LHIHC — Audit Report / Information 2018

Nov 12, 2018

Lien Hwa Industrial Corporation Parent Company Only Financial Statements

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

Independent Auditor’s Report

To the Board of Directors of Lien Hwa Industrial Corporation

Audit opinion

We have audited the statement of financial position of Lien Hwa Industrial Corporation as at December 31, 2018 and 2017, the statements of comprehensive income, of the changes in equity and the cash flow for the periods January 1 to December 31, 2018 and 2017, and notes to the parent company only financial statements (including a summary of significant accounting policies).

In our opinion, the above parent company only financial statements present fairly, in all material aspects, the financial position of Lien Hwa Industrial Corporation as at December 31, 2018 and 2017, and its financial performance and cash flows for the years ended in accordance with the “Regulations Governing the preparation of financial Reports by Securities Issuers”.

Basis for opinion

We have conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and the generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Parent Company Only Financial Statements section. We are independent of Lien Hwa Industrial Corporation in accordance with the Code of Professional Ethics for Certified Public Accountants (hereinafter referred to as the “Code”), and 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 for our opinion.

Key Audit Matters

From the matters communicated with those charged with governance, we have determined those matters that were of most significance for audit review in the 2018 parent company only financial statements of Lien Hwa Industrial Corporation. These matters have been dealt with in the process of checking the parent company only financial report as a whole and forming a review opinion. We do not express a separate opinion on these matters. Key audit matters to be reported:

• I. Revenue Recognition

Please refer to Note 4 [17] of the parent company only financial report for the relevant accounting policies for the recognition of sales concessions. Please refer to Note 5[2] of the parent company only financial report for the revenue recognition of the accounting estimates for sales discounts and assumptions.

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Description of the matter:

Lien Hwa Industrial Corporation’s products are primarily wheat reprocessed into flour and other products, sold through a network of distributors and chain channels; or sold indirectly to end consumers through food products made by food companies using Lien Hwa’s products. Since the company's key customers are distributors, chain networks and food companies, Lien Hwa Industrial Corporation acknowledges that the accuracy of the sales discount according to its sales strategy has significant relevance in the company's revenue recognition. Therefore, we have conducted the audit with a high degree of attention in this aspect. How does this audit address the matter?

Our main verification procedures for the above matter include understanding the causes of the company's sales discount and the accounting policies to measure recognition, assessing whether the management's recognition of sales discount has been handled in accordance with the company's established accounting policies, and performing sampling procedures to check the correctness of the relevant records for calculation.

• II. Inventory Evaluation

Please refer to note 4[7] Inventory of the parent company only financial reports for the related accounting policies for inventory evaluation. For accounting estimates of inventory and hypothetical uncertainties for inventory evaluation, please refer to Note 5[1]. For a description of the inventory evaluation, please refer to Note 6[7]. Description of the matter:

In the financial statement, inventories are measured at the lower of cost or net realizable value. Most of the raw materials of the company's products are purchased from foreign suppliers for wheat reprocessing into flour and other products, and are sold indirectly to consumers through distributors and chain channels or through food companies. With the price of the company's products being susceptible to fluctuations in international exchange rates and raw material prices, competition from products of a similar nature and the impact of consumers' awareness of food safety risks in recent years, etc., the risks of falling prices or inventory expiration have increased, resulting in inventory costs exceeding their net realizable value and the need to provide for inventory value depletion or obsolescence loss. The amount of the provision is a significant decision based on the subjective judgment of management and is therefore, it is a key matter of concern for the CPA to audit for further verification.

How does this audit address the matter?

~2~

The main verification procedures for the key checks mentioned above include understanding the accounting policies for the impairment of the company's inventory, assessing whether the management has provided for the price decrease or obsolescence in accordance with the company's established accounting policies, and performing sampling procedures to verify the accuracy of the relevant computation; assess the reasonable the provision and whether the management of the company has made full disclosure in regards to the provision.

Responsibilities of management and those charged with governance for the parent company only financial statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for the internal controls that management determines are necessary to enable the preparation of the parent company only financial statements are free from material mi-statement, whether due to fraud or error.

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

Those charged with governance at Lien Hwa Industrial Corporation, including the audit committee, are responsible for overseeing the company’s financial reporting process.

~3~

Auditor’s responsibilities for the audit of the parent company only financial statements

Our responsibilities are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatements, whether due to fraud to error, and to issue an auditor’s report that includes our opinion. Reasonable conviction is highly convincing, but the verification work performed in accordance with generally accepted auditing standards cannot guarantee that significant financial misrepresentation of individual financial reports will be detected. False expression may be caused by fraud or error. If the individual amount or summary amount that is not expressed is reasonably expected to affect the economic decision made by the individual financial reporting user, it is considered significant.

When the accountant checks in accordance with generally accepted auditing standards, he uses professional judgment and maintains professional suspicion. We also perform the following tasks:

1. Identify and assess the risk of material misrepresentation of a parent company only financial report due to fraud or error; design and implement appropriate countermeasures for the assessed risk; and obtain sufficient and appropriate evidence to be used as a basis for review. Because fraud may involve conspiracy, forgery, intentional omission, false statement or over-internal control, the risk of not reporting significant misrepresentation due to fraud is higher than the cause of the error.

2. Obtain the necessary understanding of the internal control of the inspection to design an appropriate check procedure at the time, but the purpose is not to express an opinion on the effectiveness of the internal control of Lien Hwa Industrial Corporation.

3. Assess the appropriateness of the accounting policies used by management, and the reasonableness of their accounting estimates and related disclosures.

4. Based on the audit evidence obtained, whether the management adopts the appropriateness of the basis of continuing operations accounting and whether there are significant uncertainties in the events or circumstances that may cause significant doubts about the ability of Lien Hwa Industrial Corporation to continue to operate and draw conclusions. If we believe that there is a material uncertainty in the event or situation, it is necessary to remind the parent company only financial report user to pay attention to the relevant disclosure of the parent company only financial report, or to amend the audit opinion when the disclosure is inappropriate. The conclusions of this accountant are based on the verification evidence obtained as of the date of the audit report. However, future events or circumstances may cause Lien Hwa Industrial Corporation to no longer have the ability to continue to operate.

5. Evaluate the overall expression, structure and content of individual financial reports (including related notes) and whether individual financial reports are permitted to express relevant transactions and events.

~4~

1. Obtain sufficient and appropriate audit evidence for the financial information of the investee company using the equity method to express an opinion on the individual financial report. We are responsible for checking the guidance, supervision and execution of the case, and is responsible for forming the inspection opinions of Lien Hwa Industrial Corporation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit as well as major findings (including significant deficiencies in internal control identified during the audit process).

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

~5~

From the matters communicated with those charged with governance, we have determined those matters that were of most significance for audit review in the 2018 parent company only financial statements of Lien Hwa Industrial Corporation. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in very rare cases, we determine that a matter should not be presented in our report because the negative consequences of doing so would reasonably be expected to outweigh the public interests.

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

Notice to Readers

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

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

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(English Translation of Financial Statements and Report Originally Issued in Chinese) Lien Hwa Industrial Corporation

Balance sheet

December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Assets Current assets: 1100 Cash and cash equivalent (Note 6[1]) 1150 Notes receivable – net (Note 6[5]) 1170 Accounts receivable – net (Notes 6[5] & 7) 1200 Other receivables (Notes 6[6] & 7) 1220 Current tax asset 130X Inventory (Note 6 [7]) 1470 Other current assets (Note 7) Non-current assets: 1517 Financial assets at fair value through other comprehensive income - non-current (Note 6 [2]) 1523 Available-for-sale financial assets - non-current (Note 6[3]) 1543 Financial assets at cost – non-current (Note 6 [4]) 1550 Investment under equity method (Note 6 [8]) 1600 Property, plant, and equipment (Notes 6 [9] & 8) 1760 Investment property, net (Notes 6 [10] & 8) 1840 Deferred tax assets (Note 6 [16]) 1920 Guarantee deposits paid (Note 8) 1995 Other assets - non-current Total assets	December 31, 2018 Amount % $ 422,980 2 237,998 1 490,450 2 390,766 1 63,112 - 709,165 2 6,688 -	December 31, 2018 Amount % $ 422,980 2 237,998 1 490,450 2 390,766 1 63,112 - 709,165 2 6,688 -	December 2017	31, % 1 - 2 1 - 3 - 7 - 14 2 67 4 6 - - - 93 100 Liabilities and equity Current liabilities: 2100 Short-term borrowings (Note 6[12]) 2110 Commercial paper payable (Note 6[11]) 2170 Accounts payable (Note 7) 2200 Other payables (Note 7) 2230 Current tax liabilities 2399 Other curret liabilities Non-current liabilities: 2540 Long-term borrowings (Notes 6 [13] and 8) 2551 Provision for employee benefit liability - non-current 2573 Deferred tax liabilities (Note 6 [16]) 2640 Net defined benefit liability - noncurrent (Note 6[15]) 2645 Guarantee deposits received (Note 7) 2670 Other liabilities - non-current Total liabilities Equity: 3110 Ordinary share capital (Note 6 [17]) 3200 Capital surplus (Note 6 [17]) Retained earnings: (Note 6([17]) 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings 3400 Other equity 3500 Treasury stock (Note 6([17]) Total equity Total liabilities and equity	December 31, 2018 Amount % $ 3,750,000 12 499,900 2 37,897 - 188,415 1 - - 18,885 -	December 31, 2018 Amount % $ 3,750,000 12 499,900 2 37,897 - 188,415 1 - - 18,885 -	December 2017	31, % 5 4 - 1 - -
	Amount $ 422,980 237,998 490,450 390,766 63,112 709,165 6,688		Amount 377,499 200,526 495,366 243,122 14,834 819,088 6,027		Amount $ 3,750,000 499,900 37,897 188,415 - 18,885		Amount 1,470,000 1,299,709 32,582 184,518 49,286 11,982
		2 1 2 1 - 2 -				12 2 - 1 - -
					4,495,097	15	3,048,077	10
	2,321,159	8	2,156,462		900,000 6,363 100,770 45,181 49,363 71,934	4 - - - - -	900,000 4,636 93,543 47,597 46,799 71,934	4 - - - - -
	4,567,058 - - 20,193,695 1,332,629 1,778,909 12,680 3,421 9,250	15 - - 67 4 6 - - -	- 4,145,716 432,675 19,585,312 1,256,681 1,838,217 2,279 3,549 11,159
					1,173,611	4	1,164,509	4
					5,668,708	19	4,212,586	14
					10,521,332 766,253 2,811,777 141,843 8,015,257 2,296,024 (2,393)	35 3 9 - 27 7 -	9,564,847 747,487 2,514,375 141,843 7,919,360 4,333,945 (2,393)	32 3 9 - 27 15 -
	27,897,642	92	27,275,588
					24,550,093	81	25,219,464	86
					$ 30,218,801	100	29,432,050	100
	$ 30,218,801	100	29,432,050

See accompanying notes to parent company only financial statements.

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(English Translation of Financial Statements and Report Originally Issued in Chinese)

Lien Hwa Industrial Corporation

Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Operating Revenue: (Notes 6[14&19] & 7) 4110 Sale revenue 4300 Rental income Operating costs (Notes 6 [7]) and 7) 5110 Cost of sale 5310 Rental cost Gross profit from operations Operating expenses 6100 Selling expenses 6200 Administrative expenses 6300 R&D expenses Net operating profit Non-operating income and expenses: 7010 Other income (Note 6 [21]) 7020 Other gains and losses (Note 6 [21]) 7050 Finance costs (Note 6[21]) 7070 Portions of incomes/loss of subsidiaries, affiliated and joint ventures accounted for under the equity method (Note 6[8]) 7900 profit before tax 7951 Less: tax expense (income) (Note 6 [16]) 7900 Current net profit Other comprehensive profit or loss: 8310 Titles not reclassified into income 8311 Re-measurement of defined benefit plan 8316 Unrealized valuation gains and losses from equity investment instruments measured at fair value through other comprehensive income 8330 Share of other comprehensive income of subsidiaries, affiliated companies, and joint ventures under the equity method 8349 Tax related to items that may not be reclassified subsequently 8360 Titles potentially reclassified into income subsequently 8361 Exchange differences from the translation of foreign operations 8362 Unrealized gain or loss of the available-for-sale financial assets 8380 Share of other comprehensive income of subsidiaries, affiliated companies, and joint ventures under the equity method 8399 Tax related to items that may be reclassified subsequently Other comprehensive income - net of tax 8500 Total comprehensive income Earnings per share (unit: NTD) (Note 6 [18]) 9750 Basic earnings per share 9850 Diluted earnings per share	2018	% 92 8	2017 (Reclassified) Amount % 3,570,922 93 284,099 7	2017 (Reclassified) Amount % 3,570,922 93 284,099 7
	Amount $ 3,678,983 316,959		Amount 3,570,922 284,099
	3,995,942	100	3,855,021	100
	3,201,636 99,024	80 2	2,895,988 98,429	75 3
	3,300,660	82	2,994,417	78
	695,282	18	860,604	22
	99,838 130,722 38,513	2 3 1	100,813 130,011 33,590	3 3 1
	269,073	6	264,414	7
	426,209	12	596,190	15
	204,617 25,889 (32,012) 1,848,835	5 1 (1) 46	230,563 259,726 (29,173) 2,008,130	6 7 (1) 52
	2,047,329	51	2,469,246	64
	2,473,538 (2,754)	63 -	3,065,436 91,409	79 2
	2,476,292	63	2,974,027	77
	(2,581) (593,961) (1,063,944) -	- (15) (27) -	(4,027) - (6,128) -	- - - -
	(1,660,486)	(42)	(10,155)	-
	(26,660) - (68,797) -	(1) - (2) -	(68,015) 544,335 1,211,005 -	(2) 14 32 -
	(95,457)	(3)	1,687,325	44
	(1,755,943)	(45)	1,677,170	44
	$ 720,349	18	4,651,197	121
	$	2.35		2.83
	$	2.35		2.82

See accompanying notes to parent company only financial statements.

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(English Translation of Financial Statements and Report Originally Issued in Chinese)

Lien Hwa Industrial Corporation

Statements of Changes in Equity

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Balance as at January 1, 2017 Current net profit Other comprehensive income Total comprehensive income Appropriation and distribution of earnings: Provision of statutory reserve Cash dividends on ordinary shares Ordinary share dividends Changes of affiliates and joint ventures under equity method Difference between the price and book value of the subsidiary’s equity acquired or disposed Balance as at December 31, 2017 Retrospective adjustments using new standards Reclassified balance as at January 1, 2018 Current net profit Other comprehensive income Total comprehensive income Appropriation and distribution of earnings: Provision of statutory reserve Cash dividends on ordinary shares Ordinary share dividends Changes of affiliates and joint ventures under equity method Balance as at December 31, 2018	Share capital	Capital surplus		Retained earnings		Other equity	Treasury stock	Total equity 22,033,635
						Exchange differences from the translation of foreign operations Unrealized gains and losses from financial assets measured at fair value through other comprehensive income Unrealized gain (loss) of the available-for-sale financial instruments 193,513 - 2,453,107
	Ordinary share capital		Legal reserve	Special reserve	Unappropriated retained earnings
	$ 9,109,378	753,539	2,298,950	141,843	7,085,698		(2,393)
	- -	- -	- -	- -	2,974,027 (10,155)	- - - (293,252) - 1,980,577	- -	2,974,027 1,677,170
	-	-	-	-	2,963,872	(293,252) - 1,980,577	-	4,651,197
	- - 455,469 - -	- - - (6,054) 2	215,425 - - - -	- - - - -	(215,425) (1,457,501) (455,469) (1,813) (2)	- - - - - - - - - - - - - - -	- - - - -	- (1,457,501) - (7,867) -
	9,564,847 -	747,487 -	2,514,375 -	141,843 -	7,919,360 594,990	(99,739) - 4,433,684 (129) 4,148,532 (4,433,684)	(2,393) -	25,219,464 309,709
	9,564,847	747,487	2,514,375	141,843	8,514,350	(99,868) 4,148,532 -	(2,393)	25,529,173
	- -	- -	- -	- -	2,476,292 (3,303)	- - - (95,457) (1,657,183) -	- -	2,476,292 (1,755,943)
	-	-	-	-	2,472,989	(95,457) (1,657,183) -	-	720,349
	- - 956,485 -	- - - 18,766	297,402 - - -	- - - -	(297,402) (1,721,672) (956,485) 3,477	- - - - - - - - - - - -	- - - -	- (1,721,672) - 22,243
	$ 10,521,332	766,253	2,811,777	141,843	8,015,257	(195,325) 2,491,349 -	(2,393)	24,550,093

See accompanying notes to parent company only financial statements.

