39,606 36,064 562,816 638,486 (991) $ 637,495

Note: The amount of individual client included in others does not exceed 5% of the account balance.

• 134 -

STATEMENT 5

Froch Enterprise Co., Ltd.

STATEMENT OF INVENTORIES DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Item Finished goods Work in process Raw materials Supplies Inventory in transit		Amount
		Cost Market Price (Note 1) $ 983,448 $ 978,317 748,764 744,785 1,264,736 1,232,192 35,665 35,665 198,439 198,439 $ 3,231,052 $ 3,189,398

• Note 1: Net realizable value refers to the estimated selling price under normal circumstances minus the estimated cost required to complete the project and the estimated cost required to complete the sale.

• Note 2: The inventories were not pledged as collateral.

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STATEMENT 6

Froch Enterprise Co., Ltd.

STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Investees Century Nova Steel Co., Ltd. Froch Enterprise International Co., Ltd. Froch Stainless Co., Ltd.	Balance, January 1, 2020 Number of Shares Ownership (%) Amount 49,000,000 100 $ 2,039,873 3,550,000 100 412,953 500,000 100 71,345 $ 2,524,171	Increase in the Current Year Number of Shares Amount - $ - - - - - $ -	Exchange Differences on Translation of the Share of Profit (Loss) of Financial Statements of Subsidiaries and Associates Foreign Operations $ 131,008 $ 34,481 21,773 (19,574) 2,385 1,164 $ 155,166 $ 16,071	Balance, December 31, 2020 Number of Shares Ownership (%) Amount 49,000,000 100 $ 2,205,362 3,550,000 100 415,152 500,000 100 74,894 $ 2,695,408	Net Assets Value $ 2,205,362 415,152 74,894 $ 2,695,408
	Number of Shares Ownership (%) 49,000,000 100 3,550,000 100 500,000 100	Number of Shares - - -		Number of Shares Ownership (%) 49,000,000 100 3,550,000 100 500,000 100

• 136 -

STATEMENT 7

Froch Enterprise Co., Ltd.

STATEMENT OF SHORT-TERM BANK LOANS DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Types of Loan and Bank Loan Due Date (Note) Annual Interest Rate (%) Domestic long-term letter of credit SinoPac Bank 2021.03.24-2021.06.18 1.30 Lank Bank of Taiwan 2021.02.27-2021.06.21 1.30 Chang Hwa Commercial Bank 2021.04.20-2021.06.08 1.25 Mega International Commercial Bank 2021.03.02-2021.06.28 1.30 Bank of Taiwan 2021.04.09-2021.06.17 1.30 Taiwan Cooperative Bank 2021.02.23-2021.06.23 1.35 First Commercial Bank 2021.05.14-2021.06.25 1.32 E. SUN Commercial Bank 2021.03.29-2021.04.14 1.33 Credit loan E. SUN Commercial Bank 2021.01.19 1.33 Taiwan Cooperative Bank 2021.08.10 1.35 Bank of Panshin 2021.04.14 1.35 SinoPac Bank 2021.03.16 1.30 Yuanta Commercial Bank 2021.03.29 1.33 Hua Nan Commercial Bank 2021.05.12 1.41 Shin Kong Commercial Bank 2021.01.15 1.20 The Export-Import Bank of the Republic of China 2021.05.27-2021.06.16 0.88 Chang Hwa Commercial Bank 2021.05.25 1.25

Amount $ 149,380 263,581 119,429 238,951 189,023 175,083 57,732 35,547 1,228,726 50,000 200,000 50,000 50,000 50,000 100,000 200,000 400,000 300,000 1,400,000 $ 2,628,726

• 137 -

STATEMENT 8

Froch Enterprise Co., Ltd.

STATEMENT OF NOTES PAYABLE DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Vendor Name Non-related parties SGK021 company SGA004 company SGP009 company Others (Note)	Amount $ 1,033 860 623 8,443
	$ 10,959

Note: The amount of individual vendor in others does not exceed 5% of the account balance.

• 138 -

STATEMENT 9

Froch Enterprise Co., Ltd.

STATEMENT OF ACCOUNTS PAYABLE DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Vendor Name Non-related parties SAI036 company Others (Note)	Amount $ 85,827 16,811
	$ 102,638

Note: The amount of individual vendor in others does not exceed 5% of the account balance.

• 139 -

STATEMENT 10

Froch Enterprise Co., Ltd.

STATEMENT OF LONG-TERM BANK LOANS DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

				Interest Rate		Mortgage or
Creditor	Contract Period		Summary	(%)	Loan Amount	Guarantee
Land and building mortgage loans
8 Syndicated banks included Land Bank of	2018.12.18-2025.12.18	The loan will be repaid in 11 installment after 2 years, with each repayment of		1.96	$ 1,213,196	Note 1
Taiwan Douliu Branch		$122,200 thousand
8 Syndicated banks included Land Bank of	2019.03.12-2025.12.18	The loan will be repaid in 11 installment after 2 years, with each repayment of		1.96	1,050,440	Note 1
Taiwan Douliu Branch		$105,300 thousand
Land Bank of Taiwan Douliu Branch	2019.07.26-2034.07.26	Repay $330 thousand per month		1.60	53,788	Note 2
First Commercial Bank Douliu Branch	2020.12.18-2035.12.18	The loan will be repaid in 26 installment after 2 years, with each repayment of		1.25	600,000	Note 3
		$23,100 thousand
First Commercial Bank Douliu Branch	2020.12.25-2030.12.25	The loan will be repaid in 16 installment after 2 years, with each repayment of		1.25	300,000	Note 3
		$18,750 thousand
					$ 3,217,424

Note 1: The Company provided carrying value of $701,170 thousand of land, buildings and machinery as collateral.

Note 2: The Company provided carrying value of $473,237 thousand of land and buildings as collateral.

Note 3: The Company provided carrying value of $600,590 thousand of land, buildings and machinery as collateral.

• 140 -

STATEMENT 11

Froch Enterprise Co., Ltd.

STATEMENT OF NET REVENUE FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Item Quantity (Metric Tons) Operating revenue Stainless steel pipe 78,278 Stainless steel coil 35,144 Others 368	Amount $ 5,642,367 2,074,486 28,179 $ 7,745,032

• 141 -

STATEMENT 12

Froch Enterprise Co., Ltd.

STATEMENT OF COST OF REVENUE FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Item Raw materials at the beginning of the year Purchased raw materials Sale Raw materials at the end of the year Raw materials consumption Direct labor Manufacturing expenses Manufacturing costs Work in progress at the beginning of the year Others Work in progress at the end of the year Cost of finished goods Finished goods at the beginning of the year Purchased finished goods Reversal of write-down of inventories Others Finished goods at the end of the year Cost of production Cost of raw materials sold Cost of processing Cost of sale of electricity Cost of goods sold

Amount $ 1,377,603 6,216,214 (182,144) (1,463,175) 5,948,498 184,367 508,378 6,641,243 548,589 236,737 (748,764) 6,677,805 962,435 565,253 (45,279) (238,239) (983,448) 6,938,527 182,144 233 6,105 $ 7,127,009

• 142 -

STATEMENT 13

Froch Enterprise Co., Ltd.

STATEMENT OF OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars)

Item Salary Freight Insurance Entertainment Depreciation Employee benefits Others	Selling and Marketing Expenses General and Administrative Expenses $ 89,989 $ 49,614 204,326 1,203 11,374 6,453 5,167 9,688 12,811 10,621 2 14,158 86,824 33,414 $ 410,493 $ 125,151	Total $ 139,603 205,529 17,827 14,855 23,432 14,160 120,238 $ 535,644

• 143 -

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2020 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard 10, “Consolidated Financial Statements”. Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we have not prepared a separate set of consolidated financial statements of affiliates.

Very truly yours,

Froch Enterprise Co., Ltd.

By:

==> picture [162 x 29] intentionally omitted <==

Ping-Yiao Chang President

March 23, 2021

• 144 -

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Froch Enterprise Co., Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Froch Enterprise Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”).

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. 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.

The key audit matter identified in the audit of the Group’s consolidated financial statements as of and for the year ended December 31, 2020 is as follows:

• 145 -

Inventory Valuation

The Group’s inventory amount is significant to the consolidated financial statements. The accounting estimation of net realizable value of inventory involves significant management judgments. These estimates are based on the current market conditions and historical sales experience of similar products. Change in market conditions may significantly affect the estimations. Therefore, we identified the inventory valuation as a key audit matter; refer to Notes 4, 5 and 9 to the consolidated financial statements.

Our audit procedures performed in respect of inventory valuation included the following:

1. We understood and evaluated the Company’s policies and procedures for recognition of inventory write-downs;

2. We obtained the inventory evaluation form, checked the selling price by sampling and recalculated to confirm the completeness and accuracy of the data;

3. We obtained the obsolete inventory statement, reviewed the relevant assessment data, understood its impact on the net realizable value, and confirmed the reasonableness of the relevant obsolescence amount.

4. We observed the year-end inventory counts and assessed the inventory status to confirm whether costs associated with obsolete and damaged inventory have been appropriately written down.

Other Matter

We have also audited the parent company only financial statements of Froch Enterprise Co., Ltd. as of and for the years ended December 31, 2020 and 2019 on which we have issued an unmodified opinion.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process.

• 146 -

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

• 147 -

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2020 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audits resulting in this independent auditors’ report are Ting-Chien Su and Lie-Dong Wu.

Deloitte & Touche Taipei, Taiwan Republic of China March 23, 2021

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

• 148 -

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss - current (Notes 4 and 7) Notes receivable (Notes 4, 8 and 17) Trade receivables from unrelated parties (Notes 4, 8 and 17) Trade receivables from related parties (Notes 4, 17 and 23) Other receivables (Note 4 and 23) Current tax assets (Notes 4 and 19) Inventories (Notes 4, 5 and 9) Prepayments Current financial assets (Notes 4, 6 and 24) Other current assets Total current assets NON-CURRENT ASSETS Property, plant and equipment (Notes 4, 11 and 24) Right-of-use asset (Notes 4 and 12) Deferred tax assets (Notes 4 and 19) Prepayments for equipment Refundable deposits (Note 23) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note13) Contract liabilities - current (Notes 4 and 17) Notes payable to unrelated parties Trade payables to unrelated parties Trade payables to related parties (Note 23) Other payables (Notes 14 and 23) Current tax liabilities (Notes 4 and 19) Lease liability - current (Notes 4, 12 and 23) Current portion of long-term borrowings (Notes 13 and 24) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Notes 13 and 24) Lease liability - non-current (Notes 4, 12 and 23) Deferred tax liabilities (Notes 4 and 19) Net defined benefit liabilities - non-current (Notes 4 and 15) Guarantee deposits (Note 23) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY Ordinary shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Other equity Total equity TOTAL		2020 Amount % $ 1,565,467 13 16,357 - 266,911 2 749,747 7 - - 33,162 - 2,439 - 4,255,872 37 168,156 2 7,632 - 543 - 7,066,286 61 4,376,031 37 68,792 1 31,837 - 109,077 1 15,969 - 4,601,706 39 $ 11,667,992 100 $ 3,568,566 31 210,754 2 10,959 - 106,139 1 24,558 - 217,449 2 22,240 - 21,765 - 456,895 4 3,776 - 4,643,101 40 2,760,529 24 24,006 - 256,360 2 65,085 - 9,542 - 3,115,522 26 7,758,623 66 2,805,260 24 463,471 4 198,107 2 246,961 2 426,460 4 (230,890) (2) 3,909,369 34 $ 11,667,992 100		2019
				Amount % $ 1,332,779 13 12,943 - 237,904 2 765,085 7 21,348 - 31,304 1 3,641 - 3,719,060 35 126,790 1 2,784 - 3,375 - 6,257,013 59 4,145,835 39 100,090 1 28,604 - 84,630 1 19,075 - 4,378,234 41 $ 10,635,247 100 $ 3,037,571 29 154,950 1 19,494 - 142,355 1 - - 185,700 2 32,803 - 38,344 - 280,835 3 3,055 - 3,895,107 36 2,406,715 23 38,692 - 225,971 2 66,445 1 8,968 - 2,746,791 26 6,641,898 62 2,865,260 27 464,646 4 171,117 2 144,960 1 594,327 6 (246,961) (2) 3,993,349 38 $ 10,635,247 100

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

• 149 -

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4, 17 and 23) OPERATING COSTS (Notes 9, 18 and 23) GROSS PROFIT OPERATING EXPENSES (Notes 18 and 23) Selling and marketing expenses General and administrative expenses Total operating expenses PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Interest income Other income (Notes 18 and 23) Other gains and losses (Note 18) Finance costs (Notes 18 and 23) Total non-operating expenses PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 19) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) (Note 4) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 15) Income tax relating to items that will not be reclassified subsequently to profit or loss (Note 4 and 19)		2020 Amount % $ 10,560,947 100 9,622,919 91 938,028 9 524,723 5 178,437 2 703,160 7 234,868 2 6,040 - 12,367 - 45,751 1 (110,710) (1) (46,552) - 188,316 2 79,965 1 108,351 1 (4,955) - 991 - (3,964) -		2019
				Amount % $ 11,984,206 100 10,765,124 90 1,219,082 10 510,533 4 210,477 2 721,010 6 498,072 4 4,844 - 8,952 - 4,874 - (123,473) (1) (104,803) (1) 393,269 3 125,015 1 268,254 2 2,061 - (412) - 1,649 - (Continued)

