LHIHC - Audit Report / Information 2018

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

With Independent Auditors ’ Report For the Years Ended December 31, 2018 and 2017

Representation Letter

The entities that are required to be included in the combined financial statements of Lien Hwa Industrial Corporation as of and for the year ended December 31, 2018 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 by the Financial Supervisory Commission, "Consolidated Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Lien Hwa Industrial Corporation and Subsidiaries do not prepare a separate set of combined financial statements.

Hereby declare

Company Name:Lien Hwa Industrial Corporation Chairman: Matthew Feng-Chiang Miau Date: March 28, 2019

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Independent Auditors ’ Report

To the Board of Directors of Lien Hwa Industrial Corporation:

Opinion

We have audited the consolidated financial statements of Lien Hwa Industrial Corporation and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as of December 31, 2018 and 2017, and the consolidated statement of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the year ended December 31, 2018 and 2017 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), Interpretations developed by the International Financial Reporting Interpretations Committee (“IFRIC”) or the former Standing Interpretations Committee (“SIC”) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the 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 Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of 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 of the current period. 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.We have determined the matters described below to be the key audit matters to be communicated in our report.

1. Revenue Recognition

Please refer to Note (4)(r) “Revenue” to the consolidated financial statements for accounting policy of recognition of sales allowance and Note (5)(b) “Significant accounting assumptions and judgments, and major sources of estimation uncertainty” to the consolidated financial statements for uncertainty of accounting estimation and assumptions of sales allowance.

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Description of key audit matter:

The main product of the Group is wheat flour sold indirectly to consumers through distributors, chain stores or food companies. The Group’s sales strategy is to give sales discount to its customers. As a result, revenue recognition is one of the key judgmental areas for our audit, particularly in respect of accuracy of sales allowance recognition.

How the matter was addressed in our audit:

Our principal audit procedures included understanding why sales allowance occurred; evaluating the adequacy of the Group’s recognition policy on sales allowance; assessing whether appropriate recognition policies of sales allowance are consistent with the Group’s policy; and implement random sampling to test the key manual and systems-based controls in the order-to-cash transaction cycle, including reconciliations between sales systems and the general ledger.

2. Valuation of Inventory

Please refer to Note (4)(h) “Inventories” to the consolidated financial statements for accounting policy of valuation of inventory, Note (5)(a) “Significant accounting assumptions and judgments, and major sources of estimation uncertainty” to the consolidated financial statements for uncertainty of accounting estimation and assumptions of valuation of inventory, and Note (6)(g) for explanation of valuation of inventory.

Description of key audit matter:

The Group purchased raw materials from foreigner suppliers, processed them into wheat flour and sold them to customers indirectly by distributors, chain stores, or food companies which processed flour into finished goods. The prices of the products are easily affected by exchange rate and raw material price fluctuations. The Group faces the competition among peers. In addition, awareness of food safety rises these days. The Group’s products bear a risk of price falling or expiring, which may cause the cost of inventories to exceed the net realizable value. As a result, the Group has to set aside allowance for inventory valuation or obsolescence losses. As disclosed in Note (4)(h), inventories are carried at the lower of cost and net realizable value. Valuation of inventory is one of the key judgmental areas for our audit, since the management applies judgment in determining the appropriate values for slow moving or obsolete items.

How the matter was addressed in our audit:

Our principal audit procedures included understanding the Group’s policy of allowance for inventory valuation or obsolescence losses; assessing whether appropriate allowance for inventory valuation or obsolescence losses are consistent with the Group’s policy; and implement random sampling to test the key manual and systems-based controls in the order-to-cash transaction cycle, including reconciliations between sales systems and the general ledger; evaluating the reasonableness of allowance for inventory valuation or obsolescence losses. In addition, we also assessed the adequacy of the Group’s disclosures of its allowance for inventory valuation or obsolescence losses.

Other Matter

Lien Hwa Industrial Corporation has additionally prepared its parent-company-only financial statements as of and for the years ended December 31, 2018 and 2017, on which we have issued an unqualified opinion.

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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 Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs, IASs, IFRIC, SIC, interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

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

Auditor ’ s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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 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.
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 auditor’s 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.

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

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period 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 Liu-Fong Yang and Rou-Lan Kuo.

KPMG

Taipei, Taiwan (Republic of China) March 28, 2019

Notes to Readers

The accompanying consolidated financial statements are intended only to present the consolidated statement of financial position, financial performance and cash flows in accordance with the 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 accepted and applied in the Republic of China.

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

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

December 31, 2018 Amount %	December 31, 2018	December 31, 2018
Amount	Amount	%
$ 707,098 3 237,998 1 559,044 2 77,316 - 63,224 - 941,986 3 33,250 -
	4,585,816 15 3,193,879 11
2,619,916 9	900,000 3 900,000 3 6,363 - 4,636 - 101,874 - 94,671 - 45,181 - 47,597 - 57,534 - 54,599 - 71,934 - 71,934 -
6,102,295 20 - - - - 17,686,174 58 1,806,474 6 2,070,323 7 14,975 - 12,680 - 12,984 - 43,929 - 19,554 -
	1,182,886 3 1,173,437 3
	5,768,702 18 4,367,316 14
	10,521,332 35 9,564,847 32 766,253 3 747,487 3 2,811,777 9 2,514,375 9 141,843 - 141,843 - 8,015,257 27 7,919,360 27 2,296,024 8 4,333,945 15 (2,393) - (2,393) -
27,769,388 91
	24,550,093 82 25,219,464 86 70,509 - 66,451 -
	24,620,602 82 25,285,915 86
$ 30,389,304 100	$ 30,389,304 100 29,653,231 100

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars , except for earnings per common share)

2018	%	2017 (As restated) Amount % 4,484,145 93 316,068 7	2017 (As restated) Amount % 4,484,145 93 316,068 7
Amount		Amount
$ 4,751,388 346,430	93 7	4,484,145 316,068
5,097,818 4,153,687 112,074	100 81 2	4,800,213 3,708,693 111,516	100 77 2
4,265,761	83	3,820,209	79
832,057	17	980,004	21
300,527 192,844 38,513	6 4 1	291,107 173,284 33,590	7 3 1
531,884	11	497,981	11
300,173	6	482,023	10
230,242 (963) (32,289) 1,973,581	5 - (1) 39	237,497 232,972 (29,507) 2,128,775	5 5 (1) 44
2,170,571	43	2,569,737	53
2,470,744 (2,696)	49 -	3,051,760 92,542	63 2
2,473,440	49	2,959,218	61
(2,581) (612,274) (1,045,631) -	- (12) (21) -	(4,027) - (6,128) -	- - - -
(1,660,486)	(33)	(10,155)	-
(28,284) - (68,797) -	(1) - (1) -	(68,280) 623,425 1,131,915 -	(1) 13 23 -
(97,081)	(2)	1,687,060	35
(1,757,567)	(35)	1,676,905	35
$ 715,873	14	4,636,123	96
$ 2,476,292 (2,852)	49 -	2,974,027 (14,809)	61 -
$ 2,473,440	49	2,959,218	61
$ 720,349 (4,476)	14 -	4,651,197 (15,074)	96 -
$ 715,873	14	4,636,123	96
$	2.35		2.83
$	2.35		2.82

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

					Equity attributable	Equity attributable	to owners of	parent	parent
								Other equity interest
									Unrealized
									gains (losses) on
							Exchange		financial assets
	Share capital			Retained earnings			differences on		measured at fair		Unrealized
											gains (losses)
							translation of			value	on		Total equity
						Unappropriated	foreign		through other		available-for-sa		attributable
		Ordinary	Capital	Legal	Special	retained	financial		comprehensive		le financial	Treasury	to owners of	Non-controlli
		shares	surplus	reserve	reserve	earnings	statements		income		assets	shares	parent	ng interests		Total equity
Balance at January 1, 2017	$	9,109,378	753,539	2,298,950	141,843	7,085,698	193,513			-	2,453,107	(2,393)	22,033,635		80,925	22,114,560
Profit for the year ended December 31, 2017		-	-	-	-	2,974,027	-			-	-	-	2,974,027	(14,809)		2,959,218
Other comprehensive income for the year ended December 31,
2017		-	-	-	-	(10,155)	(293,252)			-	1,980,577	-	1,677,170		(265)	1,676,905
Comprehensive income for the year ended December 31, 2017		-	-	-	-	2,963,872	(293,252)			-	1,980,577	-	4,651,197	(15,074)		4,636,123
Appropriation and distribution of retained earnings:
Legal reserve appropriated		-	-	215,425	-	(215,425)	-			-	-	-	-	-		-
Cash dividends of ordinary share		-	-	-	-	(1,457,501)	-			-	-	-	(1,457,501)	-		(1,457,501)
Stock dividends of ordinary share		455,469	-	-	-	(455,469)	-			-	-	-	-	-		-
Changes in equity of associates and joint ventures		-	(6,054)	-	-	(1,813)	-			-	-	-	(7,867)	-		(7,867)
accounted for using equity method
Difference between consideration and carrying amount of		-	2	-	-	(2)	-			-	-	-	-	-		-
subsidiaries acquired or disposed
Changes in non-controlling interests		-	-	-	-	-	-			-	-	-	-		600	600
Balance at December 31, 2017		9,564,847	747,487	2,514,375	141,843	7,919,360	(99,739)			-	4,433,684	(2,393)	25,219,464		66,451	25,285,915
Effects of retrospective application		-	-	-	-	594,990	(129)			4,148,532	(4,433,684)	-	309,709	-		309,709
Equity at beginning of period after adjustments		9,564,847	747,487	2,514,375	141,843	8,514,350	(99,868)			4,148,532	-	(2,393)	25,529,173		66,451	25,595,624
Profit for the year ended December 31, 2018		-	-	-	-	2,476,292	-			-	-	-	2,476,292	(2,852)		2,473,440
Other comprehensive income for the year ended December 31,
2018		-	-	-	-	(3,303)	(95,457)			(1,657,183)	-	-	(1,755,943)	(1,624)		(1,757,567)
Comprehensive income for the year ended December 31, 2018		-	-	-	-	2,472,989	(95,457)			(1,657,183)	-	-	720,349	(4,476)		715,873
Appropriation and distribution of retained earnings:
Legal reserve appropriated		-	-	297,402	-	(297,402)	-			-	-	-	-	-		-
Cash dividends of ordinary share		-	-	-	-	(1,721,672)	-			-	-	-	(1,721,672)	-		(1,721,672)
Stock dividends of ordinary share		956,485	-	-	-	(956,485)	-			-	-	-	-	-		-
Changes in equity of associates and joint ventures		-	18,766	-	-	3,477	-			-	-	-	22,243	-		22,243
accounted for using equity method
Changes in non-controlling interests		-	-	-	-	-	-			-	-	-	-		8,534	8,534
Balance at December 31, 2018	$	10,521,332	766,253	2,811,777	141,843	8,015,257	(195,325)			2,491,349	-	(2,393)	24,550,093		70,509	24,620,602

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

Cash flows from operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation expense Amortization expense Expected credit loss / Provision for bad debt expense Interest expense Interest income Dividend income Share of gain of associates and joint ventures accounted for using equity method Loss on disposal of property, plan and equipment Gain on disposal of investments Impairment loss on non-financial assets Total adjustments to reconcile profit (loss) Changes in operating assets and liabilities: Changes in operating assets: Notes receivable Accounts receivable Other receivable Inventories Other current assets Total changes in operating assets Changes in operating liabilities: Notes payable Accounts payable Construction contracts receivable Other payable Net defined benefit liability Other current liabilities Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash inflow generated from operations Interest received Dividends received Interest paid Income taxes paid Net cash flows from operating activities	2018 $ 2,470,744 207,578 13,998 1,052 32,289 (10,715) (218,475) (1,973,581) 1,203 - -	2017 3,051,760 198,826 10,361 3,835 29,507 (5,438) (231,165) (2,128,775) 11,076 (285,740) 50,607
	(1,946,651)	(2,346,906)
	(37,472) 27,972 49,368 59,641 (10,582)	37,243 (15,446) 3,261 (231,048) (11,051)
	88,927	(217,041)
	- (64,502) 1,727 (4,905) (4,997) 14,406	(123) 32,696 1,178 (57,350) 1,972 (2,496)
	(58,271)	(24,123)
	30,656	(241,164)
	(1,915,995)	(2,588,070)
	554,749 10,715 1,783,413 (31,391) (97,780)	463,690 6,128 1,501,125 (30,206) (133,469)
	2,219,706	1,807,268

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Cont'd)

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

Cash flows from (used in) investing activities: Acquisition of financial assets at fair value through other comprehensive income Proceeds from capital reduction of financial assets at fair value through other comprehensive income Proceeds from disposal of available-for-sale financial assets Acquisition of financial assets at cost Acquisition of investments accounted for using equity method Proceeds from disposal of investments accounted for using equity method Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease (increase) in refundable deposits Acquisition of investment properties Proceeds from disposal of investment properties Increase in other non-current assets Net cash used in investing activities Cash flows from (used in) financing activities: Increase in short-term borrowings Decrease in short-term notes and bills payable Proceeds from long-term borrowings Repayments of long-term borrowings Decrease in guarantee deposits received Cash dividends paid Change in non-controlling interests Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year	2018 $ (1,119,240) 7,939 - - (658,079) - (234,976) 653 (388) (1,757) - (22,237)	2017 - - 343,346 (414,547) (167,283) 21,145 (318,405) 432 2,463 (3,226) 240 (100,076)
	(2,028,085)	(635,911)
	2,278,464 (800,000) 900,000 (900,000) 3,100 (1,721,672) -	610,871 (300,000) 900,000 (900,000) (17,827) (1,457,501) 600
	(240,108)	(1,163,857)
	5,592 (42,895) 749,993	(32,940) (25,440) 775,433
	$ 707,098	749,993

See accompanying notes to consolidated financial statements.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars, Unless Otherwise Specified)

(1) Overview

Lien Hwa Industrial Corporation (the “Company”) was organized in 1955 and merged China Physics and Chemistry industry Co., Ltd on December 1, 2002. The Company’s registered office address is located at 6F., No. 44, Sec. 1, Chengde Rd., Datong Dist., Taipei City, Taiwan (R.O.C.). The major business activities of the Company are the manufacture and selling of flour and leasing, please refer to Note(14).

(2) Approval date and procedures of the consolidated financial statements:

The consolidated financial statements were approved for issuance by the Board of Directors on March 28, 2019.

(3) New standards, amendments and interpretations adopted:

(a) The impact of the International Financial Reporting Standards ( “IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018.

New, Revised or Amended Standards and Interpretations Amendment to IFRS 2“Clarifications of Classification and Measurement of Share-based Payment Transactions” Amendments to IFRS 4“Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” IFRS 9“Financial Instruments” IFRS 15“Revenue from Contracts with Customers” Amendment to IAS 7“Statement of Cash Flows -Disclosure Initiative” Amendment to IAS 12“Income Taxes- Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40“Transfers of Investment Property” Annual Improvements to IFRS Standards 2014–2016 Cycle: Amendments to IFRS 12 Amendments to IFRS 1 and Amendments to IAS 28 IFRIC 22“Foreign Currency Transactions and Advance Consideration”	Effective date per IASB
	January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2017 January 1, 2018 January 1, 2018

New, Revised or Amended Standards and Interpretations
Amendment to IFRS 2“Clarifications of Classification and Measurement of
Share-based Payment Transactions”
Amendments to IFRS 4“Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts”
IFRS 9“Financial Instruments”
IFRS 15“Revenue from Contracts with Customers”
Amendment to IAS 7“Statement of Cash Flows -Disclosure Initiative”
Amendment to IAS 12“Income Taxes- Recognition of Deferred Tax Assets for
Unrealized Losses”
Amendments to IAS 40“Transfers of Investment Property”
Annual Improvements to IFRS Standards 2014–2016 Cycle:
Amendments to IFRS 12
Amendments to IFRS 1 and Amendments to IAS 28
IFRIC 22“Foreign Currency Transactions and Advance Consideration”

Effective date
per IASB

January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2017
January 1, 2018
January 1, 2018

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows:

(i) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces the existing revenue recognition guidance, including IAS 18 “Revenue” and IAS 11 “Construction Contracts”.

The Group applied this standard retrospectively to each prior reporting period on its consolidated financial statements.

The following are the nature and impacts on changing of accounting policies:

1) Sales of goods

For the sale of A products, revenue is currently recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. For some made-to-order paper product contracts, the customer controls all of the work in progress as the products are being manufactured.

For certain contracts that permit a customer to return an item, revenue is currently recognized when a reasonable estimate of the returns can be made, provided that all other criteria for revenue recognition are met. Otherwise, a revenue recognition is deferred until the return period lapses or a reasonable estimate of returns can be made. Under IFRS 15, revenue will be recognized for these contracts to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. As a consequence, for those contracts for which the Group is unable to make a reasonable estimate of return, revenue is expected to be recognized sooner than when the return period lapses or a reasonable estimate can be made. A refund liability and an asset for recovery will be recognized for these contracts and presented separately in the statement of financial position.