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(English Translation of Financial Statements and Report Originally Issued in Chinese)

Lien Hwa Industrial Corporation

Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Cash flow from operating activities: profit before taxt Adjustments: Income/expenses Depreciation Amortization Expected credit impairment (revolving interest) loss / bad debt Interest expense Interest income Dividend income Portions of gain/loss from subsidiaries, affiliates, and joint ventures accounted for under the equity method Disposal and obsolescence of property, plant, and equipment loss (gain) Loss/gain on disposal of investment Loss on Impairment of non-financial assets Income/expenses Changes in assets/liabilities related to operating activities: Net changes in assets relating to operating activities: Receivable notes Accounts receivable Other receivables Inventory Other current assets Net changes in assets relating to operating activities Net changes in liabilities relating to operating activities: Accounts payable Long-term employee liabilities Other payables Other current liabilities Net defined benefit liability Net changes in liabilities relating to operating activities Changes in assets/liabilities related to operating activities Adjustments Cash inflows from operations Interest received Dividends received Interest paid Income tax paid Net cash inflow from operating activities		2018 $ 2,473,538 164,833 6,617 (1) 32,012 (12,984) (190,584) (1,848,835) (193) - -		2017 3,065,436 157,310 5,660 448 29,173 (3,614) (226,054) (2,008,130) (399) (271,144) 88
		(1,849,135)		(2,316,662)
		(37,472) 4,917 56,111 107,547 (3,699)		20,116 (5,086) 3,109 (236,980) (7,542)
		127,404		(226,383)
		5,315 1,727 2,454 6,903 (4,997)		(4,001) 1,178 (36,978) (3,060) 1,972
		11,402		(40,889)
		138,806		(267,272)
		(1,710,329)		(2,583,934)
		763,209 12,984 1,778,180 (31,113) (97,984)		481,502 3,614 1,490,810 (29,196) (133,421)
		2,425,276		1,813,309

See accompanying notes to parent company only financial statements.

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(English Translation of Financial Statements and Report Originally Issued in Chinese) Lien Hwa Industrial Corporation

Statements of Cash Flows (continued)

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Cash flow from investing activities: Acquisition of financial assets at fair value through other comprehensive gains and losses Return of funds from financial assets at fair value through other comprehensive gains and losses Disposal of financial assets for sale Financial assets valued at cost Acquisition of investments under the equity method Acquisition of property, plant, and equipment Disposition of property, plant, and equipment Reduction in guarantee deposits paid Increase in other receivables Acquisition of investment property Disposal of investment property Increase of other non-current assets Net cash outflow from investing activities Cash flow from financing activities: Increase in short-term loans Decrease in short-term notes payable Borrowing of long-term loan Retirement of long-term loans Increase (decrease) of guaranteed deposit and margin received Cash dividend distribution Net cash outflow from financing activities Increase (decrease) of cash and cash equivalents in current period Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents		2018 (513,301) 7,939 - - (1,251,860) (166,593) 574 128 (203,755) (1,757) - (12,062)		2017 - - 324,880 (5,000) (586,896) (124,086) 266 561 (179,632) (3,226) 240 (96,412)
		(2,140,687)		(669,305)
		2,280,000 (800,000) 900,000 (900,000) 2,564 (1,721,672)		620,000 (300,000) 900,000 (900,000) (17,765) (1,457,501)
		(239,108)		(1,155,266)
		45,481 377,499		(11,262) 388,761
		$ 422,980		377,499

See accompanying notes to parent company only financial statements.

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(English Translation of Financial Statements and Report Originally Issued in Chinese)

Lien Hwa Industrial Corporation

Notes to the financial statements

For the years ended December 31, 2018 and 2017

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

I. Corporate history

Lien Hwa Industrial Corporation (hereinafter referred to as "the company") was established on the approval of the Ministry of Economic Affairs in July 1955 and merged with the China Physical & Chemical Industry Co. Ltd on December 1, 2002. The registered address is 6F., No.44, Sec. 1, Chengde Rd., Datong Dist., Taipei City. The company’s primary business is in the manufacturing and sale of flour products and leasing.

II. Date and procedure for ratification of financial report

The parent company only financial statement was passed by the Board for release on March 28, 2019.

III. Application of new and revised standards and interpretation

• (I) Impact of the application of the new and amended standards and interpretations recognized by Financial Supervisory Commission (“FSC”).

Since 2018, the company has fully adopted the international Financial Reporting Standards approved by the Financial Supervisory and Regulatory Commission (hereinafter referred to as the “FSC”) and entered into force in 2018 to prepare individual financial reports. List of the new / amended / revised standards or interpretation as follows:

The new / amended / revised standards or interpretation Amendments to IFRS 2 “Share-based Payment” Amendment to IFRS 4 - "Applying IFRS 9, Financial Instruments with IFRS 4, Insurance Contracts" IFRS 9 “Financial instruments” IFRS No. 15, “Revenue from customer contracts” Amendments to IAS No. 7 “Disclosure Initiative” Amendments to IAS No. 12 “Recognition of unrealized loss deferred income tax assets” Amendments to IAS 40 “Transfers of Investment Property” Annual improvements of the International Financial Reporting Guidelines for 2014-2016: Amendments to IFRS No. 12 Amendments to IAS 1 and IAS 28 Interpretation of IFRS No. 22 “Foreign Currency Transactions and Advance Consideration”

Effective date of IASB's announcement

Monday, January 1, 2018 Monday, January 1, 2018 Monday, January 1, 2018 Monday, January 1, 2018 Sunday, January 1, 2017 Sunday, January 1, 2017 Monday, January 1, 2018 Sunday, January 1, 2017 Monday, January 1, 2018 Monday, January 1, 2018

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Except for the following items, the application of the newly recognized international financial reporting standards mentioned above has not resulted in significant changes in the parent company only financial reporting. Nature & impact of significant changes:

1. IFRS No. 15, “Revenue from customer contracts”

The standard replaces IAS 18 “Revenue” and IAS 11 “Construction Contracts” and related explanations. The single analysis model determines the method, time and amount of revenue recognition by the company in five steps. The Company's retrospective method applies to IFRS No. 15. Therefore, the comparison period of individual financial reports will be retrospectively adjusted in accordance with IFRS No. 15.

The nature and impact of this accounting policy change are as follows: (1) Sale of products

For the sale of a product, income was recognized in the past when a significant risk of ownership and compensation was transferred to the customer in respect of individual trading conditions. The recognition of income at that point in time was due to the reliable measurement of income and costs at that point in time, the possibility of recovery of prices and the continued involvement in the management of the product. Under International Financial Reporting Standard No. 15, income is recognized when a customer gains control over a product. The nature and impact of this accounting policy change are as follows.

The company expects to provide some concession to the customer's price. The account operating expenses, in accordance with IFRS No. 15, should be included in the sale of the product as a reduction in sales revenue. Therefore, the company will reclassify the operating expenses to income reduction, but this change will have no impact on the retained earnings as of January 1, 2018.

Some contracts allow customers to return goods, and in the past they were recognized when they were able to reasonably estimate returns and other income recognition conditions were met. If the return cannot be reasonably estimated, it will be deferred until the return period expires or the revenue can be reasonably estimated at the time of return. Under IFRS No. 15, the revenue of these contracts is recognized within the range in which it is highly probable that the accumulated income will not be significantly reversed. The company's liability for refund liabilities and products to be refunded in accordance with the contract's estimated return are separately recognized on the balance sheet.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(2) Contract liabilities

Before the enterprise transfers the goods or services to the customer, if the customer has paid the consideration or the enterprise has the right to receive the consideration amount unconditionally, when the payment is made or when the payment can be received from the customer, this amount was recognized as advance payment. Under IFRS No. 15, it is presented as a contractual liability. Contract liability is the obligation of the enterprise to transfer the goods or services to the customer because it has received the consideration from the customer (or has been able to collect the consideration from the customer).

(3) Impact on the financial statements

The impact of adopting IFRS No. 15 on the company's parent company only financial reports is as follows

Impact on the comprehensive income statement Sale revenue Marketing expenses Net profit impact		2017	Book value after reclassificat ion 3,570,922 (100,813)
	Book value before reclassificati on	Impact of changes in accounting policies (45,088) 45,088
	$ 3,616,010 (145,901)
		$ -

2. IFRS 9 “Financial instruments”

International Financial Reporting Standard No. 9, "Financial Instruments" (hereinafter referred to as “IFRS “9), replaces IAS 39, "Financial instruments: Recognition and measurement" (hereinafter referred to as “IAS 39”), amends the classification and measurement, impairment and risk-averse accounting of financial instruments.

With the adoption of IFRS No. 9, the Company adopted the revised IAS No. 1 “Expression of Financial Statements”, which provides for the impairment of financial assets as a single-line item in the comprehensive income statement. Previously the Company reported impairment of accounts receivable as sales expenses. In addition, the Company adopted the revised IFRS No. 7 “Financial Instruments: Exposure” for the disclosure of the 2018 data. Not applicable to comparative information.

Significant changes in accounting policies from the company's application of IFRS No. 9 as follows

(1) Classification of financial assets and liabilities

This standard mainly classifies financial assets into three categories based on amortized cost, measured at fair value through other comprehensive gains and losses,

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

and measured at fair value through profit or loss. The classification of financial assets under IFRS 9 is based on the business model of the financial assets and its contractual cash flow. The classification of held-to-maturity, loans, receivables and financial assets for sale under the original standard is deleted. In accordance with the standard, if the master contract included in the hybrid contract is a financial asset within the scope of the standard, the embedded derivative is not split and the classification of the overall hybrid financial instrument is assessed. Please refer to Note 4(6) for the accounting policy for the description of the classification, measurement and recognition of related assets and losses of the financial assets of the Company under IFRS No. 9.

The adoption of IFRS No. 9 has no significant impact on the Company's accounting policies for financial liabilities.

• (2) Impairment of financial assets

The standard forward-looking expected credit loss model replaces the current IAS 39 impairment loss model. The new impairment model is applied to financial assets, contract assets measured by amortized cost and debt instruments measured at fair value through other comprehensive gains and losses. Not applicable to equity instrument investment. Under IFRS No. 9, credit recognition is recognized before the time of recognition under IAS 39. Please refer to Note 4 (6).

• (3) Transition processing

Except for the following items, the IFRS No. 9 is usually applied retroactively:

• The difference in the book value of financial assets arising from the application of IFRS No. 9 is recognized as retained earnings and other equity items as of January 1, 2018. Since the information expressed for 2017 would normally not reflect the requirements of IFRS No. 9, the information disclosed cannot be effectively compared to the information disclosed for 2018

• The following matters are assessed on the basis of the facts and circumstances that existed on the date of the initial application:

• Determine the business model in which financial assets are held.

• Designation and derecognition of financial assets and financial liabilities previously measured at fair value through profit or loss.

• Non-trading equity instruments measured at fair value through other comprehensive gains and losses.

• If the credit risk of a debt securities investment on the initial application date of the IFRS No. 9 is low, the Company assumes that the credit risk of the asset has not increased significantly since the original recognition date.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(4) Classification of financial assets on initial application of IFRS No. 9.

The new measurement type, book value and description of the financial assets previously measured per IAS 39 and as of January 1, 2018 are measured per IFRS 9 are as follows. (No change to the type of measure for financial liabilities and book value):

IAS39 IFRS9

	IAS39
Financial assets Cash and cash equivalents Equity investment instrument Net receivables Other financial assets (Guarantee deposits)	Type of measurement	Book value
	Loans and receivables: Financial assets for sale (Note 2) Loans and receivables (Note 1) Loans and receivables:

• Note 1: When applying IFRS No. 39, notes receivable, accounts receivable and other accounts receivable are classified as loans and receivables, while current assets are classified as financial assets measured at amortized cost.

• Note 2: These equity instruments (including financial assets measured by cost) represent investments pertaining to the Company’s long-term strategies. According to IFRS No. 9, at initial application, the Company had designated the investment as measured at fair value through other comprehensive gains and losses. As a result, the book value of these assets increased by $77,266 thousand on January 1, 2018, and other equity items and retained earnings decreased by $145,430 thousand and increased by $222,696 thousand respectively.

Adjustment of the book value of financial assets as of January 1, 2018 from IAS 39 to IFRS 9 is as follows:

Financial assets at fair value through other comprehensive gains and losses For sale (including those measured by cost) IAS 39, opening balance Reclassification of assets for sale to be measured at fair value through other comprehensive gains and losses Total	December 31, 2017 IAS 39 Book value $ 4,578,391 -	Reclassific ation (4,578,391) 4,578,391	Re-Measu red - 77,266	January 1, 2018 IIFRS 9 Book value	January 1, 2018 Retained earnings adjustment		January 1, 2018 Adjustme nts - other equity - (145,430)
					- 222,696
	$ 4,578,391	-	77,266	4,655,657	222,696		(145,430)

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

using the investment under equity method	December 31, 2017 IAS 39 Book value $ 19,585,312	Retrospect ive adjustmen ts using new standards 232,443	January 1, 2018 IIFRS 9 Book value 19,817,755	January 1, 2018 Retained earnings adjustment		January 1, 2018 Adjustme nts - other equity (139,851)
				372,294

Due to the application of retrospective adjustment of IFRS No. 9 to the subsidiaries and affiliates that use the equity method, the Company’s investment under the equity method increased by $232,443 thousand as of January 1, 2018. Other equity projects decreased by $139,722 thousand, retained earnings increased by $372,294 thousand, and the exchange rate impact decreased byT$129 thousand.

1. Amendments to IAS 7 "Exposure Initiative"

The amendments require companies to provide disclosures that enable users of financial statements to assess changes in liabilities from financing activities, including changes in cash flows and non-cash changes.

In Note 6 (25), the Company has disclosed the adjustments between the opening and closing balances of the liabilities from the financing activities to comply with the above new regulations.

• (II) Effect when the Company has yet to adopt the new and amended IFRSs that have been approved by the Financial Supervisory Commission.

According to FSC order 1070324857 dated July 17, 2018, public listed companies

should from 2019, fully adopt the international Financial Reporting standards endorsed by the FSC and entered into force in 2019. List of the new / amended / revised standards or interpretation as follows:

The new / amended / revised standards or interpretation IFRS No. 16 “Lease" Interpretation of IFRS No. 23 "Uncertainty of Tax Treatment Received" Amendment to IFRS No. 9 "Advance repayment characteristics with negative compensation" Amendments to IAS 19 "Planning, Reduction or Repayment" Amendments to IAS No. 28 “Investment in Associates and Joint Ventures” Annual improvements of the International Financial Reporting Guidelines for 2015-2017:

Effective date of IASB's announcement

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

Except for the following items, the application of the newly recognized international

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

financial reporting standards mentioned above has not resulted in significant changes in the parent company only financial reporting. Nature & impact of significant changes:

1. IFRS 16 “Lease”

The standard will replace the current IAS 17 “Leases”, International Financial Reporting Interpretation No. 4 “Determining whether an arrangement includes leases”, Interpretation No. 15 “Business Leasing: Incentives” and Interpretation No. 27 "Assessing the substance of the transaction involving the legal form of the lease".

The new standard applies the single accounting treatment model to the lessee to recognize the lease transaction on the balance sheet, and uses the right to use the asset to express its right to use the underlying asset, and the lease liability to express the obligation to pay the lease. In addition, the fees associated with such leases will be expressed by depreciation and interest in lieu of the current operating leases on a straight-line basis. A provision for exemption is also provided for short-term leases and low-value underlying asset leases. The lessor's accounting treatment is similar to the current standard, that is, the lessor should still classify the lease as an operating lease or a finance lease.

• (1) Determine whether the contract includes a lease

In the transition to the new standard, the company has to choose:

• ‧ apply the lease definitions specified in the new standard for all contracts; or

• ‧ Use practical expediency without reassessing whether the contract is or includes a lease.