• 150 -

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of the financial statements of foreign operations Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE (Note 20) Basic Diluted		2020 Amount % $ 16,071 - 12,107 - $ 120,458 1 $ 0.38 $ 0.38		2019
				Amount % $ (102,001) (1) (100,352) (1) $ 167,902 1 $ 0.94 $ 0.94

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

(Concluded)

• 151 -

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2019 Appropriation of 2018 earnings Legal reserve Special reserve Cash dividends distributed by the Company Net profit for the year ended December 31, 2019 Other comprehensive income (loss) for the year ended December 31, 2019, net of income tax Total comprehensive income (loss) for the year ended December 31, 2019 Share-based payment arrangements Disposal of treasury shares BALANCE AT DECEMBER 31, 2019 Appropriation of 2019 earnings Legal reserve Special reserve Cash dividends distributed by the Company Net profit for the year ended December 31, 2020 Other comprehensive income (loss) for the year ended December 31, 2020, net of income tax Total comprehensive income (loss) for the year ended December 31, 2020 Buy-back of ordinary shares Cancelation of treasury shares BALANCE AT DECEMBER 31, 2020	Ordinary Shares (Note 16) Capital Surplus (Note 16) $ 2,865,260 $ 444,012 - - - - - - - - - - - - - 20,634 - - 2,865,260 464,646 - - - - - - - - - - - - - - (60,000) (1,175) $ 2,805,260 $ 463,471		Retained Earnings (Note 16) Legal Reserve Special Reserve Unappropriated Earnings $ 116,709 $ 109,656 $ 700,662 54,408 - (54,408) - 35,304 (35,304) - - (286,526) - - 268,254 - - 1,649 - - 269,903 - - - - - - 171,117 144,960 594,327 26,990 - (26,990) - 102,001 (102,001) - - (143,263) - - 108,351 - - (3,964) - - 104,387 - - - - - - $ 198,107 $ 246,961 $ 426,460	Other Equity Exchange Differences on Translation of the Financial Statements of Foreign Operations $ (144,960) - - - - (102,001) (102,001) - - (246,961) - - - - 16,071 16,071 - - $ (230,890)	Treasury Shares (Note 16) $ (62,528) - - - - - - - 62,528 - - - - - - - (61,175) 61,175 $ -	Total Equity $ 4,028,811 - - (286,526) 268,254 (100,352) 167,902 20,634 62,528 3,993,349 - - (143,263) 108,351 12,107 120,458 (61,175) - $ 3,909,369

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

• 152 -

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expense Expected credit loss reversed on trade receivables Net gain on fair value changes of financial assets at fair value through profit or loss Finance costs Interest income Compensation costs of employee share options Loss (gain) on disposal of property, plant and equipment Net gain on disposal of other assets Write-down of inventories Reversal of write-down of inventories Net loss (gain) on foreign currency exchange Changes in operating assets and liabilities Notes receivable Trade receivables Other receivables Inventories Prepayments Other current assets Contract liabilities Notes payable Trade payables Other payables Other current liabilities Net defined benefit liabilities Cash generated from (used in) operations Interest received Interest paid Income tax paid Net cash generated from (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at fair value through profit or loss Proceeds from sale of financial assets at fair value through profit or loss Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease in refundable deposits Decrease (increase) in other financial assets Increase in prepayments for equipment Net cash used in investing activities	2020 $ 188,316 236,964 (77) (820) 110,710 (6,040) - (849) (107) - (45,640) (10,970) (36,181) 36,121 (5,019) (543,963) (50,855) 2,832 63,357 (8,535) (11,037) 42,825 721 (6,315) (44,562) 6,040 (111,408) (59,855) (209,785) (18,070) 15,476 (305,809) 2,974 2,927 (5,175) (140,117) (447,794)	2019 $ 393,269 225,665 (30,217) (1,145) 123,473 (4,844) 20,634 1,700 (51) 6,950 - 6,974 93,727 102,691 (3,262) 162,083 (32,429) (2,195) 42,205 (39,685) 33,188 (13,202) (30,508) (8,878) 1,046,143 4,844 (125,651) (180,822) 744,514 (25,092) 24,759 (227,115) 2,183 19,882 15,753 (175,420) (365,050) (Continued)

153

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (repayments of ) short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Proceeds from guarantee deposits received Repayment of the principal portion of lease liabilities Dividends paid to owners of the Company Payments for buy-back of ordinary shares Proceeds from reissuance of treasury shares Net cash generated from (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2020 $ 576,187 900,000 (370,126) 574 (39,254) (143,263) (61,175) - 862,943 27,324 232,688 1,332,779 $ 1,565,467	2019 $ (973,274) 1,215,400 (61,355) 19 (38,878) (286,526) - 62,528 (82,086) (44,979) 252,399 1,080,380 $ 1,332,779

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

(Concluded)

154

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

Froch Enterprise Co., Ltd. (the “Company”) was incorporated in October 1984. It mainly manufactures and sells various stainless steel tube, steel tube, copper tube and aluminium tube.

The Company’s shares have been listed on the Taiwan Stock Exchange (TWSE) since December 1998.

The consolidated financial statements of the Company and its subsidiaries (collectively, the “Group”) are presented in the Company’s functional currency, the New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 23, 2021.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

• a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

The initial application of the IFRSs endorsed and issued into effect by the FSC did not have material impact on the Group’s accounting policies.

• b. The IFRSs endorsed by the FSC for application starting from

2021

New IFRSs Amendments to IFRS 4 “Extension of the Temporary Exemption from Applying IFRS 9” Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 “Interest Rate Benchmark Reform - Phase 2” Amendment to IFRS 16 “Covid-19-Related Rent Concessions”	Effective Date Announced by IASB
	Effective immediately upon promulgation by the IASB January 1, 2021 June 1, 2020

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• c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs “Annual Improvements to IFRS Standards 2018-2020” Amendments to IFRS 3 “Reference to the Conceptual Framework” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IFRS 17 Amendments to IAS 1 “Classification of Liabilities as Current or Non-current” Amendments to IAS 1 “Disclosure of Accounting Policies” Amendments to IAS 8 “Definition of Accounting Estimates” Amendments to IAS 16 “Property, Plant and Equipment - Proceeds before Intended Use” Amendments to IAS 37 “Onerous Contracts - Cost of Fulfilling a Contract”

Effective Date Announced by IASB (Note 1)

January 1, 2022 (Note 2) January 1, 2022 (Note 3) To be determined by IASB January 1, 2023 January 1, 2023 January 1, 2023 January 1, 2023 (Note 4) January 1, 2023 (Note 5) January 1, 2022 (Note 6) January 1, 2022 (Note 7)

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual reporting periods beginning on or after their respective effective dates.

• Note 2: The amendments to IFRS 9 will be applied prospectively to modifications and exchanges of financial liabilities that occur on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IAS 41 “Agriculture” will be applied prospectively to the fair value measurements on or after the annual reporting periods beginning on or after January 1, 2022. The amendments to IFRS 1 “First-time Adoptions of IFRSs” will be applied retrospectively for annual reporting periods beginning on or after January 1, 2022.

• Note 3: The amendments are applicable to business combinations for which the acquisition date is on or after the beginning of the annual reporting period beginning on or after January 1, 2022.

• Note 4: The amendments will be applied prospectively for annual reporting periods beginning on or after January 1, 2023.

• Note 5: The amendments are applicable to changes in accounting estimates and changes in accounting policies that occur on or after the beginning of the annual reporting period beginning on or after January 1, 2023.

• Note 6: The amendments are applicable to property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after January 1, 2021.

• Note 7: The amendments are applicable to contracts for which the entity has not yet fulfilled all its obligations on January 1, 2022.

As of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

• b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

• 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

• 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

• 3) Level 3 inputs are unobservable inputs for an asset or liability.

• c. Classification of current and non-current assets and liabilities

Current assets include:

• 1) Assets held primarily for the purpose of trading;

• 2) Assets expected to be realized within 12 months after the reporting period; and

• 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

• 1) Liabilities held primarily for the purpose of trading;

• 2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and

• 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Assets and liabilities that are not classified as current are classified as non-current.

• d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e., its subsidiaries).

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Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective dates of acquisitions up to the effective dates of disposals, as appropriate.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the interests of the Group and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company.

See Note 10, Table 7 and Table 8 for the detailed information of subsidiaries (including the percentage of ownership and main business).

e. Foreign currencies

In preparing the financial statements of each individual entity in the Group, transactions in currencies other than the entity’s functional currency (i.e., foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income; in which case, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary item denominated in a foreign currency and measured at historical cost is stated at the reporting currency as originally translated from the foreign currency.

For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the entities in the Group (including subsidiaries and branches in other countries that use currency which is different from the currency of the Company) are translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income.

f. Inventories

Inventories consist of raw materials, supplies, work in progress and finished goods and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at the weighted-average cost on the balance sheet date.

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• g. Property, plant and equipment

Property, plant and equipment are initially measured at cost and subsequently measured at cost less accumulated depreciation and accumulated impairment loss.

Property, plant and equipment in the course of construction are measured at cost less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use.

Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

• h. Impairment of property, plant and equipment and right-of-use assets

At the end of each reporting period, the Group reviews the carrying amounts of its property, plant and equipment and right-of-use assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized on the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

• i. Financial instruments

Financial assets and financial liabilities are recognized when an entity in the Group becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss (FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

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a. Measurement categories

• 1) Financial assets at FVTPL

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

Financial assets at FVTPL are subsequently measured at fair value, and any dividends, interest earned and remeasurement gains or losses on such financial assets are recognized in other gains or losses. Fair value is determined in the manner described in Note 22.

• 2) Financial assets at amortized cost

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

• a) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, notes receivable at amortized cost, trade receivables, other receivables, and other financial assets - current and refundable deposits, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for:

• a) Purchased or originated credit-impaired financial asset, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial asset; and

• b) Financial assets that are not credit-impaired on purchase or origination but have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

A financial asset is credit-impaired when one or more of the following events have occurred: significant financial difficulty of the issuer or the borrower; breach of contract, such as a default; it is becoming probable that the borrower will enter bankruptcy or undergo a financial reorganization; or the disappearance of an active market for that financial asset because of financial difficulties.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

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• b. Impairment of financial assets

The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables).

The Group always recognizes lifetime expected credit loss (ECLs) for trade receivables. For all other financial instruments, the Group recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECL represents the expected credit loss that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The impairment loss of all financial assets is recognized in profit or loss by a reduction in their carrying amounts through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and the carrying amounts of such financial assets are not reduced.

• c. Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

On derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

Financial liabilities

• a. Subsequent measurement

All the financial liabilities are measured at amortized cost using the effective interest method.

• b. Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

j. Revenue recognition

The Group identifies contracts with customers, allocates the transaction price to the performance obligations, and recognizes revenue when performance obligations are satisfied.

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Revenue from the sale of goods comes from sales of various stainless steel tube. Sales of various stainless steel tube are recognized as revenue and trade receivables when the primary responsibility for sales to future customers has been transferred according to the transaction terms agreed with individual customers. The transaction price received is recognized as a contract liability until the goods have been delivered to the customer.

k. Leasing

At the inception of a contract, the Group assesses whether the contract is, or contains, a lease.

1) The Group as lessor

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

Lease payments (less any lease incentives payable) from operating leases are recognized as income on a straight-line basis over the terms of the relevant leases. Initial direct costs incurred in obtaining operating leases are added to the carrying amounts of the underlying assets and recognized as expenses on a straight-line basis over the lease terms.

When a lease includes both land and building elements, the Group assesses the classification of each element separately as a finance or an operating lease based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the lessee. The lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of a contract. If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with its lease classification. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases; in which case, the entire lease is classified as an operating lease.

2) The Group as lessee

The Group recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease incentives received. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented on a separate line in the consolidated balance sheets.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses the lessee’s incremental borrowing rate.

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Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term, the Group remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line in the consolidated balance sheets.

• l. Borrowing costs

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

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

• m. Employee benefits

• 1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services.

• 2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur. Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

• n. Share-based payment arrangements

The fair value at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s best estimates of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. It is recognized as an expense in full at the grant date if vested immediately. The grant date of treasury shares transferred to employees is the date on which the board of directors approves the transaction.

• o. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

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1) Current tax

Income tax payable (recoverable) is based on taxable profit (loss) for the year determined according to the applicable tax laws of each tax jurisdiction.

According to the Income Tax Law in the ROC, an additional tax on unappropriated earnings is provided for in the year the shareholders approve to retain earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

• 2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.

Deferred tax assets are generally recognized for all deductible temporary differences and unused loss carryforwards to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are recognized only to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

• 3) Current and deferred taxes

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity; in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

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5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group's accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The Group considers the economic implications of the COVID-19 when making its critical accounting estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods.

Key Sources of Estimation Uncertainty - Write-down of inventories

The net realizable value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The estimation of net realizable value is based on current market conditions and historical experience with product sales of a similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value.