2) Contract Liability

Contract revenue currently includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. When a claim or variation is recognized, the measure of contract progress or contract price is revised and the cumulative contract position is reassessed at each reporting date. Under IFRS 15, claims and variations will be included in the contract accounting when they are approved.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Impacts on financial statements

’ The following tables summarize the impacts of adopting IFRS15 on the Group s consolidated financial statements:

consolidated financial statements:
Impacted line items on the consolidated income statement Operating revenues Selling expenses Impact on Profit	For the year ended December 31, 2017 As previously reported Impact of changes in accounting polices As restated $ 4,529,233 (45,088) 4,484,145 (336,195) 45,088 (291,107) $ -
	As previously reported Impact of changes in accounting polices
	$ 4,529,233 (45,088) (336,195) 45,088 $ -
		$ -

(ii) IFRS 9 “Financial Instruments”

IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” which contains classification and measurement of financial instruments, impairment and hedge accounting.

As a result of the adoption of IFRS 9, the Group adopted the consequential amendments to IAS 1 “Presentation of Financial Statements” which requires impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Group’s approach was to include the impairment of trade receivables in administrative expenses. Additionally, the Group adopted the consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018 but generally have not been applied to comparative information.

The detail of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below:

1) Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see Note (4)(g).

(Continued)

~13~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The adoption of IFRS 9 did not have any a significant impact on its accounting policies on financial liabilities.

2) Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with the ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than they are under IAS 39 – please see Note (4)(g).

3) Transition

The adoption of IFRS 9 have been applied retrospectively, except as described below,

‧Comparative periods have been restated only for retrospective application of the cost of hedging approach for forward points. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as on January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.
‧The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.
－ The determination of the business model within which a financial asset is held.
－ The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.
－ The designation of certain investments in equity instruments not held for trading as at FVOCI.
‧If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Group assumed that the credit risk on its asset will not increase significantly since its initial recognition.

(Continued)

~14~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

4) Classification of financial assets on the date of initial application of IFRS 9

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets as of January 1, 2018.

Financial Assets Cash and equivalents Equity instruments Trade and other receivables Other financial assets (Guarantee deposits paid)	IAS39		IFRS9	Carrying Amount 749,993 5,572,184 855,053 12,593
	Measurement categories	Carrying Amount	Measurement categories
	Loans and receivables Available-for-sale (note 2) Loans and receivables (note 1) Loans and receivables	749,993 Amortized cost 5,409,670 FVOCI 855,053 Amortized cost 12,593 Amortized cost

Note1: Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at amortized cost.
Note2: These equity securities (including financial assets measured at cost) represent investments that the Group intends to hold for the long term for strategic purposes. As permitted by IFRS 9, the Group has designated these investments at the date of initial application as measured at FVOCI. Accordingly, an increase of $162,514 thousand in those assets recognized, and a decrease of $65,893 thousand and $129 thousand in the reserves and impact of changes in exchange rate, as well as the increase of $228,536 thousand in retained earnings were recognized on January 1, 2018.

The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 upon transition to IFRS 9 on 1 January, 2018.

2017.12.31 IAS 39 Carrying Amount	Reclassifications	Reclassifications	Remeasurements	Remeasurements	2018.1.1 2018.1.1 IFRS 9 Carrying Amount Retained earnings	2018.1.1 2018.1.1 IFRS 9 Carrying Amount Retained earnings	2018.1.1 Other equity - (66,022)
$ 5,409,670 -	(5,409,670) 5,409,670		- 162,514		- 228,536
$ 5,409,670	-		162,514		5,572,184 228,536		(66,022)
	106.12.31 IAS 39 Carrying Amount	Reme	asurements	107.1.1 107.1.1 IFRS 9 Carrying Amount Retained earnings		107.1.1 Other equity (219,259)
	$ 17,660,986		147,195	17,808,181 366,454

As affiliates accounted for using equity method have retroactively adopted IFRS 9, the Group recognized an increase of $147,195 thousand in investments accounted for using equity method, as well as a decrease of $219,259 thousand in the reserves, and an increase of $366,454 thousand in retained earnings on January 1, 2018.

(Continued)

~15~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iii) Amendments to IAS 7 “Disclosure Initiative”

The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes.

To satisfy the new disclosure requirements, the Group present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities as Note (6)(z).

(b) The impact of IFRS endorsed by FSC but not yet effective

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018:

New, Revised or Amended Standards and Interpretations IFRS 16“Leases” IFRIC 23“Uncertainty over Income Tax Treatments” Amendments to IFRS 9“Prepayment features with negative compensation” Amendments to IAS 19“Plan Amendment, Curtailment or Settlement” Amendments to IAS 28“Long-term interests in associates and joint ventures” Annual Improvements to IFRS Standards 2015–2017 Cycle	Effective date per IASB
	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019

New, Revised or Amended Standards and Interpretations
IFRS 16“Leases”
IFRIC 23“Uncertainty over Income Tax Treatments”
Amendments to IFRS 9“Prepayment features with negative compensation”
Amendments to IAS 19“Plan Amendment, Curtailment or Settlement”
Amendments to IAS 28“Long-term interests in associates and joint ventures”
Annual Improvements to IFRS Standards 2015–2017 Cycle

Effective date
per IASB

January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019

(i) IFRS 16“ Leases”

IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of low-value items. The lessor accounting remains similar to the current standard – i.e. the lessors will continue to classify leases as finance or operating leases.

(Continued)

~16~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

1) Determining whether an arrangement contains a lease

On transition to IFRS 16, the Group can choose to apply either of the following:

‧ IFRS 16 definition of a lease to all its contracts; or
‧ a practical expedient that does not need any reassessment whether a contract is, or contains, a lease.

The Group plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

2) Transition

As a lessee, the Group can apply the standard using either of the following:

‧ retrospective approach; or
‧ modified retrospective approach with optional practical expedients.

The lessee applies the election consistently to all of its leases.

On January 1, 2019, the Group plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information.

When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group chooses to elect the following practical expedients:

‧ apply a single discount rate to a portfolio of leases with similar characteristics.
‧ adjust the right-of-use assets, based on the amount reflected in IAS 37 onerous contract provision, immediately before the date of initial application, as an alternative to an impairment review.
‧ apply the exemption not to recognize the right-of-use assets and liabilities to leases with lease term that ends within 12 months of the date of initial application.
‧ exclude the initial direct costs from measuring the right-of-use assets at the date of initial application.
‧ use hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

(Continued)

~17~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

3) So far, the most significant impact identified is that the Group will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and transportation equipment. The Group estimated that the right-of-use assets and the lease liabilities to increase by $112,231 thousand and $111,694 thousand respectively on January 1, 2019. No significant impact is expected for the Group’s finance leases. Besides, The Group does not expect the adoption of IFRS 16 to have any impact on its ability to comply with the revised maximum leverage threshold loan covenant. Also, the Group is not required to make any adjustments for leases where the Group is the intermediate lessor in a sub-lease.
(ii) IFRIC 23 Uncertainty over Income Tax Treatments

In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates, an entity shall assume that a taxation authority will examine the amounts it has the right to examine and have a full knowledge on all related information when making those examinations.

If an entity concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates consistently with the tax treatment used or planned to be used in its income tax filings. Otherwise, an entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty.

So far, the Group estimated the application of the amendments would not have material impact.

(iii) IAS 19 “Plan Amendment, Curtailment or Settlement”

On amendment, curtailment or settlement of a defined benefit plan, a company now uses updated actuarial assumptions to determine its current service cost and net interest for the remainder of the reporting period after the change to the plan

The effect of the asset ceiling is disregarded when calculating past service cost and the gain or loss on settlement. Any change in that effect is recognized in other comprehensive income.

So far, the Group estimated the application of the influence of amendments over actuarial assumptions is recognized in current service cost and net interest.

The actual impacts of adopting the standards may change depending on the economic conditions and events which may occur in the future.

(Continued)

~18~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (IASB), but have yet to be endorsed by the FSC:

New, Revised or Amended Standards and Interpretations Amendments to IFRS 3“Definition of a Business” Amendments to IFRS 10 and IAS 28“Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture” IFRS 17“Insurance Contracts” Amendments to IAS 1 and IAS 8“Definition of Material”	Effective date per IASB
	January 1, 2020 Effective date to be determined by IASB January 1, 2021 January 1, 2020

The Group assessed that the above IFRSs may not be relevant to the Group.

(4) Summary of significant accounting policies:

The accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language consolidated financial statements, the Chinese version shall prevail.

The significant accounting policies presented in the consolidated financial statements are summarized below. Except for those specifically indicated, the following accounting policies were applied consistently throughout the periods presented in the consolidated financial statements.

(a) Statement of compliance

These consolidated annual financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to the Regulations) and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafter referred to as IFRSs endorsed by the FSC).

(b) Basis of preparation
(i) Basis of measurement

Except for the following significant accounts, the consolidated financial statements have been prepared on a historical cost basis:

1) Financial instruments measured at fair value through profit or loss are measured at fair value;
2) The defined benefit liability (asset) is recognized as the fair value of the plan assets less the present value of the defined benefit obligation.

(Continued)

~19~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Functional and presentation currency

The functional currency of each Group entity is determined based on the primary economic environment in which the entity operates. The consolidated financial statements are presented in New Taiwan dollars, which is the Company ’ s functional currency. All financial information presented in New Taiwan dollars has been rounded to the nearest thousand.

(c) Basis of consolidation
(i) Principles of preparation of the consolidated financial statements

The consolidated financial statements comprise the Company and subsidiaries. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its control over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra group balances and transactions, and any unrealized income and expenses arising from intra group transactions, are eliminated in preparing the consolidated financial statements. Income (losses) applicable to non controlling interests in a subsidiary are allocated to the non controlling interests even if doing so causes the non controlling interests to have a deficit balance.

Accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group.

Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any differences between the Group’s share of net assets before and after the change, and any considerations received or paid, are adjusted to or against the Group reserves

(ii) Subsidiaries included in the consolidated financial statements

Name of Investor Name of Subsidiary Primary Activity	Shareholding December 31, 2018 December 31, 2017 Notes
The Company Hua Cheng Investment Co., Ltd. Investment " Lien Rui Investment Corporation Investment " Fortune Dragon Holding Inc. Investment Hua Cheng Investment Co., Ltd. Jian Foods Incorporation Wholesale and retail sale of vegetable and fruits " Camel Ring International Company Wholesale and retail sale of Agricultural Products Lien Rui Investment Corporation Jian Foods Incorporation Jian Foods Incorporation	100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.003% 0.004% It is regarded as Subsidiary since Hua Cheng Investment Co., Ltd. and Lien Rui Investment Corporation hold 83.93% of its shares in total. 0.33% 0.33% It is regarded as Subsidiary since Hua Cheng Investment Co., Ltd. and Lien Rui Investment Corporation hold its shares up to 70% in total. 83.93% 80.99%

Name of Investor
Name of Subsidiary
Primary
Activity

Shareholding
December 31,
2018
December 31,
2017
Notes

The Company
Hua Cheng
Investment Co., Ltd.
Investment
"
Lien Rui Investment
Corporation
Investment
"
Fortune Dragon
Holding Inc.
Investment
Hua Cheng
Investment Co.,
Ltd.
Jian Foods
Incorporation
Wholesale and
retail sale of
vegetable and
fruits
"
Camel Ring
International
Company
Wholesale and
retail sale of
Agricultural
Products
Lien Rui
Investment
Corporation
Jian Foods
Incorporation
Jian Foods
Incorporation

100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
0.003%
0.004% It is regarded as Subsidiary since
Hua Cheng Investment Co., Ltd.
and
Lien
Rui
Investment
Corporation hold 83.93% of its
shares in total.
0.33%
0.33% It is regarded as Subsidiary since
Hua Cheng Investment Co., Ltd.
and
Lien
Rui
Investment
Corporation hold its shares up to
70% in total.
83.93%
80.99%

(Continued)

~20~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Name of Investor Name of Subsidiary Primary Activity	Shareholding December 31, 2018 December 31, 2017 Notes
Lien Rui Investment Corporation Oggi Restaurant Group Co., Ltd. Restaurants 〞 Camel Ring International Company Wholesale and retail sale of Agricultural Products Fortune Dragon Holding Inc. Pacific Gateway Holdings Inc. Investment 〞 Hifood Co.,Ltd. Investment 〞 Sun Lead International Limited Investment 〞 Lien Hwa Industrial HK Limited Investment Pacific Gateway Holdings Inc. Yantai Taihwa Foods Industrial Co., Ltd. Flour milling and selling Hifood Co., Ltd. Hifood (Shanghai) Co., Ltd. Leasing	100.00% 100.00% 69.67% 69.67% 100.00% 100.00% 65.81% 65.81% 100.00% 100.00% 100.00% - % Lien Hwa Industrial HK Limited established on January 3, 2018. 100.00% 100.00% 100.00% 100.00%

Name of Investor
Name of Subsidiary
Primary
Activity

Shareholding
December 31,
2018
December 31,
2017
Notes

Lien Rui
Investment
Corporation
Oggi Restaurant
Group Co., Ltd.
Restaurants
〞
Camel Ring
International
Company
Wholesale and
retail sale of
Agricultural
Products
Fortune Dragon
Holding Inc.
Pacific Gateway
Holdings Inc.
Investment
〞
Hifood Co.,Ltd.
Investment
〞
Sun Lead
International
Limited
Investment
〞
Lien Hwa Industrial
HK Limited
Investment
Pacific Gateway
Holdings Inc.
Yantai Taihwa Foods
Industrial Co., Ltd.
Flour milling and
selling
Hifood Co., Ltd. Hifood (Shanghai)
Co., Ltd.
Leasing

100.00%
100.00%
69.67%
69.67%
100.00%
100.00%
65.81%
65.81%
100.00%
100.00%
100.00%
-
% Lien Hwa Industrial HK Limited
established on January 3, 2018.
100.00%
100.00%
100.00%
100.00%

(iii) Subsidiaries excluded from the consolidated financial statements

Name of Investor Name of Subsidiary Primary Activity	Shareholding December 31, 2018 December 31, 2017 Notes
Fortune Dragon Holding Inc. Pink Sky Investments Inc. Investment Pink Sky Investments Inc. Yantai Tailiang Foods Industrial Co., Ltd. Peanuts product manufacturing and selling	100.00% 100.00% The subsidiary is excluded from the consolidated financial statements since it is going to be dissolved, and the amount is not material. 60.00% 60.00% The subsidiary is excluded from the consolidated financial statements since it is going to be dissolved, and the amount is not material.

(d) Foreign currency

(i) Foreign currency transaction

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period.

(Continued)

~21~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for those differences relating to the following, which are recognized in other comprehensive income:

1) Fair value through other comprehensive income (Available for sale )equity investment;
2) A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or
3) Qualifying cash flow hedges to the extent that the hedge is effective.
(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the reporting currency at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated at the average exchange rate. Translation differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve in equity.

When a foreign operation is disposed of such that control, significant influence, or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gains and losses arising from such a monetary item that are considered to form part of the net investment in the foreign operation are recognized in other comprehensive income.

(e) Classification of current and non-current assets and liabilities

An asset is classified as current under one of the following criteria, and all other assets are classified as non current.

(i) It is expected to be realized, or intended to be sold or consumed, in the normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) It is expected to be realized within twelve months after the reporting period; or

(Continued)

~22~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iv) The asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

A liability is classified as current under one of the following criteria, and all other liabilities are classified as non current.

An entity shall classify a liability as current when:

(i) It is expected to be settled in the normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) It is due to be settled within twelve months after the reporting period; or
(iv) It does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by issuing equity instruments do not affect its classification.
(f) Cash and cash equivalents

Cash and cash equivalents comprise cash, cash in bank, and short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Time deposits which meet the above definition and are held for the purpose of meeting short term cash commitments rather than for investment or other purposes should be recognized as cash equivalents. If they do not meet the above definition, time deposits should be classified as other current and/or non current financial assets.

(g) Financial instruments
(i) Financial assets (policy applicable from January 1, 2018)

Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL).

The Group shall reclassify all affected financial assets only when it changes its business model for managing its financial assets.

1) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL：

‧ it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

(Continued)

~23~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

‧ its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

2)
Fair value through other comprehensive income (FVOCI )

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis.

A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss.

Dividend income derived from equity investments is recognized on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the ex dividend date. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

3) Impairment of financial assets

The Group recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, amortized costs, notes and accounts receivable, other receivable, leases receivable, guarantee deposit paid and other financial assets), debt investments measured at FVOCI, accounts receivable measured at FVOCI and contract assets.

Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

(Continued)

~24~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group’ s historical experience and informed credit assessment as well as forward-looking information.

The Group assesses the expected credit loss rate based on the local industrial environment of the operating department, respectively with Taiwan and the mainland China region.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 120 days and 180 days past due.