The company expects to use practical expediency to waive the reassessment of the definition of lease in the event of a transition, that is, the company will apply the existing lease definition to all contracts entered into by January 1, 2019.

• (2) Transition process

The company is a lessee's contract and has to choose among all the contracts:

• ‧ complete traceability; or

• ‧ modified traceability and one or more practical expediencies

The company expects to adopt a formal retrospective transition to the new guidelines, so the cumulative impact of the adoption of the new criteria will be recognized in 2019 and subsequent annual profit and loss numbers, without the re-compilation of information on the comparison period and the adjustment of the retained surplus in the accounts of January 1, 2019.

In the case of modified traceability, the current standard is classified as a contract for operating leases based on individual contracts and whether one or more practical expediencies are used in the transition. The company's assessment will use the following practical expediencies:

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

• ‧ A single discount rate for lease combinations with similar characteristics;

• ‧ Based on the evaluation results of the IAS37 loss-making contract before the initial application, used as an alternative method to evaluate the impairment of the right to use assets;

• ‧ For leases that are closed within 12 months of the date of initial application of the lease period, the exemption is applied without recognition of the right to use the assets and the lease liabilities;

• ‧ The original direct cost is not included in the measurement of the right-of-use asset on the initial application date;

• Where the lease contract includes a lease extension or termination option, the latter shall be used when determining the lease term.

• (3) Up to now, the most significant impact of the Company's assessment of the applicable new standards is to identify the right-of-use assets and lease liabilities for the current operating lease office, storage location and transportation equipment. It is estimated that the above differences may increase the right to use assets and lease liabilities as of January 1, 2019 by $ 6,251 thousand and $ 5,864 thousand respectively; however, there was no significant impact on the current contracts dealt with finance leases. In addition, the Company expects that the application of the new standard will not affect the ability to comply with the maximum number of forms of financing leverage agreed in its loan contract. The contract for the intermediate lessor of the sub-lease transaction is not subject to any adjustment.

• Interpretation of IFRS No. 23 "Uncertainty of Tax Treatment Received"

• The new interpretation clarifies that when assessing the impact of tax treatment on

• uncertainties (loss), tax base, unused tax losses, unused investment offsets and tax rates, it should be assumed that the tax administration will review the relevant amount and have obtained all relevant information at the time of the review.

If the assessment considers that the tax administration is likely to accept an uncertain tax treatment, it shall determine the taxable income (loss), tax base, etc. in a manner consistent with the treatment used in the tax return declaration. Unused tax losses, unused investment offsets and tax rates; conversely, if not possible, the most likely amount or expected value is more appropriate to reflect the impact of each uncertain tax treatment.

As of now, the company's assessment of the application of the new interpretation has no significant impact.

1. Amendments to IAS 19 "Planning, Reduction or Repayment"

When the defined benefit plan is revised, reduced or liquidated, the company uses the updated actuarial assumptions to determine the current service cost and net interest for the

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

remaining reporting period after the plan change.

The calculation of the pre-service cost and the settlement of profit or loss does not take into account the impact of the asset cap. The change in the asset cap impact is recognized in other comprehensive gains and losses.

Up to now, the Company has assessed the most significant impact of the application of the new interpretation. The current service cost and net interest should be recognized for the impact of the updated actuarial assumptions, but the amount is subject to further assessment.

However, the above-mentioned estimated impact of adopting the new bulletin may be changed due to changes in the environment or conditions in the future.

(III) New and amended standards and interpretations not yet recognized by FSC.

The following table lists the standards and explanations that have been published and revised by the International Accounting Standards Board (hereinafter referred to as the

“Board of Directors”) but have not yet been approved by the FSC:

The new / amended / revised standards or interpretation Amendment to IFRS No. 3 "Definition of Business" Amendment to IFRSs 10 and IAS 28 “The Assets Sales or Purchase between Investors and Their Affiliates or Joint Ventures” IFRS 17 “Insurance Contracts” Amendments to IAS 1 and IAS 8 “Definition of Materiality”	Effective date of IASB's announcement
	January 1, 2020 To be decided by the council January 1, 2021 January 1, 2020

As of the date of issuance of this parent company only financial report, the Company continues to assess the impact of the above criteria and interpretation on the financial position and operating results of the Company and will be disclosed when the evaluation is completed.

IV. Summary of significant accounting policies

The notes to major accounting policy adopted for preparing the financial report of the parent company only are specified hereunder. The following accounting policies have been consistently applied during the presentation period of this parent company only financial statement.

(I) Statement of Compliance

This parent company only financial statement is prepared in accordance with the “Criteria for the Compilation of Financial Statements by Securities Issuers”.

(II) Basis of Preparation

1. Basis for measurement

In addition to the following important items in the balance sheet, the individual

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

financial statements are prepared in accordance with the historical cost basis:

• (1) Financial assets (for sale) at fair value through other comprehensive gains and losses

(2) The net defined benefit liability is measured by the fair value of the assets of the pension fund minus the present value of the defined benefit obligation and the upper limit impact as stated in Note 4[18].

2. Functional and presentation currencies

Each vehicle of the consolidated company makes the currency of the primary economic environment its functional currency. The parent company only financial statements are prepared in the Company’ s functional currency, NT Dollar. All of the financial information presented in NTD should be held presented in NTD 1,000 as the currency unit.

(III) Foreign currency

1. Transactions in foreign currencies

Foreign currency transactions are converted into the functional currency using exchange rates as at the date of transaction. The monetary items denominated in the foreign currency on the reporting date shall be stated at the functional currency translated at the exchange rate on the same day. The exchange gain or loss refers to the difference between the amount upon adjustment of the valid interest, payment on the same period based on the amortized cost denominated in the functional currency, the amount translated from the amortized cost denominated in foreign currency at the exchange rate on the reporting date.

The foreign currency non-monetary item measured at fair value is translated into functional currency in accordance with the exchange rate on the valuation date. The foreign currency non-monetary item valued at historical cost is translated in accordance with the exchange rates on the transaction date.

Except for non-monetary equity instruments (available for sale) that are measured at fair value through other comprehensive income, the foreign currency exchange difference arising from translation of financial liabilities designated as hedges of foreign institution’s net investment or cash flow hedge is recognized in “Other comprehensive profit or loss” while others are recognized in “Profit or loss.”

2. Foreign operations

Foreign institution’s assets and liabilities include goodwill arising on acquisition and fair value adjustments that are translated into the functional currency on the reporting date. Except for highly inflationary economy, income and expenses are translated into the functional currency in accordance with the current average exchange rates; also, the resultant exchange differences are recognized in “Other comprehensive profit or loss.”

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

When the disposal of a foreign operation causing a loss of control, loss of joint control, or significant influence, the cumulative exchange difference related to the foreign operation is entirely reclassified as “Profit or loss.” If some of the foreign institution’s subsidiaries are disposed of, the related cumulative exchange difference is proportionally re-attributed to the non-controlling equity. If the disposition involves any affiliate or joint venture of the foreign operations, the relevant accumulated exchange difference shall be reclassified into income on a pro rata basis.

For the foreign institution’s monetary receivable or payable, if there is no settlement plan available and without possibility in the foreseeable future to be settled, the resulted foreign exchange gains and losses is deemed as the foreign institution’s net investment and is recognized in “Other comprehensive profit or loss.”

• (IV) Classification of current and non-current assets and liabilities

Assets that match any of the following criteria are classified as current assets; assets that do not fall into the current category are classified as non-current assets:

1. The asset is expected to be realized, sold or depleted over normal business cycles.

2. The asset is held for the purpose of trading.

3. The asset is expected to be realized within the 12 months after the balance sheet date; or

4. The asset is cash or cash equivalent, except where the asset is exchanged or used to liquidate the liability at least 12 months after the reporting period.

Liabilities that match any of the following criteria are classified as current liabilities;

liabilities that do not fall into the current category are classified as non-current liabilities:

1. The liability is expected to be settled during the normal business cycle.

2. The liability is held for the purpose of trading.

3. Expected to be settled within 12 months after the balance sheet date; or

4. Liabilities that have not been unconditionally deferred to at least 12 months after the reporting period Liabilities with terms that give counterparties the option to be repaid in the form of equity instruments without affecting their classification.

5. (V) Cash and cash equivalent

Cash includes cash on hand and demand deposits. Cash equivalent refers to short-term investments with high liquidity and insignificant risk of changes in value that are readily convertible to of cash. A term deposit that meets the foregoing definition and holds a purpose that satisfies a short-term cash commitment rather than an investment or other purpose is stated in cash.

• (VI) Financial instruments

• Financial assets (applicable from and after January 1, 2018)

Financial assets of the Company are classified as financial assets measured at

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

amortized cost and financial assets measured at fair value through other comprehensive profit or loss.

The company reclassified all affected financial assets in accordance with the regulations only when changing the business model for the management of financial assets.

• (1) Financial liabilities valued at amortized cost:

• Financial assets are measured at amortized cost when they meet the following

• conditions and are not specified to be measured at fair value through gains and losses:

• The financial assets acquired under the business model where the objective is to collect contractual cash flows.

• The contractual terms of the financial assets generate cash flows on specific dates, with the sole purpose of payment of principal and interest on the outstanding principal amount.

Initially recognized at fair value plus directly attributable transaction cost. Subsequent measurement is with the use of the effective interest method by having the amortized cost less impairment loss. Interest income, foreign currency exchange gains and losses and impairment losses are recognized in profit or loss. Interest or loss is included in the gains and losses. The financial assets that are purchased or sold in accordance with the general trade practice are processed in accordance with the trade date accounting.

• (2) Financial assets at fair value through other comprehensive gains and losses

• Investments in debt instruments are measured at fair value through other

• comprehensive gains and losses when they meet the following conditions and are not designated to be measured at fair value through gains and losses:

• The financial assets acquired under the business model where the objectives are to collect contractual cash flows and for sale.

• The contractual terms of the financial assets generate cash flows on specific dates, with the sole purpose of payment of principal and interest on the outstanding principal amount.

The Company may make an irrevocable election when the original recognition is made, and the subsequent fair value changes of the investment in equity instruments that are not held for trading are presented in other comprehensive profit or loss. The aforementioned selections are made on a case-by-case basis.

The original recognition is measured at fair value plus directly attributable transaction costs. Subsequently measured at fair value, except for debt instrument investment, foreign currency exchange gains and losses, interest income calculated by

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

effective interest method, and impairment loss and equity instrument investment dividend income (unless it is clearly a recovery of part of the investment cost), are recognized as profit and loss. Changes in the remaining book amounts are recognized as other comprehensive gains and losses and are accumulated under equity as unrealized gains and losses on financial assets measured at fair value through other comprehensive gains and losses. At the time of derecognition, if it is a debt instrument investor, reclassify the accumulated gain or loss under equity to profit or loss; if it is an equity instrument investor, reclassify the accumulated gain or loss under equity to retained earnings, and not to profit and loss. The financial assets that are purchased or sold in accordance with the general trade practice are processed in accordance with the trade date accounting.

Dividend income from equity investments is recognized on the date on which the Company has the right to receive dividends (usually the ex-dividend date). (3) Impairment on financial assets

The Company recognizes the expected credit losses of financial assets (including cash and cash equivalents, bills receivables and receivables, other receivables, deposits and other financial assets) measured by amortized cost, as loss provision.

The loss provision for receivables is measured as the amount of expected credit losses during the lifetime.

Expected credit losses during the period are the expected credit losses arising from all possible defaults during the term of the financial instrument.

The expected credit losses arising from the possible default of the financial instrument in the twelve months following the reporting date (or a shorter period, if the expected duration of the financial instrument is less than twelve months)

The longest period of measurement of expected credit losses is the longest contract period during which the company is exposed to credit risk.

In determining whether the credit risk has increased significantly since the original recognition, the company considers reasonable and supporting evidence (available without excessive cost or effort), including qualitative and quantitative information, as well as analysis based on the company's historical experience, credit assessment and forward-looking information.

If the contract is overdue for more than 120 days, the Company assumes that the credit risk of the financial assets has increased significantly.

If the contract amount is overdue for more than 180 days, or the borrower is unlikely to perform its credit obligations to pay the full amount to the company, the company considers the financial asset to have defaulted.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Expected credit losses are probability-weighted estimates of credit losses for the expected duration of the financial instrument. Credit losses are measured by the present value of all cash shortfalls, which is the difference between the cash flows that the Company can receive based on the contract and the cash flows expected to be received by the Company. Expected credit losses are discounted at the effective interest rate of the financial assets.

In each report, the Japanese company assesses whether there is a credit impairment on debt securities measured by amortization costs and by fair value through other comprehensive gains and losses The financial asset is credit impaired when one or more events that have an adverse effect on the estimated future cash flows of the financial asset have occurred. Evidence of credit impairment on financial assets includes observable information on:

• Major financial difficulties of the borrower or issuer;

• Default, such as delay or overdue for more than one hundred and eighty days;

• Due to economic or contractual reasons related to the financial difficulties of the borrower, the Company gives the borrower a concession that would not have been considered;

• The borrower is likely to claim bankruptcy or other financial restructuring; or

• The active market for this financial asset has disappeared due to financial difficulties.

The loss provision for financial assets measured as amortised cost is deducted from the book value of the asset. The loss provision for the investment in the debt instrument, measured at fair value through other comprehensive gains and losses, is recognised in other comprehensive profit or loss (without reducing the book value of the asset). The provision or recovery amount is recognised in profit or loss.

When the Company cannot reasonably expect the recovery of financial assets in whole or in part, it will directly reduce the total book value of its financial assets. Usually, the Company determines that the debtor's assets or sources of income cannot generate sufficient cash flow to repay the amount of the write-off. However, the written-off financial assets can still be enforced in order to comply with the procedures for the Company to recover the overdue amount.

• (4) Derecognition of financial assets

The company derecognizes financial assets only when the contractual rights on the cash flows from the assets are terminated, or financial assets are transferred and the ownership, risk, and returns of the financial assets have been transferred to other companies.

1. Financial assets (applicable before January 1, 2018)

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

The Company's financial assets are classified into: loans and receivables and financial assets for sale.

• (1) Provision for sale of financial assets.

Such financial assets are designated as non-derivative financial assets that are either for sale or that are not in other categories. The original recognition is measured at fair value plus directly attributable transaction costs; subsequent evaluations are measured at fair value, except for impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency exchange gains and losses on monetary financial assets. In addition to profit or loss, changes in the remaining book value are recognised as other comprehensive gains and losses, and the accumulated unrealized gains and losses on financial assets prepared for sale under equity. IIn derecognition, the accumulated amount of the benefits or losses under the equity is reclassified to profit or loss, and other income and other benefits and losses under the non-operating income and expense. The financial assets that are purchased or sold in accordance with the general trade practice are processed in accordance with the trade date accounting.

If these financial assets are an equity investment “without quoted market price and reliably measured fair value,” they are measured at cost less the amount of impairment loss and it is reported in “Financial assets carried at cost.”

Dividend income from equity investments is recognised on the date on which the Company has the right to receive dividends (usually the ex-dividend date) and is presented in the dividend income item under the non-operating income and expense.

• (2) Loans and accounts receivable

Loans and receivables are financial assets without quoted market price and with fixed or determinable payments, including accounts receivable and other receivables. Initially recognized at fair value plus directly attributable transaction cost. Subsequent measurement is with the use of the effective interest method by having the amortized cost less impairment loss, except for the insignificant interest recognition of short-term receivables. The financial assets that are purchased or sold in accordance with the general trade practice are processed in accordance with the trade date accounting.

Interest income is reported under “Other revenue and expenses” of the “Non-operating income and expenses.”

• (3) Impairment on financial assets

Financial assets that are not carried at fair value through profit and loss are subject to impairment assessments on every reporting date. A financial asset is treated as impaired if there is objective evidence to suggest that the estimated future cash flow

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

may have been impaired due to single or multiple events.

Objective evidence of financial assets impairment includes significant financial difficulty of issuer or obligor, default (such as, interest or principal payments delay or non-performing), the debtor faces possible bankruptcy or other financial reorganization, and active financial assets market disappeared due to financial difficulty. Meanwhile, the fair value of available-for-sale equity investment declining drastically or permanently until it is less than the cost of the equity investment also constitutes objective evidence of impairment.