6. CASH AND CASH EQUIVALENTS

Cash on hand Bank deposits Cash equivalents (investments with original maturities of less than 3 months) Less: Other financial assets-current		December 31	December 31
		2020 $ 2,070 1,505,557 65,472 1,573,099 (7,632) $ 1,565,467	2019 $ 2,051 1,075,663 257,849 1,335,563 (2,784) $ 1,332,779

Other financial assets are mainly time deposits with original maturity of more than 3 months and restricted bank deposits.

7. FINANCIAL INSTRUMENTS AT FVTPL

Financial assets-current Mutual funds		December 31	December 31
		2020 $ 16,357	2019 $ 12,943

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8. NOTES RECEIVABLE AND TRADE RECEIVABLES

Notes receivable Notes receivable - operating Less: Allowance for impairment loss Trade receivables At amortized cost Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2020 $ 268,257 (1,346) $ 266,911 $ 755,025 (5,278) $ 749,747	2019 $ 238,981 (1,077) $ 237,904 $ 770,969 (5,884) $ 765,085

a. Notes receivable

The aging of notes receivable is as follows:

Not past due Past due		December 31	December 31
		2020 $ 268,257 - $ 268,257	2019 $ 238,981 - $ 238,981

The above aging schedule was based on the past due days.

b. Trade receivables

The average credit period of sales of goods was 30-120 days. No interest was charged on trade receivables and notes receivable for the first 30-120 days from the date of the invoice. The Group uses other publicly available financial information or its own trading records to rate its major customers.

In order to minimize credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the year to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Group’s credit risk was significantly reduced.

The Group measures the loss allowance for trade receivables at an amount equal to lifetime ECLs. The expected credit losses on trade receivables are estimated by reference to the past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecasted direction of economic conditions at the reporting date. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Group’s different customer base.

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The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

The following table details the loss allowance of trade receivables:

December 31, 2020

Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECLs) Amortized cost December 31, 2019 Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECLs) Amortized cost	Not Past Due - $685,535 - $685,535 Not Past Due - $694,830 - $694,830	1 to 30 Days 1% $ 25,758 (258) $ 25,500 1 to 30 Days 1% $ 36,232 (362) $ 35,870	31 to 60 Days 5% $ 25,846 (1,292) $ 24,554 31 to 60 Days 5% $ 25,661 (1,283) $ 24,378	61 to 90 Days 15% $ 15,533 (2,330) $ 13,203 61 to 90 Days 15% $ 9,001 (1,350) $ 7,651	91 to 120 Days 30% $ 193 (58) $ 135 91 to 120 Days 30% $ 2,402 (721) $ 1,681	121 to 180 Days 45% $ 1,409 (634) $ 775 121 to 180 Days 45% $ 120 (54) $ 66	181 to 365 Days 70% $ 147 (102) $ 45 181 to 365 Days 70% $ 2,029 (1,420) $ 609	Over 365 Days 100% $ 604 (604) $ - Over 365 Days 100% $ 694 (694) $ -	Total $755,025 (5,278)
									$749,747
									Total $770,969 (5,884)
									$765,085

The Group’s expected credit loss rate for notes receivable is 1%.

The movements of the loss allowance of trade receivables and notes receivable were as follows:

Balance at January 1 Add (less): Net remeasurement of loss allowance Less: Amounts written off Less: Foreign exchange gains and losses Balance at December 31		December 31	December 31
		2020 $ 6,961 (77) (323) 63 $ 6,624	2019 $ 37,589 (30,217) (213) (198) $ 6,961

9. INVENTORIES

Finished goods Work in progress Raw materials Supplies Inventory in transit		December 31	December 31
		2020 $ 1,283,248 933,410 1,793,608 45,618 199,988 $ 4,255,872	2019 $ 1,210,851 678,815 1,631,391 47,287 150,716 $ 3,719,060

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The cost of inventories recognized as cost of goods sold for the years ended December 31, 2020 and 2019 was $9,622,919 thousand and $10,765,124 thousand, respectively. The cost of goods sold included (reversal of write-downs) inventory write-downs of $(45,640) thousand and $6,950 thousand, respectively. Inventory write-downs were reversed as a result of increased selling prices in certain markets.

10. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements are as follows:

Investor Investee Nature of the business Froch Enterprise Co., Ltd. Froch Enterprise International Co., Ltd. International investment business Century Nova Steel Co., Ltd. International investment business Froch Stainless Co., Ltd. International investment business Froch Enterprise International Co., Ltd. Froch Metal (Suzhou) Co., Ltd. Operating stainless steel and other steel pipe production and sales businesses Zhangjiagang Free Trade Zone Froch International Trading Co., Ltd. Import and export business, entrepot trade and trade between enterprises in bonded areas Froch Metal (Suzhou) Co., Ltd. Zhangjiagang Free Trade Zone Froch International Trading Co., Ltd. Import and export business, entrepot trade and trade between enterprises in bonded areas Century Nova Steel Co., Ltd. Century Nova Steel, Co., Ltd. - CN Operating stainless steel and other steel pipe production and sales businesses Froch Stainless Co., Ltd Froch Stainless Co., Ltd. - CN Operating stainless steel and other steel pipe production and sales businesses Century Nova Steel, Co., Ltd. - CN Froch Stainless Co., Ltd. - CN Operating stainless steel and other steel pipe production and sales businesses	% of Ownership
	December 31
	2020 2019 100 100 100 100 100 100 100 100 30 30 70 70 100 100 83 83 17 17

See Tables 7 and 8 for the information on the places of incorporation and principal places of business.

Investments were accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments in 2020 and 2019 were calculated based on financial statements which have been audited.

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11. PROPERTY, PLANT AND EQUIPMENT

Assets used by the Group Assets leased under operating leases		December 31	December 31
		2020 $ 4,218,737 157,294 $ 4,376,031	2019 $ 3,991,627 154,208 $ 4,145,835

a. Assets used by the Group

Cost Land Buildings Machinery and equipment Transportation equipment Other equipment Property under construction Accumulated depreciation Buildings Machinery and equipment Transportation equipment Other equipment Cost Land Buildings Machinery and equipment Transportation equipment Equipment under finance leases Other equipment Property under construction Accumulated depreciation Buildings Machinery and equipment Transportation equipment Equipment under finance leases Other equipment					For the Year Ended December 31, 2020	For the Year Ended December 31, 2020	For the Year Ended December 31, 2020	For the Year Ended December 31, 2020	For the Year Ended December 31, 2020	For the Year Ended December 31, 2020
				Beginning Balance $ 1,269,527 1,113,842 3,581,560 83,952 580,971 144,133 6,773,985 360,996 2,033,099 71,023 317,240 2,782,358 $ 3,991,627	Additions Disposals Reclassified $ 52,095 $ - $ - 26,003 - 124,182 94,173 (4,903) 108,741 2,474 (1,609) - 89,674 (710) 20,468 27,631 - (139,648) $ 292,050 $ (7,222) $ 113,743 $ 24,127 $ - $ - 145,049 (2,778) - 3,439 (1,609) - 21,778 (710) - $ 194,393 $ (5,097) $ - For the Year Ended December 31, 2019				Exchange Differences $ - 7,779 21,999 197 602 79 $ 30,656 $ 2,303 9,967 142 409 $ 12,821		Ending Balance $ 1,321,622 1,271,806 3,801,570 85,014 691,005 32,195 7,203,212 387,426 2,185,337 72,995 338,717 2,984,475 $ 4,218,737
		Beginning Balance Adjustments on initial application of IFRS 16 $ 1,269,419 $ - 1,126,508 - 3,460,709 - 82,143 - 207,348 (207,348) 500,516 - 39,927 - 6,686,570 $ (207,348) 342,338 $ - 1,934,386 - 68,657 - 50,786 (50,786) 301,744 - 2,697,911 $ (50,786) $ 3,988,659				Additions $ 108 600 39,508 2,801 - 78,419 104,581 $ 226,017 $ 24,140 137,920 3,302 - 17,752 $ 183,114	Disposals $ - - (20,238) (509) - (1,284) - $ (22,031) $ - (16,362) (509) - (1,277) $ (18,148)	Reclassified $ - 7,292 157,001 10 - 4,708 (375) $ (168,636) $ - - - - - $ -		Exchange Differences $ - (20,558) (55,420) (493) - (1,388) - $ (77,859) $ (5,482) (22,845) (427) - (979) $ (29,733)	Ending Balance $ 1,269,527 1,113,842 3,581,560 83,952 - 580,971 144,133 6,773,985 360,996 2,033,099 71,023 - 317,240 2,782,358 $ 3,991,627

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In September 2005, the Group signed a contract with unrelated parties and paid $16,047 thousand to purchase land located on Liuzhong Rd., Douliu City, Yunlin County, Taiwan, and the land is used for the storage and water tank of the Group. Since the land belongs to agricultural and animal husbandry land classification and its ownership was registered in the name of the chairman of the board, the Group has performed some necessary procedures to acquire the related rights.

The above items of property, plant and equipment used by the Group are depreciated on a straight-line basis over their estimated useful lives as follows:

Buildings
Main buildings	15-60 years
Others	6-60 years
Machinery and equipment	3-36 years
Transportation equipment	3-15 years
Other equipment	2-60 years

Property, plant and equipment used by the Group and pledged as collateral for bank borrowings are set out in Note 24.

b. Assets leased under operating leases

Cost Land Land improvement Buildings Other equipment Accumulated depreciation Land improvement Buildings Other equipment		For the Year	Ended December 31, 2020
		Beginning Balance $ 70,040 4,312 117,961 13,373 205,686 2,534 38,203 10,741 51,478 $ 154,208	Additions Ending Balance $ - $ 70,040 - 4,312 - 117,961 5,902 19,275 $ 5,902 211,588 $ 86 2,620 2,077 40,280 653 11,394 $ 2,816 54,294 $ 157,294

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Cost Land Land improvement Buildings Other equipment Accumulated depreciation Land improvement Buildings Other equipment		For the Year Ended December 31, 2019	For the Year Ended December 31, 2019	For the Year Ended December 31, 2019
		Beginning Balance Adjustments on initial application of IFRS 16 $ - $ 70,040 - 4,312 - 117,961 - 15,035 - $ 207,348 - $ 2,448 - 36,126 - 12,212 - $ 50,786 $ -	Additions $ - - - - $ - $ 86 2,077 191 $ 2,354	Disposals $ - - - (1,662) $ (1,662) $ - - (1,662) $ (1,662)	Ending Balance $ 70,040 4,312 117,961 13,373 205,686 2,534 38,203 10,741 51,478 $ 154,208

Operating leases relate to leases of the factory in Yuanlin with lease terms of 12 years. The lessees do not have bargain purchase options to acquire the assets at the expiry of the lease periods.

The maturity analysis of lease payments receivable under operating lease payments was as follows:

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 onwards		December 31	December 31
		2020 $ 2,743 2,743 2,743 2,743 2,743 1,829 $ 15,544	2019 $ 2,743 2,743 2,743 2,743 2,743 4,572 $ 18,287

The above items of property, plant and equipment leased under operating leases are depreciated on a straight-line basis over their estimated useful lives as follows:

Land improvement	30 years
Buildings	30-60 years
Other equipment	5-60 years

Property, plant and equipment leased under operating leases and pledged as collateral for bank borrowings are set out in Note 24.

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12. LEASE ARRANGEMENTS

a. Right-of-use assets

Carrying amount Land Buildings Depreciation charge for right-of-use assets Land Buildings Lease liabilities Carrying amount Current Non-current Range of discount rate for lease liabilities was as follows: Land Buildings		December 31
	2020 2019 $ 53,441 $ 88,167 15,351 11,923 $ 68,792 $ 100,090 For the Year Ended December 31
		2020 2019 $ 35,084 $ 35,115 4,671 5,082 $ 39,755 $ 40,197 December 31
		2020 2019 $ 21,765 $ 38,344 $ 24,006 $ 38,692 December 31
	2020 2019 1.67%-3.88% 1.67%-3.88% 1.67%-3.88% 1.67%-3.88%

b. Lease liabilities

• c. Material leasing activities and terms - as lessee

The Group leases certain land and buildings for the use of factories and offices with lease terms of 3 to 50 years. The Group does not have bargain purchase options to acquire the leasehold land and buildings at the end of the lease terms.

In July 2005, Century Nova Steel, Co., Ltd.-CN obtained the land use rights of 325,745 square meters in Xishan Economic Development Zone, Wuxi City, Jiangsu Province, China for 50 years. It is entitled to the right to use the land and the right to profit from the land, and the right to dispose of the land with transfers or leases within the land use period. Meanwhile, it is responsible for various taxes and fees due to the use of the land. The land is used for the construction of production plants, office buildings and staff dormitories.

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d. Other lease information

Expenses relating to short-term leases Expenses relating to low-value asset leases Total cash outflow for leases	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ - $ 1,450 $ (41,964)	2019 $ 1,456 $ 2,174 $ (44,254)

The Group’s leases of certain assets qualify as short-term leases and low-value asset leases. The Group has elected to apply the recognition exemption and thus, did not recognize right-of-use assets and lease liabilities for these leases.

