KHGEARS - Audit Report / Information 2022

Khgears International Limited (Incorporated in the Cayman Islands) and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2022 and 2021 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Khgears International Limited

Opinion

We have audited the accompanying consolidated financial statements of Khgears International Limited and its subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, 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, 2022 and 2021, 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 (FSC) of the Republic of China.

Basis for Opinion

We conducted our audit of the consolidated financial statements for the year ended December 31, 2022, 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, 2022. 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 matters identified in the Group’s consolidated financial statements for the year ended December 31, 2022 are stated as follows:

The sales revenue to specific customers

The company's sales revenue growth of specific customers in 2022 is greater than the others, and the amount is significant. Therefore, the authenticity of sales of specific customers is listed as one of the key audit

matters.

For accounting policies and related information on sales revenue, please refer to Note 4 of the consolidated financial statements. The audit procedures that we performed in response to the risk were as follows:

We obtained an understanding of the company's sales operation related procedures and internal controls, and test the design and implementation of these controls.
We obtained the sales details of specific customers' sales revenue, check the initial customer orders, the delivery receipts or customer receipts, invoices issued, and other relevant sales revenue recognition vouchers and actual receipts to confirm sales revenue recognition Authenticity.

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 FSC of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance (including the audit committee) are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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.
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.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
3 -
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.
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.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2022 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Tzu-Jung Kuo and Chun-Hung Chen.

Deloitte & Touche Taipei, Taiwan Republic of China

March 28, 2023

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.

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2022 AND 2021

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Notes receivable (Notes 4 and 8) Accounts receivable (Notes 4 and 8) Other receivables (Note 4) Inventories (Notes 4, 5 and 9) Other current assets (Notes 14) Total current assets NON-CURRENT ASSETS Financial assets at amortized cost (Notes 4 and 27) Property, plant and equipment (Notes 4, 11 and 27) Right-of-use assets (Notes 4, 13 and 27) Intangible assets (Notes 4 and 12) Deferred tax assets (Notes 4 and 20) Prepaid equipment payments (Notes 11) Refundable deposits Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 4 and 15) Accounts payable Other payables (Notes 16) Current tax liabilities (Notes 4 and 20) Lease liabilities-current (Note 4 and 13) Deferred income (Note 4 and 23) Current portion of long-term borrowings (Note 4 and 15) Other current liabilities (Note 16) Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Note 4 and 15) Deferred tax liabilities (Notes 4 and 20) Lease liabilities - non-current (Notes 4 and 13) Long-term deferred income (Notes 4 and 23) Guarantee deposits Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4, 18 and 22) Share capital Ordinary shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Exchange differences on translating foreign operations Unearned Compensation Total retained earnings Total equity TOTAL		2022 Amount % $ 798,574 22 23,264 1 750,855 21 66,984 2 705,147 19 86,119 2 2,430,943 67 1,013 - 1,023,694 28 70,838 2 7,454 - 9,453 - 102,685 3 440 - 1,215,577 33 $ 3,646,520 100 $ 245,600 7 230,037 6 232,208 6 10,271 - 13,822 1 45,520 1 15,350 1 180,817 5 973,625 27 23,025 1 13,662 - 5,567 - 26,671 1 89 - 69,014 2 1,042,639 29 533,350 15 1,178,809 32 111,639 3 129,988 4 746,098 20 987,725 27 ( 86,259) ( 3) ( 9,744) - ( 96,003) ( 3) 2,603,881 71 $ 3,646,520 100		2021
				Amount % $ 444,154 14 3,016 - 852,131 26 31,511 1 703,511 21 103,013 3 2,137,336 65 940 - 890,546 27 67,469 2 5,585 - 10,780 - 196,825 6 979 - 1,173,124 35 $ 3,310,460 100 $ 41,544 1 301,043 9 251,409 8 5,140 - 12,380 1 35,823 1 - - 169,814 5 817,153 25 - - 21,062 1 5,340 - 36,043 1 88 - 62,533 2 879,686 27 533,800 16 1,181,590 36 72,270 2 127,893 4 673,714 20 873,877 26 (129,988) ( 4) ( 28,505) ( 1) ( 158,493) ( 5) 2,430,774 73 $ 3,310,460 100

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

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

NET REVENUE (Notes 4, and 30) OPERATING COSTS (Notes 4, 9, 17 and 19) GROSS PROFIT OPERATING EXPENSES (Notes 17 and 19) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Interest incomes Other incomes-other (Notes 4, 19 and 23) Other incomes and losses (Notes 4 and 19) Financial costs (Notes 4 and 19) Total non-operating income and expenses PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 20) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) (Notes 4) Items that will not be reclassified subsequently to profit or loss: Exchange differences arising on translation to the presentation currency		2022 Amount % $ 2,443,385 100 1,750,669 71 692,716 29 96,078 4 195,552 8 140,943 6 432,573 18 260,143 11 5,992 - 50,921 2 87,327 3 ( 7,190) - 137,050 5 397,193 16 ( 46,154) ( 2) 351,039 14 36,116 2		2021
				Amount % $ 2,736,873 100 1,851,513 68 885,360 32 97,496 4 206,091 7 147,675 5 451,262 16 434,098 16 3,306 - 49,404 2 ( 37,649) ( 2) ( 2,233) - 12,828 - 446,926 16 ( 53,235) ( 2) 393,691 14 ( 12,480) - (Continued)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2022 Amount % 7,613 - 43,729 2 $ 394,768 16 $ 6.66 $ 6.53		2021

	( $	(
$

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

(Concluded)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2021 Issuance of common stock for cash Share base payment transaction Cancellation of Restricted Stock. Issue Costs on Stock Appropriation of the 2021 earnings Legal reserve Special reserve Cash dividends distributed Net profit for the year ended December 31, 2021 Other comprehensive income (loss) for the year ended December 31, 2021 net of income tax Total comprehensive income (loss) for the year ended December 31, 2021 BALANCE AT DECEMBER 31, 2021 Appropriation of the 2022 earnings Legal reserve Special reserve Cash dividends distributed Share base payment transaction Cancellation of Restricted Stock. Net profit for the year ended December 31, 2022 Other comprehensive income (loss) for the year ended December 31, 2022 net of income tax Total comprehensive income (loss) for the year ended December 31, 2022 BALANCE AT DECEMBER 31, 2022	Share Capital Shares (In Ordinary Thousands) Shares 48,400 $ 484,000 5,000 50,000 - - ( 20 ) ( 200 ) - - - - - - - - - - - - - - 53,380 533,800 - - - - - - - - ( 45 ) ( 450 ) - - - - - - 53,335 $ 533,350	Capital Surplus $ 844,558 335,000 7,268 ( 1,236 ) ( 4,000 ) - - - - - - 1,181,590 - - - 7,268 ( 2,781 ) - - - $ 1,178,809			Retained Earnings	Unappropriated Earnings $ 476,775 - - - - ( 28,539 ) 3,147 ( 171,360 ) 393,691 - 393,691 673,714 ( 39,369 ) ( 2,095 ) ( 237,191 ) - - 351,039 - 351,039 $ 746,098	Exchange Differences on Translating the Financial Statements of Foreign Operations ( $ 127,893 ) - - - - - - - - ( 2,095) ( 2,095) ( 129,988 ) - - - - - - 43,729 43,729 ($ 86,259)	Unearned Compensation ( $ 57,440 ) - 27,499 1,436 - - - - - - - ( 28,505 ) - - - 27,499 3,231 - - - ($ 9,744)	Total Equity
	Shares (In Thousands) 48,400 5,000 - ( 20 ) - - - - - - - 53,380 - - - - ( 45 ) - - - 53,335			Legal Reserve $ 43,731 - - - - 28,539 - - - - - 72,270 39,369 - - - - - - - $ 111,639	Special Reserve $ 131,040 - - - - - ( 3,147 ) - - - - 127,893 - 2,095 - - - - - - $ 129,988
									$ 1,794,771 385,000 34,767 ( 4,000 ) - - ( 171,360 ) 393,691 ( 2,095) 391,596 2,430,774 - - ( 237,191 ) 34,767 - 351,039 43,729 394,768 $ 2,603,881

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

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars)

		2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax	$	397,193	$	446,926
Adjustments for:
Depreciation expenses		143,622		106,304
Amortization expenses		2,705		2,483
Expected credit impairments turnaround benefits		602	(	66)
Interest expense		7,190		2,233
Interest income	(	5,992)	(	3,306)
Compensation cost of employee share options		15,530		34,767
Gain on disposal of property, plant and equipment	(	625)	(	1,478)
Write-down of inventories		90,319		2,833
Deferred income	(	9,934)	(	9,753)
Changes in operating assets and liabilities
Notes receivable	(	20,248)	(	1,283)
Accounts receivable		100,657	(	25,749)
Other receivables	(	35,473)	(	8,115)
Inventories	(	92,501)	(	295,183)
Other current assets		16,894	(	48,920)
Accounts payable	(	71,006)	(	40,979)
Other payables	(	12,977)		33,972
Other current liabilities		11,003		10,882
Deferred income		9,197		-
Cash generated from operations		546,156		205,568
Interest received		5,992		4,241
Interest paid	(	7,192)	(	2,215)
Income tax paid	(	48,918)	(	55,460)
Net cash generated from (used in) operating activities		496,038		152,134