The individually assessed accounts receivable without impairment is further assessed for impairment on a collective basis. Objective evidence implicating the portfolio of account receivables may include the experience of the company in collection in the past, the increase of delinquent payment beyond the average due dates of the portfolio, and national or regional economic downturn related to the receivables.

For financial assets carried at cost after amortization, impairment is recognized as the difference between the book value and estimated future cash flows discounted at the asset's initial effective interest rate.

For financial assets carried at cost, impairment is recognized as the difference between the book value and estimated future cash flows discounted at the market rate of return of other similar assets. This impairment loss cannot be reversed in subsequent periods.

All financial assets impairment loss is directly deducted from the book value of the financial asset. However, the book value of accounts receivable is adjusted down through the allowance account. The receivable that is concluded to be uncollectible is written off against the allowance account. Previously written off amounts that are recovered subsequently are credited to the allowance account. The changes in book value of allowance evaluation accounts were stated as income.

When the financial assets being sold for sale are impaired, the accumulated benefits and losses previously recognized in other comprehensive gains and losses are reclassified to profit or loss.

For financial assets carried at cost after amortization, the amount of impairment reduced in subsequent periods can be reversed and recognized as current period gains if the reduction is reasonably related to the event that caused the impairment in the first place. However, the reversal cannot produce a book value that is greater than the amount of cost after amortization without impairment as at the date of reversal.

Impairment losses previously recognised in profit or loss are not reversed and recognised as profit or loss. Any increase in the fair value of the impairment loss is

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

recognised in other comprehensive gains and losses and accumulated under other equity items. The amount of the fair value of the provision for the sale of the debt instrument can be reversed and recognized as profit or loss if it can be objectively linked to the event that the impairment loss is recognized in profit or loss.

Expenses related to bad debt and recovery are reported as administrative expense. Impairment loss and recovery of financial assets other than accounts receivable is reported in the “Other gains and losses” of the “Non-operating income and expenses.”

(4) Derecognition of financial assets

The company derecognizes financial assets only when the contractual rights on the cash flows from the assets are terminated, or financial assets are transferred and the ownership, risk, and returns of the financial assets have been transferred to other companies.

When one financial asset is derecognized entirely, the difference between the book value and the total amount of the received or receivable plus the amount recognized in other comprehensive profit or loss and accumulated in “Other equity - unrealized gains and losses of available-for-sale financial assets” is recognized in “profit or loss” and is reported under “Expenses” of the “Non-operating income and expenses.”

When one financial asset is not derecognized entirely, the company based on the relative fair value of each portion on the transfer date has the original book value of the financial asset allocated to the continuingly recognized portion and the derecognized portion. The difference between the book value allocated to the derecognized portion and the total amount of the consideration received for the derecognized portion plus any cumulative gain or loss recognized in other comprehensive profit or loss that is allocated to the derecognized portion is recognized in “profit or loss;” also, it is reported under “Expenses” of the “Non-operating income and expenses.” Cumulative gains or losses that were previously recognized in other comprehensive income shall be proportionally allocated to the remaining and the removed assets according to their fair value weights. 3. Financial liabilities and equity instruments

• (1) Classification of liabilities or equity

The debt and equity instruments issued by the company are classified as financial liability or equity in accordance with the substance of contractual agreements and the definition of financial liabilities and equity instruments.

Equity instruments are the contracts commending the company’s residual equity of assets net of liabilities. The equity instruments issued by the company are recognized at the purchase price net of the direct issue cost.

Interest and loss or interest related to financial liabilities are recognized as profit or

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

loss and are presented in the non-operating income and expense under disposition of investment and financial liabilities.

The financial liabilities shall be re-classified into equity at the time of conversion, and no income is generated from the conversion.

• (2) Other financial liabilities

For the financial liability that is not available-for-sale and is not designated to be measured at fair value through profit and (including long-term and short-term loans, notes payable, accounts payable, and other payables), it was initially recognized at fair value plus any directly attributable transaction cost. Subsequently measured with the effective interest rate method at amortized cost. Interest expense that is not capitalized as assets cost is reported in the “Finance cost” of the “Non-operating income and expenses.”

• (3) Derecognition of financial liabilities

The company will have financial liabilities derecognized when the contractual obligation is performed, discharged, or expired.

When financial liability is derecognized, the difference between the book value and the total consideration paid or payable (including any non-cash assets transferred or liabilities assumed) is recognized as profit or loss and is reported in the “Gains and losses from disposition of investment and liabilities” of the “Non-operating income and expenses.”

• (4) Offset of financial assets and liabilities

Financial assets and financial liabilities can offset against each other only when the company has legal right to conduct offsetting and has intention for net settlement or liquidating asset and settling liability simultaneously; also, shall be expressed in net amount on the balance sheet.

• (VII) Inventory

Inventories are measured at the lower of cost or net realizable value. The cost should include the costs of acquisition, production or processing or others incurred when the inventory is sellable or producible and at the location where the inventory is sellable or producible, and calculated under weighted average method. The costs of inventories for finished goods and work in process include the manufacturing expenses amortized based on the normal productivity on a pro rata basis.

Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs under the normal operation.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(VIII) Investment in affiliated enterprises

Affiliated enterprise is one that the company has significant influence but no control or consolidated control over its financial and operating policies.

The company uses the equity method to manage equity of affiliated enterprises.

Under equity method, the original acquisition is recognized at cost and the investment cost includes transaction cost. The book value of investment in affiliates includes the goodwill identified at the time of initial investment less any accumulated impairment loss.

The parent company only financial report includes the period from when significant influence is exercised to the date when significant influence has ceased. After adjustments made in accordance with the company’s accounting policies, the company recognizes the affiliate’s profit or loss and other comprehensive income proportionately by equity. When the affiliate has equity changes in non-income and other comprehensive income that do not affect the company's shareholding in the affiliate, the company can recognize their proportionate share as capital reserve.

The unrealized gains arising from the transactions conducted between the company and the affiliated enterprise has been written off within the range of the invested company’s equity held by the company. The unrealized loss shall be derecognized in the same manner applicable to unrealized gains, provided that the unrealized loss is limited to that arises under no impairment evidence is available.

When the loss in the affiliated enterprise recognized proportionally by the company equals or exceeds its interest in the affiliated enterprise, stop recognizing loss; also, only recognizes additional loss and related liability upon the occurrence of a legal obligation, constructive obligations, or prepayment made on behalf of the invested company.

(IX) Investments in subsidiaries

In compiling the financial statements for the individual entities, the company shall valuate the investee of which the company has dominant control under the equity method. Under the equity method, income of current period and other comprehensive incomes as presented in the financial statement of the individual entity shall be identical with the income of current period and other comprehensive incomes attributable to the proportion allocated to the parent shareholder as presented in the financial statement prepared on the basis of consolidation. The shareholders’ equity as presented in the financial statement of the individual entities shall be identical with the parent shareholders’ equity as presented in the financial statement prepared on the basis of consolidation.

If the company’s equity ownership change in a subsidiary does not result in loss of control, it is treated as equity transaction with the shareholders.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION Notes to the Financial Statements

(X) Joint Agreement

A joint agreement is an agreement with more than two parties with joint control. A joint agreement includes joint operations and joint ventures with the following characteristics: (a) the parties to the agreement are bound by contractual agreement; (b) at least two of the parties to the contractual agreement have joint control over the agreement. IFRS No. 11 “Joint Agreement” defines joint control as a contractual agreement to share control over an agreement, which is only relevant to decisions related to the activities (i.e. activities that have a significant impact on the remuneration of the agreement). It must exist when the parties to the sharing control must agree.

A joint venture is a joint agreement whereby the parties to the joint control of the agreement (i.e. the joint venturer) have rights to the net assets of the agreement. The JV shall recognize its joint venture interest as an investment and use the equity method to process the investment in accordance with IAS 28, unless the enterprise exempts from the application of the equity method in accordance with the provisions of the standard.

In the assessment of the classification of the joint agreement, the Company has considered the structure of the agreement, the legal form of the individual vehicle, the terms of the contractual agreement and other facts and circumstances. When evaluating the classification of a joint agreement, only the structure of the contract is considered. The company has reassessed its participation in the joint agreement and reclassified the investment from "joint control individuals" to "joint ventures". Although the investment has been reclassified, its accounting treatment continues to use the equity method and therefore has no impact on the recognized consolidated entities’ assets, liabilities and comprehensive income profit or loss.

(XI) Investment property

Investment property is held for earning rent income or for capital appreciation, or both, rather than for normal business operation, for sale, used in production, for supply of goods or services, or for administrative purposes. Investment property is initially recognized at cost and then subsequently measured at cost again. The depreciation expense is appropriated in accordance with the depreciable amount after the initial recognition. The depreciation methods, useful lives, and residual values of investment property are same as the practice of the property, plant, and equipment. Cost includes the expense that can be directly attributable to the real estate acquired. The cost of the self-constructed investment property includes materials, direct labor, and directly attributable cost and capitalized loan cost to have the investment property ready for use.

If the intended use of an investment property is changed and it is then reclassified as property, plant, and equipment, the reclassification is made in accordance with the book

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

value at the time of changing the intended use.

• (XII) Property, plant, and equipment

• Recognition and measurement

The property, plant, and equipment is recognized and measured in accordance with the cost model; also, it is measured in accordance with the cost net of accumulated depreciation and accumulated impairment. The original cost includes all cash outlays directly related to the acquisition of the asset. The costs of self-built assets include the costs of raw materials and direct labor, any other costs directly attributable to usable status of investment assets, costs of dismantling and removal of the items and recovery of premises, and loan cost that meets the requisite asset capitalization. In addition, cost also includes the purchase of property, plant and equipment denominated in foreign currencies, a portion of effective cash flow hedge transferred from equity. Software purchased to enable the functionality integration of related equipment is also capitalized as equipment.

When property, plant, and equipment contain different parts and each part is relatively significant comparing to the total cost of the project and the use of different depreciation rates or methods is more appropriate, it will be deemed and processed as a separate item from the property, plant, and equipment (major component).

The gain or loss from the disposition of property, plant, and equipment is based on the difference between the book value and the disposal amount; the net amount is recognized as “Other gains and losses”.

2. Subsequent costs

If the anticipated economic benefits of subsequent spending on real properties, plant and equipment probably inflow into the company and the amount can be reliably measured, recognize the spending as a part of the book value of this title and the book value of replacement shall be removed. The routine maintenance and repairs of property, plant and equipment shall be stated as income when incurred.

3. Depreciation

Depreciation is computed at the cost of an asset less its residual value over the estimated useful lives in accordance with the straight-line method. Also, it is assessed by the significant part of the asset. If the useful life of a part of the asset is different from the rest of the asset, the said part should be depreciated separately. Depreciation is recognized as an expense through profit and loss.

Land is not depreciated.

Maturity and estimation of useful life:

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(1) Building and structure 2 ~ 55 years (2) Machinery and equipment 2 ~ 15 years (3) Transportation equipment 5 years (4) Office equipment 3 ~ 8 years (5) Other equipment 2 ~ 15 years

The company inspects the depreciation method, useful lives, and residual values at least once every year. If the expected value is different from the previous estimate, if necessary, it will be appropriately adjusted. The said changes made will be handled in accordance with the requirements of accounting estimates.

4. Reclassified to investment property

When the intended for own-use property is changed to as investment property, the property should be reclassified in accordance with the book value at the time of changing the intended use as investment property.

(XIII) Lease

1. Lessor

The rent income from operating leases is recognized as income over the period of the lease in accordance with the straight-line method. The original direct cost generated from negotiation and arrangement for business lease plus the book value of leased assets shall be stated as expenses on a straight-line basis over the lease term. The total incentives provided to the lessee for achieving the lease arrangement is credited to the rent income over the period of the lease in accordance with the straight-line method.

Contingent lease payment shall be stated as the current revenue when the lease adjustment is confirmed.

2. Lessee

The leases are operating leases and these leased assets are not recognized in the company's balance sheet.

The rent payment for operating lease (excluding insurance and maintenance service cost) is recognized as expenses over the period of the lease in accordance with the straight-line method. The total incentive provided by the lessor for achieving the lease arrangement is debited to the rent expense over the period of the lease in accordance with the straight-line method.

(XIV) Non-financial assets impairment

For the non-financial assets other than the assets generated from inventories, deferred income tax assets, and employee benefits, the Company at each reporting date assesses whether impairment occurred and estimates the recoverable amount of the assets indicating impairment. If the recoverable amount of an individual asset cannot be estimated, the

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

company estimates the recoverable amount of the cash-generating unit the asset belongs to in order to assess impairment.

The recoverable amount is the fair value of an individual asset or cash-generating unit less selling cost and the value in use whichever is higher. In assessing value in use, the estimated future cash flows are translated using the pre-tax discount rate to the present value. The discount rate should reflect the current market's assessment of the time value of money and the specific risks to the asset or cash-generating unit.

If the recoverable amount of an individual asset or cash-generating unit is less than the book value, the book value of the individual asset or cash-generating unit is adjusted down to the recoverable amount with impairment loss recognized. The impairment loss shall be stated as the current income immediately.

The company shall assess any possible sign of impairment at the end of each reporting period. The recognized impairment of non-financial assets beyond good will in previous years may no longer exist or is reduced. If the estimate used to decide the collectible amount is changed, the impairment loss shall be reversed to increase the book value of the individual asset or cash generation unit until it is equivalent to the collectible amount, provided that it shall not make the Book Value of the assets more than the amortized cost when no impairment losses of the assets are recognized.

(XV) Liabilities reserve

The recognition of provision for liabilities is the current obligation of past events to the extent that the company may have to outflow resources of economic benefit in the future to perform the obligations and the amount of such obligation could be assessed with reliability. The liability provision is discounted to reflect the current pre-tax discount rate of the market's time value of money and the specific risk assessment of the liability. The discounted amortisation is recognized as financial cost.

(XVI) Treasury stock

The proceeds (including the payment directly attributable to the cost) for the repurchase of company shares by the company shall be recognized as “treasury shares” net of applicable taxes, and as a debit item of equity. Where the gain on disposal of treasury stock is higher than the book value, the difference shall be credited under the title “additional paid-in capital-transaction of treasury stock”. Where the gain is lower than the book value, the difference is offset against the additional paid-in capital generated from the transactions of treasury stock under the same type. Any deficits thereof shall be debited as retained earnings. The book value thereof is calculated based on the weighted average method according to the type of stock (common stock or special shares) and causes for the withdrawal.

Cancellation of treasury stock shall be credited under the title “treasury stock”, and

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

debited as “additional paid-in capital-stock premium” and “capital stock”. Where the book value of treasury stock is higher than the total of the book value and stock premium, the balance is offset against the additional paid-in capital generated from the transactions of treasury stock under the same type. Any deficits thereof shall be debited as retained earnings. Where the book value of treasury stock is lower than the total of the book value and stock premium, the difference should be credited as the additional paid-in capital generated from the transactions of treasury stock under the same type.

(XVII) Revenue Recognition

1. Revenue from customer contracts (applicable from and after January 1, 2018)

Revenue is measured by the amount of consideration that is expected to be obtained based on the transfer of goods or services. The company recognizes income when the control of goods or services is transferred to the customer and the performance obligation is met. The company's main income items are as follows:

(1) Sale of wheaten food products

The company processes and distributes wheaten food products like flour, wheat bran, wheat grains, wheat germs and pasta; and sells them through the various major channels. The company recognizes revenue when it transfers control of the product. Control transfer of the product means that the product has been delivered to the customer, and the customer can completely determine the sales channel and price of the product, and has no impact on the customer's unfulfilled obligation to accept the product. The delivery occurs when the product is shipped to a specific location, the risk of loss has been transferred to the customer, and the customer has accepted the product under the sales contract, the acceptance terms have lapsed, or the company has objective evidence that all acceptance conditions have been met.

When the company sells products such as flour to distributors, it provides quantity discounts to customers based on the volume if the pre-defined threshold of shipment has been met. The Company recognizes revenue based on the contract price minus the estimated net discount. The discount is estimated based on accumulated experience from past transactions and the expectation of low returns.