13. BORROWINGS

a. Short-term borrowings

Unsecured borrowings Letter of credit borrowings Line of credit borrowings Interest rates Letter of credit borrowings Line of credit borrowings		December 31
	2020 2019 $ 1,228,726 $ 1,348,029 2,339,840 1,689,542 $ 3,568,566 $ 3,037,571 1.25%-1.35% 1.55%-1.75% 0.88%-1.48% 0.81%-3.59%

b. Long-term borrowings

Mortgage borrowings (with maturity date from December 2025 to December 2035) Less: Current portion Long-term borrowings Interest rates Mortgage borrowings		December 31	December 31
	2020 $ 3,217,424 (456,895) $ 2,760,529 1.25%-1.96%		2019 $ 2,687,550 (280,835) $ 2,406,715 1.85%-2.11%

Mortgage borrowings are secured by the Group's land and buildings. See Note 24.

In December 2018, the Company signed a syndicated loan contract with a syndicate of banks, including Land Bank of Taiwan and seven financial institutions, with a total loan amount of $4.5 billion. Subject to the terms of the contract, the Company shall maintain the following ratios in the standalone financial statements for each year during the loan period:

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• 1) The current ratio shall not be less than 100% (inclusive);

• 2) The debt ratio shall not be higher than 250% (inclusive);

• 3) Times interest earned (i.e., the sum of pre-tax net income plus depreciation, amortization and interest expense, divided by interest expense) shall be maintained at least 2 times (inclusive) from 2018;

• 4) Shareholders’ equity shall not be less than $2.8 billion (inclusive).

In accordance with the provisions of the syndicated loan agreement, if the Company’s annual standalone financial statements do not meet the above financial ratios, the Company shall not be deemed to be in breach of its financial commitment if the improvement is completed within 6 months from April 1 of the following year (the improvement period), provided that the interest rate for the period from April 1 to the improvement date shall be increased by 0.125% per annum; however, if the borrower fails to complete the improvement within the improvement period, it shall (1) pay a penalty at the rate of 0.125% of the principal balance on the expiration date of the improvement period, and (2) increase the interest rate by 0.05% per annum from the expiration date of the improvement period to the actual improvement date. If the improvement is not completed and is notified by the lead bank, it shall be adjusted within 3 months through capital increase via cash or such other means as the lead bank agrees. A breach of the financial ratio shall not be deemed to be a breach if the borrower fully complies with the foregoing agreement.

14. OTHER PAYABLES

Payables for salaries or bonuses Payables for freight Payables for purchases of equipment Payables for compensation of employees and remuneration of directors and supervisors Payables for commission Others		December 31	December 31
		2020 $ 84,204 55,996 3,435 2,868 830 70,116 $ 217,449	2019 $ 85,219 27,774 11,357 6,874 1,440 53,036 $ 185,700

15. RETIREMENT BENEFIT PLANS

• a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

The employees of the Group’s subsidiaries in China are members of a state-managed retirement benefit plan operated by the government of China. The subsidiaries are required to contribute amounts at a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit plan is to make the specified contributions.

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b. Defined benefit plans

The defined benefit plans adopted by the Company in accordance with the Labor Standards Law are operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the 6 months before retirement. The Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Group assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Group is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (the “Bureau”); the Group has no right to influence the investment policy and strategy.

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans are as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liabilities		December 31	December 31
		2020 $ 146,188 (81,103) $ 65,085	2019 $ 140,381 (73,936) $ 66,445

Movements in net defined benefit liabilities were as follows:

Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets Balance at January 1, 2019 $ 140,143 $ (62,759) Service cost Net interest expense (income) 1,384 (621) Recognized in profit or loss 1,384 (621) Remeasurement Return on plan assets (excluding amounts included in net interest) - (2,224) Actuarial (gain) loss Changes in demographic assumptions 63 - Changes in financial assumptions 3,351 - Experience adjustments (3,251) - Recognized in other comprehensive income (loss) 163 (2,224) Contributions from the employer - (9,641) Benefits paid (1,309) 1,309 Balance at December 31, 2019 140,381 (73,936) Service cost Net interest expense (income) 1,041 (551) Recognized in profit or loss 1,041 (551)

Net Defined Benefit Liabilities $ 77,384 763 763 (2,224) 63 3,351 (3,251) (2,061) (9,641) - 66,445 490 490

(Continued)

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Present Value of the Defined Benefit Obligation Fair Value of the Plan Assets Remeasurement Return on plan assets (excluding amounts included in net interest) $ - $ (2,341) Actuarial (gain) loss Changes in demographic assumptions 65 - Changes in financial assumptions 5,739 - Experience adjustments 1,492 - Recognized in other comprehensive income (loss) 7,296 (2,341) Contributions from the employer - (6,805) Benefits paid (2,530) 2,530 Balance at December 31, 2020 $ 146,188 $ (81,103)

Net Defined Benefit Liabilities $ (2,341) 65 5,739 1,492 4,955 (6,805) - $ 65,085 (Concluded)

Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks:

• 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

• 2) Interest risk: A decrease in the government/corporate bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plans’ debt investments.

• 3) Salary risk: The present value of the defined benefit obligation is calculated using the future salaries of plan participants. As such, an increase in the salaries of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations are as follows:

follows:
Discount rate(s) Expected rate(s) of salary increase	December 31
	2020 2019 0.30% 0.75% 2% 2%

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

Discount rate(s) 0.25% increase 0.10% increase 0.10% decrease 0.25% decrease Expected rate(s) of salary increase 0.25% increase 0.25% decrease		December 31	December 31
		2020 $ (3,235) $ (1,308) $ 1,326 $ 3,350 $ 3,285 $ (3,190)	2019 $ (3,353) $ - $ - $ 3,476 $ 3,424 $ (3,321)

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

Expected contributions to the plans for the next year Average duration of the defined benefit obligation		December 31	December 31
		2020 $ 2,208 9 years	2019 $ 2,197 9 years

• c. Froch Enterprise International Co., Ltd., Century Nova Steel Co., Ltd., and Froch Stainless Co., Ltd. have no employee pension plan.

16. EQUITY

• a. Ordinary shares

Shares authorized (in thousands of shares) Shares authorized Shares issued and fully paid (in thousands of shares)		December 31	December 31
		2020 400,000 $ 4,000,000 280,526	2019 400,000 $ 4,000,000 286,526

The change in the Corporation's share capital is mainly due to the cancelation of treasury shares. A holder of issued ordinary share with a par value of $10 is entitled to vote and receive dividends.

• b. Capital surplus

Issuance of ordinary shares Treasury share transactions		December 31	December 31
		2020 $ 370,809 92,662 $ 463,471	2019 $ 378,740 85,906 $ 464,646

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Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and to once a year).

c. Retained earnings and dividends policy

Under the dividends policy as set forth in the Articles, where the Company made a profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders.

The Company’s dividends policy shall be made based on the following: the current and future developments, investment environment, capital needs and domestic and foreign competition, and the interests of shareholders and other factors should also been taken into account. The distributable earnings shall be allocated with not less than 50% distributed as dividends to shareholders; however, the dividends may not be distributed if the total dividends are less than 10% of the Company’s paid-in capital; the distribution of dividends to shareholders shall be allowed by the cash or stock, and the cash dividends shall not be less than 20% of the total dividends.

Appropriations of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset a deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Items referred to under Rule No. 1010012865 issued by the FSC and in the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reversed from special reserve by the Company.

The appropriations of earnings for 2019 and 2018 approved in the shareholders’ meetings in June 2020 and 2019, respectively, were as follows:

Legal reserve Special reserve Cash dividends Cash dividends per share (NT$)	Appropriation of Earnings
	For the Year Ended December 31
	2019 2018 $ 26,990 $ 54,408 102,001 35,304 143,263 286,526 0.50 1.00

The appropriations of earnings for 2020 proposed by the Company’s board of directors in March 2021 were as follows:

	Appropriation	Appropriation
	of	Earnings
Legal reserve	$	10,439
Special reserve		(16,071)
Cash dividends		140,263
Cash dividends per share (NT$)		0.50

The appropriations of earnings for 2020 are subject to the resolution of the shareholders in the shareholders’ meeting to be held in June 2021.

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d. Treasury shares

	Shares
	Transferred	to	Shares
	Employees		Cancelled		Total
	(In Thousands		(In Thousands		(In Thousands
Purpose of Buy-back	of Shares)		of Shares)		of Shares)
Number of shares at January 1, 2020		-		-	-
Increase during the year		-	6,000		6,000
Decrease during the year		-	(6,000)		(6,000)
Number of shares at December 31, 2020		-		-	-
Number of shares at January 1, 2019	6,281			-	6,281
Decrease during the year	(6,281)			-	(6,281)
Number of shares at December 31, 2019		-		-	-

Under the Securities and Exchange Act, the Company shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as the rights to dividends and to vote.

The decision of the board of directors of the Company in March 2019 was to distribute the treasury shares, totaling 6,281 thousand of shares, which were repurchased in April, June, August and November 2016 for employees’ subscription. According to the evaluation using the Black-Scholes model, the employee share option price per share was $3.3690, $3.2121, $3.6630 and $2.7072 and the total price of the employee share options was $20,634 thousand. The inputs and parameters to the model are as follows:

Delivery price (market price adjustment)	$13.2388
Exercise price	$9.578 -$10.534
Expected volatility	23.31%
Expected duration	0.0466 years
Prospective dividend rate	0%
Risk-free rate	0.4838%

17. REVENUE

Revenue from contracts with customers Revenue from sale of goods Other operating revenue Revenue from sale of electricity Revenue from processing service	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 10,543,032 17,349 566 $ 10,560,947	2019 $ 11,974,333 8,013 1,860 $ 11,984,206

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a. Contract balances

December 31, 2020 December 31, 2019 Notes receivable and trade receivables $ 1,016,658 $ 1,024,337 Contract liabilities - current Sale of goods $ 210,754 $ 154,950	January 1, 2019 $ 1,202,349 $ 120,113

The changes in the balance of contract liability primarily result from the timing difference between the Group’s performance and the customer’s payment.

b. Disaggregation of revenue

Asia America Europe Middle East Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 6,847,893 1,392,745 1,039,153 777,075 486,166 $ 10,543,032	2019 $ 7,599,378 1,435,677 1,363,254 1,002,559 573,465 $ 11,974,333

18. COMPREHENSIVE INCOME FOR THE YEAR

Net profit comprised of the following items:

• a. Other income

Rental income (Note 23) Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 3,143 9,224 $ 12,367	2019 $ 2,743 6,209 $ 8,952

• b. Other gains and losses

Gain (loss) on disposal of property, plant and equipment Fair value changes of financial assets at FVTPL Net foreign exchange gains Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 849 820 51,393 (7,311) $ 45,751	2019 $ (1,700) 1,145 5,788 (359) $ 4,874

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c. Finance costs

Interest on bank loans Interest on lease liabilities Less: Capitalized interest Information about capitalized interest was as follows: Capitalized interest amount Capitalization rate d. Depreciation and amortization An analysis of depreciation by function Operating costs Operating expenses e. Employee benefits expense Short-term benefits Post-employment benefits Defined contribution plan Defined benefit plans (Note 15) Share-based payments (equity-settled) Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2020 2019 $ 112,374 $ 123,376 1,260 1,746 (2,924) (1,649) $ 110,710 $ 123,473 For the Year Ended December 31
	2020 2019 $ 2,924 $ 1,649 1.60%-1.95% 1.95% For the Year Ended December 31
	2020 2019 $ 197,885 $ 188,315 39,080 37,350 $ 236,964 $ 225,665 For the Year Ended December 31
		2020 $ 562,914 16,517 490 - 25,227 $ 605,148 $ 370,960 234,188 $ 605,148	2019 $ 588,767 26,020 763 20,634 28,097 $ 664,281 $ 392,323 271,958 $ 664,281

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• f. Compensation of employees and remuneration of directors and supervisors

If the Company makes a profit in the year, 1% of the profit should be allocated for the compensation of employees, which should be resolved by the board of directors and distributed in the form of stock dividends or cash dividends. The employees of the Company and its subsidiaries who meet certain requirements will receive the compensation. Less than 3% of the profit will be allocated for the remuneration of directors and supervisors; the allocation should be resolved by the board of directors. The compensation of employees and remuneration of directors and supervisors should be reported to the shareholders' regular meeting. However, if the Company has accumulated losses, any profit should be first used to offset losses before making allocation for the compensation and remuneration according to the above-mentioned percentage.

The compensation of employees and the remuneration of directors and supervisors for the years ended December 31, 2020 and 2019, which were approved by the Company’s board of directors in March 2021 and 2020, respectively, were as follows:

Cash Compensation of employees Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2020 Accrual Rate Amount 1% $ 1,434 1% 1,434	2019
		Accrual Rate Amount 1% $ 3,437 1% 3,437

If there is a change in the amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate.

There was no difference between the actual amounts of compensation of employees and remuneration of directors and supervisors paid and the amounts recognized in the consolidated financial statements for the years ended December 31, 2019 and 2018.

Information on the compensation of employees and remuneration of directors and supervisors resolved by the Company’s board of directors is available at the Market Observation Post System website of the Taiwan Stock Exchange.