(Continued)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars)

		2022		2021
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of financial assets at amortized cost		-	(	940)
Payments for property, plant and equipment	(	62,028)	(	381,137)
Proceeds from disposal of property, plant and equipment		3,488		1,977
Increase in refundable deposits		-	(	661)
Decrease in refundable deposits		554		-
Payments for intangible assets	(	4,496)	(	3,856)
Decrease in prepayments for equipment	(	103,062)	(	141,703)
Net cash used in investing activities	(	165,544)	(	526,320)
Net cash used in investing activities	(	526,320)	(	160,517)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowing		416,246		436,158
Decrease in short-term borrowing	(	228,523)	(	388,518)
Proceeds from long-term borrowings		43,558		-
Repayments of long-term borrowings	(	7,680)		-
Repayment of the principal portion of lease liabilities	(	1,035)	(	766)
Cash dividends paid	(	237,191)	(	171,360)
Issuance of common stock for cash		-		385,000
Payments for share issue cost		-	(	4,000)
Net cash generated from/(used in) financing activities	(	14,625)		256,514
EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF
CASH AND CASH EQUIVALENTS HELD IN FOREIGN
CURRENCIES		38,551	(	13,497)
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS		354,420	(	131,169)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR		444,154		575,323
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	$	798,574	$	444,154

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

(Concluded)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION

Khgears International Limited (the “Company”) was incorporated as a limited company under the Company Law of the Cayman Islands on April 30, 2014.

The main business items of the combined company are the manufacture and sale of gears and gearboxes.

The ordinary shares of the Company have been listed on the Taiwan Stock Exchange since September 2019.

The functional currency of the Company is the Chinese Yuan. However, for greater comparability and consistency of financial reporting, the consolidated financial statements are presented in New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 28, 2023.

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

a. Initial application of the amendments to 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 Group assesses that the application of the amendments to 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 2023

New IFRSs Amendments to IAS 1 “Disclosure of Accounting Policies” Amendments to IAS 8 “Definition of Accounting Estimates” Amendments to IAS 12 “Deferred Tax related to Assets and Liabilities arising from a Single Transaction”	Effective Date Announced by IASB
	January 1, 2023 January 1, 2023 January 1, 2023

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

New IFRSs Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” Amendments to IFRS 16 “Leases Liability in a Sale and Leaseback” IFRS 17 “Insurance Contracts” Amendments to IFRS 17 Amendments to IFRS 17 “Initial Application of IFRS 9 and IFRS 17 -	Effective Date Announced by IASB (Note 1)
	To be determined by IASB January 1, 2024 (Note 2) January 1, 2023 January 1, 2023 January 1, 2023

Comparative Information”

Amendments to IAS 1 “Classification of Liabilities as Current or NonJanuary 1, 2024 current” Amendments to IAS 1 “Non-current Liabilities with Covenants” January 1, 2024

Note 1: Unless stated otherwise, the above IFRSs are effective for annual reporting periods beginning on or after their respective effective dates.
Note 2: A seller-lessee shall apply the Amendments to IFRS 16 retrospectively to sale and leaseback transactions entered into after the date of initial application of IFRS 16.

As of the date the consolidated 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 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 measured at fair value.

Fair value measurements are classified into Level 1 to Level 3 based on the degree of observability and significance of the relevant inputs.

1) Level 1 inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are available at the measurement date.
2) Level 2 inputs: Inputs other than quoted prices in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
3) Level 3 inputs: Unobservable inputs for the 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; and

3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as 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). 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.

See Note 10 and Tables 6 to 7 for detailed information on subsidiaries.

e. Foreign currencies

In preparing the financial statements of each individual group entity, 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 on 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 items that are measured at historical cost in a foreign currency are not retranslated.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Company and its foreign operations (including subsidiaries, associates or branches operating in other countries or those that use currencies that are different from the Company’s currency) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income attributed to the owners of the Company and noncontrolling interests as appropriate. The exchange differences accumulated in equity, which resulted from the translation of the assets and liabilities of the group entities into the presentation currency are not subsequently reclassified to profit or loss.

f. Inventories

Inventories consist of raw materials, production supplies, finished goods and work in progress 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.

g. Property, plant and equipment

Property, plant and equipment are stated at cost, less recognized accumulated depreciation.

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

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. Intangible assets
1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization. Amortization is recognized on a straightline basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Intangible assets with undetermined service life are presented at cost less accumulated impairment losses.

3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

i. Impairment of property, plant and equipment, right-of-use asset, intangible assets and assets related to contract costs

At the end of each reporting period, the Group reviews the carrying amounts of its property, plant and equipment, right-of-use asset and intangible 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. Corporate assets are allocated to the smallest group of cash-generating units on a reasonable and consistent basis of allocation.

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 corresponding asset, cashgenerating unit or assets related to contract costs is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset, cash-generating unit or assets related to contract costs in prior years. A reversal of an impairment loss is recognized in profit or loss.

j. Financial instruments

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

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to an acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from

the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

1) Financial assets

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

a) Measurement categories

Financial assets are classified into financial assets at amortized cost. Financial assets that meet the following conditions are subsequently measured at amortized cost:

i. The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
ii. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, receivables, other receivables, financial instruments measured at amortized cost and refundable deposits, 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 multiplying the effective interest rate by the total carrying amount of the financial instruments.

Credit-impaired financial assets are those in which the issuer or debtor has experienced significant financial difficulties or defaulted on its obligations and the active market for the financial instruments has disappeared.

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.

b) Impairment of financial assets

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost.

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

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

The impairment loss of all financial assets is recognized in profit or loss by a reduction in their

carrying amounts through a loss allowance account.

c) Derecognition of financial assets

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

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.

2) Equity instruments

Debt and equity instruments issued by the consolidated company are classified as financial liabilities or equity based on the substance of the contractual agreements and the definitions of financial liabilities and equity instruments.

Equity instruments issued by the consolidated company are recognized at the amount of the consideration received, net of direct issue costs.

Equity instruments that are recaptured from the company itself are recognized and derecognized under equity. The purchase, sale, issuance or cancellation of the company's own equity instruments are not recognized in profit or loss.

3) Financial liabilities
a) Subsequent measurement

All financial liabilities are measured at amortized cost using the effective interest method, except for financial liabilities measured at fair value through profit or loss.

Financial liabilities at fair value through profit or loss include financial liabilities held for trading, which are measured at fair value with the related gains or losses recognized in other gains and losses.

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.

4) Derivative Instruments

Derivatives entered into by the consolidated company include forward exchange contracts, which are used to manage the consolidated company's exchange rate risk.

Derivatives are initially recognized at fair value when the derivative contracts are entered into and subsequently remeasured at fair value at the balance sheet date. The gain or loss arising from subsequent measurement is recognized directly in profit or loss, except for derivatives that are designated as effective hedging instruments, where the point of recognition in profit or loss depends on the nature of the hedging relationship. When the fair value of a derivative is positive, it is classified as a financial asset; when the fair value is negative, it is classified as a financial liability.

Derivatives embedded in asset master contracts within the scope of IFRS 9, "Financial

Instruments", are classified as financial assets based on the overall contract. If a derivative is embedded in a host contract that is not within the scope of IFRS 9 (e.g., embedded in a host contract for a financial liability), and the embedded derivative meets the definition of a derivative, the risks and characteristics of which are not closely related to those of the host contract, and the hybrid contract is not measured at fair value through profit or loss, the derivative is considered to be a separate derivative.

k. Revenue recognition

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

Revenue from the sale of goods comes from sale gears and machined parts. Sales are recognized as revenue when the goods are delivered to the customer’s specific location or the goods are shipped or the goods are accepted because it is the time when the customer has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility for sales to future customers and bears the risks of obsolescence. Trade receivables are recognized concurrently.

l. Leases

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

The Group 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 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. If the ownership of the underlying asset will be acquired at the end of the lease period, or if the cost of the right-of-use asset reflects the exercise of the purchase option, then depreciation will be provided from the lease start date to the end of the useful life of the underlying asset.

Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments, in-substance fixed payments, and variable lease payments which depend on an index or a rate, the amount the tenant is expected to pay under the residual value guarantee, reasonable belief that the exercise price of the purchase option to be exercised, and lease termination penalty that has been reflected in the lease period, less any lease incentives receivable. 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.

Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. Lease liabilities are presented on a separate line in the consolidated balance sheets.

m. Borrowing Costs

All borrowing costs are recognized as profit or loss in the period in which incurred.

n. Government grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to the grants and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognized as profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognized in profit or loss in the period in which they become receivable.

o. Retirement benefits

Subsidiaries participate in the government’s pension plan in accordance with local laws and regulations, and regularly provide a certain percentage of pensions according to employees’ salaries. This is a defined contribution retirement benefit plan. Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered services entitling them to the contributions.

p. Share-based payment arrangements

The fair value at the grant date of the employee share options and restricted shares for employees is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of employee share options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options or other equity - unearned employee benefits. It is recognized as an expense in full at the grant date if vested immediately. The grant date of retained employee subscriptions of the cash capital increase is the date of approval by the board of directors.