The Group considers a financial asset to be in default when the financial asset is more than180 days and 365 days past due.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is credit-impaired includes the following observable data：

‧ significant financial difficulty of the borrower or issuer；
‧ a breach of contract such as a default or being more than 180 days and 365 days past due；
‧ the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider；
‧ it is probable that the borrower will enter bankruptcy or other financial reorganization；or
‧ the disappearance of an active market for a security because of financial difficulties.

(Continued)

~25~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Group recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss.

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

4) Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets.

(ii) Financial assets (policy applicable before January 1, 2018)

Financial assets are classified into the following categories: available-for-sale financial assets, and loans and receivables.

1) Available for sale financial assets

Available for sale financial assets are non derivative financial assets that are designated as available for sale or are not classified in any of the other categories of financial assets. Available for sale financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on available for sale debt instruments, are recognized in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, and included in the statement of comprehensive income. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at amortized cost, and are included in financial assets measured at cost.

Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the ex- dividend date. Such dividend income is included in the statement of comprehensive income.

Interest income from investment in bond security is recognized in profit or loss, under other income of non-operating income and expenses.

(Continued)

~26~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

2) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables other than insignificant interest on short term receivables are measured at amortized cost using the effective interest method, less any impairment losses. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

Interest income is recognized in profit or loss, under non-operating income and expenses.

3) Impairment of financial assets

Except for financial assets at fair value through profit or loss, financial assets are assessed for impairment at each reporting date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is considered objective evidence of impairment.

All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than the those suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.

An impairment loss in respect of a financial asset measured at cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

(Continued)

~27~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

An impairment loss in respect of a financial asset is deducted from the carrying amount except for accounts receivable, for which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Changes in the amount of the allowance account are recognized in profit or loss.

Impairment losses on available for sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss.

If, in a subsequent period, the amount of impairment loss on a financial asset measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss to the extent that the carrying value of the asset does not exceed its amortized cost before the impairment was recognized at the reversal date.

Impairment losses recognized on an available for sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available for sale equity security is recognized in other comprehensive income, and accumulated in other equity. If, in a subsequent period, the fair value of an impaired available for sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

Impairment losses and recoveries of accounts receivable are recognized in profit or loss; impairment losses and recoveries of other financial assets are recognized in profit or loss under non-operating income and expense.

4) Derecognition of financial assets

Financial assets are derecognized when the contractual rights of the cash inflow from the assets are terminated, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on available-for-sale financial assets” in profit or loss is included in .

The Group separates the part that continues to be recognized and the part that is derecognized based on the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part derecognized and the sum of the consideration received for the part derecognized, and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income, shall be recognized in profit or loss.

(Continued)

~28~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iii) Financial liabilities and equity instruments
1) Classification of debt or equity

Debt or equity instruments issued by the Group are classified as financial liabilities or equity in accordance with the substance of the contractual agreement.

An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued are recognized as the amount of consideration received, less the direct cost of issuing.

Interest related to the financial liability is recognized in profit or loss, and included in non-operating income and expenses.

On conversion, the financial liability is reclassified to equity, and no gain or loss is recognized.

2) Other financial liabilities

Financial liabilities not classified as held for trading or designated as at fair value through profit or loss are measured at fair value, plus any directly attributable transaction costs at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method. Interest expense not capitalized as capital cost is recognized in profit or loss, and is included in operating costs.

3) Derecognition of financial liabilities

The Group derecognizes a financial liability when its contractual obligation has been discharged or cancelled, or has expired. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, and is included in non-operating income or expenses.

4) Offsetting of financial assets and liabilities

The Group presents financial assets and liabilities on a net basis when the Group has the legally enforceable right to offset, and intends to settle such financial assets and liabilities on a net basis, or to realize the assets and settle the liabilities simultaneously.

(h) Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is calculated using the weighted average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

(Continued)

~29~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(i) Investment in associates

Associates are those entities in which the Group has significant influence, but not control or joint control, over their financial and operating policies.

Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill arising from the acquisition less any accumulated impairment losses.

The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of associates, after adjustments to align their accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. The Group recognizes any changes, proportionately with the shareholding ratio under capital surplus, when an associate’s equity changes due to reasons other than profit and loss or comprehensive income, which did not result in changes in actual controlling power.

Unrealized profits resulting from transactions between the Group and an associate are eliminated to the extent of the Group’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired.

When the Group’s share of losses exceeds its interests in an associate, the carrying amount of the investment, including any long term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent the Group has an obligation or has made payments on behalf of the associate.

(j)

Join Ventures

A joint arrangement is an arrangement in which two or more parties have joint control. The IFRS classifies joint arrangements into two types — joint operations and joint ventures, which have the following characteristics: (a) the participants are bound by a contractual arrangement; and (b) the contractual arrangement gives two or more of those parties joint control of the arrangement. IFRS 11 “Joint Arrangements” defines joint control as the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities (i.e. activities that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. A joint venturer shall recognize its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 “Investments in Associates and Joint Ventures”, unless the entity is exempted from applying the equity method as specified in that Standard.

(Continued)

~30~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

When assessing the classification of a joint arrangement, the Group shall consider the structure and legal form of the arrangement, the terms in the contractual arrangement, and other facts and circumstances. The Group had previously reviewed the contractual structure of the joint arrangement, and has now decided to reclassify the investments in “jointly controlled entities” to “joint ventures”. Although the investments have been reclassified, they are still recorded under the equity method. Thus, there is no effect on the recognized assets, liabilities, and other comprehensive income.

(k) Investment properties

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services, or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at cost less accumulated depreciation and accumulated impairment losses. Depreciation expense is calculated based on the depreciation method, useful life, and residual value which are the same as those adopted for property, plant and equipment.

Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of raw materials and direct labor, any other costs directly attributable to bringing the investment property to a working condition for its intended use, and capitalized borrowing costs.

When the use of an investment property changes such that it is reclassified as property, plant and equipment, its book value at the date of reclassification becomes its cost for subsequent accounting.

(l) Property, plant, and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self constructed asset comprises material, labor, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and any borrowing cost that is eligible for capitalization. Cost also includes transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. The cost of software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately unless the useful life and depreciation method of that significant part are the same as those of another significant part of that same item.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and it shall be recognized in profit or loss, under net other income and expenses.

(Continued)

~31~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Subsequent cost

Subsequent expenditure is capitalized only when it is probable that future economic benefits associated with the expenditure will flow to the Group. The carrying amount of those parts of fixed assets that are replaced is derecognized. Ongoing repairs and maintenance are expensed as incurred.

(iii) Depreciation

Depreciation is calculated on the cost of an asset less its residual value and is recognized in profit or loss on a straight line basis over the estimated useful lives of each component of an item of property, plant and equipment. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately.

Leased assets are depreciated by the straight line method during the period of expected use, consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life.

Land has an unlimited useful life and therefore is not depreciated.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

1)	Buildings	2~55 years
2)	Machinery and equipment	1~20 years
3)	Transportation equipment	2~6 years
4)	Office equipment	3~20 years
5)	Miscellaneous equipment	2~20 years

The depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from previous estimates, the changes are accounted for as changes in accounting estimates.

(iv) Reclassification to investment property

A property is reclassified to investment property at its carrying amount when the use of the property changes from owner occupied to investment property.

(Continued)

~32~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(m) Leases
(i) Leases

Lease income from an operating lease is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset, and recognized as an expense over the lease term on the same basis as the lease income. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straight-line basis so that the lease income received is reduced accordingly.

Contingent rents are recognized as income in the period when the lease adjustments are confirmed.

(ii) Lessee

’ The Group classified its leases as operating leases and are not recognized in the Group s balance sheets.

Payments made under operating leases (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straight-line basis so that the lease income received is reduced accordingly.

(n) Intangible assets
(i) Goodwill
- 1) Initial recognition

Goodwill arising from the acquisition of subsidiaries is recognized as intangible assets. For the measurement of initial recognition of goodwill, please refer to Note (4)(w).

2) Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses. Impairment loss on equity investment in investees accounted for under the equity method is not allocated to any asset, including goodwill that forms part of the carrying amount of such investment.

(o) Impairment of non-financial assets

The carrying amounts of the Group’s non financial assets, other than assets arising from inventories, deferred tax assets, and assets arising from employee benefits, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. If it is not possible to determine the recoverable amount (the higher of its fair value less costs of disposal and its value in use) for the individual asset, then the Group will have to determine the recoverable amount for the asset’s cash generating unit (CGU).

(Continued)

~33~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The recoverable amount for an individual asset or a CGU is the higher of its fair value less costs to sell and its value in use. When evaluating value in use, the pre-tax discount rate is used to estimate the future cash flows. The discount rate should reflect the evaluation of specific risk resulting from the impact of the current market on the time value of money and on the asset or CGU.

Notwithstanding whether indicators exist, recoverability of goodwill and intangible assets with indefinite useful lives or those not yet in use are tested at least annually. Impairment loss is recognized if the recoverable amount is less than the carrying amount.

If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount; and that reduction will be accounted as an impairment loss, which shall be recognized immediately in profit or loss.

An assessment is made at the end of each reporting period as to whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amount of that asset is estimated.

An impairment loss recognized in prior periods for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized.

(p) Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

(q) Treasury stocks

Repurchased shares are recognized under treasury shares (a contra-equity account) based on their repurchase price (including all directly accountable costs), net of tax. Gains on disposal of treasury shares should be recognized under “capital reserve — treasury share transactions”. Losses on disposal of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. The carrying amount of treasury shares should be calculated using the weighted average of different types of repurchase.

During the cancellation of treasury shares, “capital reserve — share premiums” and “share capital” should be debited proportionately. Gains on cancellation of treasury shares should be recognized under existing capital reserves arising from similar types of treasury shares; losses on cancellation of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings.

(Continued)

~34~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(r) Revenue

(i) Revenue from contracts with customers (policy applicable from January 1, 2018)

Revenue is measured based on the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer. The Group recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Group’s main types of revenue are explained below.

1) Sale of goods–flour and other products

The Group mills grain into flour and sell them in chain stores. The Group recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to ’ sell the products, and there is no unfulfilled obligation that could affect the customer s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.

The Group often offers volume discounts to its customers based on specific sales amounts. Revenue from these sales is recognized based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate the discounts, using the expected value method, and revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur.

The Group sells products. In accordance to the contract, the Group has to pay sales-based commission and slotting fee to its customer. The consideration payable to its customer is not in exchange for a distinct good or service that the customer transfers to the Group, therefore, is accounted for as a reduction of the transaction price and revenue.

A receivable is recognized when the goods are delivered as this is the point in time that the Group has a right to an amount of consideration that is unconditional.

2) Financing components

The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the group does not adjust any of the transaction prices for the time value of money.

(Continued)

~35~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Revenue (policy applicable before January 1, 2018)
1) Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts, and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that a discount will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.

The timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement. For international shipments, transfer occurs upon loading the goods onto the relevant carrier at the client ’s designated location. For domestic shipments, transfer occurs upon shipping the goods to customer’s warehouse and the acceptance is completed.

2) Lease income

Lease income from an operating lease is recognized on a straight-line basis over the lease term. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straight-line basis so that the lease income received is reduced accordingly. Lease income from sublease is recognized in rental revenue under operating revenue.

(s) Employee benefits

(i) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

(ii) Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, based on the discounted present value of the said defined benefit obligation. Any unrecognized past service costs and the fair value of any plan assets are deducted for purposes of determining the Group’s net defined benefit obligation. The discount rate used in calculating the present value is the market yield at the reporting date of government bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.

(Continued)

~36~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The calculation is performed annually by a qualified actuary using the projected unit credit method. If the calculation results in a benefit to the Group, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In calculating the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realizable during the life of the plan, or on settlement of the plan liabilities.

If the benefits of a plan are improved, the pension cost incurred from the portion of the increased benefit relating to past service by employees, is recognized immediately in profit or loss.

Remeasurements of the net defined benefit liability (asset), which comprise (1) actuarial gains and losses, (2) the return on plan assets (excluding interest), and (3) the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group can reclassify the amounts recognized in other comprehensive income to retained earnings or other equity. If the amounts recognized in other comprehensive income are transferred to other equity, they shall not be reclassified to profit or loss or recognized in retained earnings in a subsequent period.

Gains or losses on the curtailment or settlement of a defined benefit plan are recognized when the curtailment or settlement occurs. The gain or loss on curtailment arises from any change in the fair value of plan assets, any change in the present value of the defined benefit obligation, and any related actuarial gains or losses and past service cost which had not previously been recognized.

(iii) Other long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.

(iv) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(Continued)

~37~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(t) Income Tax

Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes are recognized in profit or loss.

Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years.

(i) Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes are recognized except for the following: Assets and liabilities that are initially recognized but are not related to the business combination and have no effect on net income or taxable gains (losses) arising from the transaction.
(ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse.
(iii) Initial recognition of goodwill.

Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realized or the liability is settled, which are normally the tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities may be offset against each other if the following criteria are met:

(i) the entity has the legal right to settle tax assets and liabilities on a net basis; and
(ii) the taxing of deferred tax assets and liabilities fulfills one of the below scenarios:
1) levied by the same taxing authority; or
2) levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched.

A deferred tax asset is recognized for the carry forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences are also revaluated every year on the financial reporting date, and adjusted based on the probability that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized.

(Continued)

~38~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(u) Business combination

Goodwill is measured at the consideration transferred less the amounts of the identifiable assets acquired and liabilities assumed (generally at fair value) at the acquisition date. If the amount of net assets acquired and liabilities assumed exceeds the acquisition price, the Group reassesses whether it has correctly identified all of the assets acquired and liabilities assumed, and recognizes a gain for the excess.

All transaction costs relating to a business combination are recognized immediately as expenses when incurred, except for the issuance of debt or equity instruments.

The Group shall measure any non-controlling interests in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets, if the non controlling interests are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation. Other non controlling interests are evaluated by their fair value or by another basis permitted by the IFRSs endorsed by the FSC.

(v) Earnings per share

The Group discloses the Company’s basic and diluted earnings per share attributable to ordinary shareholders of the Company. Basic earnings per share is calculated as the profit attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares outstanding. Diluted earnings per share is calculated as the profit attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares outstanding after adjustment for the effects of all potentially dilutive ordinary shares, such as employee bonus and employee compensation.

(w) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group). Operating results of the operating segment are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Each operating segment consists of standalone financial information.

(5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty:

The preparation of the consolidated financial statements in conformity with the Regulations and the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates.

The management continues to monitor the accounting estimates and assumptions. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the following period.

(Continued)

~39~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is as follows:

(a) Valuation of inventory

As inventories are measured at the lower of cost and net realizable value, the Group evaluate the amount of normal spoilage, obsolete items and deduct the cost of inventories to net realizable value. The valuation of inventories is on the basis of demand of products at the certain time in the future, and therefore there may be a significant change due to rapid change in industry. For the information on estimated value of inventories, please refer to Note (6)(g).

(b) Revenue recognition

The Group records a refund liability using the expected value or the most likely amount for estimated future returns and other allowances in the same period the related revenue is recorded. Refund liability for estimated sales returns and other allowances is generally made and adjusted based on historical experience, market and economic conditions, and any other known factors that would significantly affect the allowance. The adequacy of estimations is reviewed periodically. The fierce market competition and evolution of technology could result in significant adjustments to the estimation made.

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

December 31, 2018 December 31, 2017 Cash $ 3,192 3,476 Demand deposits 389,967 443,266 Time deposits 313,939 303,251 Cash and cash equivalents in the consolidated statement of cash flows $ 707,098 749,993 Please refer to Note (6)(w) for the exchange rate risk, interest rate risk, and sensitivity analysis of the financial assets and liabilities of the Group. Financial assets at fair value through other comprehensive income December 31, 2018 Equity investments at fair value through other comprehensive income Listed common shares of domestic Companies $ 4,066,020 Listed common shares of overseas Companies 157,855 Unlisted common shares of domestic Companies 690,263 Unlisted common shares of overseas Companies 1,188,157 Total $ 6,102,295	December 31, 2018 $ 3,192 389,967 313,939	December 31, 2018 $ 3,192 389,967 313,939	December 31, 2017 3,476 443,266 303,251
	$ 707,098		749,993
		$ 6,102,295

(b) Financial assets at fair value through other comprehensive income

(Continued)

~40~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

On January 1, 2018, the Group designated the investments shown above as equity securities as at fair value through other comprehensive income because these equity securities represent those investments the Listed common shares of overseas Companies the Group intends to hold for long-term for strategic purposes. These investments were classified as available-for-sale financial assets on December 31, 2017.

No strategic investments were disposed as of December 31, 2018, and there were no transfers of any cumulative gain or loss within equity relating to these investments.

For credit risk (including the impairment of debt investments) and market risk, please refer to Note (6)(w).

As of December 31, 2018, none of the financial assets mentioned above had been pledged as collateral for long-term borrowings.

Listed common shares of domestic Companies Listed common shares of overseas Companies Total	December 31, 2017 $ 4,145,748 116,326
	$ 4,262,074

These investments were classified as financial assets at fair value through other comprehensive income on December 31, 2018. For details, please refer to Note (6)(b).