19. INCOME TAXES

• a. Income tax recognized in profit or loss

Major components of income tax expense are as follows:

Current tax In respect of the current year Adjustments for prior year Deferred tax In respect of the current year Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 47,820 3,998 28,147 $ 79,965	2019 $ 85,807 (173) 39,381 $ 125,015

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A reconciliation of accounting profit and income tax expense is as follows:

Profit before tax from continuing operations Income tax expense calculated at the statutory rate Nondeductible expenses in determining taxable income Tax-exempt income Adjustments for prior years’ tax Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 188,316 $ 73,524 2,527 (84) 3,998 $ 79,965	2019 $ 393,269 $ 122,833 2,477 (122) (173) $ 125,015

The corporate income tax rate was 20%. The applicable tax rate used by subsidiaries in China is 25%. For Froch Enterprise International Co., Ltd., Century Nova Steel Co., Ltd., and Froch Stainless Co., Ltd., there is no local corporate income tax law in the places that they operated; therefore, they do not have income tax.

• b. Current tax assets and liabilities

Current tax assets Prepaid income tax Tax refund receivable Current tax liabilities Income tax payable		December 31	December 31
		2020 $ 57 2,382 $ 2,349 $ 22,240	2019 $ 57 3,584 $ 3,641 $ 32,803

c. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities are as follows:

For the year ended December 31, 2020

Deferred tax assets Temporary differences Allowance for impairment loss Defined benefit obligations Others Tax losses	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income $ 17,387 $ (9,056) $ - 9,749 (1,263) 991 1,468 (1,468) - 28,604 (11,787) 991 - 14,029 - $ 28,604 $ 2,242 $ 991	Closing Balance $ 8,331 9,477 - 17,808 14,029 $ 31,837 (Continued)

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Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Deferred tax liabilities Temporary differences Foreign investment income $ 178,979 $ 31,033 $ - Land appreciation tax 45,775 - - Others 1,217 (644) - $ 225,971 $ 30,389 $ - For the year ended December 31, 2019 Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Deferred tax assets Temporary differences Allowance for impairment loss $ 16,095 $ 1,292 $ - Defined benefit obligations 11,937 (1,776) (412) Others 4,795 (3,327) - $ 32,827 $ (3,811) $ (412) Deferred tax liabilities Temporary differences Foreign investment income $ 144,525 $ 34,454 $ - Land appreciation tax 45,775 - - Others 101 1,116 - $ 190,401 $ 35,570 $ -

Closing Balance $ 210,012 45,775 573 $ 256,360 (Concluded) Closing Balance $ 17,387 9,749 1,468 $ 28,604 $ 178,979 45,775 1,217 $ 225,971

Deferred tax assets Temporary differences Allowance for impairment loss Defined benefit obligations Others Deferred tax liabilities Temporary differences Foreign investment income Land appreciation tax Others

d. Information about unused loss carryforwards

Loss carryforwards as of December 31, 2020 comprised:

Unused Amount	Expiry Year
$ 70,146	2030

• e. Income tax assessments

The Company’s income tax returns through 2018 have been assessed by the tax authorities.

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20. EARNINGS PER SHARE

			Number of
			Shares
	Amounts		Denominator
	(Numerator)		(In Thousands)	EPS (NT$)
For the year ended December 31, 2020
Basic EPS
Net income available to ordinary shareholders
of the parent	$	108,351	282,795	$ 0.38
Effect of potentially dilutive ordinary shares
Compensation of employees		-	174
Diluted EPS
Net income available to ordinary shareholders
of the parent (including effect of potentially
dilutive ordinary shares)	$	108,351	282,969	$ 0.38
For the year ended December 31, 2019
Basic EPS
Net income available to ordinary shareholders
of the parent	$	268,254	285,335	$ 0.94
Effect of potentially dilutive ordinary shares
Compensation of employees		-	374
Employees share options		-	353
Diluted EPS
Net income available to ordinary shareholders
of the parent (including effect of potentially
dilutive ordinary shares)	$	268,254	286,062	$ 0.94

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

21. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to shareholders through the optimization of the debt and equity balance. The Group's overall strategy remains unchanged.

The capital structure of the Group consists of net debt (borrowings offset by cash and cash equivalents) and equity of the Group (comprising issued capital, capital surplus, retained earnings and other equity).

The key management personnel of the Group review the capital structure regularly. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Group may adjust the amount of dividends paid to shareholders, the number of new shares issued or repurchased, and the amount of new debt issued or existing debt redeemed.

185

22. FINANCIAL INSTRUMENTS

• a. Fair value of financial instruments not measured at fair value

The management believes that the carrying amounts of financial assets and financial liabilities are close to fair value or the fair value cannot be measured reliably.

• b. Fair value of financial instruments measured at fair value on recurring basis

Fair value hierarchy

December 31, 2020 Financial assets at FVTPL Mutual funds December 31, 2019 Financial assets at FVTPL Mutual funds	Level 1 $ 16,357 $ 12,943	Level 2 $ - $ -	Level 3 $ - $ -	Total $ 16,357
				$ 12,943

There were no transfers between Level 1 and Level 2 in 2020 and 2019.

• c. Categories of financial instruments

Financial assets Financial assets at FVTPL Financial assets at amortized cost (1) Financial liabilities Financial liabilities at amortized cost (2)	December 31
	2020 2019 $ 16,357 $ 12,943 2,638,888 2,410,279 7,154,637 6,081,638

• 1) The balances include financial assets at amortized cost, which comprise cash and cash equivalents, notes receivable, trade receivables, other receivables, other financial assets - current and refundable deposits.

• 2) The balances include financial liabilities at amortized cost, which comprise short-term and long-term loans, notes payable, trade payables, other payables, and guarantee deposits.

• d. Financial risk management objectives and policies

The Group’s major financial instruments include notes receivable and payable, trade receivables and payables, borrowings and lease liabilities. The Group’s corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the Group through internal risk reports that analyze exposures by degree and magnitude of risks. These risks include market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.

186

The Group seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the Group’s board of directors. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The corporate treasury function reports quarterly to the Group’s risk management committee.

1) Market risk

The Group’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk.

There has been no change to the Group’s exposure to market risks or the manner in which these risks are managed and measured.

• a) Foreign currency risk

Several subsidiaries of the Company have foreign currency denominated sales and purchases, which expose the Group to foreign currency risk.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities (including non-functional monetary items that have been written off in the consolidated financial statements) are set out in Note 27.

Sensitivity analysis

The Group is mainly exposed to the US dollar. If the exchange rate of the functional currency changed by 1% against the US dollar, the net profit before tax would have changed by $3,045 thousand and $2,548 thousand respectively for the years ended December 31, 2020 and 2019, respectively.

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign currency risk because the exposure at the end of the year does not reflect the exposure during the period.

• b) Interest rate risk

The Group is exposed to interest rate risk because entities the Group borrows funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix of fixed and floating rate borrowings.

The carrying amounts of the Group’s financial assets and financial liabilities with exposure to interest rates at the end of the year were as follows.

Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities	December 31
	2020 2019 $ 73,104 $ 260,633 45,771 77,036 1,497,865 1,063,219 6,785,990 5,725,121

187

Sensitivity analysis

For financial assets and liabilities, assuming all other variables were held constant, a hypothetical increase in interest rates of 25 basis point (0.25%) would have resulted in a decrease in the interest expense before tax by approximately $13,220 thousand and $11,655 thousand for the years ended December 31, 2020 and 2019, respectively.

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Group. At the end of the year, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to the failure of the counterparty to discharge an obligation and financial guarantees provided by the Group could arise from the carrying amount of the respective recognized financial assets as stated in the consolidated balance sheets.

The Group transacts with a large number of unrelated customers and thus, credit risk is not highly concentrated.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, and continuously monitoring forecasted and actual cash flows as well as matching the maturity profiles of financial assets and liabilities. As of December 31, 2020 and 2019, the Group had available unutilized short-term bank loan facilities set out in (2) below.

• a) Liquidity and interest rate risk tables for non-derivative financial liabilities

The following table details the Group’s remaining contractual maturities for its non-derivative financial liabilities with agreed upon repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. Specifically, bank loans with a repayment on demand clause were included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities were based on the agreed upon repayment dates.

To the extent that interest flows are at floating rates, the undiscounted amount was derived from the interest rate curve at the end of the year.

Non-derivative Financial Liabilities December 31, 2020 Non-interest bearing Lease liabilities Variable interest rate liabilities	On Demand or Less than 1 Month $ 353,554 3,399 250,330 $ 607,283	1-3 Months $ 5,551 6,798 436,213 $ 448,562	3 Months to 1 Year $ - 14,163 3,338,918 $ 3,353,081	1-5 Years $ 235 23,912 2,077,647 $ 2,101,794	5+ Years $ 9,307 2,858 682,882
					$ 695,047

188

b)	Non-derivative Financial Liabilities On Demand or Less than 1 Month December 31, 2019 Non-interest bearing $ 343,459 Lease liabilities 3,377 Variable interest rate liabilities 100,330 $ 447,166 Additional information about the maturity December 31, 2020 December 31, 2019 Financing facilities Amount used Amount unused	1-3 Months 3 Months to 1 Year 1-5 Years 5+ Years $ 4,090 $ - $ 490 $ 8,478 6,742 29,754 35,964 5,930 850,451 2,367,625 1,917,862 488,853 $ 861,283 $ 2397,379 $ 1,954,316 $ 503,261 analysis for lease liabilities is as follows: Less than 1 Year 1-5 Years 5-10 Years $ 24,360 $ 23,912 $ 2,858 $ 39,873 $ 35,964 $ 5,930 December 31 2020 2019 $ 6,962,315 $ 6,006,545 7,513,584 7,091,085 $ 14,475,899 $ 13,097,630	1-3 Months 3 Months to 1 Year 1-5 Years 5+ Years $ 4,090 $ - $ 490 $ 8,478 6,742 29,754 35,964 5,930 850,451 2,367,625 1,917,862 488,853 $ 861,283 $ 2397,379 $ 1,954,316 $ 503,261 analysis for lease liabilities is as follows: Less than 1 Year 1-5 Years 5-10 Years $ 24,360 $ 23,912 $ 2,858 $ 39,873 $ 35,964 $ 5,930 December 31 2020 2019 $ 6,962,315 $ 6,006,545 7,513,584 7,091,085 $ 14,475,899 $ 13,097,630	1-3 Months 3 Months to 1 Year 1-5 Years 5+ Years $ 4,090 $ - $ 490 $ 8,478 6,742 29,754 35,964 5,930 850,451 2,367,625 1,917,862 488,853 $ 861,283 $ 2397,379 $ 1,954,316 $ 503,261 analysis for lease liabilities is as follows: Less than 1 Year 1-5 Years 5-10 Years $ 24,360 $ 23,912 $ 2,858 $ 39,873 $ 35,964 $ 5,930 December 31 2020 2019 $ 6,962,315 $ 6,006,545 7,513,584 7,091,085 $ 14,475,899 $ 13,097,630	5+ Years $ 8,478 5,930 488,853
					$ 503,261
			2020 $ 6,962,315 7,513,584 $ 14,475,899	2019 $ 6,006,545 7,091,085 $ 13,097,630

23. TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Besides information disclosed elsewhere in the other notes, details of transactions between the Group and other related parties are disclosed as follows.

• a. Related party name and category

Related Party Name Related Party Category Santorics Metals Co., Ltd. Others Beittia Metals Co., Ltd. Others Ren-Xiang Li Others Ping-Yiao Chang Others

• b. Sales of goods

Line Item Related Party Category Sales Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 433,015	2019 $ 501,734

189

There was no significant difference in sales prices and terms between related and third parties. The term of payment is generally 60 days from the date of the transaction. Ordinary customers were required to make payment according to the period agreed in the contract, and a few important customers have a collection period within 60 to 90 days.

• c. Purchases of goods

Related Party Category Others	For the Year Ended December 31 2020 2019 $ 840,185 $ 782,889	For the Year Ended December 31 2020 2019 $ 840,185 $ 782,889	For the Year Ended December 31 2020 2019 $ 840,185 $ 782,889
		2020 $ 840,185	2019 $ 782,889

The terms of purchases from related parties were payments by L/C within 45 to 50 days and have no significant difference with the third parties.

• d. Rental income

Line Item Related Party Category/Name Rental income Others Santorics Metals Co., Ltd.	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 2,743	2019 $ 2,743

The above rental income is based on factory lease agreement signed between the Company and the related party, and the contract period is from September 1, 2014 to August 31, 2026. The rental rates are based on the rental rates in the nearby area and subject to agreements between the two parties. The related party also provided a guarantee deposit of $50 thousand as deposit for the lease.

• e. Receivables from related parties

Line Item Related Party Category Trade receivables Others Other receivables Others Payables to related parties Line Item Related Party Category Notes payable Others Other payables Others		December 31	December 31
		2020 2019 $ - $ 21,348 1,786 1,359 $ 1,786 $ 22,707 December 31
		2020 $ 24,558 5 $ 24,563	2019 $ - 9 $ 9

• f. Payables to related parties

190

g. Lease arrangements as lessee

Line Item Related Party Category/Name Lease liabilities Others Beittia Metals Co., Ltd. Santorics Metals Co., Ltd. Others Related Party Category Finance costs Others		December 31	December 31
	2020 2019 $ 16,359 $ 48,434 14,263 16,643 3,075 3,809 $ 33,697 $ 68,886 For the Year Ended December 31
		2020 $ 883	2019 $ 1,468

The above is the factory lease agreement signed between the Company and the related parties, and the contract period is from July 1, 2016 to June 30, 2021. The rental rates are based on the rental rates in the nearby area and subject to agreements between the two parties. The Company provided a refundable deposit of $5,000 thousand as a deposit for the lease.