The Company sells products and pays commissions and listing fees to customers in accordance with the contract. Since these payments do not result in the transfer of goods or services that can be distinguished by the customer, they are considered reduction in transaction price and income.

The company recognizes the accounts receivable at the time of delivery of the goods, as the company has the right to charge the price unconditionally at that time.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

• (2) Financial Components

The company expects the time lapse between when the customer contracts will transfer goods or services to customers until the customer's payment for the goods or services to be no more than one year. Hence, the company does not adjust the currency time value of the transaction price.

1. Revenue recognition (applicable before January 1, 2018)

2. (1) Sale of products

The revenue generated from sale of goods in normal activities is stated at the fair value of received or receivable consideration after taking the sale returns, sales discount and quantity discount into consideration. The revenue shall be recognized when there is persuasive evidence (normally an executed sale agreement), major risk and return over the ownership are transferred to the buyer, it is very likely to collect the payment, the related cost and possible sale return may be estimated reliably, participation in management of products is discontinued and revenue may be measured reliably. If a discount is likely to be incurred and the amount thereof may be measured reliably, it shall be stated as deduction from revenue when the sale is recognized.

The timing of transfer of risk and return shall be subject to the individual provisions in the sale agreement. The export transaction mainly takes delivery from the point of delivery. The risk and remuneration are transferred to the buyer when the goods are shipped on board. For domestic sales, the risks and rewards are usually transferred when the goods are delivered to the customer's warehouse for acceptance.

• (2) Rental income

The rent income arising from investment property is recognized in accordance with the straight-line method over the lease period; also, the given l ease incentives is deemed as part of the overall rent income and it is credited to the rent income in accordance with the straight-line method over the lease period. The income generated from the sublease of property is recognized in the “Rent income” of the operating income.

(XVIII) Employee welfare

1. Defined contribution plan

The defined contribution plan obligation is recognized as employee welfare expense during the labor service period.

2. Defined benefit plan

The retirement pension plan that is not a defined contribution plan is a defined benefit plan. The consolidated company’s net obligation under the defined benefit plan is the future benefits earned by employees currently or in the past and it is discounted to present

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

value. The fair value of any planned assets is deducted. Discount rate is based on the interest rate that is with a maturity date close to the net obligation deadline of the company and the currency of denomination same as the market yield rate of government bonds for the expected benefit payment on the reporting date.

Enterprise’s annual net obligation is calculated by a qualified actuary with the use of a projected unit welfare method. When the results of the calculation are in the interest of the company, the recognized assets are limited to the total amount of the present value of the economic benefits that can be obtained in the future by means of funds refunded from the scheme or by reducing future transfers to the scheme. The calculation of the present value of any economic benefits shall consider the minimum capital appropriation requirement applicable to any plan of the company. If the benefit can be realized during the project period or when the project liabilities settled, it means economic benefit to the company.

When the content of the planned welfare is improved, the welfare increase due to the service performed by the employees is recognized in profit or loss accordingly.

The re-measurement of net defined benefit liabilities (assets) includes (1) actuarial gains and losses; (2) planned asset remuneration, excluding the amount of net interest included in net defined benefit liabilities (assets); and (3) asset cap impact Any change in the number, but does not include the amount of net interest included in the net defined benefit liability (asset). The net determined benefit liabilities (assets) re-measurement is recognized under other comprehensive profit and loss items. The company will recognize the revaluation of defined benefit plan as retained earnings

The company shall have the curtailment or settlement gain or loss of the defined benefit plan recognized upon occurrence. The reduction or settlement of profit or loss includes changes in the fair value of any planned assets and changes in the present value of the defined benefits obligation.

1. Other long-term employee benefits

In addition to the pension plan, the company has long-term employee benefits. Its net obligation is calculated using the projected unit welfare method. The amount is measured by the discounted present value of future benefits earned by the employee in the current or past provision of the service, less the fair value of any related assets. The discount rate is the interest rate of high-quality corporate debt with a similar maturity to that of the company’s or market rate of government bonds on the company’s reporting date. All actuarial gains and losses are recognized as profit or loss in the period in which they are incurred.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

4. Short-term employee benefits

Short-term employee benefit obligation is measured on an undiscounted basis and is recognized as expense when the related services are provided.

For the short-term cash bonus or the amounts expected to be paid under the bonus plan, if the company has a present legal or constructive obligation to pay for the services rendered by employees before and the obligation can be estimated reliably, the amount is recognized as a liability.

(XIX) Income tax

The tax expense for the period comprises current and deferred tax. Income tax expense and realization of deferred taxes are recognized through profit and loss, except in the case of corporate merger or special circumstances where such amounts need to be taken directly to equity or other comprehensive income.

Current income tax comprises of income taxes receivable/payable, which is calculated by applying the statutory tax rate or any effective tax rate as at the reporting date to current year's taxable income (or loss), and any adjustments to income tax payable in previous years.

Deferred tax represents the tax impact of temporary differences between figures presented in the financial statements and figures used for taxation basis. Temporary differences arising from the following circumstances shall not be recognized as deferred income tax:

1. Assets or liabilities recognized initially in the transactions other than combined business, and the accounting profit and taxable income (loss) remain unaffected at the time of transaction.

2. Generated from investment in subsidiaries and joint ventures and very unlikely to be reversed in the foreseeable future.

3. Initial recognition of goodwill.

Deferred tax is calculated using the tax rate expected to be effective at the time the asset is realized or the time liability is settled. In this financial report, the statutory tax rate or effective tax rate as at the reporting date was used for calculation.

The company will offset deferred income tax assets and deferred income tax liabilities only when the following conditions are satisfied:

1. When the Company is entitled to the right to offset the current income tax assets against the current income tax liabilities; and

2. The deferred income tax assets and deferred income tax liabilities are related to the subjects on whom the same tax collection authority imposed the income tax;

3. (1) The same subject; or

4. (2) Different subjects, but each subject desire to repay the assets and liabilities on a net

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

basis or concurrently realize and repay the assets and liabilities in each of the following periods in which the major deferred income tax assets are expected to recovered and deferred income tax liabilities are expected to be repaid.

Unused tax losses and tax credits can be added to deductible temporary differences and recognized as deferred tax assets, to the extent that the Company is likely to earn taxable income to offset against. Deferred tax assets are evaluated on each reporting date; tax benefits that are not likely to be realized will be reduced.

(XX) Earnings per share

The company lists the basic and diluted earnings per share of the common stock shareholders of the Company. Basic earnings per share are calculated by dividing the amount of profits attributable to the Company's ordinary shareholders with the weighted average number of outstanding ordinary shares for the given period. The consolidated company’s diluted earnings per share is to have the profit or loss of the Company’s common stock shareholder and the weighted average number of outstanding common stock shares calculated after having the effect of the potential diluted common stock adjusted respectively.

(XXI) Department information

The Company had segment information disclosed in the consolidated financial statements; therefore, segment information was not disclosed in the individual financial statements.

V. Sources of uncertainty to significant account judgments, estimates, and assumptions

When the management has individual financial statements prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Firms,” judgments, estimates, and assumptions are made regarding its impact on the adoption of accounting policies and the reporting amount of the assets, liabilities, revenues, and expenses. The actual results may differ from estimates.

Management will continue to review estimates and assumptions. Changes in accounting estimates will be recognized in the period of change and future periods affected.

Hypotheses and estimates involve uncertainty and significant risks causing a material adjustment within the year, as follows:

(I) Evaluation of inventory

As the inventory is measured at the lower of cost and net realizable value, at reporting date, the Company assesses the inventory value due to normal wear and tear, obsolescence or no market sales, and reduces the inventory cost to the net realizable value. This inventory evaluation is mainly based on the estimation of product demand in a specific period in the

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

future, so significant changes may occur due to rapid industrial changes. Please refer to Note 6 [7] for the inventory evaluation.

• (II) Revenue Recognition

The Company estimates the possible sales returns and discounts based on historical experience, market and economic conditions and other known reasons, and includes these in the sales of the products in the period in which the sales are deducted. The Company regularly reviews the reasonableness of the estimates. However, factors such as market price competition and economic sentiment may cause significant adjustments to this estimated amount.

VI. Notes to major account titles

• (I) Cash and cash equivalent

Cash Demand deposits Time deposits Cash and cash equivalents listed in the Statement of Cash	December 31, 2018 $ 464 188,706 233,810	December 31, 2017 1,178 156,942 219,379
	$ 422,980	377,499

Flows:

Please refer to Note 6[22] for the interest rate risk and sensitivity analysis disclosure of

the company’s financial assets and liabilities.

• (II) Financial assets at fair value through other comprehensive income

Equity instruments at fair value through other comprehensive income Domestic listed (Cabinet) company shares Non-Domestic listed (Cabinet) company shares Total	December 31, 2018 $ 4,065,994 501,064
	$ 4,567,058

The company's holdings of these equity instruments are long-term strategic investments and not for trading purposes and have therefore been designated to be measured at fair value through other comprehensive gains and losses. Financial assets for sale and financial assets measured at cost as at December 31, 2017.

The Company did not dispose of strategic investments in 2018. During the period, accumulated profits and losses were not transferred within the equity.

Please refer to Note 6[22] for information on credit and market risks.

None of the above financial assets have been provided as collateral guarantees.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(III) Financial assets for sale

Domestic listed (Cabinet) company shares	December 31, 2017 $ 4,145,716

The above investment targets are listed in the financial assets measured at fair value through other consolidated gains and losses December 31, 2018. Please refer to Note 6[2]. Please refer to Note 6[22] for information on credit and market risks.

None of the above financial assets have been provided as collateral guarantees. (IV) Financial assets at cost

Non-Domestic listed (Cabinet) company shares	December 31, 2017 $ 432,675

The above stock investments held by the company were measured at December 31, 2017 on the basis of cost minus impairment, and were classified as financial assets measured at fair value through other comprehensive gains and losses on December 31, 2018. Please refer to note 6[2].

Please refer to Note 6[22] for information on credit and market risks.

None of the above financial assets have been provided as collateral guarantees.

(V) Notes receivables, accounts receivables and collections

Receivable notes Accounts receivable Collections Less: Allowance for loss	December 31, 2018	December 31, 2017 200,526 496,128 70 (832)
	$ 237,998 491,281 - (831)
	$ 728,448	695,892

The Company adopted a simplified approach to the estimation of expected credit losses for all bills receivables and accounts receivable as at December 31, 2018, using expected credit losses for the duration of the measurement. Notes and accounts receivables are grouped according to the common credit risk characteristics that represent the ability of the customer to pay all of the maturity amounts in accordance with the terms of the contract, and have included forward-looking information, including general economic and related industry information. Analysis of the expected credit losses of notes receivable and accounts receivable as at December 31, 2018 is as follows:

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Book value of notes and accounts receivable Weighted average expected credit loss rate Expected credit loss during the allowance period Not overdue $ 716,861 0.00%~0.03% 142 Less than 30 days 11,677 0.76% 89 Overdue for 31~60 days 145 2.66% 4 Overdue more than 181 days 596 100.00% 596 $ 729,279 831 December 31, 2017 the company used the credit loss model to value the bad debt provision for accounts receivable, notes receivable and collections. The ageing analysis of the notes receivable, accounts receivable and collections that were overdue but not impaired as at December 31, 2017 are as follows: December 31, 2017 Less than 60 days $ 17,026 Overdue for 61~180 days 267 $ 17,293 Changes in allowances for notes receivable, accounts receivable and collections of the Company in the years of 2018 and 2017 are as follows: 2017 2018 Impairment loss evaluated individually Impairment loss evaluated by group Opening balance (according to IAS39) $ 832 265 119 Adjustment per initial application of IFRS 9 - Opening balance (according to IFRS 9) 832 Recognized impairment loss (recovery) (1) 401 47 Balance – ending $ 831 666 166	Book value of notes and accounts receivable Weighted average expected credit loss rate Expected credit loss during the allowance period Not overdue $ 716,861 0.00%~0.03% 142 Less than 30 days 11,677 0.76% 89 Overdue for 31~60 days 145 2.66% 4 Overdue more than 181 days 596 100.00% 596 $ 729,279 831 December 31, 2017 the company used the credit loss model to value the bad debt provision for accounts receivable, notes receivable and collections. The ageing analysis of the notes receivable, accounts receivable and collections that were overdue but not impaired as at December 31, 2017 are as follows: December 31, 2017 Less than 60 days $ 17,026 Overdue for 61~180 days 267 $ 17,293 Changes in allowances for notes receivable, accounts receivable and collections of the Company in the years of 2018 and 2017 are as follows: 2017 2018 Impairment loss evaluated individually Impairment loss evaluated by group Opening balance (according to IAS39) $ 832 265 119 Adjustment per initial application of IFRS 9 - Opening balance (according to IFRS 9) 832 Recognized impairment loss (recovery) (1) 401 47 Balance – ending $ 831 666 166	Book value of notes and accounts receivable Weighted average expected credit loss rate Expected credit loss during the allowance period Not overdue $ 716,861 0.00%~0.03% 142 Less than 30 days 11,677 0.76% 89 Overdue for 31~60 days 145 2.66% 4 Overdue more than 181 days 596 100.00% 596 $ 729,279 831 December 31, 2017 the company used the credit loss model to value the bad debt provision for accounts receivable, notes receivable and collections. The ageing analysis of the notes receivable, accounts receivable and collections that were overdue but not impaired as at December 31, 2017 are as follows: December 31, 2017 Less than 60 days $ 17,026 Overdue for 61~180 days 267 $ 17,293 Changes in allowances for notes receivable, accounts receivable and collections of the Company in the years of 2018 and 2017 are as follows: 2017 2018 Impairment loss evaluated individually Impairment loss evaluated by group Opening balance (according to IAS39) $ 832 265 119 Adjustment per initial application of IFRS 9 - Opening balance (according to IFRS 9) 832 Recognized impairment loss (recovery) (1) 401 47 Balance – ending $ 831 666 166	Book value of notes and accounts receivable Weighted average expected credit loss rate Expected credit loss during the allowance period Not overdue $ 716,861 0.00%~0.03% 142 Less than 30 days 11,677 0.76% 89 Overdue for 31~60 days 145 2.66% 4 Overdue more than 181 days 596 100.00% 596 $ 729,279 831 December 31, 2017 the company used the credit loss model to value the bad debt provision for accounts receivable, notes receivable and collections. The ageing analysis of the notes receivable, accounts receivable and collections that were overdue but not impaired as at December 31, 2017 are as follows: December 31, 2017 Less than 60 days $ 17,026 Overdue for 61~180 days 267 $ 17,293 Changes in allowances for notes receivable, accounts receivable and collections of the Company in the years of 2018 and 2017 are as follows: 2017 2018 Impairment loss evaluated individually Impairment loss evaluated by group Opening balance (according to IAS39) $ 832 265 119 Adjustment per initial application of IFRS 9 - Opening balance (according to IFRS 9) 832 Recognized impairment loss (recovery) (1) 401 47 Balance – ending $ 831 666 166	Expected credit loss during the allowance period 142 89 4 596
				831
		Impairment loss evaluated individually 265 401
	832 (1)
	$ 831	666		166

December 31, 2017 the company used the credit loss model to value the bad debt provision for accounts receivable, notes receivable and collections. The ageing analysis of the notes receivable, accounts receivable and collections that were overdue but not impaired as at December 31, 2017 are as follows:

Changes in allowances for notes receivable, accounts receivable and collections of the Company in the years of 2018 and 2017 are as follows:

None of the above financial assets are used to guarantee long-term borrowings and financing.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(VI) Other receivables

Other receivables - loans to subsidiaries Others	December 31, 2018 $ 383,387 7,379	December 31, 2017 179,632 63,490
	$ 390,766	243,122

The above other receivables are based on historical experience and are expected to have no expected credit losses due to defaults during the duration of the period, so it is estimated that the expected credit loss rate is zero.

(VII) Inventory

December 31, 2018 Raw materials and consumables $ 543,390 Work in progress 40,902 Finished goods 124,873 $ 709,165 The company’s operating cost as of 2018 and 2017 is as follows: 2018 Cost of sale $ 3,187,246 Processing cost 5 Rental cost 99,024 Idle capacity 14,748 Provision for inventory devaluation and obsolescence losses (revaluation gains) (263) Downstream income (100) $ 3,300,660	December 31, 2018 $ 543,390 40,902 124,873	December 31, 2017 663,011 40,604 115,473
	$ 709,165	819,088
		2017 2,890,507 314 98,429 4,360 947 (140)
	$ 3,300,660	2,994,417

As of 2018 and December 31, 2017, the company's inventories were not used as collateral guarantees.