For credit risk (including the impairment of debt investments) and market risk, please refer to Note (6)(w).

As of December 31, 2018, none of the financial assets mentioned above had been pledged as collateral for long-term borrowings.

(d) Financial assets at cost

Financial assets at cost
Unlisted common shares of domestic Companies Unlisted common shares of overseas Companies Total	December 31, 2017 $ 594,268 553,328
	$ 1,147,596

These investments were measured by cost less impairment loss, and classified as financial assets at fair value through other comprehensive income on December 31, 2018. For details, please refer to Note (6)(b).

For the information on credit risk and market risk, please refer to Note (6)(w).

As of December 31, 2018, none of the financial assets mentioned above had been pledged as collateral for long-term borrowings.

(Continued)

~41~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(e) Notes receivable and accounts receivable, and overdue receivable

Note receivables Trade receivables Overdue Receivable Less: Loss allowance	December 31, 2018 $ 237,998 571,865 - (12,821)	December 31, 2017 200,526 601,412 70 (12,026)
	$ 797,042	789,982

The Group applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables on December 31, 2018. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information, including macroeconomic and relevant industry information. The loss allowance provision in Taiwan as of December 31, 2018 was determined as follows:

Current 1~30 days past due 31~60 days past due More than 181 days past due	Gross carrying amount Weighted average loss rate	Gross carrying amount Weighted average loss rate	Loss allowance provision 142 89 4 596
	$ 720,034 0.00%~0.03% 11,677 0.76% 145 2.66% 596 100.00% $ 732,452
			831

The loss allowance provision in China as of December 31, 2018 was determined as follows:

Current 1~30 days past due 31~60 days past due 61~90 days past due 91~120 days past due 151~365 days past due More than 366 days past due	Gross carrying amount Weighted average loss rate	Gross carrying amount Weighted average loss rate	Loss allowance provision 237 164 146 275 491 76 10,601
	$ 42,168 0.00%~0.50% 10,850 1.51% 5,178 2.82% 4,509 6.10% 3,969 12.38% 136 16.33%~83.33% 10,601 100% $ 77,411
			11,990

(Continued)

~42~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

As of December 31, 2017, the Group applies the incurred loss model to consider the loss allowance provision of notes and trade receivable, and the aging analysis of notes and trade receivable, which were past due but not impaired, was as follows:

1~60 days past due 61~180 days past due 181~360 days past due	December 31, 2017 $ 40,721 880 23
	$ 41,624

The movement in the allowance for notes and trade receivable was as follows:

December 31, 2018	December 31, 2017 Individually assessed impairment Collectively assessed impairment 265 8,251 401 3,434 - (274) - (51)	December 31, 2017 Individually assessed impairment Collectively assessed impairment 265 8,251 401 3,434 - (274) - (51)
	Individually assessed impairment
$ 12,026 -	265 401 - -
12,026 1,052 (10) (247)
$ 12,821	666	11,360

The aforementioned notes and accounts receivable were not pledged.

For the information on credit risk, please refer to Note (6)(w).

(f) Other receivables

Other receivables Less: Loss allowance	December 31, 2018 $ 77,316 -	December 31, 2017 65,071 -
	$ 77,316	65,071

There is no default related to other receivable mentioned above, and therefore the expected credit loss rate is zero.

(Continued)

~43~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(g) Inventories

Raw materials and consumables Work in process Finished goods	December 31, 2018 $ 689,113 59,202 193,671	December 31, 2017 782,385 58,017 167,553
	$ 941,986	1,007,955

For the years ended December 31, 2018 and 2017, the components of cost of goods sold were as follows:

Cost of goods sold Cost of leasing Unamortized fixed manufacturing cost Loss from (Gains from recovery of) inventory price loss, scrapping loss and obsolescence loss Revenue from scrap sales	For the years ended December 31 2018 2017 $ 4,141,119 3,698,542 112,074 111,516 14,748 4,360 (2,080) 6,015 (100) (224)	For the years ended December 31 2018 2017 $ 4,141,119 3,698,542 112,074 111,516 14,748 4,360 (2,080) 6,015 (100) (224)
	2018 $ 4,141,119 112,074 14,748 (2,080) (100)
	$ 4,265,761	3,820,209

As of December 31, 2018 and 2017, these inventories were not pledged.

(h) Investments accounted for using equity method

The investment under equity method was as follows:

Associates	December 31, 2018 $ 17,686,174	December 31, 2017 17,660,986

(i) Associates

Affiliates which are material to the Group consisted of the followings：

Name of Affiliates	Main operating location/ Registered Nature of relationship with the Group Country of the Company	Proportion of shareholding and voting rights	Proportion of shareholding and voting rights
		December 31, 2018 32.75% 50.00% 37.39%	December 31, 2017 32.03% 50.00% 37.43%
UPC Technology Corp. and subsidiaries Linde Lienhwa Industrial Gases Co., Ltd. and subsidiaries Mitac Computer Co., Ltd. and subsidiaries	Affiliates under equity method R.O.C Affiliates under equity method R.O.C Affiliates under equity method R.O.C

(Continued)

~44~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The fair value of affiliates listed on the Stock Exchange (over the counter) which are material to the Group are as follows:

UPC Technology Corp. and subsidiaries	December 31, 2018 $ 4,839,445	December 31, 2017 7,022,817

The following consolidated financial information of significant affiliates has been adjusted according to individually prepared IFRS financial statements of these affiliates:

1) UPC Technology Corp. and subsidiaries

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to owners of parent Operating revenue Profit (loss) from continuing operations Other comprehensive income Total comprehensive income Comprehensive income (loss) attributable to owner of parent Share of net assets of affiliates as of January 1 Effect of movement in retrospective application to new standards in this period Comprehensive income attributable to the Group Purchase Dividends received from affiliates Share of net assets of affiliates as of December 31	December 31, 2018 $ 20,662,769 25,107,080 (10,529,011) (15,466,775)	December 31, 2017 20,601,738 24,408,241 (15,075,247) (8,670,826)
	$ 19,774,063	21,263,906
	$ 19,774,063	21,263,906
	For the years ended December 31 2018 2017 $ 61,258,498 50,600,125
	2018 $ 61,258,498
	$ 753,610 (1,495,817)	2,342,413 1,107,331
	$ (742,207)	3,449,744
	$ (742,207)	3,449,744
	For the years ended December 31 2018 2017 $ 6,719,600 5,689,299 49,084 - (241,600) 1,076,293 243,870 167,283 (386,105) (213,275)
	2018 $ 6,719,600 49,084 (241,600) 243,870 (386,105)
	$ 6,384,849	6,719,600

(Continued)

~45~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

2) Linde Lienhwa Industrial Gases Co., Ltd. and subsidiaries

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to non-controlling interests Net assets attributable to owners of parent Operating revenue Profit (loss) from continuing operations Other comprehensive income Total comprehensive income Comprehensive income (loss) attributable to non-controlling interests Comprehensive income (loss) attributable to owner of parent Share of net assets of affiliates as of January 1 Comprehensive income attributable to the Group Dividends received from affiliates Share of net assets of affiliates as of December 31	December 31, 2018 $ 15,192,416 26,828,612 (23,280,212) (4,366,301)	December 31, 2017 12,272,862 22,289,703 (19,656,003) (971,526)
	$ 14,374,515	13,935,036
	$ 3,417,333	3,629,275
	$ 10,957,182	10,305,761
	For the years ended December 31 2018 2017 $ 23,548,186 21,804,338
	2018 $ 23,548,186
	$ 3,539,980 43,470	3,201,315 (118,168)
	$ 3,583,450	3,083,147
	$ 696,030	707,407
	$ 2,887,420	2,375,740
	For the years ended December 31 2018 2017 $ 5,152,881 4,965,011 1,426,160 1,187,870 (1,118,000) (1,000,000)
	2018 $ 5,152,881 1,426,160 (1,118,000)
	$ 5,461,041	5,152,881

(Continued)

~46~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

3) Mitac Computer Co., Ltd. and subsidiaries

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to non-controlling interests Net assets attributable to owners of parent Operating revenue Profit (loss) from continuing operations Other comprehensive income Total comprehensive income Comprehensive income (loss) attributable to non-controlling interests Comprehensive income (loss) attributable to owner of parent Share of net assets of affiliates as of January 1 Effect of movement in retrospective application to new standards in this period Comprehensive income attributable to the Group Dividends received from affiliates Share of net assets of affiliates as of December 31	December 31, 2018 $ 1,016,599 12,976,999 (548,322) (82,513)	December 31, 2017 1,003,672 13,790,735 (441,388) (52,759)
	$ 13,362,763	14,300,260
	$ 5,235	13,417
	$ 13,357,528	14,286,843
	For the years ended December 31 2018 2017 $ 846,295 660,023
	2018 $ 846,295
	$ 646,098 (1,702,133)	389,619 2,236,307
	$ (1,056,035)	2,625,926
	$ (8,182)	(4,896)
	$ (1,047,853)	2,630,822
	For the years ended December 31 2018 2017 $ 5,331,862 4,383,108 98,110 - (383,764) 1,001,330 (56,520) (52,576)
	2018 $ 5,331,862 98,110 (383,764) (56,520)
	$ 4,989,688	5,331,862

(Continued)

~47~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The Group’s financial information for investments accounted for using the equity method that are individually insignificant was as follows:

Carrying amount of individually insignificant associates’equity Attributable to the Group: Profit (loss) from continuing operations Other comprehensive (loss) income Comprehensive income	December 31, 2018 $ 850,596	December 31, 2017 456,643
	For the years ended December 31 2018 2017 $ 409 (18,584) (17,068) (212)
	2018 $ 409 (17,068)
	$ (16,659)	(18,796)

(ii) Pledged

As of December 31, 2018 and 2017, the investments accounted for using equity method were not pledged as collateral.

(i) Acquisition of non-controlling interests

The Group acquired share capital of Jain Foods Incorporation with NTD50,000 thousand in August, 2018, which increased equity ratio from 80.99% to 83.93%. The change in equity by NTD7,691 thousand was recorded as deduction of capital surplus and retained earnings.

(j)

Property, Plant, and Equipment

The cost, depreciation, and impairment of the property, plant and equipment of the Group for the years ended December 31, 2018 and 2017 were as follows:

Cost : Balance at January 1, 2018 Additions Transfer from construction work in progress Transfer to machinery equipment Disposals Effect of movements in exchange rates Balance at December 31, 2018	Land	Building and construction Machinery and equipment Transportation equipment	Office equipment	Miscellaneous equipment Construction inprogress	Total 3,850,281 250,934 212,423 (266,357) (15,251) (24,635)
	$ 320,959 - - - - -	1,510,461 1,156,743 37,138 31,412 12,214 1,106 157,135 31,383 - - - - - (4,295) (1,790) (11,608) (11,084) (286)	35,335 3,078 10,270 - (292) (505)	479,403 310,242 36,470 166,654 12,319 1,316 - (266,357) (8,874) - (903) (249)
	$ 320,959	1,687,400 1,184,961 36,168	47,886	518,415 211,606	4,007,395

(Continued)

~48~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Land	Building and construction Machinery and equipment Transportation equipment	Office equipment	Miscellaneous equipment Construction inprogress	Total
$ 320,959 - - - - -	1,502,613 1,061,092 33,417 19,227 10,544 3,796 12,300 101,676 - - (15) - (19,043) (10,657) - (4,636) (5,897) (75)	26,847 7,963 587 (46) - (16)	426,247 101,225 42,862 235,961 34,549 - (205) (27,647) (23,980) - (70) 703	3,472,400 320,353 149,112 (27,913) (53,680) (9,991)
$ 320,959	1,510,461 1,156,743 37,138	35,335	479,403 310,242	3,850,281
$ - - - -	784,757 933,122 28,647 41,279 49,129 3,546 - (3,150) (1,433) (4,189) (10,312) (204)	24,535 3,715 (292) (175)	321,186 - 39,828 - (8,696) - (372) -	2,092,247 137,497 (13,571) (15,252)
$ -	821,847 968,789 30,556	27,783	351,946 -	2,200,921
$ - - - - - -	767,511 906,240 23,516 37,404 42,763 3,596 - - 1,611 - - - (17,732) (10,320) - (2,426) (5,561) (76)	20,648 2,865 1,079 - - (57)	244,155 - 43,669 - 47,829 - (117) - (14,166) - (184) -	1,962,070 130,297 50,519 (117) (42,218) (8,304)
$ -	784,757 933,122 28,647	24,535	321,186 -	2,092,247
$ 320,959	865,553 216,172 5,612	20,103	166,469 211,606	1,806,474
$ 320,959	735,102 154,852 9,901	6,199	182,092 101,225	1,510,330
$ 320,959	725,704 223,621 8,491	10,800	158,217 310,242	1,758,034

(i) Impairment loss and its subsequent reversal

An indicator of impairment existed in part of CGU (the production line that will produce the product) belonging to the flour business due to lack of capacity utilization of property, plant and equipment. As a result, the Company recognized impairment loss in 2004. The accumulated impairment amounted to $253,934 thousand and $254,193 thousand for the years ended December 31, 2018 and 2017, respectively.

Based on the assessment in 2017, Jian Foods Incorporation, one of the Company’s subsidiary, recognized impairment loss due to the carrying amount of the property, plant and equipment was higher than its recoverable amount. The accumulated impairment amounted to $49,633 thousand and $50,519 thousand for the years ended December 31, 2018 and 2017, respectively. There was no objective evidence of decrease in impairment loss, so no initially recognized impairment was reversed.

(Continued)

~49~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Pledged

As of December 31, 2018 and 2017, the property, plant and equipment of the Group had been pledged as collateral for long-term borrowings; please refer to Note (8).

(k) Investment property

Cost: Balance at January 1, 2018 Acquisitions Reclassification from property, plant and equipment Disposal Effect of changes in foreign exchange rates Balance at December 31, 2018 Balance at January 1, 2017 Acquisitions Reclassification from property, plant and equipment Disposal Effect of changes in foreign exchange rates Balance at December 31, 2017 Accumulated depreciation and impairment losses: Balance at January 1, 2018 Depreciation for the year Disposal Effect of changes in foreign exchange rates Balance at December 31, 2018 Balance at January 1, 2017 Depreciation for the year Impairment for the year Reclassification from property, plant and equipment Disposal Effect of changes in foreign exchange rates Balance at December 31, 2017	Land and improvements		Buildings Total 2,619,299 3,092,540 1,757 1,757 69,679 69,679 (751) (751) (8,378) (8,378)
	$ 473,241 - - - -
	$ 473,241		2,681,606 3,154,847
	$ 469,241 - 4,000 - -		2,618,484 3,087,725 3,226 3,226 2,455 6,455 (935) (935) (3,931) (3,931)
	$ 473,241		2,619,299 3,092,540
	$ - - - -		1,017,577 1,017,577 70,081 70,081 (751) (751) (2,383) (2,383)
	$ -		1,084,524 1,084,524
	$ - - - - - -		950,707 950,707 68,529 68,529 88 88 117 117 (828) (828) (1,036) (1,036)
	$ -		1,017,577 1,017,577

(Continued)

~50~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Land and improvements	Buildings Total 1,597,082 2,070,323	Buildings Total 1,597,082 2,070,323
$ 473,241
$ 469,241	1,667,777 2,137,018
$ 473,241	1,601,722 2,074,963
		$ 11,286,772
		$ 10,940,127

Investment property consists of a number of leased commercial buildings. The lease period changes in different region, from 1 to 20 years. The subsequent rent period will be discussed with the lessee and contingent rent is not collected. For relevant information, please refer to Note (6)(o).

The fair value of investment properties (as measured or disclosed in the financial statements) was based on a valuation by a qualified internal appraiser who has recent valuation experience in the location and category of the investment property being valued. Fair value was measured using the market approach. The yield method under the income approach would have been used if there was no active market for the investment properties. For the year ended, the range of yields applied to the net annual rentals used to determine the fair value of properties was from 1.44%~5.00%.

As of December 31, 2018 and 2017, the investment property of the Group had been pledged as collateral for long-term borrowings; please refer to Note (8).

(l) Commercial paper payable

Commercial paper payable Unamortized discount Unused short-term credit lines Range of interest rates	December 31, 2018 $ 500,000 (100) $ 499,900	December 31, 2018 $ 500,000 (100) $ 499,900	December 31, 2017 1,300,000 (291) 1,299,709
	$ 1,430,000		630,000
		0.49%~0.76%	0.46%~0.74%

The borrowing period is less than one year. For the interest expense, please refer to Note (6)(v).