When restricted shares for employees are issued, other equity - unearned employee benefits is recognized on the grant date, with a corresponding increase in capital surplus - restricted shares for employees.

At the end of each reporting period, the Group revises its estimate of the number of restricted shares for employees that are expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expenses reflect the revised estimate, with a corresponding adjustment to capital surplus - restricted shares for employees

q. Taxation

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

1) Current tax

Income tax payable 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 to the extent that it is probable that taxable profit 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 and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are 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 asset 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 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.

The Company has taken the recent development of the novel coronavirus pneumonia outbreak in Taiwan and its possible impact on the economic environment into consideration in making significant accounting estimates related to cash flow projections, growth rates, discount rates, profitability. Management will continue to review the estimates and underlying assumptions. If a revision of an estimate affects only the current period, it is recognized in the period in which it is revised; if a revision of an accounting estimate affects both the current and future periods, it is recognized in the period in which it is revised and in the future period.

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 disposal. 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 and petty cash Checking accounts and demand deposits Cash equivalents (investments with original maturities of less than 3 months) Time deposits		December 31	December 31
		2022 $ 962 692,049 105,563 $ 798,574	2021 $ 853 443,301 - $ 444,154

The market rate intervals of cash in the bank at the end of the year were as follows:

Bank balance	December 31
	2022 2021 0%-5.8% 0%-0.3%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

The purpose of the Consolidated Company's forward exchange transactions is to hedge the risks arising from fluctuations in foreign currency assets and liabilities. The forward exchange contracts entered into by the Consolidated Company in 2022 do not qualify as effective hedges, and therefore hedge accounting is not applied. There are no forward exchange contracts outstanding as of December 31, 2022 and 2021.

8. NOTES AND ACCOUNTS RECEIVABLE

Notes receivable Measured at amortized cost Accounts receivable Measured at amortized cost Total book value Less: Allowance for impairment loss		December 31	December 31
	(	2022 $ 23,264 $ 752,757 1,902) ( $ 750,855	2021 $ 3,016 $ 853,414 1,283) $ 852,131

The average credit period of sales of goods was 30-150 days. No interest was charged on accounts receivable since the credit period was short.

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 reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Group’s credit risk was significantly reduced.

The Company applies the use of lifetime expected loss provision for all accounts receivable. The expected

credit losses on accounts receivable are estimated with reference to the past default experience of the debtor and an analysis of the debtor’s current financial position and general economic conditions of the industry in which the debtors operate. 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.

If there is evidence showing that the counterparty is facing serious financial difficulties and the Company cannot reasonably expect the recoverable amount, for example, the counterparty is performing liquidation, the merged company directly writes off the related receivables, but it will continue to pursue the activities due to recovery. The amount is recognized in profit or loss.

The following table details the loss allowance of accounts receivable.

December 31, 2022

Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECLs) Amortized cost December 31, 2021	Not Past Due 0.05% $ 725,636 ( 360) $ 725,276 Not Past Due 0.05% $ 725,636 ( 360) $ 725,276	9 1 t o 1 8 0 D a y s 5%`～`30% $ 241 ( 72) $ 169 9 1 t o 1 8 0 D a y s 5%`～`30% $ 241 ( 72) $ 169	O v e r 3 6 5 D a y s 100% $ 133 ( 133) $ - O v e r 3 6 5 D a y s 100% $ 133 ( 133) $ -	T o t a l	T o t a l
				$ 752,757 ( 1,902) $ 750,855 T o t a l
Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECLs) Amortized cost
	(	(	(	(	$ 752,757 1,902) $ 750,855

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

Balance at January 1 Add: Impairment loss for the year Add: Recovery of written-off bad debts Deduct: Rotational impairment loss in the current period Deduct: Amounts written off Foreign exchange gains and losses Balance at December 31		December 31
		2022 2021 $ 1,283 $ 1,304 602 - - 162 - ( 66 ) - ( 106 ) 17 ( 11) $ 1,902 $ 1,283

9. INVENTORIES

Finished goods Work in progress Raw materials		December 31	December 31
		2022 $ 338,543 223,894 142,710 $ 705,147	2021 $ 270,043 321,181 112,287 $ 703,511

The cost of goods sold for the years ended December 31, 2022 and 2021 was $1,750,669 thousand and

$1,851,513 thousand, respectively. The cost of goods sold included (reversal of write-down of inventories) inventory write-downs of $90,319 thousand and 2,833 thousand for the years ended December 31, 2022 and 2021, respectively.

10. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements

Name of
Investor
Name of Subsidiary
Principal Activities
The Company KWOK HING (CHINA) DEVELOPMENT
LIMITED ( “KWOK HING (CHINA)”)
Investment
KWOK HING
(CHINA)
Zhuhai KwunHing Machinery&Electronic
Co., Ltd. (“Zhuhai KwunHing”)
Manufacture and sale of gears
The Company Forcefive Limited（FFL）
Sale of gears
The Company KHGEARS LIMITED
Sale of gears
The Company KHGEARS Vietnam Co., LTD
Sale of gears % of Ownership
December 31
2022
2021
Remark
100.00
100.00
1
100.00
100.00
2
100.00
100.00
3
100.00
100.00
4
100.00
100.00
5

Remarks:

1) KWOK HING (CHINA) was registered and established in Hong Kong on May 25, 2001, mainly as an investment holding company. The company acquired 100% equity of KWOK HING (CHINA) on September 8, 2014.
2) Zhuhai KwunHing was registered and established in the People's Republic of China on January 16, 2003. Its main business items are the manufacture and sale of gears and gearboxes. The company was established by KWOK HING (CHINA).
3) FFL was registered and established in Samoa on April 24, 2013. Its main business is sales of gears and gearboxes. The company acquired 100% equity of FFL on July 1, 2014. In addition, FFL established a FFL Taiwan branch in the Republic of China on September 17, 2019, mainly engaged in the sales of gears and gearboxes.
4) In August 2019, Khgears Limited was established in the Republic of China, mainly engaged in the sales, manufacture and R&D of gears and gearboxes, and the Company increased its capital by $3,000 thousand in December 2022.
5) In May 2020, the establishment of KHGEARS Vietnam Co., LTD was completed, and the main business is manufacturing and sales of gears and gearboxes, and the Company increased the capital of KHGEARS Vietnam Co., LTD by US$5,000 thousand in April and May 2022.

11. PROPERTY, PLANT AND EQUIPMENT

Cost

Balance at January 1, 2022

Additions
Disposals
Effects of foreign currency exchange differences

Balance at December 31, 2022

Accumulated depreciation and impairment

Balance at January 1, 2022

Depreciation expenses

Disposals

Effects of foreign currency exchange differences

Balance at December 31, 2022

Carrying amount at December 31, 2022

Cost

Balance at January 1, 2021

Additions

Disposals

Reclassification

Effects of foreign currency exchange differences

Balance at December 31, 2021

Accumulated depreciation and impairment

Balance at January 1, 2021

Depreciation expenses

Disposals

Building
and
construction
Machinery
and
Equipment
Transportatio
n equipment
Office
equipment
Other
Equipment
Construction
in Progress
Total
$ 186,444
$1,147,453
$ 22,580
$ 74,645
$ 3,772
$ 50,091
$1,484,985
12,190
176,544
-
15,645
33,949
11,183
249,511
-
(
9,371 )
- (
1,006 )
-
-
(
10,377 )

7,031

26,077

583

1,139

843

703

36,376
$ 205,665
1,340,703

23,163

90,423

38,564

61,977
1,760,495
66,470
455,850
19,092
51,807
1,220
-
594,439
9,929
112,868
1,482
11,746
4,812
-
140,837
-
(
6,827 )
- (
687 )
-
-
(
7,514 )

981

6,728

527

736

67

-

9,039

77,380

568,619

21,101

63,602

6,099

-

736,801
$ 128,285
$ 772,084
$ 2,062
$ 26,821
$ 32,465
$ 61,977
$1,023,694
$ 116,784
$ 897,493
$ 22,824
$ 61,654
$ 22,308
$ 2,008
$1,123,071
67,718
255,897
-
14,192
2,695
48,556
389,058
-
(
2,266 )
- (
799 ) (
21,051 )
-
(
24,116 )
491
-
-
-
-
(
491 )
-

1,451
(
3,671)
(
244)
(
402)
(
180)

18
(
3,028)

186,444
1,147,453

22,580

74,645

3,772

50,091
1,484,985
61,171
377,904
17,151
40,050
21,512
-
517,788
5,757
82,854
2,140
12,476
935
-
104,162
-
(
2,141 )
- (
425 ) (
21,051 )
-
(
23,617 )

Effects of foreign currency exchange differences Balance at December 31, 2021 Carrying amount at December 31, 2021		Building and construction ( 458) 66,470 $ 119,974		Machinery and Equipment ( 2,767) 455,850 $ 691,603	Transportatio n equipment ( 199) 19,092 $ 3,488		Office equipment ( 294) 51,807 $ 22,838	(	Other Equipment 176) 1,220 $ 2,552		Construction in Progress - - $ 50,091	(	Total 3,894) 594,439 $ 890,546

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

Building and construction	5 to 20 years
Machinery and equipment	3 to 10 years
Transportation equipment	4 years
Office equipment	2 to 10 years
Other equipment	3 to 10 years

The construction in progress of the Consolidated Company mainly represents the capital expenditure of Zhuhai KwunHing Machinery&Electronic Co., Ltd to configure production lines; and the prepayment for equipment mainly represents the capital expenditure of KHGEARS Vietnam Co., LTD to prepay for production equipment, which will be transferred to property, plant and equipment upon completion and acceptance.