• h. Endorsements and guarantees：Refer to Table 2

• i. Compensation of key management personnel

Short-term employee benefits	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 15,282	2019 $ 20,393

The remuneration of directors and key executives, as determined by the remuneration committee, was based on the performance of individuals and market trends.

24. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings:

Property, plant and equipment Pledged deposits (classified as other financial assets-current)		December 31	December 31
		2020 $ 1,774,997 7,632 $ 1,782,629	2019 $ 1,261,312 2,784 $ 1,264,096

191

25. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

• a. As of December 31, 2020 and 2019, unused letters of credit for purchases of raw materials amounted to approximately $167,460 thousand and $270,827 thousand, respectively.

• b. Unrecognized commitments were as follows:

Acquisition of property, plant and equipment		December 31	December 31
		2020 $ 168,651	2019 $ 74,336

26. OTHER ITEMS

Due to the impact of the COVID-19 pandemic, some of the Group’s factories have suspended operations or postponed the resumption of operations, resulting in a substantial decline in operating revenue in 2020. With the easing of the epidemic and loosening of government policies, the Group expects that operations will gradually return to normal.

27. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Group’s significant financial assets and liabilities denominated in foreign currencies aggregated by the foreign currencies other than functional currencies of the entities in the Group and the related exchange rates between foreign currencies and respective functional currencies were as follows:

Financial assets Monetary items USD USD (USD/CNY) Financial liabilities Monetary items USD USD (USD/CNY)	December 31, 2020 Foreign Currency Exchange Rate Carrying Amount $ 20,443 28.48 $ 582,217 5,046 6.5249 143,710 3,098 28.48 88,231 33,083 6.5249 942,204	December 31, 2019
		Foreign Currency Exchange Rate Carrying Amount $ 17,846 29.98 $ 535,023 899 6.9762 26,952 4,197 29.98 125,826 23,046 6.9762 690,919

The significant realized and unrealized foreign exchange gains (losses) were as follows:

For the Year Ended December 31

Foreign Currency USD USD	2020 Exchange Rate Net Foreign Exchange Gains (Losses) 29.549 (USD:NTD) $ (8,709) 6.8996 (USD:CNY) 60,102 $ 51,393	2019
		Exchange Rate Net Foreign Exchange Gains 30.912 (USD:NTD) $ 4,630 6.8967 (USD:CNY) 1,158 $ 5,788

192

28. SEPARATELY DISCLOSED ITEMS

• a. Information about significant transactions and investees

• 1) Financing provided to others: Table 1

• 2) Endorsements/guarantees provided: Table 2

• 3) Marketable securities held (excluding investments in subsidiaries: Table 3

• 4) Marketable securities acquired or disposed of at costs or prices at least NT$300 million or 20% of the paid-in capital: None

• 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital: None

• 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital: None

• 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 4

• 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 5

• 9) Trading in derivative instruments: None

• 10) Intercompany relationships and significant intercompany transactions: Table 6

• 11) Information on investees: Table 7

• b. Information on investments in mainland China

• 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area: Table 8

• 2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses:

  • a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the year: Tables 4 and 6.

  • b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the year: Tables 4 and 6.

  • c) The amount of property transactions and the amount of the resultant gains or losses: None

  • d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the year and the purposes: Table 2.

  • e) The highest balance, the ending balance, the interest rate range, and total current period interest with respect to financing of funds: Table 1.

193

• f) Other transactions that have a material effect on the profit or loss for the year or on the financial position, such as the rendering or receipt of services: None.

• c. Information on major shareholders: List all shareholders with ownership of 5% or greater showing the name of the shareholder, the number of shares owned, and percentage of ownership of each shareholder. See Table 9.

29. SEGMENT INFORMATION

Information reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided. The Group’s reportable segments were as follows:

• a. Segment revenue and results

The following was an analysis of the Group’s revenue and results from continuing operations by reporting segment.

Operating areas of the Republic of China Operating areas of the People's Republic of China Total from continuing operations Finance costs Exchange gains or losses Interest income Gains or losses on disposal of property, plant and equipment Profit before tax		For the Year Ended December 31, 2020 Department Revenue Department Profit $ 7,739,184 $ 84,765 2,821,763 155,979 $10,560,947 240,744 (110,710) 51,393 6,040 849 $ 188,316		For the Year Ended December 31, 2019	For the Year Ended December 31, 2019
		Department Revenue $ 7,739,184 2,821,763 $10,560,947		Department Revenue $ 8,696,867 3,287,339 $11,984,206	Department Profit $ 256,502 251,308 507,810 (123,473) 5,788 4,844 (1,700) $ 393,269

Segment profit represented the profit before tax earned by each segment without interest income, finance costs, gains or losses on disposal of property, plant and equipment, exchange gains or losses and income tax expense. This was the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance.

• b. Total segment assets and liabilities

Segment assets Operating areas of the Republic of China Operating areas of the People's Republic of China Consolidated total assets		December 31	December 31
		2020 $ 7,819,488 3,816,667 $ 11,636,155	2019 $ 7,391,011 3,215,632 $ 10,606,643

194

Segment liabilities Operating areas of the Republic of China Operating areas of the People's Republic of China Consolidated total liabilities		December 31	December 31
		2020 $ 6,383,276 1,118,987 $ 7,502,263	2019 $ 5,689,423 726,504 $ 6,415,927

c. Revenue from major products and services

The following is an analysis of the Group’s revenue from its major products and services.

Stainless steel tube Stainless steel coil Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 8,458,282 2,074,486 28,179 $ 10,560,947	2019 $ 9,507,939 2,414,132 62,135 $ 11,984,206

• d. Geographical information

The Group's revenue from external customers by location of operation are detailed below.

Asia America Europe Middle East Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2020 $ 6,865,808 1,392,745 1,039,153 777,075 486,166 $ 10,560,947	2019 $ 7,609,251 1,435,677 1,363,254 1,002,559 573,465 $ 11,984,206

• e. Information about major customers

No single customer contributed 10% or more to the Group’s revenue for both 2020 and 2019.

195

TABLE 1

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Lender	Borrower	Financial Statement Account	Related Party	Highest Balance for the Period	Ending Balance (Notes 2 and 3)	Actual Borrowing Amount	Interest Rate	Nature of Financing	Business Transaction Amount	Reasons for Short-term Financing	Allowance for Bad Debt	Collateral	Collateral	Financing Limit for Each Borrower	Aggregate Financing Limit	Note
													Item	Value
1	Froch Enterprise International Co., Ltd.	Century Nova Steel Co., Ltd. - CN	Other receivables	Yes	$ 161,092	$ 125,095	$ 56,743	0%	Short-term financing	$ -	Operation	$ -	-	$ -	$ 415,152 (Note 1)	$ 415,152 (Note 1)

Note 1: The total amount of loans made by the Company and the amount of loans made to a single enterprise that is directly or indirectly 100% owned by the Company shall not exceed 100% of the net value of the borrower based on financial statements for the period audited or reviewed by an accountant.

Note 2: If the relevant figures in this table involve foreign currencies, they shall be converted into the New Taiwan dollar at the exchange rate on the balance sheet date.

Note 3: Significant intercompany accounts and transactions have been eliminated.

196

TABLE 2

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorser/Guarantor	Endorsed/Guaranteed Party	Endorsed/Guaranteed Party	Limits on Endorsement/ Guarantee Given on Behalf of Each Party (Note 2)	Maximum Amount Endorsed/ Guaranteed During the Period	Outstanding Endorsement/ Guarantee at the End of the Period	Actual Borrowing Amount	Amount Endorsed/ Guaranteed by Collateral	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Aggregate Endorsement/ Guarantee Limit (Note 2)	Endorsement / Guarantee Given by Parent on Behalf of Subsidiaries	Endorsement / Guarantee Given by Subsidiaries on Behalf of Parent	Endorsement / Guarantee Given on Behalf of Companies in Mainland China	Note
		Name	Relationsh ip
0 1	Froch Enterprise Co., Ltd. Century Nova Steel Co., Ltd. - CN	Century Nova Steel, Co., Ltd. - CN Froch Metal (Suzhou) Co., Ltd. Froch Stainless Co., Ltd. - CN	2. 1. 1.	$ 1,876,497 529,490 529,490	$ 1,240,250 21,916 21,916	$ 1,167,680 21,824 21,824	$ 939,840 1,055 5,346	$ - - -	30 1 1	$ 1,876,497 1,058,981 1,058,981	Yes - -	- - -	Yes Yes Yes

Note 1: The relationship between guarantor and guaranteed party:

1. Companies that do business with each other.

2. Subsidiary which is directly or indirectly held over 50% of the issued share capital.

3. Note 2: The total amount of the Company’s external endorsement guarantee and the amount of the Company’s endorsement guarantee for a single100% owned enterprise shall not exceed 48% of the net value of the endorsing company based on financial statements for the current period audited or reviewed by an accountant; for a single enterprise that is not 100% owned, the amount of the endorsement guarantee shall be limited to 24% of the net value of the endorsing company based on financial statements for the period that were audited or reviewed by an accountant.

Note 3: If the relevant figures in this table involve foreign currencies, they shall be converted into the New Taiwan dollar at the exchange rate on the balance sheet date.

197

TABLE 3

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name	Type and Name of Marketable Securities	Relationship with the Holding Company	Financial Statement Account		December 31, 2020	December 31, 2020		Note
				Number of Shares	Carrying Amount	Percentage of Ownership (%)	Fair Value
Froch Enterprise Co., Ltd.	Mutual funds Fidelity Asia High Yield Bond Fund Type A Accumulated (NTD) Shin Kong US Harvest Balance Fund Type A without Dividends (NTD) Berry Emerging Border High Yield Bond Fund Type A Without Dividends (NTD) Hua Nan WE Multi-Asset Fund (NTD) TCB US shout Duration High Yield Bond Fund without Dividends (NTD) TCB US shout Duration High Yield Bond Fund without Dividends (NTD)	None None None None None None	Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current Financial assets measured at FVTPL - current	300,000 200,000 200,000 300,000 300,000 300,000	$ 3,149 2,138 2,087 3,045 2,969 2,969	- - - - - -	$ 3,149 2,138 2,087 3,045 2,969 2,969

Note 1: The term “securities” as used in this table refers to the securities derived from stocks, bonds, beneficiary's notes and the above items which fall within the scope of IFRS No. 9 “Financial Instruments”.

Note 2: For information on investments in subsidiaries, refer to Notes 7 and 8.

198

TABLE 4

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Purchaser or Seller	Related Party	Relationship		Transaction Details	Transaction Details	Transaction Details	Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Note
			Purchase/ Sale	Amount	% of Total	Payment/Collection Terms	Unit Price	Payment/Collection Terms	Ending Balance	% of Total
Froch Enterprise Co., Ltd. Froch Enterprise Co., Ltd. Century Nova Steel, Co., Ltd. - CN Century Nova Steel, Co., Ltd. - CN Froch Metal (Suzhou) Co., Ltd. Froch Stainless Co., Ltd. - CN	Santorics Metals Co., Ltd. Beittia Metals Co., Ltd. Froch Metal (Suzhou) Co., Ltd. Froch Stainless Co., Ltd. - CN Century Nova Steel, Co., Ltd. - CN Century Nova Steel, Co., Ltd. - CN	Others Others Subsidiary Subsidiary Subsidiary Subsidiary	Sale Purchase Purchase Sale Sale Purchase Purchase	$ (433,015) 596,549 243,636 (555,980) (Note 3) (2,106,006) (Note 3) 555,980 (Note 3) 2,106,006 (Note 3)	( 6) 9 4 (20) (77) 99 100	Note 1 Note 1 Note 1 Note 2 Note 2 Note 2 Note 2	Note 1 Note 1 Note 1 Note 2 Note 2 Note 2 Note 2	Note 1 Note 1 Note 1 Note 2 Note 2 Note 2 Note 2	$ - (24,558) - - 102,396 (Note 3) - (102,396) (Note 3)	- (18) - - 98 - (100)

Note 1: There is no material difference in the sales price to related and non-related party, and the collection term is within 60 days after the transaction; payment is by 45-50 days L/C.

Note 2: Subject to the market price agreement between the parties, the terms of collection are 90 days after the transaction.

Note 3: Significant intercompany accounts and transactions have been eliminated.

• 199 -

TABLE 5

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF PAID-IN CAPITAL DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Related Party	Relationship	Trade Receivables - Related Parties (Note)	Turnover Rate	Overdue	Overdue	Amount Received in Subsequent Period	Allowance for Doubtful Accounts
					Amount	Actions Taken
Century Nova Steel, Co., Ltd. - CN	Froch Stainless Co., Ltd. - CN	Subsidiary	$ 102,396	19	$ -	-	$ 102,396	$ -

Note: Significant intercompany accounts and transactions have been eliminated.

• 200 -

TABLE 6

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Company Name	Counterparty	Relationship (Note 1)		Transaction Details	Transaction Details
				Financial Statements Account	Amount (Note 2)	Payment Terms	Percentage of Consolidated Net Revenue or Total Assets (%)
1 2 3	Froch Metal (Suzhou) Co., Ltd. Century Nova Steel, Co., Ltd. - CN Froch Enterprise International Co., Ltd.	Century Nova Steel, Co., Ltd. - CN Froch Stainless Co., Ltd. - CN Froch Stainless Co., Ltd. - CN Century Nova Steel, Co., Ltd. - CN	3 3 3 3	Cost of goods sold Sales revenue Trade receivables Other receivables	$ 555,980 2,106,006 102,396 56,743	T/T 90 days T/T 90 days T/T 90 days -	5 20 1 -

Note 1: Relationship of counterparty: (1) parent company to subsidiary; (2) subsidiary to parent company; and (3) subsidiary to subsidiary.