(Continued)

~51~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(m) Short-term borrowings

December 31, 2018 December 31, 2017 $ 3,750,000 1,471,488 $ 2,955,388 4,275,472 0.88%~1.00% 0.90%~2.57% December 31, 2018 December 31, 2017 $ 900,000 900,000 - - $ 900,000 900,000 $ 800,000 1,350,000 0.99%~1.04% 1.03%~1.05% 2020.1.11~2020.11.30 2019.10.20~2019.11.30	December 31, 2018 December 31, 2017 $ 3,750,000 1,471,488 $ 2,955,388 4,275,472 0.88%~1.00% 0.90%~2.57% December 31, 2018 December 31, 2017 $ 900,000 900,000 - - $ 900,000 900,000 $ 800,000 1,350,000 0.99%~1.04% 1.03%~1.05% 2020.1.11~2020.11.30 2019.10.20~2019.11.30	December 31, 2018 $ 3,750,000	December 31, 2017 1,471,488
		$ 2,955,388	4,275,472
$ 900,000
$ 800,000
	0.99%~1.04% 2020.1.11~2020.11.30

(o) Operating leases
(i) Leases entered into as lessee

Non-cancellable operating lease payables were as follows:

Within 1 year Between 1 and 5 years More than 5 year	December 31, 2018 $ 34,587 68,150 4,466	December 31, 2017 33,686 72,408 10,818
	$ 107,203	116,912

The Group leases a number of under operating leases. The leases typically run for a period of 1 。 to 20 years. Lease payments are adjusted to current land value or rent rate.

For the years ended , expenses recognized in profit or loss in respect of operating leases were $36,830 thousand and $37,083 thousand, respectively; contingent rent recognized as an expense amounted to $1,082 thousand and $527 thousand, respectively.

(Continued)

~52~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Leases as lessor

The Group lease a number of investment property under operating lease, please refer to Note (6)(h). The future minimum lease payments under non-cancellable leases are as follows:

Within 1 year Between 1 and 5 years More than 5 year	December 31, 2018 $ 347,384 822,641 262,323	December 31, 2017 341,031 687,984 297,648
	$ 1,432,348	1,326,663

The rental revenues incurred by investment property were $346,430 thousand and $316,068 thousand for the years ended , respectively.

(p) Employee benefits

(i) Defined benefit plans

Reconciliation of defined benefit obligations at present value and plan asset at fair value were as follows:

Present value of the defined benefit obligations Fair value of plan assets Net defined benefit liabilities	December 31, 2018 $ 101,746 (56,565)	December 31, 2017 101,363 (53,766)
	$ 45,181	47,597

The Group makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pensions for employees upon retirement. Plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average monthly salary for the six months prior to retirement.

1) Composition of plan assets

The Group allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Bureau of Labor Funds, Ministry of Labor. With regard to the utilization of the funds, minimum earnings shall be no less than the earnings attainable from two-year time deposits with interest rates offered by local banks.

The Group’s Bank of Taiwan labor pension reserve account balance amounted to $56,565 thousand as of December 31, 2018. For information on the utilization of the labor pension fund assets, including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

(Continued)

~53~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

2) Movements in present value of the defined benefit obligations

The movement in present value of the defined benefit obligations for the Group were as follows:

Defined benefit obligations at January 1 Current service costs and interest cost (income) Remeasurements loss (gain): －demographic assumptions －financial assumptions －experience adjustment Benefits paid Defined benefit obligations at December 31	For the years ended December 31 2018 2017 $ 101,363 101,299 3,567 3,597 772 2,965 1,100 - 2,428 925 (7,484) (7,423)	For the years ended December 31 2018 2017 $ 101,363 101,299 3,567 3,597 772 2,965 1,100 - 2,428 925 (7,484) (7,423)
	2018 $ 101,363 3,567 772 1,100 2,428 (7,484)
	$ 101,746	101,363

3) Movements of defined benefit plan assets

The movements in the present value of the defined benefit plan assets for the Group were as follows:

Fair value of plan assets at January 1 Interest cost (income) Remeasurement loss (gain): －Return on plan assets excluding interest income Contributions paid by the employer Benefits paid Fair value of plan assets at December 31	For the years ended December 31 2018 2017 $ 53,766 59,701 610 677 1,719 (137) 7,954 948 (7,484) (7,423)	For the years ended December 31 2018 2017 $ 53,766 59,701 610 677 1,719 (137) 7,954 948 (7,484) (7,423)
	2018 $ 53,766 610 1,719 7,954 (7,484)
	$ 56,565	53,766

4) Expenses recognized in profit or loss

The expenses recognized in profit or loss for the Group were as follows:

Current service costs Net interest of net liabilities (assets) for defined benefit obligations	For the years ended December 31 2018 2017 $ 2,427 2,458 530 462	For the years ended December 31 2018 2017 $ 2,427 2,458 530 462
	2018 $ 2,427 530
	$ 2,957	2,920

(Continued)

~54~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Operating cost Selling expenses Administration expenses Research and development expenses	For the years ended December 31 2018 2017 $ 1,536 1,541 404 298 587 713 430 368	For the years ended December 31 2018 2017 $ 1,536 1,541 404 298 587 713 430 368
	2018 $ 1,536 404 587 430
	$ 2,957	2,920

In addition, the Group paid employee pensions, recognized in administrative expenses $3,718 thousand.

5) Remeasurement of net defined benefit liability (asset) recognized in other comprehensive income

The Group’s remeasurement of the net defined benefit liability (asset) recognized in other comprehensive income for the years ended , was as follows:

Accumulated amount at January 1 Recognized during the period Accumulated amount at December 31	2018 $ (19,442) (2,581)	2017 (15,415) (4,027)
	$ (22,023)	(19,442)

6) Movements in present value of the defined benefit obligations

The principal actuarial assumptions at the reporting date were as follows:

Discount rate Future salary increases rate	December 31, 2018 1.00% 2.25%	December 31, 2017 1.13% 2.25%

The expected allocation payment to be made by the Group to the defined benefit plans for the one-year period after the reporting date is 858 thousand.

The weighted average lifetime of the defined benefits plans is 9.2 years.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

7) Sensitivity analysis

If the actuarial assumptions had changed, the impact on the present value of the defined benefit obligation shall be as follows:

December 31, 2018 Discount rate Future salary increasing rate December 31, 2017 Discount rate Future salary increasing rate	Influences of defined benefit obligations	Influences of defined benefit obligations
	Increase 0.25% $ (2,193) 2,211 $ (2,198) 2,217	Decreased 0.25%
		2,278 (2,140) 2,281 (2,147)

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown above. The method used in the sensitivity analysis is consistent with the calculation of pension liabilities in the balance sheets.

There is no change in the method and assumptions used in the preparation of sensitivity analysis for 2018 and 2017.

(ii) Defined contribution plans

The Group allocates 6% of each employee’s monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under these defined contribution plans, the Company allocates a fixed amount to the Bureau of Labor Insurance without additional legal or constructive obligation.

The pension costs incurred from the contributions to the Bureau of the Labor Insurance amounted to $10,399 thousand and $9,910 thousand for the years ended, respectively.

The pension expenses contributed by the foreign entities following the local regulations amounted to $5,057 thousand and $3,872 thousand for the years ended, respectively.

(q) Income taxes

(i) In accordance to amendment to income tax law enacted by the president of R.O.C. on February 7, 2018, the income tax is adjusted from 17% to 20% for the years through 2018. The Group have considered effect of movement in tax rate to deferred income tax when estimating the effective tax rates.

(Continued)

~56~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Income tax

The components of income tax for the years ended December 31, 2018 and 2017 were as follows:

Current tax expense Current period Adjustment for prior periods Deferred tax expense Adjustment in tax rate Origination and reversal of temporary differences Income tax expense from continuing operations	2018 $ 58 420	2017 93,933 180
	478	94,113
	(402) (2,772)	- (1,571)
	(3,174)	(1,571)
	$ (2,696)	92,542

The amount of income tax recognized in other comprehensive income for the years ended December 31, 2018 and 2017 was as follows:

Profit excluding income tax Income tax using the Company’s domestic tax rate Effect of tax rates in foreign jurisdiction Adjustment in tax rate Tax-exempt income Adjustment in non-temporary differences Recognition of previously unrecognized tax losses Under(over) provision in prior periods Undistributed earnings additional tax Current-year losses for which no deferred tax asset was recognized Total	For the years ended December 31 2018 2017 $ 2,470,744 3,051,760	For the years ended December 31 2018 2017 $ 2,470,744 3,051,760
	2018 $ 2,470,744
	$ 494,149 (5,258) (402) (355,163) (98,902) (85,485) 420 - 47,945	518,799 (2,558) - (390,625) (62,783) 1,488 180 162 27,879
	$ (2,696)	92,542

(iii) Deferred tax assets and liabilities

1) Unrecognized deferred tax assets

The R.O.C. Income Tax Act allows net losses, as assessed by the tax authorities, to offset taxable income over a period of ten years for local tax reporting purposes.

(Continued)

~57~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilize the benefits therefrom.

As of, the amount of deductible temporary difference the have not been recognized as deferred tax asset in balance sheet were $263,116 thousand and $284,161 thousand, respectively.

As of December 31, 2018, the information of the Group’s unused tax losses for which no deferred tax assets were recognized are as follows:

Subsidiaries located outside Taiwan

Yearof loss 2014 2015 2016 2017 2018	Unutilized business loss 61,340 63,033 69,897 65,002 132,259	Expiry date
		2019 2020 2021 2022 2023

2018 132,259 2023	2018 132,259 2023	2018 132,259 2023
Subsidiaries located in Taiwan
Yearof loss 2012 2013 2014 2015 2016 2017 2018	Unutilized business loss 6,501 10,772 10,953 44,832 66,427 75,761 59,840	Expiry date
		2022 2023 2024 2025 2026 2027 2028

2) Recognized deferred tax assets and liabilities

Changes in the amount of deferred tax assets and liabilities for the years ended December 31, 2018 and 2017 were as follows:

Deferred Tax Liabilities: Balance at January 1, 2018 Recognized in profit or loss Foreign currency translation differences for foreign operations Balance at December 31, 2018	Investment accounted for using equity methods Unrealized gains on exchange Land value increment tax	Total (94,671) (7,227) 24
	$ - (1,128) (93,543) (5,872) (1,355) - - 24 -
	$ (5,872) (2,459) (93,543)	(101,874)

(Continued)

~58~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Investment accounted for using equity methods Unrealized gains on exchange Land value increment tax	Investment accounted for using equity methods Unrealized gains on exchange Land value increment tax	Total (94,213) (443) (15)
$ - (670) (93,543) - (443) - - (15) -
$ - (1,128) (93,543)		(94,671)

	$ 12,680
	$ 265 2,014
	$ 2,279

(iv) Assessment of tax

The Company’s tax returns for the years through 2016 were assessed by the Taipei National Tax Administration while tax returns for the years through 2015 is still being assessed by the tax authority.

(r) Capital and other equity

As of, the authorized capital of the Company both consisted of 1,280,000 thousand shares and both issued worth $12,800,000 thousand, with par value of $10 per share, and its outstanding capital consisted of 1,052,133 thousand shares and 956,485 thousand shares respectively. All issued shares were paid upon issuance.

Reconciliation of shares outstanding for 2018 and 2017 was as follows:

Balance at January 1 Issued for earnings Balance at December 31		Ordinary Shares 2018 2017 956,485 910,938 95,648 45,547	Ordinary Shares 2018 2017 956,485 910,938 95,648 45,547
		2018 956,485 95,648
		1,052,133	956,485

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(i) Capital surplus

The balances of capital surplus as of December 31, 2018 and 2017, were as follows:

Share capital Treasury share transactions Stock options－fair value differences of associates and joint ventures under equity method	December 31, 2018 $ 289,318 11,862 465,073	December 31, 2017 289,318 11,862 446,307
	$ 766,253	747,487

According to the R.O.C. Company Act, capital surplus can only be used to offset a deficit, and only the realized capital surplus can be used to increase the common stock or be distributed as cash dividends. The aforementioned realized capital surplus includes capital surplus resulting from premium on issuance of capital stock and earnings from donated assets received. According to the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, capital increases by transferring capital surplus in excess of par value should not exceed 10% of the total common stock outstanding.

(ii) Retained earnings

The Company's article of incorporation stipulate that Company's net earnings should first be used to offset the prior years' deficits, if any, before paying any income taxes. Of the remaining balance, 10% is to be appropriated as legal reserve, and then any remaining profit together with any undistributed retained earnings shall be distributed according to the distribution plan proposed by the Board of Directors and submitted to the stockholders’ meeting for approval.

Before the distribution of dividends, the Company shall first take into consideration its operating environment, industry developments, and the long-term interests of stockholders, as well as its programs to maintain operating efficiency and meet its capital expenditure budget and financial goals in determining the stock or cash dividends to be paid. After the above appropriations, current and prior-period earnings that remain undistributed will be proposed for distribution by the Board of Directors, and a meeting of shareholders will be held to decide on this matter. The cash dividends shall not be more than 10% of total dividends

1) Legal reserve

According to the amendment of the R.O.C. Company Act in January 2012, the Company must retain 10% of its after-tax annual earnings as legal reserve until such retention equals the amount of total capital. When a company incurs no loss, it may, pursuant to a resolution by a shareholders’ meeting, distribute its legal reserve by issuing new shares or by distributing cash, and only the portion of legal reserve which exceeds 25% of capital may be distributed.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

2) Special reserve

In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, a portion of current-period earnings and undistributed prior-period earnings shall be reclassified as special earnings reserve during earnings distribution. The amount to be reclassified should equal the current-period total net reduction of other shareholders’ equity. Similarly, a portion of undistributed prior-period earnings shall be reclassified as special earnings reserve (and does not qualify for earnings distribution) to account for cumulative changes to other shareholders ’ equity pertaining to prior periods. Amounts of subsequent reversals pertaining to the net reduction of other shareholders’ equity shall qualify for additional distributions. As of December 31, 2018 and 2017, the amount of special reserve were both $141,843 thousand.

Earnings distribution for 2017 and 2016 was decided by the resolution adopted, at the general meeting of shareholders held on June 26, 2018 and June 26, 2017, respectively. The relevant dividend distributions to shareholders were as follows:

2017	2017	2016 Amount per share Total Amount 1.60 1,457,501 0.50 455,469 1,912,970
Amount per share	Total Amount
$ 1.80 1,721,672 1.00 956,485 $ 2,678,157
	$ 2,678,157	1,912,970

(iii) Treasury shares

As of December 31, 2018 and 2017, shares held by the Subsidiary were as follows:

Account Financial assets measured at fair value through other comprehensive income- non- current	December 31, 2018 Number of shares (thousand shares) Cost Share price $ 116 2,393 3,432	December 31, 2017 Number of shares (thousand shares) Cost Share price 105 2,393 3,851
	Number of shares (thousand shares)	Number of shares (thousand shares) Cost
	$ 116	105 2,393

assets

In accordance with the requirements of Securities and Exchange Act, treasury shares held by the Subsidiary should not ne pledged, and do not hold any shareholder rights before their transfer.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iv) OCI accumulated in reserves, net of tax

Exchange differences on translation of foreign financial statements	Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income Unrealized gains (losses) on available-for-sa le financial assets	NCI 66,451 -
$ (99,739) (129)	- 4,433,684 4,148,532 (4,433,684)
(99,868) (26,660) (68,797) - - -	4,148,532 - - - - - (612,274) - (1,044,909) - - -	66,451 (1,624) - - - 5,682
$ (195,325)	2,491,349 -	70,509
$ 193,513 (68,015) - (225,237) - -	- 2,453,107 - - - 623,425 - - - 1,357,152 - -	80,925 (265) - - - (14,209)
$ (99,739)	- 4,433,684	66,451

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(s) Earnings per share

(i) Basic earnings per share

The calculation of basic earnings per share at December 31, 2018, was based on the profit attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares outstanding, calculated as follows:

1) Profit attributable to ordinary shareholders of the Company

2018 $ 2,476,292	2018 $ 2,476,292	2017 2,974,027
	2018 956,485 (116) 95,648	2017 956,485 (116) 95,648
	1,052,017	1,052,017
$ 2.35		2.02

(ii) Diluted earnings per share

The calculation of diluted earnings per share at December 31, 2018, was based on profit attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares, calculated as follows.

1) Profit attributable to ordinary shareholders of the Company (diluted)

2018 $ 2,476,292	2018 $ 2,476,292	2017 2,974,027
		2017 1,052,017 1,076
	1,052,017 1,046
	1,053,063	1,053,093
$ 2.35		2.82

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(t) Revenue from contracts with customers
(i) Details of revenue

The details of revenue for the years ended December 31, 2018 and 2017 were as follows:

	2018		Total 4,236,652 769,156 92,010
Lease Business	Flour Business Overseas Flour Business	Other Segments 323,293 - -
$ 314,421 32,009 -	3,598,938 - 544 736,603 78,970 13,040
$ 346,430	3,678,452 749,643	323,293	5,097,818
$ - 346,430	3,678,452 749,643 - -	323,293 -	4,751,388 346,430
$ 346,430	3,678,452 749,643	323,293	5,097,818
	2017		Total 4,076,759 627,187 96,267
Lease Business	Flour Business Overseas Flour Business	Other Segments 305,815 - -
$ 281,632 34,436 -	3,489,312 - - 592,751 80,638 15,629
$ 316,068	3,569,950 608,380	305,815	4,800,213
$ - 316,068	3,569,950 608,380 - -	305,815 -	4,484,145 316,068
$ 316,068	3,569,950 608,380	305,815	4,800,213

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(u) Employee compensation and directors' and supervisors' remuneration

In accordance with the articles of incorporation the Company should contribute no less than 0.5% of the profit as employee compensation and less than 1% as directors' and supervisors' remuneration when there is profit for the year. However, if the Company has accumulated deficits, the profit should be reserved to offset the deficit. The amount of remuneration of each director and supervisor and of compensation for employees entitled to receive the abovementioned employee compensation is approved by the Board of Directors. The recipients of shares and cash may include the employees of the Company's affiliated companies who meet certain conditions.