• (VIII) The investment under equity method

The company’s investment under equity method on the reporting date is as follows:

Subsidiaries Affiliated enterprises	December 31, 2018 $ 3,708,073 16,485,622	December 31, 2017 2,286,228 17,299,084
	$ 20,193,695	19,585,312

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

1. Subsidiaries

Refer to the consolidated financial statements of FY2018

2. Affiliated enterprises

The information about affiliates important to the Company is stated as following:

Name of Affiliate	Nature of relationship with the company	Principal business place/countr y where the company is registered	Proportion of ownership and voting right	Proportion of ownership and voting right
			December 31, 2018	December 31, 2017
UPC Technology Corp. Linde Lienhwa Industrial Gases Co., Ltd MiTAC Inc.	The main business is the production and marketing of organic acids, anhydride and its derivative plastic toughening agent, an affiliated business. The main business is the production of liquid, helium, hydrogen, acetylene and other industrial gases, and is an affiliate of the company. The main business is in system integration service automation, application software design and industrial computer sales, and is an affiliate of the company.	Taiwan Taiwan Taiwan	32.39% 50.00% 35.46%	31.66% 50.00% 35.50%

For those listed affiliated enterprises that are significant to the Company, the fair value is as follows:

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

December 31, 2018 December 31, 2017 UPC Technology Corp. and subsidiaries $ 4,786,145 6,942,833 Aggregate financial information about the company's significant affiliates is as follows. This financial information has been adjusted to include the amounts disclosed in the consolidated financial reports of the affiliated enterprises in accordance with GAAS; and reflect the fair value adjustments made by the company in obtaining the shares of the affiliated enterprises and the adjustments made to the differences in accounting policies: (1) Aggregated financial information of UPC Technology Corp. and subsidiaries December 31, 2018 December 31, 2017 Current assets $ 20,662,769 20,601,738 Non-Current assets 25,107,080 24,408,241 Current liabilities (10,529,011) (15,075,247) Non-current liabilities (15,466,775) (8,670,826) Net assets $ 19,774,063 21,263,906 Net assets attributable to the owner of the invested company $ 19,774,063 21,263,906 2018 2017 Operating Revenue $ 61,258,498 50,600,125 Profit (loss) of continuing operations $ 753,610 2,342,413 Other consolidated income/loss (1,495,817) 1,107,331 Total comprehensive income $ (742,207) 3,449,744 Comprehensive profit (loss) attributable to the owner of the invested company $ (742,207) 3,449,744 Opening balance of the company’s share of the net assets of the affiliated enterprises $ 6,643,050 5,621,188 Implications of the retroactive application of the new standards to affiliated enterprises recognized this period 49,084 - Comprehensive profit (loss) attributable to the company (240,491) 1,065,363 Increase in affiliated enterprises 243,870 167,283 Dividends received from affiliated enterprises in the current period (381,851) (210,784) Closing book value of the company's equity in affiliated enterprises $ 6,313,662 6,643,050	December 31, 2018 December 31, 2017 UPC Technology Corp. and subsidiaries $ 4,786,145 6,942,833 Aggregate financial information about the company's significant affiliates is as follows. This financial information has been adjusted to include the amounts disclosed in the consolidated financial reports of the affiliated enterprises in accordance with GAAS; and reflect the fair value adjustments made by the company in obtaining the shares of the affiliated enterprises and the adjustments made to the differences in accounting policies: (1) Aggregated financial information of UPC Technology Corp. and subsidiaries December 31, 2018 December 31, 2017 Current assets $ 20,662,769 20,601,738 Non-Current assets 25,107,080 24,408,241 Current liabilities (10,529,011) (15,075,247) Non-current liabilities (15,466,775) (8,670,826) Net assets $ 19,774,063 21,263,906 Net assets attributable to the owner of the invested company $ 19,774,063 21,263,906 2018 2017 Operating Revenue $ 61,258,498 50,600,125 Profit (loss) of continuing operations $ 753,610 2,342,413 Other consolidated income/loss (1,495,817) 1,107,331 Total comprehensive income $ (742,207) 3,449,744 Comprehensive profit (loss) attributable to the owner of the invested company $ (742,207) 3,449,744 Opening balance of the company’s share of the net assets of the affiliated enterprises $ 6,643,050 5,621,188 Implications of the retroactive application of the new standards to affiliated enterprises recognized this period 49,084 - Comprehensive profit (loss) attributable to the company (240,491) 1,065,363 Increase in affiliated enterprises 243,870 167,283 Dividends received from affiliated enterprises in the current period (381,851) (210,784) Closing book value of the company's equity in affiliated enterprises $ 6,313,662 6,643,050	December 31, 2018 December 31, 2017 UPC Technology Corp. and subsidiaries $ 4,786,145 6,942,833 Aggregate financial information about the company's significant affiliates is as follows. This financial information has been adjusted to include the amounts disclosed in the consolidated financial reports of the affiliated enterprises in accordance with GAAS; and reflect the fair value adjustments made by the company in obtaining the shares of the affiliated enterprises and the adjustments made to the differences in accounting policies: (1) Aggregated financial information of UPC Technology Corp. and subsidiaries December 31, 2018 December 31, 2017 Current assets $ 20,662,769 20,601,738 Non-Current assets 25,107,080 24,408,241 Current liabilities (10,529,011) (15,075,247) Non-current liabilities (15,466,775) (8,670,826) Net assets $ 19,774,063 21,263,906 Net assets attributable to the owner of the invested company $ 19,774,063 21,263,906 2018 2017 Operating Revenue $ 61,258,498 50,600,125 Profit (loss) of continuing operations $ 753,610 2,342,413 Other consolidated income/loss (1,495,817) 1,107,331 Total comprehensive income $ (742,207) 3,449,744 Comprehensive profit (loss) attributable to the owner of the invested company $ (742,207) 3,449,744 Opening balance of the company’s share of the net assets of the affiliated enterprises $ 6,643,050 5,621,188 Implications of the retroactive application of the new standards to affiliated enterprises recognized this period 49,084 - Comprehensive profit (loss) attributable to the company (240,491) 1,065,363 Increase in affiliated enterprises 243,870 167,283 Dividends received from affiliated enterprises in the current period (381,851) (210,784) Closing book value of the company's equity in affiliated enterprises $ 6,313,662 6,643,050
	$ 19,774,063	21,263,906
	$ 19,774,063	21,263,906
	2018 $ 61,258,498	2017 50,600,125
	$ 753,610 (1,495,817)	2,342,413 1,107,331
	$ (742,207)	3,449,744
	$ (742,207)	3,449,744
		5,621,188 - 1,065,363 167,283 (210,784)
	$ 6,313,662	6,643,050

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(2) Aggregated financial information of Linde Lienhwa Industrial Gases Co., Ltd and subsidiaries

Current assets Non-Current assets Current liabilities Non-current liabilities Net assets Net profit attributable to non-controlled interests Net assets attributable to the owner of the invested company Operating Revenue Profit (loss) of continuing operations Other consolidated income/loss Total comprehensive income Comprehensive income attributable to non-controlling interests Comprehensive profit (loss) attributable to the owner of the invested company Opening balance of the company’s share of the net assets of the affiliated enterprises Comprehensive profit (loss) attributable to the company Dividends received from affiliated enterprises in the current period Closing book value of the company's equity in affiliated enterprises	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
	2018 $ 23,548,186	2017 21,804,338
	$ 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
	$ 5,152,881 962,730 (1,118,000)	4,965,011 1,187,870 (1,000,000)
	$ 4,997,611	5,152,881

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(3) Aggregated financial information of MiTAC Inc. and subsidiaries December 31, 2018 December 31, 2017 Current assets $ 1,016,599 1,003,672 Non-Current assets 12,976,999 13,790,735 Current liabilities (548,322) (441,388) Non-current liabilities (82,513) (52,759) Net assets $ 13,362,763 14,300,260 Net profit attributable to non-controlled interests $ 5,235 13,417 Net assets attributable to the owner of the invested company $ 13,357,528 14,286,843 2018 2017 Operating Revenue $ 846,295 660,023 Profit (loss) of continuing operations $ 646,098 389,619 Other consolidated income/loss (1,702,133) 2,236,307 Total comprehensive income $ (1,056,035) 2,625,926 Comprehensive income attributable to non-controlling interests $ (8,182) (4,896) Comprehensive profit (loss) attributable to the owner of the invested company $ (1,047,853) 2,630,822 Opening balance of the company’s share of the net assets of the affiliated enterprises $ 5,067,138 4,182,971 Implications of the retroactive application of the new standards to affiliated enterprises recognized this period 98,110 - Comprehensive profit (loss) attributable to the company (379,757) 934,030 Dividends received from affiliated enterprises in the current period (53,603) (49,863) Closing book value of the company's equity in affiliated enterprises $ 4,731,888 5,067,138	(3) Aggregated financial information of MiTAC Inc. and subsidiaries December 31, 2018 December 31, 2017 Current assets $ 1,016,599 1,003,672 Non-Current assets 12,976,999 13,790,735 Current liabilities (548,322) (441,388) Non-current liabilities (82,513) (52,759) Net assets $ 13,362,763 14,300,260 Net profit attributable to non-controlled interests $ 5,235 13,417 Net assets attributable to the owner of the invested company $ 13,357,528 14,286,843 2018 2017 Operating Revenue $ 846,295 660,023 Profit (loss) of continuing operations $ 646,098 389,619 Other consolidated income/loss (1,702,133) 2,236,307 Total comprehensive income $ (1,056,035) 2,625,926 Comprehensive income attributable to non-controlling interests $ (8,182) (4,896) Comprehensive profit (loss) attributable to the owner of the invested company $ (1,047,853) 2,630,822 Opening balance of the company’s share of the net assets of the affiliated enterprises $ 5,067,138 4,182,971 Implications of the retroactive application of the new standards to affiliated enterprises recognized this period 98,110 - Comprehensive profit (loss) attributable to the company (379,757) 934,030 Dividends received from affiliated enterprises in the current period (53,603) (49,863) Closing book value of the company's equity in affiliated enterprises $ 4,731,888 5,067,138	(3) Aggregated financial information of MiTAC Inc. and subsidiaries December 31, 2018 December 31, 2017 Current assets $ 1,016,599 1,003,672 Non-Current assets 12,976,999 13,790,735 Current liabilities (548,322) (441,388) Non-current liabilities (82,513) (52,759) Net assets $ 13,362,763 14,300,260 Net profit attributable to non-controlled interests $ 5,235 13,417 Net assets attributable to the owner of the invested company $ 13,357,528 14,286,843 2018 2017 Operating Revenue $ 846,295 660,023 Profit (loss) of continuing operations $ 646,098 389,619 Other consolidated income/loss (1,702,133) 2,236,307 Total comprehensive income $ (1,056,035) 2,625,926 Comprehensive income attributable to non-controlling interests $ (8,182) (4,896) Comprehensive profit (loss) attributable to the owner of the invested company $ (1,047,853) 2,630,822 Opening balance of the company’s share of the net assets of the affiliated enterprises $ 5,067,138 4,182,971 Implications of the retroactive application of the new standards to affiliated enterprises recognized this period 98,110 - Comprehensive profit (loss) attributable to the company (379,757) 934,030 Dividends received from affiliated enterprises in the current period (53,603) (49,863) Closing book value of the company's equity in affiliated enterprises $ 4,731,888 5,067,138
	$ 13,362,763	14,300,260
	$ 5,235	13,417
	$ 13,357,528	14,286,843
	2018 $ 846,295	2017 660,023
	$ 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
		4,182,971 - 934,030 (49,863)
	$ 4,731,888	5,067,138

The aggregated financial information of the company's individually insignificant affiliated enterprises using the equity method is as follows. These financial information are

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

included in the company's parent company only financial report:

Summarized ending book value of the equity of all the individually insignificant affiliates Shares attributed to the Company: Net profit (net loss) of continuing business department Other consolidated income/loss Total comprehensive income	December 31, 2018 $ 442,461	December 31, 2017 436,015
	2018 $ 11,797 (1,076)	2017 (13,581) (205)
	$ 10,721	(13,786)

3. Guarantee

As of 2018 and December 31, 2017, the company has not provided pledge, guarantee

or restriction using the investment in the affiliated enterprises under the equity method.

(IX) Property, plant, and equipment

The changes in the cost, depreciation, and impairment loss of the company’s property, plant, and equipment as of 2018 and 2017 are as follows:

Cost or identified cost: Balance as at January 1, 2018 Addition Transfer in Disposition Transfer out Balance as at December 31, 2018 Balance as at January 1, 2017 Addition Transfer in Disposition Transfer out Balance as at December 31, 2017	Land $ 320,959 - - - -	Building and structure 1,112,381 4,303 3,145 - -	Machine & equipment 631,942 4,110 17,645 (2,986) -	Transporta tion equipment 22,026 - - (1,605) -	Office equipment 19,703 775 - (105) -	Other equipment 325,734 12,675 10,464 (2,230) -	Constructio n in progress 84,213 144,149 1,316 - (18,485)	Total 2,516,958 166,012 32,570 (6,926) (18,485)
	$ 320,959	1,119,829	650,711	20,421	20,373	346,643	211,193	2,690,129
	$ 320,959 - - - -	1,095,747 4,334 12,300 - -	533,680 3,566 101,676 (6,980) -	22,026 - - - -	17,021 2,110 572 - -	283,661 15,983 31,221 (4,926) (205)	9,903 98,674 - - (24,364)	2,282,997 124,667 145,769 (11,906) (24,569)
	$ 320,959	1,112,381	631,942	22,026	19,703	325,734	84,213	2,516,958

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

	Notes to the Financial Statements
Depreciation and impairment loss: Balance as at January 1, 2018 Current depreciation Disposition Balance as at December 31, 2018 Balance as at January 1, 2017 Current depreciation Disposition Transfer out Balance as at December 31, 2017 Book value: December 31, 2018 January 1, 2017 December 31, 2017	$ - 591,113 435,600 17,891 15,317 200,356 - 1,260,277 - 28,628 39,672 2,128 1,873 31,467 - 103,768 - - (2,964) (1,248) (105) (2,228) - (6,545)
	$ - 619,741 472,308 18,771 17,085 229,595 - 1,357,500
	$ - 562,412 407,485 15,487 13,453 176,565 - 1,175,402 - 28,701 35,095 2,404 1,864 28,834 - 96,898 - - (6,980) - - (4,926) - (11,906) - - - - - (117) - (117)
	$ - 591,113 435,600 17,891 15,317 200,356 - 1,260,277
	$ 320,959 500,088 178,403 1,650 3,288 117,048 211,193 1,332,629
	$ 320,959 533,335 126,195 6,539 3,568 107,096 9,903 1,107,595
	$ 320,959 521,268 196,342 4,135 4,386 125,378 84,213 1,256,681

1. Impairment loss and subsequent recovery

In 2004, some of the cash generation units to which the company’s wheaten products business (its cash generation unit based on the production line) belonged, faced impairment due to insufficient capacity utilization rate of their its fixed assets. The asset impairment was duly recognized. As of 2018 and December 31, 2017, the cumulative impairment was $253,934 thousand and $254,193 thousand respectively since there was no evidence that the impairment loss recognized might be reduced.

2. Guarantee

For details of long-term borrowings and financing line used as guarantees as of December 2018 and December 31, 2017, please refer to Note 8.