Note 2: Significant intercompany accounts and transactions have been eliminated.

ABLE 7

• 201 -

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2020 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Businesses and Products	Original Investment Amount	Original Investment Amount	As of December 31, 2020	As of December 31, 2020	As of December 31, 2020	Net Income (Loss) of the Investee	Share of Profit (Loss) (Note 1)	Note
				December 31, 2020	December 31, 2019	Number of Shares	Percentage of Ownership	Carrying Amount (Note 1)
Froch Enterprise Co., Ltd.	Century Nova Steel Co., Ltd. Froch Enterprise International Co., Ltd. Froch Stainless Co., Ltd.	British Virgin Islands British Cayman Islands British Samoa	International investment business International investment business International investment business	$ 1,530,998 115,366 14,959	$ 1,530,998 115,366 14,959	49,000,000 3,550,000 500,000	100% 100% 100%	$ 2,205,362 415,152 74,894	$ 131,008 21,773 2,385	$ 131,008 21,773 2,385	Subsidiary Subsidiary Subsidiary

Note 1: Significant intercompany accounts and transactions have been eliminated.

Note 2: For information on investments in mainland China, see Table 8.

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TABLE 8

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2020

(In Thousands of New Taiwan Dollars, U.S. Dollars, Unless Stated Otherwise)

Investee Company	Main Businesses and Products	Paid-in Capital	Method of Investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2020	Remittance of Funds	Remittance of Funds	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2020	Net Income (Loss) of the Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss) (Notes 3 and 6)	Carrying Amount as of December 31, 2020 (Notes 3 and 6)	Accumulated Repatriation of Investment Income as of December 31, 2020
					Outward	Inward
Froch Metal (Suzhou) Co., Ltd. Century Nova Steel, Co., Ltd. - CN Zhangjiagang Free Trade Zone Froch International Trading Co., Ltd. Froch Stainless Co., Ltd. - CN	Operating stainless steel and other steel pipe production and sales businesses Operating stainless steel and other steel pipe production and sales businesses Import and export business, entrepot trade and trade between enterprises in bonded areas Operating stainless steel and other steel pipe production and sales businesses	$ 103,236 (US$ 3,000) 1,680,898 (US$ 54,000) (Note 1) 16,250 (US$ 500) 17,951 (US$ 600)	The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China. The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China. The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China. The investment was made through a subsidiary incorporated in a third area which in turn makes direct investments in companies in mainland China.	$ 110,492 (US$ 3,400) 1,530,998 (US$ 49,000) 4,875 (US$ 150) 14,959 (US$ 500)	$ - - - -	$ - - - -	$ 110,492 (US$ 3,400) 1,530,998 (US$ 49,000) 4,875 (US$ 150) 14,959 (US$ 500)	$ 12,682 130,474 548 2,863	100% 100% 100% (Note 2) 100% (Note 5)	$ 12,682 130,474 548 2,863	$ 157,402 2,206,209 23,268 89,872	$ - - - -

Accumulated Outward Remittance for Investment Investment Amounts Authorized by Investment Upper Limited on the Amount of Investment in Mainland China as of December 31, 2020 Commission, MOEA Stipulated by Investment Commission, MOEA $ 1,457,176 $ 1,672,697 $ 2,345,621 (US$ 46,950) (US$ 58,000)

Note 1: The equipment is priced at US$6,100, and the rest is invested in cash.

Note 2: The Company established Zhangjiagang Free Trade Zone Froch International Trading Co., Ltd. as a joint venture between Froch Enterprise International Co., Ltd. and Froch Metal (Suzhou) Co., Ltd., holding 30% and 70% equity respectively.

Note 3: The Group recognized its investment gain (loss) based on the audited financial statements as of and for the year ended December 31, 2020.

Note 4: According to the “Regulations for Screening of Application to Engage in Technical Cooperation in Mainland China” issued by the Investment Commission of the Ministry of Economic Affairs, the amount is calculated using 60% of net worth or combined net worth.

Note 5: The Company established Froch Stainless Co., Ltd. - CN as a joint venture between Froch Stainless Co., Ltd. - CN and Century Nova Steel, Co., Ltd. - CN, holding 83% and 17% equity, respectively.

Note 6:

Significant intercompany accounts and transactions have been eliminated.

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TABLE 9

FROCH ENTERPRISE CO., LTD. AND SUBSIDIARIES

INFORMATION OF MAJOR SHAREHOLDERS DECEMBER 31, 2020

Name of Major Shareholder	Shares	Shares
	Number of Shares	Percentage of Ownership (%)
Shin Chieh Shin Co., Ltd. Hsin-Ta Chang Ping-Yiao Chang Li Chieh Shin Co., Ltd.	28,206,372 21,648,931 17,547,946 15,676,885	10.05 7.71 6.25 5.58

• Note 1: The information of major shareholders presented in this table is provided by the Taiwan Depository & Clearing Corporation based on the number of ordinary shares and preference shares held by shareholders with ownership of 5% or greater, that have been issued without physical registration (including treasury shares) by the Company as of the last business day for the current quarter. The share capital in the consolidated financial statements may differ from the actual number of shares that have been issued without physical registration because of different preparation basis.

• Note 2: If a shareholder delivers the shareholdings to the trust, the above information will be disclosed by the individual truster who opened the trust account. For shareholders who declare insider shareholdings with ownership greater than 10% in accordance with the Security and Exchange Act, the shareholdings include shares held by shareholders and those delivered to the trust over which shareholders have rights to determine the use of trust property. For information relating to insider shareholding declaration, please refer to Market Observation Post System.

• 204 -

• VI. Financial Distress Encountered by the Company and Affiliated Companies in the Last Year, up until the Publication Date of this Annual Report: None

Seven. Review of Financial Position, Operating Results, and Risk Management Issues

I. Financial Position Review and Analysis Chart Unit: NTD thousands

I. Financial	Position Review	and Analysis Cha	rtUnit: NTD thousands	rtUnit: NTD thousands
Year Account	2020	2019	Variation
			Amount	%
Current Assets	7,066,286	6,257,013	809,273	12.93
Property, Plant and Equipment	4,376,031	4,145,835	230,196	5.55
Intangible and Other Assets	225,675	232,399	(6,724)	(2.89)
Total Assets	11,667,992	10,635,247	1,032,745	9.71
Current Liabilities	4,643,101	3,895,107	747,994	19.20
Non-current Liabilities	3,115,522	2,746,791	368,731	13.42
Total Liabilities	7,758,623	6,641,898	1,116,725	16.81
Share Capital	2,805,260	2,865,260	(60,000)	(2.09)
Capital Reserves	463,471	464,646	(1,175)	(0.25)
Retained Earnings	871,528	910,404	(38,876)	(4.27)
Other Equities	(230,890)	(246,961)	16,071	6.51
Treasury Stock	0	0	0	0
Total Shareholders' Equity	3,909,369	3,993,349	(83,980)	(2.10)
Material Changes above 20% in Assets, Liabilities, and Shareholders' Equity in the Last Two Years; Describe the Causes and Impacts of Such Variations: None

• 205 -

II. Operating Result

(I) Comparative Analysis of Operating Performance

Unit: NTD thousands

Year Account	2020		2019	Variation	Variation (%)
Net Sales Cost of Sales Gross Profit Operating Expenses Operating Profit (Loss) Non-operating Income Non-operating Expenses Pre-Tax Profit (Loss) Income Tax Expense (Benefit) Net Income (Loss)	10,560,974 9,622,919 938,028 703,160 234,868 64,158 110,710 188,316 79,965 108,351		11,984,206 10,765,124 1,219,082 721,010 498,072 18,670 123,473 393,269 125,015 268,254	(1,423,259) (1,142,205) (281,054) (17,850) (263,204) 45,488 (12,763) (204,953) (45,050) (159,903)	(11.88) (10.61) (23.05) (2.48) (52.84) 243.64 (10.34) (52.12) (36.04) (59.61)
Explanation of Variations: 1. Net Sales, Gross Profit, Operating Profit, Pre-tax Profit, Income Tax Expense, and Net Income: The pandemic outburst and changes in the price of raw materials caused a reduction in net sales and costs. The sharp increase in sea freight expenses caused operating profit to decrease. It also caused income tax expense and net income to decrease. 2. Non OperatingIncome and Gains: Currencyexchangegains increased.

(II) Gross Profit Variation Analysis:

Unit: NTD thousands

	Variation	Cause of Difference	Cause of Difference	Cause of Difference
		Selling Price Difference	Cost Difference	Difference in Sales Mix	Quantity Difference
Gross Profit	(281,054)	(1,023,524)	782,954	2,236	(42,851)
Explanation		Raw material prices exhibited greater volatility in 2020 compared to 2019 and affected product selling prices, causing negative impact on selling price differences.	Production cost decreased along with material purchase cost, which resulted in positive cost difference.	The sales of better profiting products (stainless steel tubes and pipes) had similar proportion in the period, which resulted in slight positive difference in sales mix.	Sales volume decreased significantly compared to the previous year, causing negative impact on quantity difference.

• 206 -

III. Cash Flow

(I) Cash Flow Analysis for the Last 2 Years:

Year Ratio	2020	2019	Variation (%)
Cash Flow Ratio(%)	(4.52)	19.11	(123.65)
Cash Flow AdequacyRatio(%)	96.66	145.65	(33.64)
Cash Reinvestment Ratio(%)	(3.63)	4.97	(173.04)
Explanation to Major Variations: The cash flow from operating activities turned from inflow in the previous year to outflow in 2020, due to purchase of inventory and the decrease in pre-tax net income. Accordingly, the above three ratios, which are dependent on the cash flow from operating activities, were either decreased or turned negative.

(II) Liquidity Analysis for the Next Year:

(II)Liquidity Analysis for the Next Year:	(II)Liquidity Analysis for the Next Year:	(II)Liquidity Analysis for the Next Year:	(II)Liquidity Analysis for the Next Year:	(II)Liquidity Analysis for the Next Year:	(II)Liquidity Analysis for the Next Year:
Beginning Cash Balance	Cash Flow from Operating Activities for the Year	Cash Outflow for the Year	Cash Surplus (Deficit)	Financing of Cash Deficits
				Investment Plans	Financing Plans
1,565,467	495,168	(849,489)	1,211,146	-	-
I. Operating Activities: The Company specializes in the production and sales of stainless steel tubes, pipes, sheets, and coils. Changes in net cash from operating
activities for 2021 are expected to be mainly attributed to: reduced
inventory, non-cash expenses such as depreciation, and inflow from pre-tax profit; the Company estimates a net inflow of NTD495,168,000.
II. Investing Activities: The Company expects to invest NTD250,000,000 to expand the factories in
Taiwan and the Mainland, and to revamp machinery and equipment. III Financing Activities: The Company expects to pay NTD599489000 of cash outflow fro~~m~~
. ,, financing activities this year, due to repayment of long-term and
short-term liabilities, cash dividend distribution, etc. IVResonse Measures and Liuidit Analsis for Cash Flow Deficit: Not alicable
. p qy y pp

• 207 -

• IV. Material Capital Expenditures in the Last Year and Impact on Business Performance

• (I) Material Capital Expenditures and Source of Capital

IV. Material Capital Expenditures in the Last Year and Impact on Business Performance (I) Material Capital Expenditures and Source of Capital	IV. Material Capital Expenditures in the Last Year and Impact on Business Performance (I) Material Capital Expenditures and Source of Capital	IV. Material Capital Expenditures in the Last Year and Impact on Business Performance (I) Material Capital Expenditures and Source of Capital	IV. Material Capital Expenditures in the Last Year and Impact on Business Performance (I) Material Capital Expenditures and Source of Capital	IV. Material Capital Expenditures in the Last Year and Impact on Business Performance (I) Material Capital Expenditures and Source of Capital	IV. Material Capital Expenditures in the Last Year and Impact on Business Performance (I) Material Capital Expenditures and Source of Capital
Unit: NTD thousands
Projects	Actual or Expected Source of Capital	Actual or Expected Date of Completion	Total Capital Required	Actual or Expected Uses of Capital
				2022	2023
None

(II) Expected Benefits from Capital Expenditures

1. Expected Increase in Production/Sales Volume and Value, and Gross Profit

Unit: NTD thousands/tonnes

Year	Project	Production Volume (Tonnes/Year)	Sales Volume (Tonnes/Year)	Sales Value (NTD thousands/year)	Gross Profit (NTD thousands/year)
None

2. Other Benefits: None

• V. Major Reasons of the Profit or Loss Arising from Other Business Investments in the Last Year, Their Improvement Plans. And Investments Plans for the Next Year

Unit: NTD thousands

				Unit:	NTD thousands
Name of Business Investment	Policy	Profit (Loss) Amount (NTD thousands)	Main Causes of Profit (Loss)	Improvement Plans	Investment Plans for The Coming Year
Froch Metal （Suzhou）Co., Ltd.	1. To secure source of raw material. 2. To grow sales in the Mainland. .	12,682	Secured recurring, long-term customers from its prolonged market involvement.	None	None
Century Nova Steel Co., Ltd.		130,474	The business currently operates at economies of scale, and is free of any material adverse external impact.	None	Shorten delivery, increase market competitiveness.
Froch International Trading Co., Ltd.		548	Revenue coming from leasing of assets; more active control of expenses will be exercised to achieve breakeven.	None	None
Froch Stainless Co., Ltd.		2,863	Secured recurring, long-term customers from its prolonged market involvement.	None	None

• 208 -

VI. Evaluation of Risk Factors

• (I) Risk Management Organization

• Organization: Each unit within the Company is responsible for managing operational risks that are relevant to their business activities. The Internal Audit Office reviews each operation for existing or potential risks, and adopts a risk-oriented approach to devise annual audit plans. Risk management organization, framework, and functions are explained below:

==> picture [452 x 352] intentionally omitted <==

----- Start of picture text -----

Board of Directors
Ultimately responsible for risk
management Internal Audit
Office
Reviews each operation
for existing or potential
risks, and adopts a
risk-oriented approach
President's Office to devise annual audit
plans.
Supervises execution of routine risk management within the
Company, and approves exceptions
Sales Department Finance Department Administrative
Department
Develops risk management Responsible for the sourcing
practices based on the risk and use of capital, and Observes government policies
management policy and the development of hedging and reduces legal risk
size of operation to reduce mechanisms to reduce
business risks. financial risks.
----- End of picture text -----

1. Below is a description of the Company's risk management practices: (1) Market Risk

   • Refers to risk of fair value/price due to exchange rate or interest rate variation. The Company locks in profit by pre-selling foreign currencies or by repaying foreign currency liabilities using assets of the same currency, and thereby avoids exchange rate risk. Due to the fact that the Company is unable to hedge the risks of its inventory using derivatives such as futures, such position exists market risk.