For the years ended, the Company estimated its employee remuneration amounting to $25,066 thousand and $31,047 thousand, and directors' and supervisors' remuneration amounting to $8,000 thousand and $8,190 thousand, respectively. The estimated amounts mentioned above are calculated by historical experience based on the net profit before tax, excluding the remuneration to employees, directors and supervisors of each period, multiplied by the percentage of remuneration to employees, directors and supervisors as specified in the Company's articles of association. These remunerations were expensed under operating costs or operating expenses during 2018 and 2017. Related information would be available at the Market Observation Post System website. The amounts, as stated in the consolidated financial statements, are identical to those of the actual distributions for 2017.

The difference between the actual amounts and the estimation of employee compensation will be treated as changes in accounting estimates and adjusted in profit or loss in the following year.

(v) Non-operating income and expenses
(i) Other income

The details of other income were as follows:

Interest income Dividend income Service income	2018 $ 10,715 218,475 1,052	2017 5,438 231,165 894
	$ 230,242	237,497

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Other gains and losses

The details of other gains and losses were as follows:

The details of other gains and losses were as follows:
Losses on disposals of property, plant and equipment Gains on disposals of investment property Foreign exchange (losses) gains Impairment loss on non financial assets Gains on disposals of investments Other revenue Other expense Finance costs The details of finance costs were as follows: Interest expense	2018	2017 (11,209) 133 3,704 (50,607) 285,740 12,816 (7,605)
	$ (1,203) - (10,405) - - 16,370 (5,725)
	$ (963)	232,972
	2018	2017 29,507
	$ 32,289

(iii) Finance costs
(w) Financial instruments
(i) Credit risk

1) Credit risk exposure

As at , the Group’s exposure to credit risk and the maximum exposure were mainly from:

a) The carrying amount of financial assets and contract assets recognized in the consolidated balance sheet; and
b) The amount of liabilities as a result from the Group providing financial guarantees to its customers were $27,500 thousand and $33,500 thousand.
2) Concentration of credit risk

As the Group make deals with diverse companies, there is no significant concentration of credit risk. To reduce the credit risk, the Group assess the financial condition of clients regularly. Receivables from customers were not secured with collaterals.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Liquidity risk

The following table shows the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

Carrying amount	Contractual cash flow	Within 6 months	6-12 months	1-2 years 2-5 years Over 5 years
$ 499,900 4,650,000 94,977 114,858	504,650 4,704,275 94,977 114,858	2,250 21,525 94,977 114,858	502,400 3,773,410 - -	- - - 909,340 - - - - - - - -
$ 5,359,735	5,418,760	233,610	4,275,810	909,340 - -
$ 1,299,709 2,371,488 159,817 90,321	1,311,396 2,403,820 159,817 90,321	5,837 12,806 159,817 90,321	1,305,559 1,481,434 - -	- - - 909,580 - - - - - - - -
$ 3,921,335	3,965,354	268,781	2,786,993	909,580 - -

(iii) Currency risk
1) Exposure to foreign currency risk

The Group’s significant exposure to foreign currency risk was as follows:

(in thousands) Financial Assets Monetary items USD HKD MYR			December 31, 2018 Exchange rate TWD USD:TWD 30.7150 250,374 HKD:TWD 3.9210 6,197 HKD:TWD 0.1277 370 MYR:TWD 7.1120 10 MYR:USD 0.2315 13,643
	Foreign
	$ 8,152 1,581 94 1 1,918

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

			December 31, 2017
(in thousands)		Foreign	Exchange rate	TWD
Financial Assets
Monetary items
USD	$		8,056 USD:TWD 29.7600	239,750
			580 USD:CNY 6.5192	17,275
MYR			1 MYR:TWD 7.0720	10
			3,263 MYR:USD 0.2376	23,076

2) Sensitivity analysis

The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, trade and other receivables that are denominated in foreign currency. A 1% depreciation or appreciation of the functional currency against all the non-functional currency as of December 31, 2018 and 2017 would have increased or decreased the net profit after tax by $2,165 thousand and $2,325 thousand, respectively. The analysis is performed on the same basis for both periods.

3) Foreign exchange gain and loss on monetary items

As the Group deal with diverse foreign currencies, the information on foreign exchange gains or losses on monetary items were summarized as a single amount. For years 2018 and 2017, foreign exchange gains and losses, including realized and unrealized portions, amounted to $(10,405) thousand and $3,704 thousand, respectively.

(iv) Interest rate analysis

Please refer to the notes on liquidity risk management and interest rate exposure of the Group's financial assets and liabilities.

The following sensitivity analysis is based on the exposure to the interest rate risk of derivative and non derivative financial instruments on the reporting date. Regarding assets with variable interest rates, the analysis is based on the assumption that the amount of assets outstanding at the reporting date was outstanding throughout the year. The rate of change is expressed as the interest rate increases or decreases by 0.5% when reporting to management internally, which also represents the Group management's assessment of the reasonably possible interest rate change.

If the interest rate had increased or decreased by 0.5% basis points, the Group’s net income after tax would have increased or decreased by $20,600 thousand and $15,231 thousand for the years ended , respectively, with all other variable factors remaining constant. This is mainly due to the Group’s borrowing at variable rates and investment in variable-rate bills.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(v) Other market price risk

For the years ended December 31, 2018 and 2017, the sensitivity analyses for the changes in the securities price at the reporting date were performed using the same basis for the profit and loss as illustrated below:

Prices of securities at the reporting date	2018 Other comprehensive income after tax Net income	2018 Other comprehensive income after tax Net income	2017	2017
	Other comprehensive income after tax		Other comprehensive income after tax	Net income
Increasing 3% Decreasing 3%	$ 126,716 (126,716)	- -	127,862 (127,862)	- -

(vi) Fair value of financial instruments
1) Fair value hierarchy

The financial assets at fair value through other comprehensive income (available for sale financial assets) is measured on a recurring basis. The carrying amount and fair value of the Group’s financial assets and liabilities, including the information on fair value hierarchy were as follows; however, except as described in the following paragraphs, for financial instruments not measured at fair value whose carrying amount is reasonably close to the fair value, and for equity investments that has no quoted prices in the active markets and whose fair value cannot be reliably measured, disclosure of fair value information is not required :

Financial assets at fair value through other comprehensive income Stocks of listed companies Stocks of unlisted companies Subtotal Financial assets at amortized cost Cash and cash equivalents Notes and accounts payable Other receivables Refundable deposit Subtotal Total			December 31, 2018 Fair Value Level 1 Level 2 Level 3 Total 4,223,875 - - 4,223,875 - - 1,878,420 1,878,420
	Book Value
	$ 4,223,875 1,878,420
	6,102,295		4,223,875 - 1,878,420 6,102,295
	707,098 797,042 77,316 12,984		- - - - - - - - - - - - - - - -
	1,594,440		- - - -
	$ 7,696,735		4,223,875 - 1,878,420 6,102,295

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

	December 31, 2018 Fair Value Level 1 Level 2 Level 3 Total - - - - - - - - - - - - - - - - - - - - - - - -	December 31, 2018 Fair Value Level 1 Level 2 Level 3 Total - - - - - - - - - - - - - - - - - - - - - - - -	December 31, 2018 Fair Value Level 1 Level 2 Level 3 Total - - - - - - - - - - - - - - - - - - - - - - - -
Book Value
	Level 1	Level 2
$ 3,750,000 499,900 94,977 209,984 900,000 57,534	- - - - - -	- - - - - -
$ 5,512,395	-	-	- -
	December 31, 2017 Fair Value Level 1 Level 2 Level 3 Total 4,262,074 - - 4,262,074
Book Value
	Level 1	Level 2
$ 4,262,074	4,262,074	-
1,147,596	-	-	- -
749,993 789,982 65,071 12,593	- - - -	- - - -	- - - - - - - -
1,617,639	-	-	- -
$ 7,027,309	4,262,074	-	- 4,262,074

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

	December 31, 2017	December 31, 2017	December 31, 2017
Book Value		Fair Value Level 2 Level 3 Total - - - - - - - - - - - - - - - - - -
	Level 1	Level 2
$ 1,471,488 1,299,709 159,817 196,990 900,000 54,599	- - - - - -	- - - - - -
$ 4,082,603	-	-	- -

2) Valuation techniques for financial instruments measured at fair value

Non-derivative financial instruments

The stocks of listed companies are financial assets with standard terms which are traded in the active markets. Their fair value based on the quoted market markets.

Measurements of fair value of financial instruments without an active market are based on a valuation technique or quoted price from a competitor. Fair value measured by a valuation technique can be extrapolated from similar financial instruments, the discounted cash flow method, or other valuation technique including a model using observable market data at the reporting date.

The fair value of unquoted equity instruments was estimated using the market comparable price or net asset value method. The assumption of market comparable price method was based on a comparison between the market prices of each listed company, multiplied by using the estimated price, The discount effect is adjusted due to lack of market liquidity in equity securities. The net asset value method is measured by investee’s net asset value of each share.

3) Transfers between Level 1 and Level 2

There were no transfers from Level 2 to Level 1 in 2018 and 2017.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

4) Reconciliation of Level 3 fair values

Balance at January 1, 2018 Total gains and losses recognized: Total gains and losses recognized in Profit or loss Purchase Disposals Effect of movements in exchange rate Balance at December 31, 2018 Balance at January 1, 2017 Liquidation Balance at December 31, 2017	Fair value through other comprehensive income (Available-for-sale financial assets) Unquoted equity instruments $ 1,310,107 (96,365) 643,439 (7,939) 29,178 $ 1,878,420 $ 21,824 (21,824) $ -

For the years ended December 31, 2018 and 2017, total gains and losses that were included in “ other gains and losses ” , “ unrealized gains and losses from available-for-sale financial assets” and “unrealized gains and losses from financial assets at fair value through other comprehensive income” were as follows:

Total gains and losses recognized: In other comprehensive income, and presented in “unrealized gains and losses from financial assets at fair value through other comprehensive income”	For theyears ended December 31	For theyears ended December 31
	2018 $ (96,365)	2017
		-

5) Quantified information on significant unobservable inputs (Level 3) used in fair value measurement

The Group’s financial instruments that use Level 3 inputs to measure fair value include “financial assets measured at fair value through profit or loss – debt investments” and “fair value through other comprehensive income (available-for-sale financial assets) – ” equity investments .

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The Group ’ s financial instruments are mostly measured with single significant unobservable inputs, but the equity investment not in active market were measured with the plural significant unobservable inputs. The significant unobservable inputs of equity investment not in active market are independent to each other, and therefore no relevance existed.

The management evaluate the fair value of the equity investment not in a an active market and not held for short-term trading by assessing state of operation and future operating performance of the investee with investee’s financial statement and industry development and public available information. Generally, there is a highly positive correlation between change in industry and future operating performance of the investee.

Quantified information of significant unobservable inputs was as follows:

			Inter-relationship
			between significant
			unobservable inputs
	Valuation	Significant	and fair value
Item	technique	unobservable inputs	measurement
Financial assets at fair	Comparable Listed	‧Market Multiple 1.17	‧The estimated fair
value through other comprehensive income equity	Companies Method	‧Discount due to lack of market liquidity 20.84%	value would increase if the price of earnings ratio multiple is higher
			(lower) and the
			marketability
			discount is lower
			(higher)
			‧The Higher the
			discount rate, the
			lower the fair value
Financial assets at fair	Net Asset Value	‧Net Asset Value	Not Applicable
value through other	Method
comprehensive income
(Available for sale
financial assets)
equity investments
without an active
market

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

6) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible alternative assumptions

The Group’ s fair value measurement on financial instruments is reasonable. However, the measurement would be different if different valuation models or valuation parameters are used. For financial instruments using level 3 inputs, the impact on the net income or loss and other comprehensive income or loss will be as follows if the valuation parameters changed:

Inputs	Variation	Impacts of fair inco	value change on net me or loss Impacts of fair value change on other comprehensive income or loss Disadvantageous change Advantageous change Disadvantageous change - 1,380 (1,380) - 300 (300)
		Advantageous change
Market multiplier discount rate	0.5% 0.5%	$ - -
		$ -	- 1,680 (1,680)

The favorable and unfavorable effects represent the changes in fair value, and fair value is based on a variety of unobservable inputs calculated using a valuation technique. The analysis above only reflects the effects of changes in a single input, and it does not include the interrelationships with another input.

(x) Financial risk management
(i) Overview

The Group have exposures to the following risks from its financial instruments:

1) Credit risk
2) Liquidity risk
3) Market risk

The following likewise discusses the Group ’ s objectives, policies and processes for measuring and managing the above mentioned risks. For more disclosures about the quantitative effects of these risks exposures, please refer to the respective notes in the accompanying consolidated financial statements.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Structure of risk management

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Risk Management Committee, which is responsible for developing and monitoring the Group’s risk management policies. The committee reports regularly to the Board of Directors on its activities.

The Internal Audit oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Board of Directors is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Board of Directors.

(iii) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial ’ instrument fails to meet its contractual obligations, and arises principally from the Group s receivables from customers and investments in debt securities.

1) Trade and other receivable

As the Group make deals with diverse companies, there is no significant concentration of credit risk.

The Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and, in some cases, bank references. Purchase limits are established for each customer and represent the maximum open amount without requiring approval from the Risk Management Committee; these limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis.

The Group belong to traditional industry which is a stable industry, and make deal with regular customers. As a result, the Group did not recognize impairment loss on accounts receivable of these customers. When monitoring the credit risk of customers, the Group categorized by credit properties of customers.

The Group has an account of allowance for bad debts to evaluate the possible loss from bad debts. The account consists of specific loss component of individual significant risk exposure and unrecognized loss component of similar asset group. The account of allowance is calculated by historical payment data of similar financial assets.

(Continued)

~75~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

2) Investments

The exposure to credit risk for the bank deposits, fixed income investments, and other financial instruments is measured and monitored by the Group’s finance department. The Group only deals with banks, other external parties, corporate organizations, government agencies and financial institutions with good credit rating. The Group does not expect any counterparty above fails to meet its obligations hence there is no significant credit risk arising from these counterparties.

3) Guarantees

The Group’s policy is to provide financial guarantees only to wholly owned subsidiaries. For information on guarantees the Group has provided to subsidiaries as of December 31, 2018, please refer to notes (m).

(iv) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it always has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group ’ s reputation.

The Group uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimizing its cash return on investments. The Group aims to maintain the level of its cash and cash equivalents and other highly marketable debt investments at an amount in excess of expected cash flows on financial liabilities (other than trade payables) over the succeeding 60 days. The Group also monitors the level of expected cash outflows on trade and other payables. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. As of December 31, 2018 and 2017, the Group's unused credit line were amounted to $5,185,388 thousand and $6,255,472 thousand, respectively.

(v) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risk. All such transactions are carried out within the guidelines set by the Risk Management Committee. Generally, the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

1) Currency risk

The Group is exposed to currency risk on sales, purchases, and borrowings that are denominated in a currency other than the respective functional currencies of the Group’ s entities, primarily the New Taiwan Dollar (NTD), Chinese Yuan (CNY) and US Dollar (USD). The currencies used in these transactions are the NTD, Hong Kong Dollar (HKD) and USD.

2) Interest rate risk

The interest risk of the Group primarily comes from floating rate of bank loans, and therefore the effective rate will change as the interest changes, which in turn causes future cash flow to change. For information on interest rate analysis, please refer to Note (6)(w).

(y) Capital management

The Group’s objectives for managing capital to safeguard the capacity to continue to operate, to continue to provide a return on shareholders, to maintain the interest of other related parties, and to maintain an optimal capital structure to reduce the cost of capital. The total capital and equity include share capital, capital surplus, retained earnings, and other equity plus net debt.

Total liabilities Less: cash and cash equivalents Net debt Total equity Debt-to-equity ratio at December 31	December 31, 2018 $ 5,768,702 (707,098)	December 31, 2017 4,367,316 (749,993) 3,617,323 25,285,915 14.31%
	5,061,604 24,620,602
	20.56%

As of December 31, 2018, the Group’s capital management strategy is consistent with the prior year as of December 31, 2017.