(X) Investment property

Cost or identified cost: Balance as at January 1, 2018 Addition Disposition Balance as at December 31, 2018	Land and improvements $ 473,241 - -	Building and structure 2,274,072 1,757 (751)	Total 2,747,313 1,757 (751) 2,748,319
	$ 473,241	2,275,078

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Balance as at January 1, 2017 Addition Transfer in Disposition Balance as at December 31, 2017 Depreciation and impairment loss: Balance as at January 1, 2018 Current depreciation Disposition Balance as at December 31, 2018 Balance as at January 1, 2017 Current depreciation Impairment loss Transfer in Disposition Balance as at December 31, 2017 Book value: December 31, 2018 January 1, 2017 December 31, 2017 Fair value: December 31, 2018 December 31, 2017	Land and improvements $ 469,241 - 4,000 -	Building and structure 2,269,326 3,226 2,455 (935)
	$ 473,241	2,274,072
	$ - - -	909,096 61,065 (751)
	$ -	969,410
	$ - - - - -	849,307 60,412 88 117 (828)
	$ -	909,096
	$ 473,241	1,305,668
	$ 469,241	1,420,019
	$ 473,241	1,364,976

Investment property contains a number of commercial properties leased to others. The tenancy period varies according to the region with the duration being 1-20 years. Subsequent renewal period is negotiated with the lessee, and no rent is charged or available. Please refer to the relevant information in Note 6[14].

The fair value of investment property is based on the evaluation of an independent evaluator (with relevant professional qualification and has relevant experience recently in the location and type of the investment property). The input values used by its fair value evaluation technology are at the third level. The evaluation is based on the income method in the real estate valuation technical rules,

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

but if the objective net income data is lacking, the comparison method determines the value of the real property. The yield range in 2018 and 2017 was 1.44%~4.20%.

For details of long-term borrowings and financing line used as guarantees as of December 2018 and December 31, 2017, please refer to Note 8.

• (XI) Commercial paper payable

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

Please refer to Note 6 [21] for details on related interest expenses on loans not exceeding one year.

(XII) Short-term borrowings

Unguaranteed bank loans Outstanding quota Range of interest rates	December 31, 2018 $ 3,750,000	December 31, 2018 $ 3,750,000	December 31, 2017 1,470,000
	$ 2,110,725		3,280,000
		0.88%~1.00%	0.90%

• (XIII) Long-term borrowings

The company’s long-term borrowings details, conditions, and terms are as follows:

Unguaranteed bank loans Less: portion due within one year Total Outstanding quota Range of interest rates Maturity date	December 31, 2018 $ 900,000 -	December 31, 2018 $ 900,000 -	December 31, 2017 900,000 -
	$ 900,000		900,000
	$ 800,000		1,350,000
		0.99%~1.04% 109.01.11~109.11.30	1.03%~1.05% 108.10.20~108.11.30

For the company’s assets pledged as collateral for bank loans, please refer to Note 8.

(XIV) Operating lease

1. Lessee

The total amount of future minimum lease payments for non-cancellation of

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

operating leases is as follows:

Within 1 year 1~5 years Over 5 years	December 31, 2018 $ 1,370 3,524 -	December 31, 2017 1,110 3,153 1,527
	$ 4,894	5,790

The company rents land and offices by operating lease. The rental period is usually five to twenty years. The rent is adjusted according to the published land price or the rental rate.

The operating leases reported as expenses under profit and loss for the years 2018 and 2017 were $414 thousand and $764 thousand respectively; the contingent rentals reported were $1,082,000 and $527,000 respectively.

2. Lessor

For the company’s investment property leased as operating rental, please refer to Note 6[10].

The future minimum lease payment receivable of the irrevocable lease term is as follows:

Within 1 year 1~5 years Over 5 years	December 31, 2018 $ 314,408 681,026 227,969	December 31, 2017 312,181 561,449 229,743
	$ 1,223,403	1,103,373

The rent income arising from the investment property amounted to $ 316,959 thousand and $ 284,099 thousand as of 2018 and 2017 respectively.

(XV) Employee benefits

1. Defined benefit plan

Reconciliation between present value of defined benefit obligations and fair value of plan assets:

Present value of defined benefit obligation The fair value of plan assets Net defined benefit liability	December 31, 2018 $ 101,746 (56,565)	December 31, 2017 101,363 (53,766)
	$ 45,181	47,597

Contributions for defined benefit plans are made to a dedicated pension fund account opened with Bank of Taiwan. For retirees who opted for the Labor Standards Act, the amount of pension benefit is calculated based on average salary for the six months preceding their retirement and the number of basis points accumulated for the duration of their service.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(1) Composition of plan assets

The pension fund appropriated by the company in accordance with the Labor Standards Act is managed by the Labor Pension Fund Supervisory Committee of the Council of Labor Affairs, Executive Yuan (referred to as the “Labor Pension Fund Supervisory Committee” hereinafter). According to the “Guidelines for Labor Pension Fund Safekeeping and Implementation,” the annual minimum yield generated from the use of fund may not be less than the interest income generated from a local bank’s two-year time deposit.

The company’s labor pension fund account at the Bank of Taiwan is with a balance of $ 56,565 thousand as of the reporting date. Labor Pension Fund Asset Management information includes fund yield rate and pension asset allocation. Please refer to the website of the Pension Fund Supervisory Committee of the Council of Labor.

(2) Changes in the present value of defined benefit obligations

Changes in the present value of defined benefit obligations in 2018 and 2017 are as follows:

Defined benefit obligations as of January 1 Current service cost and interest Re-measured net defined benefit liability - Actuarial gains and losses resulting from changes in demographic assumptions - Actuarial gains and losses resulting from changes in financial hypotheses - Actuarial gains and losses resulting from experiential adjustments Plan payment benefits Defined benefit obligations as of December 31	2018 $ 101,363 3,567 772 1,100 2,428 (7,484)	2017 101,299 3,597 2,965 - 925 (7,423)
	$ 101,746	101,363

• (3) Changes in the fair value of pension plan assets

Changes in the fair value of defined benefit obligations in 2018 and 2017 are as follows:

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Fair value of plan assets, January 1 Interest income Re-measured net defined benefit liability Compensation for planned assets (excluding current interest) The amount appropriated to the plan Benefits paid Fair value of plan assets, December 31	2018 $ 53,766 610 1,719 7,954 (7,484)	2017 59,701 677 (137) 948 (7,423)
	$ 56,565	53,766

• (4) Expenses recognized in profit and loss

Breakdown of expenses of 2018 and 2017 is as Current service cost Net interest on net defined benefit liability Operating costs Marketing expenses Administrative expenses R&D expenses	follows: 2018 $ 2,427 530	2017 2,458 462
	$ 2,957	2,920
	$ 1,536 404 587 430	1,541 298 713 368
	$ 2,957	2,920

In addition, the company paid employee pensions in 2018 and paid a management fee of $ 3,718 thousand.

• (5) Remeasurement of net defined benefit liabilities recognized as other comprehensive gains and losses

The re-measurement of the cumulative net defined benefit liabilities accrued by the Company in other comprehensive profit or loss in 2018 and 2017 is as follows:

Cumulative balance as at January 1 Recognized in this period Cumulative balance as at December 31	2018 $ (19,442) (2,581)	2017 (15,415) (4,027)
	$ (22,023)	(19,442)

(6) Actuarial assumptions

The key actuarial assumptions used by the Company to determine the present value of the welfare obligation at the end of the financial reporting are as follows:

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

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

The Company expects to contribute $858 thousand to the defined benefit plan within one year from the 2018 reporting date.

The weighted average duration of the defined benefit plan is 9.2 years.

(7) Analysis of sensitivity

The impact of the changes in the main actuarial assumptions adopted as of 2018 and 2017 December 31 and the present value of the defined benefit obligation is as follows:

December 31, 2018 Discount rate Future salary increases December 31, 2017 Discount rate Future salary increases	Effect on defined benefit obligation	Effect on defined benefit obligation
	Increase by 0.25% $ (2,193) 2,211 $ (2,198) 2,217	Decrease by 0.25%
		2,278 (2,140) 2,281 (2,147)

Said analysis of sensitivity refers to the analysis of the effect produced by any change of single hypothesis under the circumstance that the other hypotheses remain unchanged. In practice, many changes in hypotheses might be linked with each other. The sensitivity analysis is consistent with the method used to calculate the net defined benefit liability on the balance sheet.

The methods and hypotheses used by the analysis of sensitivity prepared in the current period are identical with those used in the previous period.

2. Defined contribution plan

The Company's defined contribution plan is created in accordance with the Labor Pension Act, where the Company contributes 6% of employees' salaries each month to employees' pension accounts held with the Bureau of Labor Insurance. Under this plan, the Company would be freed of pension obligations once it has contributed this amount to the Bureau of Labor Insurance.

The pension expenses under the company’s pension scheme in 2018 and 2017 are NT$6,341,000 and NT$5,584,000 respectively, and have been allocated to the Labour

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION Notes to the Financial Statements

Insurance Bureau.

(XVI) Income tax

The Presidential Office issued an amendment to the Income Tax Law on February 7, 2018. Effective 2018, the income tax rate for the profit-making business would be raised from 17% to 20%.

1. Income tax expenses

Breakdown of tax expenses of 2018 and 2017 is as follows:

Income tax expenses for the current period Amounts incurred in the current period Adjustment to previous year's income tax expense Deferred income tax expenses Occurrence and reversal of temporary differences Income tax rate change Income tax (profit) expenses	2018 $ - 420	2017 93,933 160
	420	94,093
	(2,772) (402)	(2,684) -
	(3,174)	(2,684)
	$ (2,754)	91,409

Adjustment of income tax expense and pre-tax profit for years ended 2018 and 2017:

Pre-tax profit Income tax calculated using the local tax rate Income tax rate change Non-taxable income Adjustment of non-temporary differences Unrecognized changes in temporary differences Under-estimation Unappropriated retained earnings plus Total	2018 $ 2,473,538	2017 3,065,436
	$ 494,708 (402) (326,217) (93,383) (77,880) 420 -	521,124 - (384,549) (45,703) 215 160 162
	$ (2,754)	91,409

2. Deferred tax assets and liabilities

(1) Unrecognized deferred income tax assets

As at the end of 2018 and December 31, 2017, the cumulative deductible temporary differences not recognized in the parent company only balance sheet were $42,804 thousand and $103,531 thousand respectively.

(2) Recognized deferred income tax assets and liabilities

Changes in deferred income tax assets and liabilities recognized in 2018 and 2017 are as follows:

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Long-term equity investments under the equity method Deferred income tax liabilities: Balance as at January 1, 2018 $ - (Debit) credit profit and loss (5,872) Balance as at December 31, 2018 $ (5,872) Balance as at January 1, 2017 $ - (Debit) credit profit and loss - Balance as at December 31, 2017 $ - Deferred income tax assets: Balance as at January 1, 2018 (Debit) credit profit and loss Balance as at December 31, 2018 Balance as at January 1, 2017 (Debit) credit profit and loss Balance as at December 31, 2017	Long-term equity investments under the equity method $ - (5,872)	Unrealized exchange gain - (1,355)	Land incrementa ltax (93,543) -	Land incrementa ltax (93,543) -	Total (93,543) (7,227)
	$ (5,872)	(1,355)	(93,543)		(100,770)
	$ - -	(670) 670	(93,543) -		(94,213) 670
	$ -	-	(93,543)		(93,543)
				$ 12,680
				$ 265 2,014
				$ 2,279

3. Authorization of income tax

The company's profit-making income tax settlement for 2016 has been approved by the regulators but the 2015 settlement is pending review.

(XVII) Capital and other equity

Authorized capital of $1,280,000 thousand as at 31 December 2018 and 2017. Face value per share was $10. Number of shares: 1,280,000 thousand The total nominal share capital mentioned above is ordinary shares, and issued shares are 1,052,133 thousand and 956,485 thousand respectively.

Breakdown of shares in circulation for years ended 2018 & 2017 is as follows:

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(expressed in thousands of shares)

Balance, January 1 Capitalization of retained earnings. Balance, 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

1. Capital reserve

The Company's capital reserve comprises of the following:

Stock premium Treasury stock trading Changes in the net equity of the affiliated company and joint venture are recognized in accordance with the equity method.	107.12.31 $ 289,318 11,862 465,073	106.12.31 289,318 11,862 446,307
	$ 766,253	747,487

According to company law, as a priority, capital reserve must be used to offset loss. New shares or cash will be issued in accordance with the realized capital reserve in proportion to the original share of the shareholders. The realized capital reserve referred to in the preceding paragraph includes the excess income from the issuance of shares at premium and proceeds from gifts. Pursuant to Regulations Governing the Offering and Issuance of Securities by Securities Issuers, the amount of capital reserves converted into share capital is capped at 10% of paid up capital per year.

2. Retained earnings

In accordance with the Articles of Association, any surplus should first be used to pay the tax, make up for the previous annual losses and then allocate to the 10% statutory surplus reserve unless the statutory reserve amounts to the company’s paid-up capital. In accordance with the relevant laws and regulations, provision/reversal must also be made. Allocation of any residual surplus will be proposed by the Board of directors and submitted at the shareholders ' meeting for ratification.

(1) Legal reserve

According to Company Law, the Company shall contribute 10% from the income after tax to the statutory surplus reserve until matches the total capital of the company. Subject to resolution of a shareholders meeting, companies with no accumulated losses may distribute statutory reserve in cash or in shares; however, only the amount of statutory reserve that exceeds 25% of paid-up capital is distributable.

(2) Special reserve

When the Company first adopted the International Financial Reporting Standards

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

endorsed by the FSC, it applied IFRS No. 1 “Initial Application of International Financial Reporting Standards” exemption items, accounting for the increase from unrealized revaluation of shareholders' equity as recognized cost based on the fair value at transition date and increasing retained earnings. The special surplus reserve of the same amount as specified under the order of the Financial Management Certificate No. 1010012865 of April 6, 2012 must be proportionate to the originally recognized surplus reserve when used, disposed of or reclassified. In the years ended December 31 2018 and 2017, the balance of this special surplus reserve was $141,843 thousand.

In accordance with the abovementioned, the Company shall, at the time of the allocation of the distributable surplus, make up the difference between the net amount of other shareholders ' equity and the balance of the special surplus set out previously, the sum of the income from the current period and the undistributed surplus from prior period. Other shareholders’ equity cumulated from prior periods cannot be allocated from the special reserve. The amount debited to “Other shareholder’ s equity” that is reversed subsequently can be distributed as earnings.

(3) Distribution of earnings

The allocation of dividends proposed on June 26, 2018 and June 26, 2017, and surplus distribution for 2017 and 2016 were made at the general meeting of shareholders. Details as follows:

Details as follows:
Dividends distributed to ordinary shareholders: Cash Stock Total	2017 Share distribution rate (NT$) Amount $ 1.80 $ 1,721,672 1.00 956,485 $ 2,678,157		2016 Share distribution rate (NT$) Amount 1.60 1,457,501 0.50 455,469 1,912,970
			Share distribution rate (NT$) 1.60 0.50
		$ 2,678,157

3. Treasury stock

The Company’s shares held by the subsidiaries of the Company in the years ended December 31, 2018 and 2017 as follows:

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Holding Hua Cheng Investment Co., Ltd.	Ledger account Financial assets (for sale) at fair value through profit or loss - noncurrent	December 31, 2018 Quantity of shares (thousan d shares) Cost market price $ 116 2,393 3,432	December 31, 2018 Quantity of shares (thousan d shares) Cost market price $ 116 2,393 3,432	December 31, 2017 Quantity of shares (thousan d shares) Cost market price 105 2,393 3,851	December 31, 2017 Quantity of shares (thousan d shares) Cost market price 105 2,393 3,851
		Quantity of shares (thousan d shares)	Cost	Quantity of shares (thousan d shares) 105	Cost 2,393
		$ 116	2,393

According to the Securities and Exchange Act, the treasury stock held by the subsidiary shall not be pledged. Before the transfer, there will be no entitlement of any shareholder’s rights.