No impairment assessment was performed for the year ended December 31, 2022 and 2021 as there was no indication of impairment.

The Company's property, plant and equipment are pledged as collateral for bank loans, please refer to Note 27.

12. INTANGIBLE ASSETS

COST Balance at January 1, 2022 Additions Effect of foreign currency exchange differences Balance at December 31, 2022 Accumulated amortization Balance at January 1, 2022 Amortization expenses Effect of foreign currency exchange differences Balance at December 31, 2022 Net book value at December 31, 2022 COST Balance at January 1, 2021 Additions Effect of foreign currency exchange differences Balance at December 31, 2021 Accumulated amortization Balance at January 1, 2021 Amortization expenses	2022	2022
	Computer Software
		$ 12,545 4,496 171 17,212 6,960 2,705 93 9,758 $ 7,454 2021
	Computer Software
	(	$ 8,753 3,856 64) 12,545 4,511 2,483

Effect of foreign currency exchange differences ( Balance at December 31, 2021 Net book value at December 31, 2021	34) 6,960 $ 5,585

The above items of intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:

Computer software 2-10 years

13. LEASE ARRANGEMENTS

a. Right-of-use assets

Carrying amounts Land Construction Additions to right-of-use assets Depreciation charge for right-of-use assets Land Construction Lease liability Carrying amount of lease liability Current Non-current	December 31, 2022 December 31, 2021 $ 63,727 $ 61,156 7,111 6,313 $ 70,838 $ 67,469 For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 $ 1,800 $ 6,886 $ 1,769 $ 1,568 1,016 574 $ 2,785 $ 2,142 December 31, 2022 December 31, 2021 $ 13,822 $ 12,380 $ 5,567 $ 5,340	December 31, 2022 December 31, 2021 $ 63,727 $ 61,156 7,111 6,313 $ 70,838 $ 67,469 For the Year Ended December 31, 2022 For the Year Ended December 31, 2021	December 31, 2022 December 31, 2021 $ 63,727 $ 61,156 7,111 6,313 $ 70,838 $ 67,469 For the Year Ended December 31, 2022 For the Year Ended December 31, 2021	December 31, 2022 December 31, 2021 $ 63,727 $ 61,156 7,111 6,313 $ 70,838 $ 67,469 For the Year Ended December 31, 2022 For the Year Ended December 31, 2021
			$	1,800 $ 6,886 1,769 $ 1,568 1,016 574 2,785 $ 2,142 December 31, 2021 $ 12,380 $ 5,340
			$
			$

b. Lease liability

As of December 31, 2022 and 2021, the discount rates for the above lease liabilities were 1.15% -2% and 1.15%, respectively.

c. Significant lease activities and terms

Zhuhai KwunHing Machinery&Electronic Co., Ltd. acquired the land use right in mainland China at an original cost of RMB1,962 thousand for a term expiring in August 2053.

In August 2021, KHGEARS Vietnam CO., Ltd entered into a contract to acquire land use rights in Vietnam for VND48,457,787 thousand, with a term of use until October 2058, but as of December 31, 2022, the final payment of VND9,691,557 thousand (approximately NTD12,474 thousand, recorded as a lease liability) is still outstanding and the land use right certificate has not yet been obtained. The land use right certificate has not yet been obtained.

d. Lease liability

Short-term lease expense Total cash (outflow) from leases		2022 $ 5,811 $ 6,914)		2021
	(		(	$ 3,366 $ 4,291)

The Company has elected to apply the recognition exemption to leases such as office leases that qualify as short-term leases and does not recognize the related right-of-use assets and lease liabilities for these leases.

14. OTHER CURRENT ASSETS

Prepayments and expenses Input tax ROWINGS hort-term borrowings Unsecured borrowing Bank loan	December 31, 2022 $ 41,637 44,482 $ 86,119 December31,2022 $ 245,600	December 31, 2021	December 31, 2021
		$ 58,538 44,475 $ 103,013 December31,2021
			$ 41,544

15. BORROWINGS

a. Short-term borrowings

The range of weighted average effective interest rates on bank loans was 5.13%-6.05% and 1.15% per annum at December 31, 2022 and 2021, respectively.

b. Long-term borrowings

Unsecured borrowing Bank loan Less: Current portion Long-term borrowings	December31,2022 $ 38,375 ( 15,350) $ 23,025	December31,2021	December31,2021
	(		$ - - $ -

In May 2022, the Consolidated Company acquired a bank loan of US$1,500 thousand, which bears interest at a motorized rate of 5.9% payable monthly and is repayable in 3 years by quarterly installments.

16. OTHER LIABILITIES

Current Other payables Payables for salaries or bonuses Payables for social insurance premium Payables for directors' and employees' remunerations Payables for housing fund Payables for equipment Others Other liabilities Refund liabilities		December 31	December 31
		2022 $ 57,130 53,026 47,719 27,419 4,334 42,580 $ 232,208 $ 168,638	2021 $ 61,705 43,238 53,685 24,147 10,558 58,076 $ 251,409 $ 157,105

Current Others		December 31	December 31
		2022 12,179 $ 180,817	2021 12,709 $ 169,814

The related discount refund liabilities are estimated based on historical experience, judgment of management and other known reasons, and are recognized as a reduction in operating income in the year when the relevant product is sold.

17. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The employees of the Company’s subsidiaries in China are members of retirement benefit plans operated by their respective governments. According to the regulations of the government where the subsidiary Zhuhai KwunHing is located, the company should allocate a proportion of the local standard salary to the relevant government departments. The only obligation of the Company with respect to the retirement benefit plan is to make the specified contributions.

The employees of the Company’s subsidiary in Vietnam are members of a state-managed retirement benefit plan operated by the government of Vietnam. The subsidiary is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Company with respect to the retirement benefit plan is to make the specified contributions.

KHGEARS LIMITED and Forcefive Limited Taiwan Branch of the Company in the Republic of China has pension plans under the Labor Pension Act in Taiwan (LPA), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

18. EQUITY

a. Ordinary shares

Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		December 31	December 31
		2022 200,000 $ 2,000,000 53,335 $ 533,350	2021 200,000 $ 2,000,000 53,380 $ 533,800

On August 25, 2021, the Board of Directors resolved to issue 5,000,000 shares with a par value of NT$10 per share in a cash capital increase. The above cash capital increase was approved by the FSC on October 15, 2021 and was effective on November 25, 2021 as the base date.

The cash capital increase includes public subscriptions, employee subscriptions, and subscriptions by certain persons. The public subscriptions, employee subscriptions, and subscriptions by certain persons were all issued at NT$77 per share, and the full amount of shares received was NT$385,000 thousand. Underwriting expenses of $4,000 thousand were recorded as a reduction of capital surplus.

On June 23, 2020, the shareholders' meeting resolved to issue 800 thousand shares of restricted employee rights shares on December 30, 2020, and in 2021 and 2022, the board of directors resolved to recall 20 and 45 thousand shares of restricted employee rights shares at no cost, please refer to Note 22

b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (1) Issuance of ordinary shares Issuance of ordinary shares -Employee share options May not be used for any purpose Employee restricted shares			December31	December31
		2022 $1,116,735 16,651 45,423 $ 1,178,809		2011 $1,116,735 16,651 48,204 $1,181,590

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

As the Company is in the growing stage, the dividend/bonuses of the Company may be distributed in the form of cash dividends/bonuses and/or stock dividends/bonuses. The Company shall take into consideration the Company’s capital expenditures, future expansion plans, and financial structure, funds requirement and other plans for sustainable development needs in assessing the amount of dividends/bonuses the Company wish to distribute.

Under the Company’s dividend policy in the Articles, where the Company has annual net profit for the year, after paying all relevant taxes, offsetting losses (including losses of previous years and adjusted undistributed profits, if any), setting aside the Statutory Reserve of the remaining profits in accordance with the Applicable Listing Rules (provided that the setting aside of the Statutory Reserve does not apply if the aggregate amount of the Statutory Reserve amounts to the Company’s total paid-in capital), and setting aside the Special Reserve (if any), the Company may distribute not less than ten percent (10%) of the remaining balance (including the amounts reversed from the Special Reserve), plus accumulated undistributed profits of previous years (including adjusted undistributed profits) in part or in whole as determined by an Ordinary Resolution passed at an annual general meeting of the Company duly convened and held in accordance with these Articles to the Members as dividends/bonuses in proportion to the number of Shares held by them respectively pursuant to these Articles, provided that, cash dividends/bonuses shall not be less than ten percent (10%) of the total amount of dividends/bonuses to Members.