2. (2) Credit Risk

   • Financial assets are vulnerable to the risk of customer’s defaulting on their contractual obligations. Credit risks are evaluated with contracts having positive fair values as at the balance sheet date. The Company deals only with financial institutions and companies of high credit standing, therefore does not expect to be exposed to any major credit risks.

3. (3) Liquidity Risk

The Company maintains sufficient working capital, and hence is not exposed

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to the risk of being unable to meet contractual obligations due to insufficient liquidity.

All available-for-sale financial assets held by the Company are with high market liquidity, and the Company expects to sell such assets quickly on the market at prices close to fair value.

• (II) Assessment of Various Risks:

• Impact of Interest Rate, Exchange Rate, and Inflation on the Company’s Earnings, and Response Measures:

• Risks

  • The Company's long-term and short-term bank borrowings mostly accrue interests at floating rate. For this reason, changes in market rate will affect the effective long-term/short-term bank borrowing rate, causing fluctuation in future cash flow.

  • The Company locks in profit by pre-selling foreign currencies or by repaying foreign currency liabilities using assets of the same currency, and thereby avoids exchange rate risk.

  • Recovery of the global economy has increased short-term volatility of the

    • price index and given rise to inflation concerns, hence the Company expects an increase in operating costs.

• Response Measures:

  • The finance unit will maintain close contact with financial institutions for up-to-date information on interest and exchange rate variations and trends. This knowledge helps reduce adverse impact of interest and exchange rate changes.

  • When offering quotations to export customers, the Company will take into account exchange rate trends in order to minimize the impact that exchange rate volatility has on the profitability of the sales transaction.

  • The Company will open foreign currency accounts with banking partners to hold required foreign currency position. Currency position will be adjusted when appropriate as market rate changes.

  • Financial instruments such as currency forwards and forfeiting foreign account receivables may be used to hedge against exchange rate risks. These instruments will also be managed according to derivatives procedures for risk control enhancement.

• Policies on High-Risk and Highly Leveraged Investments, Loans to External Parties, Endorsements/Guarantees, and Trading of Derivatives; Describe the Main Causes of Profit or Loss Incurred and Future Response Measures:

• The Company has issued endorsements/guarantees totaling USD6,000,000 for Century Nova Steel Co., Ltd. in March 2020, USD10,000,000 for Century Nova Steel Co., Ltd. in May 2020, and USD25,000,000 for Century Nova Steel Co., Ltd. in November 2020 for a total of USD41,000,000. USD33,000,000 have been drawn to date. All above transactions were carried out according to the Company's "Endorsement and Guarantee Policy."

• Future Research and Development Plans and Projected Expenses: The Company primarily manufactures stainless steel tubes, pipes, sheets, and coils, and operates in a mature industry where breakthroughs in production technology and equipment are less frequent. For this reason, the Company's R&D budgets are mainly directed toward improvement of existing production procedures and machinery, and do not qualify as new "science, technology, quantitative tool, or

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statistical method" stipulated in Statute for Industrial Innovation.

1. Financial Impacts and Response Measures in the Event of Changes in Local and Foreign Regulations:

2. The Company operates in compliance with regulations of the home country and the respective countries it invests in. Expatriates report any significant change in policies or laws back to the headquarters in a timely manner, thereby allowing appropriate decisions, responses, and measures to be made at the management level.

3. Financial Impacts and Response Measures in the Event of Technological or Industrial Change:

4. The Company is part of an industry that are related with industrial development and people’s livelihood demands, and currently there is no substitutable product capable of changing the existing industry structure. Furthermore, the Company has proven itself capable of applying new technologies in management, procedure improvement, and new product development; therefore, changes in technology will actually benefit the Company in terms of business expansion.

5. Crisis Management Impacts and Response Measures in the Event of a Change in Corporate Image: The Company has always valued integrity as the fundamental principle. It adopts a business philosophy of "Pursuing Excellence, and Creating Future" while emphasizing on resources cherishing, environmental protection, and developing businesses proactively. Profits earned from operations are given back to shareholders as well as used in corporate social responsibilities.

6. Expected Benefits and Risks from Mergers and Acquisitions: None

7. Expected Benefits and Risks Associated with Plant Expansions: None

8. Risks Associated with Concentrated Sales or Purchases:

9. The Company is a professional manufacturer of stainless steel tubes, pipes, sheets, and coils. Raw materials are primarily sourced from various stainless steel mills in Taiwan, and secondarily from various stainless steel mills overseas. The suppliers from Taiwan are reputable manufacturers of stainless steel coils, which the Company has long-term relationship with due to the consistent quality of products supplied. For this reason, the Company expects ample supply of resources in the future, and sees no concentration in supply sources. Owing to proactive oversea business efforts, export sales now account for approximately 72% of revenues and the Company's export network currently covers more than 100 countries worldwide. Coupled with the fact that there are more than thousands of customers in the home country, the Company does not concentrate in any single industry, market, or customer, and therefore is free of sales concentration risk.

10. Impacts and Risks Associated with Major Transfer of Shareholding by Director or Shareholders with More than 10% Ownership: None

11. Impacts and Risks Associated with a Change of Management: None

12. Major Litigations, Non-contentious Cases, or Administrative Litigations Involving the Company or any Director, President, Person-in-charge, Major Shareholder with More than 10% Ownership, or Affiliated Companies, whether Concluded or Pending Judgment, that are Likely to Pose Significant Impact to Shareholders or Security Prices of the Company. Disclose the Nature of Dispute, the Amount Involved, the Date the Litigation First Started, the Key Parties Involved, and Progress as of the Publication Date of This Annual Report: None.

13. Other Significant Risks: None

VII. Other Major Issues: None

• 211 -

Eight. Special Remarks

I. Information of Affiliated Companies

(I) Affiliated Company Chart

Froch Enterprise Co., Ltd.

==> picture [552 x 204] intentionally omitted <==

----- Start of picture text -----

100% 100% 100%
Froch Enterprise Century Nova Froch Stainless
International Co., Ltd. Steel Co., Ltd. Co., Ltd.
30% 100% 83%
100%
Froch International 70% Froch Metal (Suzhou) Century Nova 17% Froch Stainless
Trading Co. Ltd. Co., Ltd. Steel Co. Ltd. Co., Ltd.
(Wuxi) (Wuxi)
----- End of picture text -----

(II) Profile of Affiliated Companies

Company	Relationship with the Company	The Company's Shareholding in the AffiliatedCompanies	The Company's Shareholding in the AffiliatedCompanies	The Company's Shareholding in the AffiliatedCompanies	The Affiliated Company’s Shareholdingin theCompany	The Affiliated Company’s Shareholdingin theCompany	The Affiliated Company’s Shareholdingin theCompany
		Shareholding Percentage	Shares	Amount (NTD thousands)	Shareholding Percentage	Shares	Amount
Froch Enterprise InternationalCo.,Ltd.	1st-tier subsidiary	100%	3,550,000	115,366 (USD3,550)	0	0	0
Froch Metal (Suzhou) Co.,Ltd.	2nd-tier subsidiary	100%	0	103,236 (USD3,000)	0	0	0
Froch International Trading Co. Ltd.	3rd-tier subsidiary	100%	0	16,250 (USD500)	0	0	0
Century Nova Steel Co., Ltd.	1st-tier subsidiary	100%	49,000,000	1,530,998 (USD49,000)	0	0	0
Century Nova Steel Co. Ltd. (Wuxi)	2nd-tier subsidiary	100%	0	1,680,898 (USD54,000)	0	0	0
Froch Stainless Co., Ltd.	1st-tier subsidiary	100%	500,000	14,959 (USD500)	0	0	0
Froch Stainless Co., Ltd. (Wuxi)	2nd-tier subsidiary	100%	0	17,951 (USD600)	0	0	0

(III) Common Shareholders in Controlling and Controlled Companies: Not applicable

(IV) Businesses Activities Covered by Affiliated Companies:

The Company and its affiliated companies are collectively involved in: manufacturing, trading, and investment activities.

• 212 -

(V) Names and Shareholding Information of Directors, Presidents of Affiliated Companies

Name of Entity	Title	Name or Name of Representative	Current Shareholding	Current Shareholding
			Capital Paid (dollar)	Percentage of Shareholding/Ca pital Paid (%)
Froch Enterprise International Co., Ltd.	Chairman	Froch Enterprise Co., Ltd. Representative: Ping-Yao Chang	USD 3,550,000	100.00
Century Nova Steel Co., Ltd.	Chairman	Froch Enterprise Co., Ltd. Representative: Ping-Yao Chang	USD 49,000,000	100.00
Froch Stainless Co. Ltd.	Chairman	Froch Enterprise Co., Ltd. Representative: Ping-Yao Chang	USD 500,000	100.00
Froch Metal (Suzhou) Co., Ltd.	Chairman	Froch Enterprise Co., Ltd. Representative: Ping-Yao Chang	USD 400,000	100.00
Century Nova Steel Co. Ltd. (Wuxi)	Chairman	Froch Enterprise Co., Ltd. Representative: Ping-Yao Chang	USD 49,000,000	100.00
Froch International Trading Co. Ltd.	Chairman	Froch Enterprise Co., Ltd. Representative: Ping-Yao Chang	USD 500,000	100.00
Froch Stainless Co., Ltd. (Wuxi)	Chairman	Froch Enterprise Co., Ltd. Representative: Ping-Yao Chang	USD 500,000	100.00

(VI) Performance of Affiliated Companies

				Unit: Foreign curr	Unit: Foreign curr	encyand NTD thousands	encyand NTD thousands	encyand NTD thousands
Name of Entity	Capital	Total Assets	Total Liabilities	Net Worth	Sales Revenue	Operating Income (Loss)	Net Income (Loss) (after Tax)	Earnings (Losses) per Share (dollar)
Froch Enterprise International Co., Ltd.	USD 3,550	415,152	0	415,152	0	0	21,773	USD 0.21
Century Nova Steel Co., Ltd.	USD 49,000	2,206,258	0	2,206,258	0	0	131,00 8	USD 0.09
Froch Stainless Co. Ltd.	USD 500	74,894	0	74,894	0	0	2,385	USD 0.16
Froch Metal (Suzhou) Co.,Ltd.	USD 3,000	197,596	40,194	157,402	582,489	(3,813)	12,682	USD 0.14
Century Nova Steel Co. Ltd.(Wuxi)	USD 49,000	3,270,630	1,064,420	2,206,210	2,721,687	149,949	130,47 4	USD 0.08
Froch International Trading Co. Ltd.	USD 500	23,404	136	23,268	0	(2,466)	548	USD 0.04
Froch Stainless Co.,Ltd.(Wuxi)	USD 600	279,082	189,210	89,872	2,179,737	1,991	2,863	USD 0.16

(VII) Consolidated Report of Affiliated Companies: Please refer to "Latest Audited Consolidated Financial Statements" in Section Six. Financial Overview.

(VIII) Affiliation Report: None.

• 213 -

• II. Private Placement of Securities in the Last Year up until the Publication Date of Annual Report: None

• III. Holding or Disposal of the Company's Shares by Subsidiaries in the Last Financial Year, up until the Publication Date of this Annual Report: None

• IV. Other Material Supplementary Information: None

• V. Events Significant to Shareholders' Interests or the Company’s Securities Price, as Defined in Subparagraph 2, Paragraph 2, Article 36 of the Securities and Exchange Act, in the Last Year up until the Publication Date of this Annual Report: None

• 214 -