(z) Financing activities not affecting current cash flow

January 1, 2018	Cash flows	Non-cash	changes Fair value changes December 31, 2018 - 900,000 - 3,750,000 191 499,900
		Foreign exchange movement
$ 900,000 1,471,488 1,299,709	- 2,278,464 (800,000)	- 48 -
$ 3,671,197	1,478,464	48	191 5,149,900

(Continued)

~77~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(7) Related-party transactions:

(a) Names and relationship with related parties

The followings are entities that have had transactions with related party during the periods covered in the consolidated financial statements.

Name of related party Relationship with the Group Linde Lienhwa Industrial Gases Co., Ltd. Investee using equity method Mitac Computer Co., Ltd. Investee using equity method UPC Technology Corporation Investee using equity method Mitac Information Technology Corp. Investee using equity method Lien Hwa United LPG Co., Ltd. Investee using equity method BOC Lienhwa (B.V.I) Holding Co., Ltd. Investee using equity method Yi Yuan Investment Co., Ltd. The Group’’s representative of cooperate director is the

The Group’’s representative of cooperate director is the legal representative of chairman of the Company.

The Group’s cooperate director is the chairman of the Company.

Pao Hwa Trading Co., Ltd.

The Group’s chairman is the legal representative of chairman of the Company.

MiTAC International Corp.

Harbinger Venture Management Co., Ltd. The Group’s chairman is the legal representative of

chairman of the Company.

Getac Technology Corporation

MiTAC computing Technology Corporation MiTAC digital Technology Corporation

Synnex Technology International Corporation

MiTAC Holdings Corporation United Industrial Gases Co., Ltd. Lien Hwa Lox Cryogenic Equipment Corporation Asia Union Electronic Chemical Corporation

The Group’s chairman is the representative of cooperate director of the Company.

Same chairman with the Company

Same chairman with the Company Subsidiary of associates Subsidiary of associates

Subsidiary of associates

(Continued)

~78~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Name of related party Far Eastern Industrial Gases Co., Ltd. Yuan Rong Industrial Gases Co., Ltd. Lien Fung Precision Technology Development Co., Ltd. Lien Tong Gases Co., Ltd. MiTAC Communication Co., Ltd. Lien Chuan Industrial Gases Co., Ltd. Tung Bao Corporation Ho Li Investment Co., Ltd.	Relationship with the Group
	Subsidiary of associates Subsidiary of associates Subsidiary of associates Subsidiary of associates Subsidiary of associates Subsidiary of associates Subsidiary of associates Subsidiary of associates

(b) Significant transactions with related parties
(i) Sales

The amounts of significant sales by the Group to related parties were as follows:

Associates Other related parties	For the years ended December 31 2018 2017 $ 1,120 203 2,530 2,918	For the years ended December 31 2018 2017 $ 1,120 203 2,530 2,918
	2018 $ 1,120 2,530
	$ 3,650	3,121

The terms and pricing of purchase transactions with related parties were not significantly different from those offered by other vendors. The payment terms ranged from 60 to 90 days, which were no different from the payment terms given by other vendors. Amounts receivable from related parties were uncollateralized, and no expected credit loss (provisions for doubtful debt) were required after the assessment by the management.

(ii) Leases to related parties

The amount of rental revenue between the Group and related parties were as follows,

Associates: Linde Lienhwa Industrial Gases Co., Ltd. Other associates Other associates: Getac Technology Corporation Other related parties	For the years ended December 31 2018 2017 $ 46,700 45,301 42,800 43,875 59,934 53,915 186 2,621	For the years ended December 31 2018 2017 $ 46,700 45,301 42,800 43,875 59,934 53,915 186 2,621
	2018 $ 46,700 42,800 59,934 186
	$ 149,620	145,712

(Continued)

~79~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The lease starts from January1, 2013 to August 31, 2023. The rent is determined based on government assessed value or expected value of land building. As of December 31, 2018 and 2017, lease deposit collected from related parties were $16,946 thousand and $17,253 thousand, respectively.

(iii) Purchases

The amounts of significant purchases by the Group from related parties were as follows:

Associates	For the years ended December 31 2018 2017 $ 55 61
	2018 $ 55

The terms and pricing of purchase transactions with related parties were not significantly different from those offered by other vendors. The payment terms ranged from one to two months, which were no different from the payment terms given by other vendors.

(iv) Receivables from Related Parties

The receivables from related parties were as follows:

Account	Relationship	December 31, 2018 December 31, 2017 $ 5,712 4,246 3 1 - - 61,430 - 1,108 1,077 1,224 1,119
Accounts receivable Other receivables	Associates Other related parties Associates BOC Lienhwa (B.V.I) Holding Co., Ltd. Other Associates Other related parties
		$ 69,477 6,443

The receivables above refer to rental revenue of headquarter, advance payment and cash dividends from other related parties.

(v) Payables to Related Parties

The payables to related parties were as follows:

Account	Relationship	December 31, 2018 December 31, 2017 $ 19 20 4,056 42 248 360
Accounts payable Other payables	Associates Associates Other related parties
		$ 4,323 422

(Continued)

~80~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(vi) Prepayment

The amount of prepayments between the Group and related parties were as follows,

Associates Other related parties	December 31, 2018 $ 114 3	December 31, 2017 104 20
	$ 117	124

(vii)Purchases of property, plant and equipment (investment property)

As of December 31, 2018, the Group has purchased equipment from associates and other related parties amounting to $25,135 thousand and $1,119 thousand, respectively.

The Group had purchased transportation equipment and miscellaneous equipment from associates and other related parties amounting to $2,888 thousand and $1,300 thousand in November and December, 2017, respectively.

(viii)Disposal of investment property

In February 2017, the Group sold investment property to associates amounting to $240 thousand, and the gain on disposal was $133 thousand.

(ix)9. Others

In 1985 and 1998, the Group sold factory to Linde Lienhwa Industrial Gases Co., Ltd., and the gain on sale of factory was $71,934 thousand. The Group recorded it as deferred credit- unrealized gains from inter-affiliate accounts, since the associate has not sold the factory yet.

The Group increased the investment to UPC Technology Corp. amounting to $243,870 thousand and $167,283 thousand in 2018 and 2017, respectively.

The Group increased the investment to Getac Technology Corp. and SYNNEX Technology International Corp. amounting to $196,744 thousand and $279,057 thousand in 2018, respectively.

Key management personnel compensation comprised:

Short-term employee benefits Post-employment benefits Other long-term benefits	For the years ended December 31 2018 2017 $ 27,935 27,143 1,751 823 232 114	For the years ended December 31 2018 2017 $ 27,935 27,143 1,751 823 232 114
	2018 $ 27,935 1,751 232
	$ 29,918	28,080

(Continued)

~81~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(8) Pledged assets:

The carrying values of pledged assets were as follows:

Pledged assets Object	December 31, 2018 $ 107,386 121,951 12,984	December 31, 2017 108,195 123,436 12,593
Property, plant and equipment Bank loans Investment property 〞 Guarantee deposits paid
	$ 242,321	244,224

(9) Significant Commitments and contingencies:

(a) Significant Commitments and Contingencies
(i) The Group’s outstanding standby letter of credit are as follows:

Outstanding standby letter of credit USD CHF	December 31, 2018 $ 7,578 -	December 31, 2017 3,575 1,702

(ii) The Group signed a joint venture agreement for investment in Fujian Gulei Petrochemical Co., Ltd. with some entities. The main contents of the agreement are as below,
1) shareholders set up Ever Victory Global Limited and agreed with investing FUJIAN GULEI PETROCHEMICAL COMPANY LIMITED to refine and manufacture ethylene via Dynamic Ever Investments Limited which was set up in Hong Kong. Ever Victory Global Limited is the sole shareholder of Dynamic Ever Investments Limited.
2) Dynamic Ever Investments Limited will set up a joint venture, FUJIAN GULEI PETROCHEMICAL COMPANY LIMITED, with Fujian Refining & Petrochemical Co., Ltd. and acquire 50% of outstanding shares.
(iii) The Group signed an agreement with Fujian Refining & Petrochemical Co., Ltd., and reach a consensus on issues as below,
1) Lien Hwa Industrial HK Limited, wholly owned by the Group, set up a joint venture, Fujian Fuhwa Gases Co., Ltd., with Fujian Refining & Petrochemical Co., Ltd.
2) The Group reached a consensus on investment of CNY 95,000 thousand in Fujian Fuhwa Gases Co., Ltd. with Fujian Refining & Petrochemical Co., Ltd., and acquired 50% of outstanding shares of Fujian Fuhwa Gases Co., Ltd. As Of December 31, 2018, the Group has invested CNY 89,500 thousand in Fujian Fuhwa Gases Co., Ltd.

(Continued)

~82~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(b) Contingencies

For the year ended December 31, 2018 and 2017, the amount of Group’s guarantee motes Submitted for loans, commercial paper, guarantee for tariff and wheat import were $5,720,295 thousand and $4,975,460 thousand.

(10) Losses Due to Major Disasters: None

(11) Subsequent Events: None

(12) Others:

(a) A summary of current-period employee benefits, depreciation, and amortization, by function, is as follows:

follows:
By function By item	For the year ended December 31
	2018			2017
	Cost of Sale	Operating Expense	Total	Cost of Sale	Operating Expense	Total
Employee benefits Salary Labor and health insurance Pension Others Depreciation Depletion Amortization	115,878 10,358 6,560 10,346 166,474 - 5,290	208,881 18,534 15,571 16,722 41,104 - 8,708	324,759 28,892 22,131 27,068 207,578 - 13,998	112,447 9,438 6,255 10,129 156,054 - 5,362	192,337 17,398 10,447 12,225 42,772 - 4,999	304,784 26,836 16,702 22,354 198,826 - 10,361

(Continued)

~83~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(13) Other disclosures:

(a) Information on significant transactions:

The following is the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group:

(i) Loans to other parties:

(In thousands of New Taiwan Dollars)

Number	Name of lender	Name of borrower (Note 4)	Account name	Related party	Highest balance of financing to other parties during the period	Ending balance	Actual usage amount during the period	Range of interest rates during the period	Purposes of fund financing for the borrower (Note 1)	Transaction amount for business between two parties	Reasons for short-term financing	Allowance for bad debt	Collateral	Collateral	Individual funding loan limits	Maximum limit of fund financing
													Item	Value
0	Lien Hwa Industrial Corp.(Note2 )	Fortune Dragon Holding Inc.	Other receivable	Yes	462,450	460,725	373,187	2%	2	-	Operating Capital	-	-	-	2,455,009	4,910,019
0	〞	Jian Foods Incorporatio n	〞	〞	200,000	100,000	10,200	1.1%	2	-	〞	-	-	-	2,455,009	4,910,019
1	Fortune Dragon Holding Inc.(Note3)	Yantai Taihwa Food Industrial Co., Ltd.	〞	〞	470,516	466,868	466,868	-	2	-	〞	-	-	-	3,088,887	4,324,442
1	〞	Hifood Co., Ltd	〞	〞	30,460	18,429	14,436	2%	2	-	〞	-	-	-	1,235,555	4,324,442
1	〞	Hifood(Shan ghai) Co., Ltd.	〞	〞	133,883	58,359	58,359	-	2	-	〞	-	-	-	1,235,555	4,324,442

Note 1： 1.For those companies with business contact, please fill in 1.

2.For those companies with short-term financing needs, please fill in 2.
Note 2： According to the procedures of Management of Loans to Others, the maximum amount permitted to a single borrower and the aggregate amount of loans shall not exceed 10% or 20 % of the Company's net asset value based on the last audited or reviewed financial statement of those companies.
Note 3： The maximum amount permitted to a single borrower of Fortune Dragon Holding Inc. shall not exceed: 100% of the Company's net asset value based on the last audited or reviewed financial statement of those companies, if the lender or the borrower is a company in which the parent company directly and indirectly holds 100% of the voting shares; 40% of the Company's net asset value based on the last audited or reviewed financial statement of those companies, if the relationship between the lender and the borrower is not the same as mentioned. The aforementioned aggregate amount of loans shall not exceed 140% of the Company's net asset value based on the last audited or reviewed financial statement of those companies.

Note 4： The aforementioned inter-company transactions have been eliminated in the consolidated financial statements.

(ii) Guarantees and endorsements for other parties:

(In thousands of New Taiwan Dollars)

No.	Name of guarantor	Counter-party of guarantee and endorsement	Counter-party of guarantee and endorsement	Limitation on amount of guarantees and endorsements for a specific enterprise	Highest balance for guarantees and endorsements during theperiod	Balance of guarantees and endorsements as of reporting date	Actual usage amount during the period	Property pledged for guarantees and endorsements (Amount)	Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements	Maximum amount for guarantees and endorsements	Parent company endorsements/ guarantees to third parties on behalf of subsidiary
		Name	Relationship with the Company
0	Lien Hwa Industrial Corp.	Pacific Gateway Holdings Inc.	2	12,275,047	365,520	337,865	-	-	1.38%	12,275,047	Yes
0	〞	Hifood Co., Ltd.	2	12,275,047	148,800	-	-	-	- %	12,275,047	Yes
0	〞	Fortune Dragon Holding Inc.	2	12,275,047	510,758	506,798	-	-	2.06%	12,275,047	Yes

Note 1： 0 is issuer.

Note 2： Relationship with the Company:

1.The company has business relationship.

2.Majority owned subsidiary.
3.The Company direct and indirect owns over 50% ownership of the investee company.
4.A subsidiary jointly owned over 90% by the Company.
5.Guaranteed by the Company according to the construction contract.
6.An investee company. The guarantees were provided based on the Company's proportionate share in the investee company.
7.Joint and several guaranteed by the Company according to the pre-construction contract under Consumer Protection Act.
Note 3： The total amount of guarantees and endorsements cannot exceed 50% of the Company's net asset value based on the last financial statement; The amount of each guarantee and endorsement of single subsidiary cannot exceed 50% of the Company's net asset value based on the last financial statement.

Note 4： The aforementioned inter-company transactions have been eliminated in the consolidated financial statements.

(Continued)

~84~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iii) Securities held as of December 31, 2018 (excluding investment in subsidiaries, associates and joint ventures):

(In thousands of New Taiwan Dollars)

Name of holder	Category and name of security	Relationship with company	Account title	Ending balance	Ending balance	Ending balance	Ending balance	Highest Percentage of ownership (%)
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value (Note 1 and 3)
Lien Hwa Industrial Corp.	Great Wall Enterprise Co., Ltd.	Director	Non-current financial assets at FVOCI	16,743	560,887	2.12%	560,887	2.12%
〞	MiTAC Holdings Corp.	Same chairman	〞	66,725	1,644,774	7.12%	1,644,774	7.12%
〞	SYNNEX Technology International Corp.	〞	〞	42,201	1,536,121	2.53%	1,536,121	2.53%
〞	Pao Long International Co., Ltd.	-	〞	2,365	34,772	1.57%	34,772	1.57%
〞	Getac Technology Corp.	The Company's chairman is the representative of the legal director of Getac.	〞	7,200	289,440	1.24%	289,440	1.24%
〞	Taian Insurance Co .,Ltd.	-	〞	921	19,223	0.31%	19,223	0.31%
〞	China Trade and Development Corp.	-	〞	50	1,185	0.08%	1,185	0.08%
〞	Formosa Golf and Country Club Corp.	-	〞	2	315	0.01%	315	0.01%
〞	Hsin Yu Energy Development Co., Ltd.	-	〞	6,076	-	2.44%	-	2.44%
〞	Harbinger Venture Capital Corp.	Same chairman	〞	345	3,732	3.35%	3,732	3.35%
〞	Harbinger VI Venture Capital Corp.	-	〞	3,486	41,559	9.96%	41,559	9.96%
〞	Global Investment Holdings Co. Ltd.	Director	〞	3,000	30,915	3.33%	30,915	3.33%
〞	Harbinger VII Venture Capital Corp.	The Company's chairman is the representative of the legal chairman of Harbinger VII.	〞	10,000	95,507	9.39%	95,507	9.39%
〞	Shihlien Fine Chemicals Co., Ltd.	Vice chairman	〞	35,384	266,360	15.06%	266,360	16.69%
〞	B Current Impact Investment Corp.	-	〞	500	4,785	6.25%	4,785	9.09%
〞	Harbinger VIII Venture Capital Corp.	-	〞	3,750	37,483	19.05%	37,483	19.05%
Hua Cheng Investment Co., Ltd.	Lien Hwa Industrial Corporation	Parent	〞	116	3,432	0.01%	3,432	0.01%
〞	Waffer Technology Corp.	-	〞	2	26	- %	26	- %
〞	Shihlien Fine Chemicals Co., Ltd.	-	〞	1	8	- %	8	- %
〞	Lien Yung Investment Corp.	-	〞	9,217	90,974	19.99%	90,974	19.99%
〞	Harbinger Venture Management Co., Ltd.	-	〞	863	10,951	19.99%	10,951	19.99%
〞	Tung Da Investment Co., Ltd.	-	〞	4,848	87,266	19.99%	87,266	19.99%
Fortune Dragon Holding Inc.	Budworth Investments Limited	-	〞	192	4,972	3.33%	4,972	3.33%
〞	Asia Global Venture Capital Co., Ltd	-	〞	1,000	28,697	10.00%	28,697	10.00%
〞	Harbinger Ruyi Venture Limited	-	〞	500	14,179	14.29%	14,179	14.29%
〞	Asia Global Venture Capital II Co., Ltd	-	〞	300	7,949	3.00%	7,949	3.00%
〞	Ever Victory Global Limited.	-	〞	31,891	976,034	8.84%	976,034	8.84%
〞	eT Capital, L.P.	-	〞	-	156,326	11.36%	156,326	12.35%
Sun Lead International Limited	KELINGTON GROUP BERHAD	-	〞	19,818	157,855	7.44%	157,855	8.67%

Note 1：The market values for listed companies are determined based on the closing prices on the last transaction day of an accounting period.