Please refer to Note 19 (6) Employee Compensation and Director Compensation for the employee and director compensation distribution policy specified in the company's articles of association.

The statutory surplus reserve shall be allocated until the balance reaches the total paid-up share capital of the company. The statutory surplus reserve can be used to make up for losses.

The company held the shareholders' in May 2022 and May 2021, and resolved to pass a surplus distribution plan for 2021 and 2020 as follows.

Legal Reserve Special Reserve Cash dividends Cash dividends per share (NT$)		2021 $ 39,369 $ 2,095 $ 237,191 $ 4.5		2019
			(	$ 28,539 $ 3,147) $ 171,360 $ 3.6

The Board of Directors of the Company on March 28, 2023 proposed the following distribution of surplus for 2022.

Legal Reserve Special Reserve Cash dividends	Appropriation of Earnings $ 35,104 ( 43,729 ) 190,364	Cash dividends per share (NT$)
		$ 3.6

The appropriation of earnings for 2022 is subject to resolution at the shareholders' meeting scheduled for May 22, 2023.

19. NET PROFIT (LOSS) FROM CONTINUING OPERATIONS

Net profit (loss) from continuing operations included the following:

a. Other income ther gains and losses

Mold revenue Government grants (Note 23) Miscellaneous income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2022 $ 24,790 15,501 10,630 $ 50,921	2021 $ 14,353 26,137 8,914 $ 49,404

b. Other operating income and expenses

Net foreign exchange gains (losses) Gain on disposal of property, plant and equipment Net loss on financial liabilities at fair value through profit or loss Others Financial costs Interest on bank loans Interest on lease liability	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2022 2021 $ 89,639 ( $ 33,595 ) 625 1,478 - ( 3,332 ) ( 2,937) ( 2,200) $ 87,327 ($ 37,649) For the Year Ended December 31
		2022 $ 7,124 66 $ 7,190	2021 $ 2,178 55 $ 2,233

c. Financial costs

d. Depreciation and amortization

Property, plant and equipment Right-of-use assets Intangible assets Total	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2022 $ 140,837 2,785 2,705 $ 146,327	2021 $ 104,162 2,142 2,483 $ 108,787

An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating expenses Employee benefits expense Post-employment benefits (Note 17) Defined contribution plans Share-based payment Settlement of interests (Note 22) Salary expenses Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses	$ 99,332 $ 75,038 44,290 31,266 $ 143,622 $ 106,304 $ 2,705 $ 2,483 For the Year Ended December 31	$ 99,332 $ 75,038 44,290 31,266 $ 143,622 $ 106,304 $ 2,705 $ 2,483 For the Year Ended December 31	$ 99,332 $ 75,038 44,290 31,266 $ 143,622 $ 106,304 $ 2,705 $ 2,483 For the Year Ended December 31
		2022 $ 31,756 15,530 391,132 124,057 $ 562,475 $ 301,402 261,073 $ 562,475	2021 $ 28,230 34,767 379,613 125,766 $ 568,376 $ 303,439 264,937 $ 568,376

e. Employee benefits expense

f. Compensation of employees and remuneration of directors

According to the Company's Articles, if the Company makes a profit for the year, the Company shall contribute not less than 5% and not higher than 5% of the net profit before tax for the year, after making up for the loss, to the compensation of employees and remuneration of directors, respectively. The compensation of employees and the remuneration of directors for the years ended December 31, 2022 and 2021, which were approved by the Company’s board of directors are as follows:

Accrual rate

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2022 2021 8% 8% 4% 4% For the Year Ended December 31		2021
	2022 Cash $ 31,813 $ 15,906		2021
			Cash $ 35,790 $ 17,895

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 is 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, 2021 and 2020.

Information on the employees’ compensation and remuneration of directors resolved by the Company’s

board of directors is available at the Market Observation Post System website of the Taiwan Stock Exchange.

20. INCOME TAX

a. Major components of income tax expense recognized in profit or loss

Current tax In respect of the current 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
		2022 $ 38,335 7,819 $ 46,154	2021 $ 51,772 1,463 $ 53,235

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 Items to be adjusted when determining taxable income 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
	(	2022 $ 397,193 $ 46,951 797) ( $ 46,154	2021 $ 446,926 $ 66,218 12,983) $ 53,235

The Company is registered in the British Cayman Islands, and its profit-making income is tax-free in accordance with local laws and regulations.

KWOK HING (CHINA) is a company registered in the Hong Kong Special Administrative Region of the People's Republic of China. In accordance with the provisions of the "Hong Kong Taxation Regulations", it is only necessary to assess the taxable profits derived from Hong Kong sources.

The company's subsidiary FFL is established in a tax-free third place, and all foreign companies' income tax is exempted according to local laws and regulations, so there is no burden of income tax for profitmaking enterprises.

The tax rate applicable to KHGEARS LIMITED and Forcefive Limited Taiwan Branch in the Republic of China is 20%.

Subsidiary Zhuhai KwunHing in accordance with the "Enterprise Income Tax Law of the People's Republic of China", the original applicable tax rate is 25%, and the subsidiary Zhuhai KwunHing passed the qualification certification of high-tech enterprises, and the applicable tax rate is 15%.

The tax rate applicable to KHGEARS Vietnam Co., LTD in Vietnam is 20%.

b. Current tax liabilities

Current tax liabilities Income tax payable		December 31	December 31
		2022 $ 10,271	2021 $ 5,140

c. Deferred tax assets and liabilities

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

For the year ended December 31, 2021

Opening Balance Recognized in Profit or Loss Deferred tax assets Deferred income tax impact from government subsidy $ 10,780 ($ 1,490) Opening Balance Recognized in Profit or Loss Deferred tax liabilities Deferred income tax impact from earnings of subsidiaries $ 20,280 ( $ 9,309 ) Others 782 - $ 21,062 ($ 9,309) For the year ended December 31, 2019 Opening Balance Recognized in Profit or Loss Deferred tax liabilities Deferred income tax impact from government subsidy $ 12,337 ($ 1,463) ( Opening Balance Recognized in Profit or Loss Deferred tax liabilities Deferred income tax impact from earnings of subsidiaries $ 20,988 $ - ( Others 788 - ( $ 21,776 $ - (	Exchange difference $ 163 Exchange difference $ 1,897 12 $ 1,909 Exchange difference $ 94) Exchange difference $ 708 ) 6) $ 714)	Closing Balance $ 9,453 Closing Balance $ 12,868 794 $ 13,662 Closing Balance $ 10,780 Closing Balance $ 20,280 782 $ 21,062
Deferred tax liabilities Deferred income tax impact from government subsidy Deferred tax liabilities Deferred income tax impact from earnings of subsidiaries Others

For the year ended December 31, 2019

c. Income tax approvals

The tax returns of KHGEARS LIMITED and Forcefive Limited Taiwan Branch up to 2020 have been approved by the tax authorities.

21. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share	Unit: NT$ Per Share For the Year Ended December 31	Unit: NT$ Per Share For the Year Ended December 31	Unit: NT$ Per Share For the Year Ended December 31
		2022 $ 6.66 $ 6.53	2021 $ 8.18 $ 8.02

The earnings and weighted average number of ordinary shares outstanding in the computation of earnings per share from continuing operations were as follows:

Net Profit for the Year

Earnings used in the computation of basic and diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2022 $ 351,039	2021 $ 393,691

Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares)

Shares Weighted average number of ordinary shares in computation of basic earnings per share Effect of potentially dilutive ordinary shares: Employees’ compensation Restrictions on Employee Rights New Shares Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2022 52,710 547 533 53,790	2021 48,107 400 558 49,065

The Company may settle the compensation of employees in cash or shares; therefore, the Company assumes that the entire amount of the compensation will be settled in shares, and the resulting potential shares are 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. Also, the restriction on new shares of employee rights is assumed to be lifted in the current year.

22. SHARE-BASED PAYMENT ARRANGEMENTS

a. Employee share option plan of the Company

In the shareholders’ meeting on June 23, 2020, the shareholders approved the restricted shares plan for employees with a total amount of 800 thousand shares. 800 thousand shares were issued gratuitously on December 30, 2020 after approved by the FSC. The restrictions on the rights of the employees who acquire the restricted shares but have not met the vesting conditions are as follows:

1) The employees holding these shares have voting rights.
2) The employees holding these shares are not entitled to receive cash, share dividends, and issuance of share for cash.
3) If an employee fails to meet the vesting conditions, the Company has the right to withdraw the new shares allocated to the employee with restricted employee rights without compensation and cancel them.

Relevant information about the restricted shares is as follows:

R e s t r i c t e d s h a r e s Shares outstanding at the beginning Expires in the current year Restrictions lifted this year Shares outstanding at the end	2022 Number of shares (thousand shares) 671 ( 45 ) ( 170) 456	2021
		Number of shares (thousand shares)
		800 ( 20 ) ( 109) 671

The relevant information of the company's restricted shares in 2020 is as follows:

	Share fair value at	Grant Shares
Grant date	grant date	`（`thousand shares`）`	Vesting period
2020.12.30	71.8	800	2-4 years

The compensation cost of new shares with restricted employee rights recognized in 2022 and 2021 were $15,530 and $27,499 thousand, respectively.

b. Cash capital increase to retain employee stock subscriptions

The grant date of the cash capital increase retaining employee stock subscription basis payment transaction is based on the date of recognition of employee stock subscription, and the Company recognizes the compensation cost as the difference between the fair value of the equity instrument and the subscription price on the grant date.

On August 25, 2021, the Board of Directors resolved to increase the capital by cash and reserved 10% of the total number of new shares to be subscribed by employees of the Consolidated Company in accordance with the Company's Articles of Association. 316 thousand shares were subscribed, and $7,268 thousand of compensation cost was reserved for the employees' subscription of the cash capital increase in 2021.

23. GOVERNMENT SUBSIDY INCOME

Zhuhai KwunHing acquired the first installment of the project fund of $26,448 thousand (approximately RMB6,000 thousand) in December 2019 because it is eligible for the Zhuhai Innovation and Entrepreneurship Team Project. The results of the review will be recognized as subsidy income. In addition, in February and April 2021, Zhuhai KwunHing acquired $4,305 thousand (approximately RMB1,000 thousand) and $8,610 thousand (approximately RMB2,000 thousand), respectively, of district-level matching funds, which are direct subsidies to companies that passed the first phase of the Zhuhai Innovation and Entrepreneurship Team Project, and therefore Zhuhai KwunHing has recognized the related subsidy income in fiscal 2021.

In July 2022, Zhuhai KwunHing acquired the first installment of $9,169 thousand (approximately RMB2,080 thousand) of project funds as it complies with the 2020 provincial key area R&D plan of The Zhuhai Municipal Science and Technology Innovation Bureau. However, the review period for the project is from January 1, 2020 to December 31, 2022. If the review is not approved, the amount will be recovered, so the amount is recorded as deferred income and recognized as subsidy income pending the result of subsequent review.

As of December 31, 2022, Zhuhai KwunHing acquired a local government subsidy of $64,308 thousand (approximately RMB14,589 thousand), which was used to subsidize the purchase of equipment, research and development. The amount was recorded as deferred revenue when it was obtained and recognized as subsidy revenue over the useful life of the related machinery and equipment.

As of December 31, 2022 and 2021, Zhuhai KwunHing has unamortized deferred revenue of $72,191 thousand (approximately RMB16,377 thousand) and $71,866 thousand (approximately RMB16,544 thousand).

24. CAPITAL MANAGEMENT

The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Company’s overall management strategy remains unchanged from previous years.

The main management of the Company periodically re-examines the corporate capital structure and balances its overall capital structure by paying dividends, issuing new shares, borrowing or repaying loans.

25. FINANCIAL INSTRUMENTS

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

The Company’s management believes that the carrying amounts of financial assets and financial liabilities which are recognized in the consolidated financial statements approximate their fair values.

b. Categories of financial instruments

Financial assets Financial assets at amortized cost (1) Financial liabilities Financial liabilities at amortized cost (2)	December 31
	2022 2021 $ 1,641,130 $ 1,332,731 746,309 594,084

1) The balances include financial assets at amortized cost, which comprise cash and cash equivalents, financial assets measured at amortized cost, notes receivable, accounts receivable, other receivables and deposits and other financial assets measured at amortized cost.
2) The balances include financial liabilities at amortized cost, which comprise loans, accounts payable, other payables, and deposits received.
c. Financial risk management objectives and policies

The main financial instruments of the Company include accounts receivable, loans, accounts payable, other payables and lease liabilities. Risks related to financial instruments include market risk (including exchange rate risk and interest rate risk), credit risk and liquidity risk. The management of the Company analyzes the risk exposure according to the degree and breadth of the risk, and regularly monitors and manages to ensure timely and take appropriate measures effectively.

1) Market risk

The Group’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below).

a) Foreign currency risk

The Company had foreign currency-denominated sales and purchases, which exposed the Company to foreign currency risk. The carrying amounts of the Company’s foreign currencydenominated monetary assets and monetary liabilities at the end of the reporting period (monetary items containing non-functional currency valuations that have been written off in the consolidated financial statements) are set out in Note 28.

Sensitivity analysis

The Company was mainly exposed to the USD. For a 3% strengthening/weakening of the Company’s functional currency against the USD, there would be a decrease/an increase of $19,866 thousand and $11,876 thousand in pre-tax profit for the years ended December 31, 2022 and 2021, respectively. In management’s opinion, this sensitivity analysis is unrepresentative of the Company’s inherent foreign exchange risk because the exposure at the end of the reporting period did not reflect the exposure during the period.

b) Interest rate risk

The Company was exposed to cash flow interest rate risk because the Company held financial assets at floating rates. The Company’s management personnel monitors the changes in the market rates on a regular basis and adopt appropriate risk control mechanisms in response to the risk caused by changing market rates.

The carrying amount of the Company’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows:

Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities Sensitivity analysis		December 31	December 31
		2022 $ 106,576 $ 19,389 $ 692,049 $ 283,975	2021 $ 940 $ 59,264 $ 443,301 $ -

The sensitivity analysis below was determined based on the Company’s exposure to interest rates for both financial assets and financial liabilities at the end of the reporting period. For floating rate assets/liabilities, the analysis method assumes that the amount of assets/liabilities in circulation on the balance sheet date are all in circulation during the reporting period. A 50-basis point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company’s pre-tax profit for the years ended December 31, 2022 and 2021 would have increased / decreased by $2,040 thousand and $2,217 thousand, respectively.

2) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk is mainly derived from the carrying amount of the financial assets recognized in the consolidated balance sheet.

The Company adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its counterparties are continuously monitored.

The accounts receivable of the Company are mainly concentrated in the five largest customers of the merged company. As of December 31, 2022 and 2021, the total accounts receivable from the aforementioned customers were 83% and 74% respectively. The Company assessed the aforementioned customer's past credit status and account collection situation is good, so it is assessed that there is no significant credit risk.

3) Liquidity risk

The Company manages and maintains sufficient cash to support the group's operations and mitigate the impact of cash flow fluctuations.

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

The analysis of remaining contractual maturity of non-derivative financial liabilities is based on the undiscounted cash flows (including principal and estimated interest) of financial liabilities based on the earliest possible date of repayment of the Company. Therefore, the bank loans that the Company can be required to repay immediately are listed in the earliest period in the table below, regardless of the probability that the bank will immediately exercise the right; other nonderivative financial liabilities due analysis is prepared in accordance with the agreed repayment date.

December 31, 2022

1-3 Months $ - 159,031 702	3 Months~ 1 Years More than 1 year $ - $ - 12,792 24,083 702 5,718 $ 13,494 $ 29,801 3 Months~ 1 Years More than 1 year $ - $ - 42,380 - 803 5,622 $ 43,183 $ 5,622 December 31, 2021 $ 41,544 673,920 $ 715,464 $ 195,480	3 Months~ 1 Years More than 1 year $ - $ - 12,792 24,083 702 5,718 $ 13,494 $ 29,801 3 Months~ 1 Years More than 1 year $ - $ - 42,380 - 803 5,622 $ 43,183 $ 5,622 December 31, 2021 $ 41,544 673,920 $ 715,464 $ 195,480
$ 159,733
1-3 Months $ - 79 -
$ 79		$ 5,622

	$ 41,544 673,920 $ 715,464 $ 195,480

December 31, 2021

b) Amount of financing

26. TRANSACTIONS WITH RELATED PARTIES

The transactions, account balances, income and expenses between the Company and its subsidiaries (which are related parties of the company) had been eliminated on consolidation and are not disclosed in this note. Except as disclosed in other notes, the transactions between the Company and other related parties are disclosed below.

Compensation of key management personnel

Short-term Employee Benefits Share-based benefits		2022 $ 31,090 960 $ 32,050		2021
				$ 35,890 2,652 $ 38,542

The compensation to directors and other key management personnel were determined by the Compensation Committee of Khgears in accordance with the individual performance and the market trends.