Note 2：The value of the Company’s stock held by the subsidiary has been eliminated from the book value. (The gains and losses on the disposal of the investment is calculated in the same way.)

Note 3：The market values for unlisted companies are the net asset values. The net asset values are assessed by the last unaudited or audited financial statements of those companies. Note 4：The aforementioned inter-company transactions have been eliminated in the consolidated financial statements.

(Continued)

~85~

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock:

(In thousands of New Taiwan Dollars)

Name of company	Category and name of security	Account name	Name of counter-party	Relationship with the company	Beginning Balance Shares Amount	Beginning Balance Shares Amount	Purchases	Purchases	Sales	Sales	Sales	Sales	Ending Balance	Ending Balance
						Amount	Shares	Amount (Note 1)	Shares	Price	Cost	Gain (loss) on disposal	Shares	Amount
Lien Hwa Industrial Corp.	Fortune Dragon Holding Inc.	Investments accounted for using equity method	-	Subsidiary	61,638	1,687,869	31,498	1,401,018	-	-	-	-	93,136	3,088,887
Fortune Dragon Holding Inc.	Lien Hwa Industrial HK Ltd.	"	-	"	-	-	13,900	400,288	-	-	-	-	13,900	400,288
"	Ever Victory Global Ltd.	Non-current financial assets at FVOCI	-	-	14,293	438,373	17,598	537,661	-	-	-	-	31,891	976,034
Lien Hwa Industrial HK Ltd.	Fujian Fuhua Gases Co., Ltd.	Investments accounted for using equity method	-	-	-	-	-	391,802	-	-	-	-	-	391,802

Note 1：The gains and losses of the investment are included. Note 2：The aforementioned inter-company transactions have been eliminated in the consolidated financial statements.

(v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None
(vi) Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None
(vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$300 million or 20% of the capital stock: None
(viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock:

(In thousands of New Taiwan Dollars)

Name of company	Counter-party	Nature of relationship	Ending balance	Turnover rate	Overdue	Overdue	Amounts received in subsequent period	Allowance for bad debts
					Amount	Action taken
Lien Hwa Industrial Corp.	Fortune Dragon Holding Inc.	Subsidiary	373,187	-	-		-	-
Fortune Dragon Holding Inc.	Yantai Taihwa Food Industrial Co., Ltd.	Subsidiary	467,127	-	-		-	-

Note：The aforementioned inter-company transactions have been eliminated in the consolidated financial statements.

(ix) Trading in derivative instruments:None
(x) Business relationships and significant intercompany transactions:

Except for loans between the parent company and subsidiaries, there is no significant transaction in 2018. The information of loans please refer to note13(i).

(b) Information on investees:

The following is the information on investees for the years ended December 31, 2018 (excluding information on investees in Mainland China):

(In thousands of New Taiwan Dollars)

Name of investor	Name of investee	Location	Main businesses and products	Original investment amount	Original investment amount	Balance as of December 31, 2018	Balance as of December 31, 2018	Balance as of December 31, 2018	Highest Percentage of ownership	Net income (losses) of investee	Share of profits/losses of investee
				December 31, 2018	December 31, 2017	Shares (thousands)	Percentage of ownership	Carrying value
Lien Hwa Industrial Corp.	UPC Technology Corp.	Taiwan	Organic acid, acid anhydride and its derivatives, plastic toughening agent, etc.	3,142,213	2,898,343	412,599	32.39%	6,313,662	32.39%	753,610	242,361
〞	Linde Lienhwa Industrial Gases Co., Ltd	〞	Production of liquid, nitrogen, hydrogen, acetylene and other industrial gases	400,000	400,000	1,886	50.00%	4,997,611	50.00%	1,881,992	940,996
〞	MiTAC Inc.	〞	Design, manufacturing, processing and import and export of computers and their accessory software	731,636	731,636	114,282	35.46%	4,731,888	35.50%	654,280	232,073

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Name of investor	Name of investee	Location	Main businesses and products	Original inves	tment amount	Balance	as of December 31, 2018	as of December 31, 2018	Highest Percentage of ownership	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2018	December 31, 2017	Shares (thousands)	Percentage of ownership	Carrying value
Lien Hwa Industrial Corp.	MiTAC Information Technology Corp.	Taiwan	Design, manufacturing, processing and import and export of computers and their accessory software	990,599	990,599	36,000	40.00%	364,493	40.00%	16,727	6,691
〞	Hua Cheng Investment Co., Ltd.	〞	Investment	405,000	405,000	48,840	100.00%	555,840	100.00%	51,037	51,037	Subsidiary(Note1)
〞	Lienhwa United LPG Co., Ltd.	〞	Equipment installation, trading and technical maintenance of propane, butane and their mixtures	62,253	62,253	6,848	24.04%	77,968	24.04%	21,235	5,106
〞	Lien Rui Investment Corp.	〞	Investment	413,500	363,500	10,983	100.00%	63,346	100.00%	(37,946)	(37,946)	Subsidiary
〞	Fortune Dragon Holding Inc.	B.V.I.	〞	2,915,605	1,957,615	93,136	100.00%	3,088,887	100.00%	408,517	408,517	〞
Hua Cheng Investment Co., Ltd.	UPC Technology Corp.	Taiwan	Organic acid, acid anhydride and its derivatives, plastic toughening agent, etc.	54,933	54,933	4,595	0.36%	71,187	0.36%	753,610	2,713
〞	MiTAC Inc.	〞	Design, manufacturing, processing and import and export of computers and their accessory software	84,354	84,354	6,218	1.93%	257,800	1.93%	654,280	23,640
〞	MiTAC Information Technology Corp.	〞	〞	61,988	61,988	1,190	1.32%	12,028	1.32%	16,727	220
〞	Jian Foods Incorporatio n	〞	Wholesale and retail trade	10	10	1	0.00%	1	0.00%	(43,078)	(2)	Subsidiary
〞	Camel Ring International Company	〞	〞	10	10	1	0.33%	10	0.33%	265	1	〞
Lien Rui Investment Corp.	Jian Foods Incorporatio n	Taiwan	Wholesale and retail trade	271,000	221,000	27,100	83.93%	15,635	83.93%	(43,078)	(35,311)	〞
〞	Oggi Restaurant Group Co., Ltd.	〞	Restaurants	35,000	35,000	3,500	100.00%	35,822	100.00%	262	262	〞
〞	New Plus Food & Beverage Co., Ltd.	Taiwan	〞	99,995	99,995	7,000	50.00%	4,138	50.00%	(4,485)	(2,243)
〞	Farmdirect Corp.	Taiwan	Wholesale and retail trade	13,500	13,500	600	31.58%	-	31.58%	(7,920)	(757)
〞	Camel Ring International Company	Taiwan	〞	2,090	2,090	209	69.67%	2,151	69.67%	265	185	Subsidiary
Fortune Dragon Holding Inc.	Pacific Gateway Holdings Inc.	B.V.I.	Investment	916,163	916,163	30,461	100.00%	492,585	100.00%	(121,643)	(121,643)	〞
〞	Pink Sky Investment Inc.	〞	〞	19,650	19,650	605	100.00%	167	100.00%	-	-
〞	Boc Lienhwa (B.V.I) Holding Co., Ltd.(Note2)	〞	〞	1,744	1,744	50	0.25%	463,430	0.25%	961,958	531,389
〞	Hifood Co., Ltd.	Cayman	〞	470,630	470,630	14,150	65.81%	128,173	65.81%	14,139	9,305	Subsidiary
〞	Lien Hwa Industrial HK Ltd.	Hong Kong	〞	414,701	-	13,900	100.00%	400,288	100.00%	(5,143)	(5,143)	〞
〞	Sun Lead International Limited	B.V.I.	〞	73,525	73,525	3	100.00%	182,371	100.00%	4,704	4,704	〞

Note 1：The value of the Company’s stock held by the Subsidiary have been eliminated from the book value. (The gains and losses on the disposal of the investment is calculated in the same way.) Note 2：Fortune Dragon Holding Inc. holds 50% of its common stock.

Note 3：The aforementioned inter-company transactions have been eliminated in the consolidated financial statements.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(c) Information on investment in mainland China:

(i) The names of investees in Mainland China, the main businesses and products, and other information:

(In thousands of New Taiwan Dollars)

Name of investee	Main businesses and products	Total amount of paid-in capital	Method of investment (Note 1)	Accumulated outflow of investment from Taiwan as of January 1, 2017	Investment flows	Investment flows	Accumulated outflow of investment from Taiwan as of December 31, 2018	Net income (losses) of the investee	Percentage of ownership	Highest percentage of ownership	Investment income (losses)	Book value	Highest Percentage of ownership	Accumulated remittance of earnings in current period
					Outflow	Inflow
Yantai Taihwa Food Industrial Co., Ltd. (a).2	Flour production and sales	961,594	(2)	961,594	-	-	961,594	(121,067)	100.00%	100.00%	(121,067)	484,380	-	-
Yantai Tailiang Food Industrial Co., Ltd. (a).3	Production and sales of peanuts and peanut products	32,480	(2)	19,488	-	-	19,488	-	60.00%	60.00%	-	-	-	-
Hifood(Sha nghai) Co., Ltd.(a).2	Leasing	656,700	(2)	408,880	-	-	408,880	15,906	65.81%	65.81%	10,468	137,566	-	-
BOCLH Industrial Gases(Shan ghai)Co., Ltd(a).3	gas production	580,438	(2)	1,744	-	-	1,744	-	0.25%	0.25%	8,120	201,349	-	-
Fujian Fuhua Gases Co., Ltd.(a).1	Industrial gas research、 development and technical services	824,911	(2)	-	416,367	-	416,367	(17,216)	50.00%	50.00%	(8,608)	391,802	-	-

(ii) Limitation on investment in Mainland China:

Accumulated Investment in Mainland China as of December 31, 2018	Investment Amounts Authorized by Investment Commission, MOEA	Upper Limit on Investment (Note 3)
2,732,243	3,209,866	14,730,056

Note 1： (a)Direct investment in Mainland China.

(b)Indirect investment in Mainland China through an existing investee company (Fortune Dragon Holding Inc.) in a third region.

(c)Other methods

Note 2：Recognition of investment during current period is pursuant to the following:

(a)If the corporation is in the set-up phase, notes are required.

(b)Recognition basis of investment gains or losses is determined by the following three types, and related notes are required.

(1)Financial statements of the investee company were audited and certified by an international firm in cooperation with an R.O.C. accounting firm.

(2)Financial statements of the investee company were audited and certified by the external accountant of the parent company. (3)Others.

Note 3：In accordance with the Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China revised on August 29, 2008, the maximum limitation is the sixty percent of these companies' net asset value or consolidated net asset value.

Note 4：The amounts are expressed in thousands of New Taiwan Dollars

Note 5：The Company invested in King's Cook (Shanghai) Trading Co., Ltd with USD 1,000 thousand indirectly. The Company completed the liquidation procedure of King's Cook and got payment of USD 486 thousand in May, 2017. As of December 31, 2018, the Company has reported to the Investment commission, MOEA for cancellation. The investment amount will be remitted back to deduct the approval amount from the mainland China.

Note 6：The aforementioned inter-company transactions have been eliminated in the consolidated financial statements.

(iii) Significant transactions: None

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(14) Segment information:

(a) General information

The Group has four reportable segments: Leasing business, flour business, overseas flour business and administrative resource center。Leasing business provides real estate leasing and development services. Flour business is engaged in the processing, manufacturing and sale of various types of flour products. Overseas flour business is a subsidiary-Yantai Taihwa Food Industrial Co., Ltd., located in mainland China and engaged in the processing, manufacturing and sale of various types of flour products. The administrative resource center is responsible for domestic and foreign investment projects.

The reportable segments are the Group’s strategic divisions. They offer different products and services, and are managed separately because they require different technology and marketing strategies. Most of the strategic divisions were acquired separately. The management of the acquired divisions remains employed by the Group.

The amount of the Group asset, was not provided to the operating decision makers, except for the administrative resource center, so the disclosure of assets should be zero.

(b) Information about reportable segments and their measurement and reconciliations

The Group uses the internal management report that the chief operating decision maker reviews as the basis to determine resource allocation and make a performance evaluation. The internal management report includes profit before taxation, but not including any extraordinary activity and foreign exchange gain or losses because taxation, extraordinary activity, and foreign exchange gain or losses are managed on a group basis, and hence they are not able to be allocated to each reportable segment. In addition, not all reportable segments include depreciation and amortization of significant non-cash items. The reportable amount is similar to that in the report used by the chief operating decision maker.

The operating segment accounting policies are similar to those described in Note (4) “Significant accounting policies” except for the recognition and measurement of pension cost, which is on a cash basis.

The Group treated intersegment sales and transfers as third-party transactions. They are measured at market price.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The Group’s operating segment information and reconciliation are as follows:

For theyea	rs ended December 31, 2018	rs ended December 31, 2018	Total 5,097,818 - 10,715
Leasing business Flour business Overseas Flour Business $ 346,430 3,678,452 749,643 2,537 532 - 207 - 932	Administrative resource center	Others Reconciliation and elimination
	- - 8,084	323,293 - 459 (3,528) 1,492 -
$ 349,174 3,678,984 750,575	8,084	325,244 (3,528)	5,108,533
$ - - - 83,715 92,255 34,360 - - - $ 207,616 341,007 (121,096)	32,012 4,271 1,848,835 1,940,849	277 - 6,975 - 546,353 (421,607) 523,975 (421,607)	32,289 221,576 1,973,581 2,470,744
$ - - -	24,760,753	- -	24,760,753
For theyea	rs ended December 31, 2017		Total 4,800,213 - 5,438
Leasing business Flour business Overseas Flour Business $ 316,068 3,569,950 608,380 2,468 972 - 703 - 1,439	Administrative resource center	Others Reconciliation and elimination
	- - 2,363	305,815 - - (3,440) 933 -
$ 319,239 3,570,922 609,819	2,363	306,748 (3,440)	4,805,651
$ 501 - - 85,661 82,838 22,640 - - - $ 176,285 542,496 (58,401)	28,672 2,970 2,008,130 2,382,516	334 - 15,078 - 27,795 92,850 (83,986) 92,850	29,507 209,187 2,128,775 3,051,760
$ - - -	24,163,703	- -	24,163,703

Note: The total assets of the segments are the funds and investments of the Company.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Geographical information	For the years ended December 31 2018 2017 $ 4,236,652 4,076,759 769,156 627,187 92,010 96,267
Revenue from external customers: Taiwan China Other countries Total Geographical information
	$ 5,097,818 4,800,213
	December 31, 2018 December 31, 2017 $ 3,165,120 3,136,712 790,135 776,695
Non-current assets: Taiwan China Total
	$ 3,955,255 3,913,407

Non-current assets include property, plant and equipment, investment properties, intangible assets, and other assets, but do not include financial instruments, deferred tax assets, pension assets, and rights from insurance contracts.

(d) Major customers: there is no customer with more than 10% of operating income.

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AI assistant

LHIHC — Audit Report / Information 2018

51754_rns_2018-11-12_865a568e-3eb2-4856-b6cc-baced89460ca.pdf

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Representation Letter

Hereby declare

Independent Auditors ’ Report

Opinion

Basis for Opinion

Key Audit Matters

1. Revenue Recognition

Description of key audit matter:

How the matter was addressed in our audit:

2. Valuation of Inventory

Description of key audit matter:

How the matter was addressed in our audit:

Other Matter

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

Auditor ’ s Responsibilities for the Audit of the Consolidated Financial Statements

KPMG

Notes to Readers

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars , except for earnings per common share)

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

Consolidated Statements of Cash Flows (Cont'd)

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(1) Overview

(2) Approval date and procedures of the consolidated financial statements:

(3) New standards, amendments and interpretations adopted:

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(i) IFRS 15 “Revenue from Contracts with Customers”

2) Contract Liability

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(i) IFRS 16“ Leases”

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(4) Summary of significant accounting policies:

(a) Statement of compliance

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(d) Foreign currency

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

LIEN HWA INDUSTRIAL CORPORATION AND SUBSIDIARIES

LHIHC Audit Report / Information 2018