27. PLEDGED ASSETS

The following assets have been provided as collateral for applying for loans from banks:

Building Right-of-use asset Time deposits (recorded as financial assets measured at amortized cost)	December 31, 2022 $ 44,923 5,304 1,013 $ 51,240	December 31, 2021	December 31, 2021
			$ 49,732 5,398 940 $ 56,070

The interest rate ranges for time deposits (financial assets carried at amortized cost) at the balance sheet date were as follows:

Time deposits

December31,2022 5.5%	December31,2021
	5.5%

28. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company and the exchange rates between the foreign currencies and the respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

(In Thousands of Dollars, Except for Exchange Rate which is in Dollars)

December 31, 2023

Financial assets Monetary items USD USD USD USD JPY HKD EUR EUR Financial liabilities Monetary items USD USD USD JPY EUR December 31, 2022 Financial assets Monetary items USD JPY	Foreign Currency $ 54,002 3,337 516 2,672 4,555 94 420 196 19,903 15,294 1,276 22,146 107 Foreign Currency $ 48,228 2,438	Exchange Rate 6.9646`（`USD`：`RMB`）` 23,845`（`USD`：`VND`）` 30.7100`（`USD`：`NTD`）` 7.7967`（`USD`：`HKD`）` 0.0554`（`JPY`：`RMB`）` 0.8933`（`HKD`：`RMB`）` 7.4229`（`EUR`：`RMB`）` 32.7201`（`EUR`：`NTD`）` 6.9646`（`USD`：`RMB`）` 23,845`（`USD`：`VND`）` 30.7100`（`USD`：`NTD`）` 0.0554`（`JPY`：`RMB`）` 32.7201`（`EUR`：`NTD`）` Exchange Rate 6.3757`（`USD`：`RMB`）` 0.0554`（`JPY`：`RMB`）`	Functional Currency $ 376,106 79,577,025 15,809 20,834 239 84 3,117 6,393 138,615 364,683,937 39,174 1,160 3,507 Functional Currency $ 307,464 136	NT$
				$ 1,657,874 103,617 15,809 82,061 1,051 368 13,740 6,393 611,015 473,611 39,174 5,111 3,507 NT$
				$ 1,335,627 587

HKD EUR Financial liabilities Monetary items USD USD USD JPY	Foreign Currency 69 442 10,073 12,140 500 37,012	ExchangeRate 0.8170`（`HKD`：`RMB`）` 7.2099`（`EUR`：`RMB`）` 6.3757`（`USD`：`RMB`）` 23,112`（`USD`：`VND`）` 27.8037`（`USD`：`NTD`）` 0.0554`（`JPY`：`RMB`）`	Functional Currency 57 3,196 135,728 281,375,013 13,902 2,051	NT$
				247 13,885 589,599 336,243 13,902 8,910

For the years ended December 31, 2022 and 2021, realized and unrealized net foreign exchange gains (losses) were NT$89,639 thousand and (NT$33,595) thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

29. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions
1) Financing provided to others. (Table 1)
2) Endorsements/guarantees provided. (Table 2)
3) Marketable securities held. (None)
4) Marketable securities acquired or disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital. (Table 3)
5) Acquisitions of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital. (None)
6) Disposals 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)
b. Information on investees (Table 7)
c. 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 year, 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. (Table 4)
- b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the year. (None)
- 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. (None)
- e) The highest balance, the ending balance, the interest rate range, and total current period interest with respect to financing of funds. (None)
- 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. (Table 4, 5 and 6)
d. Information of 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 (Table 9)

30. SEGMENT INFORMATION

a. Operating segments

According to IFRS 8 “Operating Segments”, the Company is a single operating segment that produces and sells gear products, and therefore, there is no need to disclose the information of operating segments.

b. Revenue from major products and services

The revenue analysis of the main products and labor services of the merged company's continuing business units is as follows:

Gears		2022 $2,443,385		2021
				$ 2,736,873

c. Geographical information

The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below:

Asia America Europe	Revenue from External Customers For the Year Ended December 31 2022 2021 $ 2,170,178 $ 2,478,195 93,040 83,968 180,167 174,710 $ 2,443,385 $ 2,736,873	Revenue from External Customers For the Year Ended December 31 2022 2021 $ 2,170,178 $ 2,478,195 93,040 83,968 180,167 174,710 $ 2,443,385 $ 2,736,873		Non-current Assets	Non-current Assets
				December 31
		2022 $ 2,170,178 93,040 180,167 $ 2,443,385		2022 $ 1,204,671 - - $ 1,204,671	2021 $ 1,160,425 - - $ 1,160,425

Non-current assets exclude refundable deposits.

d. Information about major customers

Single customers who contributed 10% or more to the Group’s revenue were as follow:

Customer A	For the Year Ended	For the Year Ended	December 31
		2022 $1,281,073	2021 $1,506,277

TABLE 1

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

Financing provided to others DECEMBER 31, 2022

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

No. (Note 1)	Lender	Borrower	Current items	Related Party	Maximum balance of the current period `（`Note3`）`	Balance end of the period (Note 3`）`	Actual amount borrower `（`Note 3`）`	Interest rate	Fund loan nature	Amount of trading between the two companies	Reasons for short-term financing	Allowance for bad debt	Collateral	Collateral	Individuallending limit`（`Note2`）`	Aggregate lending limit `（`Note2`）`	Note
													Name	Value
0 0 1 1	Khgears International Limited Khgears International Limited FFL FFL	KHGEARS LIMITED KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS LIMITED	Other receivables `－`related party Other receivables `－`related party Other receivables `－`related party Other receivables `－`relatedparty	Yes Yes Yes Yes	$ 122,840 (USD 4,000) 429,940 (USD 14,000) 268,713 (USD 8,750) 30,710 (USD 1,000)	$ 30,710 ( USD 1,000) 429,940 ( USD 14,000) 176,583 ( USD 5,750) 30,710 ( USD 1,000)	$ - (USD -) 184,260 (USD 6,000) 176,583 (USD 5,750) 19,962 (USD 650)	1.5% 1.5% 1.5% 1.5%	short-term financing short-term financing short-term financing short-term financing	$ - $ - - -	Operating turnover Operating turnover Operating turnover Operating turnover	$ - $ - - -	`－` `－` `－` `－`	`－` `－` `－` `－`	$ 520,776 520,776 354,975 354,975	$ 1,041,552 1,041,552 354,975 354,975

Note 1 ： No. 0 represents the parent company; other numbers represent subsidiaries.

Note 2 ： In accordance with the company's procedures for lending funds to others, for companies or firms that have a need for short-term financing, the lending limit for individual clients shall not exceed 20% of the company's most recent net worth as audited or approved by the accountant, and the

total amount of funds lent to others shall not exceed 40% of the company's most recent net worth as audited or approved by the accountant; and the total amount of funds lent to others by FFL shall not exceed 100% of the company's most recent net worth as audited or approved by the accountant, and the aforementioned net worth is calculated based on the net worth of each company as of December 31, 2022.

Note 3 ： Converted according to the exchange rate on December 31, 2022

TABLE 2

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES FOR THE YEAR ENDED DECEMBER 31, 2022 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No.	Endorser/Guarantor	Endorsee/Guarantee	Endorsee/Guarantee	Limits on Endorsement/ GuaranteeGiven on Behalf of EachParty (Note 2)	Maximum Amount Endorsed/ Guaranteed Duringthe Period(Note 3)	Outstanding Endorsement/ Guaranteeatthe End of the Period(Note 3)	Actual Amount Borrowed (Note 3)	Amount Endorsed/ Guaranteed by Collateral	Ratio of Accumulated Endorsement/ Guaranteeto Net Equity inLatest Financial Statements (%)	Aggregate Endorsement/ GuaranteeLimit (Note 2)	Endorsement/ GuaranteeGiven byParent on Behalf of Subsidiaries	Endorsement/ GuaranteeGiven by Subsidiaries onBehalf of Parent	Endorsement/ GuaranteeGiven on Behalf of Companiesin Mainland China
		Name	Relationship
0 0 1	Khgears International Limited Khgears International Limited FFL	FFL KHGEARS LIMITED Khgears International Limited	Subsidiary of the company Subsidiary of the company Khgears International Limited	$ 2,603,881 2,603,881 709,950	$ 583,490 ( USD 19,000 ) 15,000 368,520 ( USD 12,000 )	$ 583,490 ( USD. 19,000) 15,000 368,520 ( USD 12,000)	$ 583,490 ( USD 19,000) 15,000 368,520 ( USD 12,000)	$ - - -	22.41% 0.58% 103.82%	$ 2,603,881 2,603,881 709,950	Y Y N	N N Y	N N N

Note 1: Net value as of December 31, 2022 is used for calculation.

Note 2: The company's endorsement guarantee for a single subsidiary that directly and indirectly holds 100% of the voting shares is limited to no more than 100% of the company's net worth for the period. The endorsement by Forcefive Limited to the company is limited to 200% of the net worth of Forcefive Limited for the period. The maximum endorsement guarantee is calculated using the net value as of December 31, 2022.

Note 3: The amount is converted according to the exchange rate on December 31, 2022.

TABLE 4

KHGEARS INTERNATIONAL LIMITED 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, 2022

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

Buyer	Related Party	Relationship		Transaction Details	Transaction Details		Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Note
			Purchase/ Sale	Amount	% of Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% of Total
Zhuhai KwunHing FFL KHGEARS Vietnam Co., LTD FFL	FFL Zhuhai KwunHing FFL KHGEARS Vietnam Co., LTD	Ultimate parent company Ultimate parent company Ultimate parent company Ultimate parent company	Sale Purchase Sale Purchase	$ 1,173,858 (1,173,858 ) 271,887 (271,887)	56.25% (81.19%) 91.35% (18.81%)	30-120 days 30-120days 30-120 days 30-120days	No significant difference No significant difference No significant difference No significant difference	No significant difference No significant difference No significant difference No significant difference	$ 331,964 ( 331,964 ) 19,480 ( 19,480 )	52.57% ( 94.49% ) 55.71% ( 5.51% )	Note Note Note Note

Note : Intercompany balances and transactions were eliminated upon consolidation.

TABLE 5

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2022

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

Company Name	Related Party	Relationship	Ending Balance of Receivables- related parties (Note1)	Turnover Rate	Overdue	Overdue	Amounts Received in Subsequent Period (Note 2)	Allowance for Impairment Loss
					Amount	Actions Taken
Zhuhai KwunHing Khgears International Limited FFL	FFL KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD	Subsidiary of the parent company Subsidiary of the parent company Subsidiary of the parent company	$ 331,964 187,467 (Accounted for other receivables) 178,966 (Accounted for other receivables)	3.77 - -	$ - - -	`－` `－` `－`	$ 221,763 187,467 178,966	$ - - -

Note 1: There is no allowance of impairment loss after an impairment assessment.

Note 2: Intercompany balances and transactions were eliminated upon consolidation.

TABLE 6

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2022 (In Thousands of New Taiwan Dollars)

No. (Note 1)	Investee Company	Counterparty	Relationship (Note 2)	Transactions Details	Transactions Details
				Financial Statement Account	Amount (Note 4)	Payment Terms	% of Total Sales or Assets (Note 3)
0 0 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2	Khgears International Limited Khgears International Limited Zhuhai KwunHing Zhuhai KwunHing Zhuhai KwunHing Zhuhai KwunHing Zhuhai KwunHing Zhuhai KwunHing Zhuhai KwunHing Zhuhai KwunHing Zhuhai KwunHing FFL FFL FFL FFL FFL FFL FFL	KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD FFL FFL KWOK HING (CHINA) KWOK HING (CHINA) KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD KHGEARS Vietnam Co., LTD Zhuhai KwunHing Zhuhai KwunHing KHGEARS LIMITED	1 1 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3	interest income other receivables sales revenue accounts receivable rental expenses other payables sales revenue purchase accounts receivable other receivables accounts payable purchase interest income other receivables accounts payable sales revenue accounts receivable other receivables	$ 3,277 187,467 1,173,858 331,964 529 264 60,517 32,082 71,030 45,301 15,643 271,887 2,449 178,966 19,480 477 170 19,955	`－` `－` no significant difference no significant difference no significant difference `－` no significant difference no significant difference no significant difference `－` no significant difference no significant difference `－` `－` no significant difference no significant difference no significant difference `－`	- 5% 48% 9% - - 2% 1% 2% 1% - 11% - 5% 1% - - 1%

Note 1: The correlation between the numeral and the entity are stated as follows:

a. The Company: 0.
b. The subsidiaries: 1 onward.

Note 2: The direction of the investment is as follows:

a. The Company to the subsidiaries: 1.
b. The subsidiaries to the Company: 2.
c. Between subsidiaries: 3.
Note 3: The following numerals indicate the manner of ratio calculation of the respective transaction type:
a. Asset or liability: The ratio was calculated based on the ending balance of total consolidated assets;
b. Income or loss: The ratio was calculated based on the midterm accumulated amounts of total consolidated sales revenue.

Note 4: All intercompany transactions have been eliminated on consolidation.

TABLE 7

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2022 (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, 2022	As of December 31, 2022	As of December 31, 2022	Net Income (Loss) of the Investee	Share of Profits (Loss) (Note 2 and 3)	Note
				December 31, 2022	December 31, 2019	Number of Shares	%	Carrying Amount (Note 1 and 3)
Khgears International Limited Khgears International Limited Khgears International Limited Khgears International Limited	KWOK HING (CHINA) FFL KHGEARS LIMITED KHGEARS Vietnam Co., LTD	Hong Kong Samoa Taiwan Vietnam	Investment Sales of gears manufacture and sale of gears manufacture and sale of gears	$ 325,080 32,250 25,000 295,836	$ 325,080 32,250 22,000 147,896	280 2,000 2,500 -	100% 100% 100% 100%	$ 1,910,232 (RMB 433,356) 344,907 (RMB 78,246) 25,089 246,114 (RMB57,568)	$ 246,926 ( HKD 64,887) 211,504 (RMB 47,832) ( 15,682) (15,903) ( VND(12,663,875) )	$ 246,926 (RMB 55,843) 204,996 (RMB 46,360) (15,682) (23,571) (RMB(5,331)	- - - Note 4

Note1: It is converted at the exchange rate on December 31, 2022. Note2: It is converted at the average exchange rate from January 1 to December 31, 2022. Note3: All intercompany transactions have been eliminated on consolidation. Note4: It is a limited company and has no division of shares.

TABLE 8

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2022 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investee Company	Main Businesses and Products	Main Businesses and Products	Paid-in Capital	Paid-in Capital	Method and Medium of Investment (Note 1)	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2019	Investment Flows	Investment Flows	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2022	Net Income (Loss) of Investee	% Ownership of Direct or Indirect Investment	Investment Gain (Loss) (Note 1 and 3)	Carrying Amount as of December 31, 2022 (Note 2 and 3)	Accumulated Repatriation of Investment Income as of December 31, 2022
							Outflow	Inflow
Zhuhai KwunHing	Manufacture and marketing of gears		$ 738,078 (RMB 167,441 )		Investments through a holding company registered in a third region	$ -	$ -	$ -	$ -	$ 266,854 (RMB 60,3505 )	100.00	$ 266,854 (HKD 70,123)	$ 1,925,045 (HKD 488,896 )	$ 176,320 ( RMB 40,000)

Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2022		Investment Amounts Authorized by Investment Commission, MOEA		Upper Limit on the Amount of Investment Stipulated by Investment Commission, MOEA
(Note 4)		(Note 4)		(Note 4)

Note 1: The calculation was based on the average exchange rate from January 1 to December 31, 2022.

Note 2: The calculation was based on the exchange rate as at December 31, 2022.

Note 3: All intercompany transactions have been eliminated on consolidation.

Note 4: The Company is not established in the Republic of China, so it is not applicable.

TABLE 9

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

INFORMATION OF MAJOR SHAREHOLDERS DECEMBER 31, 2022

Name of Major Shareholder	Shares	Shares
	Number of Shares	Percentage of Ownership (%)
1. KWOK HING GLOBAL LIMITED 2. Henry & Helen Company Limited 3. LONG LUCK HOLDINGS LIMITED 4. Jibulu Company Limited 5.YH International Limited	6,637,963 3,972,002 3,670,829 3,343,817 3,101,161	12.44% 7.44% 6.88% 6.26% 5.81%

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 preferred 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.

AI assistant

KHGEARS — Audit Report / Information 2022

52412_rns_2022-11-08_5890e739-f67f-4058-8125-5567b838e83b.pdf

Khgears International Limited (Incorporated in the Cayman Islands) and Subsidiaries

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Key Audit Matters

matters.

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Notice to Readers

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2022 AND 2021

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 (In Thousands of New Taiwan Dollars)

KHGEARS INTERNATIONAL LIMITED AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

d. Basis of consolidation

f. Inventories

1) Financial assets

2) Equity instruments

4) Derivative Instruments

The Group as lessee

n. Government grants

o. Retirement benefits

p. Share-based payment arrangements

q. Taxation

1) Current tax

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

6. CASH AND CASH EQUIVALENTS

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

8. NOTES AND ACCOUNTS RECEIVABLE

December 31, 2022

9. INVENTORIES

10. SUBSIDIARIES

11. PROPERTY, PLANT AND EQUIPMENT

12. INTANGIBLE ASSETS

13. LEASE ARRANGEMENTS

d. Lease liability

14. OTHER CURRENT ASSETS

15. BORROWINGS

16. OTHER LIABILITIES

17. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

18. EQUITY

a. Ordinary shares

b. Capital surplus

19. NET PROFIT (LOSS) FROM CONTINUING OPERATIONS

e. Employee benefits expense

Accrual rate

20. INCOME TAX

For the year ended December 31, 2021

21. EARNINGS PER SHARE

Net Profit for the Year

Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares)

22. SHARE-BASED PAYMENT ARRANGEMENTS

b. Cash capital increase to retain employee stock subscriptions

23. GOVERNMENT SUBSIDY INCOME

24. CAPITAL MANAGEMENT

25. FINANCIAL INSTRUMENTS

1) Market risk

a) Foreign currency risk

Sensitivity analysis

2) Credit risk

3) Liquidity risk

December 31, 2022

26. TRANSACTIONS WITH RELATED PARTIES

27. PLEDGED ASSETS

KHGEARS Audit Report / Information 2022