1. Other equity (net after tax)

Balance as at January 1, 2018 Retrospective adjustments using new standards Post reclassification balance as at January 1, 2018 Exchange differences arising from the conversion of net assets of foreign operating entities Share of translation differences between subsidiaries and affiliates using the equity method Unrealized gains and losses from financial assets measured at fair value through other comprehensive income Share of unrealized gains and losses on financial assets measured at fair value for subsidiaries and affiliates using the equity method through other comprehensive gains and losses Balance as at December 31, 2018	Exchange differences from the translation of foreign operations $ (99,739) (129)	Unrealized gains and losses from financial assets measured at fair value through other comprehensiv e income - 4,148,532	Unrealized gain (loss) from financial products available-for- sale 4,433,684 (4,433,684)
	(99,868) (26,660) (68,797) - -	4,148,532 - - (593,961) (1,063,222)	- - - - -
	$ (195,325)	2,491,349	-

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

January 1, 2017 Exchange differences arising from the conversion of net assets of foreign operating entities Unrealized gain or loss of the available-for-sale financial assets Share of translation differences between subsidiaries and affiliates using the equity method Share of unrealized gains and losses on financial assets available for sale, measured at fair value for subsidiaries and affiliates using the equity method. Balance as at December 31, 2017	Exchange differences from the translation of foreign operations $ 193,513 (68,015) - (225,237) -	Unrealized gains and losses from financial assets measured at fair value through other comprehensiv e income - - - - -	Unrealized gain (loss) from financial products available-for- sale 2,453,107 - 544,335 - 1,436,242
	$ (99,739)	-	4,433,684

(XVIII) Earnings per share

1. Basic EPS

The company's basic earnings per share for 2018 and 2017 are calculated based on the net profit of the company's ordinary shareholders and the weighted average number of ordinary shares in circulation. The relevant calculations are as follows:

(1) Net income attributable to the Company’s common stock shareholders:

2018 2017 Net income attributable to the Company’s common stock shareholders: $ 2,476,292 2,974,027 Weighted average share of ordinary shares in circulation (thousand shares) 2018 2017 Ordinary shares issued as at January 1 956,485 956,485 Impact of treasury stocks (116) (116) Impact of dividend 95,648 95,648 Weighted average share of ordinary shares in circulation as of December 31 1,052,017 1,052,017 Basic earnings per share (NT$) $ 2.35 2.83	2018 $ 2,476,292	2017 2,974,027
	1,052,017	1,052,017
	$ 2.35	2.83

(2) Weighted average share of ordinary shares in circulation (thousand shares)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

2. Diluted EPS

The diluted earnings per share for 2018 and 2017 are calculated based on the net profit attributable to the ordinary shareholders and the weighted average number of shares in circulation after the dilution effect of all potential ordinary shares. The relevant calculations are as follows:

• (1) Net profit (dilution) attributable to the ordinary shareholders.

2018 2017 Net profit (dilution) attributable to the ordinary shareholders. $ 2,476,292 2,974,027 Net profit (dilution) attributable to holders of ordinary shares of the Company 2018 2017 Weighted average share of ordinary shares in circulation (basic) 1,052,017 1,052,017 Impact of employees' stock awards 1,046 1,076 Balance as at December 31 - Weighted average share of ordinary shares in circulation (dilution) 1,053,063 1,053,093 Diluted earnings per share (NT$) $ 2.35 2.82	2018 $ 2,476,292	2018 $ 2,476,292	2017 2,974,027
		1,053,063	1,053,093
	$ 2.35		2.82

• (2) Net profit (dilution) attributable to holders of ordinary shares of the Company

• (XIX) Revenue from customer contracts

• Details

Key markets: Taiwan Hong Kong Others Key products: Sale of products: Rental income from investment property		2018	Total 3,916,428 53,868 25,646
	Leasing business $ 316,959 - -	Wheaten products business 3,599,469 53,868 25,646
	$ 316,959	3,678,983	3,995,942
	$ - 316,959	3,678,983 -	3,678,983 316,959
	$ 316,959	3,678,983	3,995,942

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Key markets: Taiwan Hong Kong Others Key products: Sale of products: Rental income from investment property		2017	Total 3,774,383 48,610 32,028
	Leasing business $ 284,099 - -	Wheaten products business 3,490,284 48,610 32,028
	$ 284,099	3,570,922	3,855,021
	$ - 284,099	3,570,922 -	3,570,922 284,099
	$ 284,099	3,570,922	3,855,021

(XII) Remuneration to employees and directors/supervisors

In accordance with the Articles of Association, if there is a profit for the year, no less than 0.5% shall be paid for the remuneration of the employees and not more than 1% for the compensation of directorship and supervisory services. However, profits must first be taken to offset against cumulative losses if any. Employees’ remuneration, as mentioned above, can be paid in shares or cash to employees including those in the affiliated companies that meet certain criteria.

The estimated remuneration of the Company for 2018 and 2017 were $25,066 thousand and $31,047 thousand respectively. The estimated amount of remuneration for directors and supervisors were $8,000 thousand and $8,190 thousand respectively. The operating costs and operating expenses reported in 2018 and 2017 are calculated as follows: pre-tax net profit for the period, after deducting the amount of the employee's and the director's and the supervisor's remuneration, and the disbursement of the employee's remuneration and the remuneration of the directors and supervisors prepared in accordance with the company's articles of association, and incorporating historical estimates. Relevant information and details can be obtained from the public information sites. There is no difference between the amount of remuneration for employees and directors and supervisors assigned by the aforementioned Board resolution and the estimated amounts in the parent company only financial reports of 2017.

Any differences between the amount actually paid in 2018 and the amount previously estimated will be treated as a change in accounting estimate, and recognized as gains/losses in 2019.

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(XXI) Other revenue and expenses

1. Other revenue

The company’s other revenue for 2018 and 2017 is as follows:

Interest income Dividend income Labor services income	2018 $ 12,984 190,584 1,049	2017 3,614 226,054 895
	$ 204,617	230,563

2. Other profits and losses

The company’s other gain and loss as of 2018 and 2017 is as follows:

Exchange gains and losses Loss on Impairment of non-financial assets Loss/gain on disposal of investment Other income Other expense Gain on disposition of property, plant, and equipment Gain on disposal of investment property	2018 $ 19,433 - - 9,315 (3,052) 193 -	2017 (16,972) (88) 271,144 9,735 (4,492) 266 133
	$ 25,889	259,726

3. Finance cost

The company’s finance cost as of 2018 and 2017 is as follows:

Interest expense	2018 $ 32,012	2017 29,173

(XXII) Financial instruments

1. Credit risk

• (1) Credit risk exposure

As of December 31, 2018 and 2017, the key credit risk exposure of the Company,

due to the failure of the counterparty to perform its obligations and the financial guarantee provided by the Company are as follows:

• ‧ the book value of financial assets recognized in the balance sheet; and

• ‧ financial guarantees provided by the company of US$27,500 thousand and

• US$33,500 thousand respectively.

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(2) Concentration of credit risk

The Company has a broad customer base and does not have business conducted singularly with any one customer. Sales and target markets are diversified so there is no significant and concentrated credit risk exposures in accounts receivable. The Company continues to regularly assess the financial condition of customers in order to reduce credit risk, but usually does not require customers to provide collateral.

2. Liquidity risk

The contract maturities of financial liabilities are illustrated in the table below, including the estimated interest but not the impact of net amount agreed.

December 31, 2018 Non-derivative financial liabilities Unsecured short-term coupons Unguaranteed bank loans Accounts payable Other payables December 31, 2017 Non-derivative financial liabilities Unsecured short-term coupons Unguaranteed bank loans Accounts payable Other payables	Book value	Contract ual cash flows	Within 6 months	6-12 months	1-2years	2-5 years	More than 5 Year
	$ 499,900 4,650,000 37,897 107,937	504,650 4,704,275 37,897 107,937	2,250 21,525 37,897 107,937	502,400 3,773,410 - -	- 909,340 - -	- - - -	- - - -
	$ 5,295,734	5,354,759	169,609	4,275,810	909,340	-	-
	$ 1,299,709 2,370,000 32,582 90,953	1,311,396 2,402,329 32,582 90,953	5,837 11,315 32,582 90,953	1,305,559 1,481,434 - -	- 909,580 - -	- - - -	- - - -
	$ 3,793,244	3,837,260	140,687	2,786,993	909,580	-	-

The company does not expect the maturity analysis of cash flows will be significantly pre-matured or the actual amount will be significantly different.

1. Exchange rate risk

2. (1) Exchange rate risk exposure

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

The company’s financial assets and liabilities exposed to significant foreign exchange rate risk is as follows:

Financial assets Monetary items USD HKD Financial assets Monetary items USD		December 31, 2018	NTD 250,374 6,197 NTD 239,746
	Foreign currency (thousand dollars) $ 8,152 1,581	Exchange rate USD : NTD 30.715 HKD : NTD 3.921 December 31, 2017
	Foreign currency (thousand dollars) $ 8,056	Exchange rate USD : NTD 29.760

• (2) Sensitivity analysis

The company’s exchange rate risk is mainly from foreign currency denominated cash, cash equivalent and accounts receivables which generate foreign exchange gain and loss upon conversion. For years ending December 31, 2018 and 2017, with a 1% decrease or increase in the booked rate relative to the foreign currency denominated and all other factors remaining unchanged, the net profit after tax will be increased or decreased by $2,053 thousand and $1,990 thousand respectively.

• (3) Exchange gains and losses on monetary items

In consideration of the Group's multiple functional currency types, the information about exchange gain or loss for currency is disclosed by summarization. The foreign currency exchange gain (loss) (including the realized and unrealized) for years ended 2018 and 2017 was $19,433 thousand and $(16,972) thousand respectively.

4. Interest rate analysis

Please refer to the Note regarding liquidity risk management for the interest rate risk exposure of the company’s financial liabilities.

The following sensitivity analyzes are based on the interest rate risk exposure of the derivative and non-derivative instruments on the reporting date. The analysis of floating rate liabilities is by assuming the outstanding liability amount on the reporting date stays

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

outstanding the entire year. The rate of change used to report interest rates to key management within the company is a margin of +/- 0.5% in interest rates, which also represents an assessment by management of the extent to which interest rates may vary reasonably.

If the interest rate increases or decreases by 0.5%, the net profit after tax of the Company in 2018 and 2017 will be reduced or increased by $ 20,600 thousand and $15,231 thousand ,all other factors remaining unchanged; as a result of the variable interest rate of the Company’s borrowings.

5. Other pricing risks

The impact of the changes in equity price on the reporting date (the analysis of two terms is completed by using the same basis, and assuming all other variables held constant) on the comprehensive profit and loss is as follows:

Stock price on the reporting date	2018 Other comprehensiv e profit or loss after tax Net income $ 121,980 - (121,980) -	2017	2017
	Other comprehensiv e profit or loss after tax $ 121,980 (121,980)	Other comprehensi ve profit or loss after tax 124,371 (124,371)	Net income
Increased by 3% Decreased by 3%			- -

6. Information on fair value

• (1) Type and fair value of financial instruments

The company’s financial assets measured by fair value through other comprehensive gains and losses (the financial assets for sale) are measured at fair value on a repetitive basis. The book value and fair value of various types of financial assets and financial liabilities (including fair value grade information, but not the reasonable approximation of the book value of a financial instrument at fair value, and the investment of equity instruments in which the market has no quotations and fair value cannot be reliably measured) The requirement not to disclose fair value information is set out below:

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Financial assets at fair value through other comprehensive gains and losses Domestic listed (cabinet) company shares Domestic unlisted (cabinet) company shares Subtotal Financial assets valued at amortized cost: Cash and cash equivalents Notes and accounts receivable Other receivables Guarantee deposits paid Subtotal Total Financial liabilities measured at amortized cost: Short-term loans Short-term notes payable Accounts payable Other payables Long-term loan Deposits received Total		December 31, 2018	December 31, 2018	December 31, 2018	Total 4,065,994 501,064
	Book value $ 4,065,994 501,064		Fair value
		Class I 4,065,994 -	Class II - -	Class III - 501,064
	4,567,058	4,065,994	-	501,064	4,567,058
	422,980 728,448 390,766 3,421	- - - -	- - - -	- - - -	- - - -
	1,545,615	-	-	-	-
	$ 6,112,673	4,065,994	-	501,064	4,567,058
	$ 3,750,000 499,900 37,897 188,415 900,000 49,363	- - - - - -	- - - - - -	- - - - - -	- - - - - -
	$ 5,425,575	-	-	-	-

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Available-for-sale financial assets Domestic listed (cabinet) company shares Financial assets valued at cost Domestic unlisted (cabinet) company shares Loans and receivables: Cash and cash equivalents Notes and accounts receivable Other receivables Guarantee deposits paid Subtotal Total Financial liabilities measured at amortized cost: Short-term loans Short-term notes payable Accounts payable Other payables Long-term loan Deposits received Total		December 31, 2017	December 31, 2017	December 31, 2017	December 31, 2017	Total 4,145,716
	Book value $ 4,145,716			Fair value
		Class I		Class II -	Class III -
		4,145,716
	432,675	-		-	-	-
	377,499 695,892 243,122 3,549	- - - -		- - - -	- - - -	- - - -
	1,320,062	-		-	-	-
	$ 5,898,453	4,145,716		-	-	4,145,716
	$ 1,470,000 1,299,709 32,582 184,518 900,000 46,799	- - - - - -		- - - - - -	- - - - - -	- - - - - -
	$ 3,933,608	-		-	-	-

• (2) Fair value evaluation techniques for measuring financial instruments at fair value Non-derivative instruments

If a financial instrument has an open quote for an active market, it will use the public quoted price of the active market as the fair value. The market price announced by the major exchanges is the basis of the fair value of the listed (cabinet) equity

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LIEN HWA INDUSTRIAL CORPORATION Notes to the Financial Statements

instruments.

If a financial instrument that obtains a public quotation of a financial instrument in a timely and frequent manner from an exchange, broker, underwriter, industry association, pricing service or competent authority, and that the price represents an actual and frequently occurring fair market trader; then there is an open quote on the active market for this instrument. If the above conditions are not fulfilled, the market is deemed inactive. Generally speaking, the bid-ask spread is very large. If the bid-ask spread is significantly increased, or the trading volume is very small, that is a sign that the market is inactive.

If the financial instruments held by the company belong to an active market, the fair value of the financial instruments is as follows:

The fair value of financial assets and liabilities with standard terms and conditions and traded in open market shall be decided subject to the market quotation (including TWSE/GTSM stock and bond, et al.).

Except for the active financial instruments referred to above, the fair value of the other financial instruments is determined in accordance with the generally accepted pricing models based on the cash flow discount analysis.

If the financial instruments held by the company belong to an inactive market, the fair value of the financial instruments is as follows:

Equity instruments without public quotation: Estimates of fair value using the market comparable company method. The main assumptions are based on the stock price-to-multiplier derived from comparable market quotes. The estimate has been adjusted with the impact of the lack of market liquidity of the equity securities.

(3) Transfer between the first level and the second level

In 2018 and 2017, there were no transfers of financial assets from Tier 2 to Tier 1.

(4) Details of changes at the third level

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

January 1, 2018 Total profit or loss Recognized in other comprehensive income Purchase Capital reduction and return of shares December 31, 2018 January 1, 2017 Liquidation December 31, 2017	Measured at fair value through other comprehensive gains and losses (financial assets for sale) Equity instruments without public quotation $ 509,941 (38,438) 37,500 (7,939) $ 501,064 $ 18,653 (18,653) $ -

The above-mentioned total benefits or losses are reported in the “Unrealized Evaluation Interests (Loss) of the Financial Assets for Sale and Sale” and “The financial assets measured by fair value through other comprehensive gains and losses are not realized (loss)”. The relevant data related to the assets held in 2018 and December 31, 2017 are as follows:

Total profit or loss Included in other comprehensive gains and losses (reported in “Understanding evaluation benefits (loss) of financial assets measured at fair value through other comprehensive gains and losses”)	2018 $ (38,438)	2017
		-

• (5) Quantitative information on the fair value measurement of significant unobservable inputs (third level)

The fair value measurement of the Company is classified as a third level mainly consisting of financial assets measured at fair value through other comprehensive gains and losses and investment in financial assets-equity investments.

Most of the Company's fair value is classified as a third level with only a single significant unobservable input value, and only an equity instrument investment without an active market has multiple significant unobservable inputs. The significant

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

unobservable inputs of equity instrument investments in an inactive market are independent of each other and therefore are not interrelated.

In view of the company's holdings of equity investment tools that are not quoted in the market and are not intended for short-term trading purposes, the management obtains the recent financial reports of the invested company, assesses the development of the industry, examines the disclosure of available information, and reviews and assesses the current and future operating performance of the invested company. Used to assess the fair value of the invested company. Usually, industry changes and market prospects are highly correlated to changes in the operations and future performance of the invested company.

The list of quantitative information for significant unobservable inputs is as follows:

Item Financial assets measured at fair value through other comprehensive gains and losses - investment in equity instruments without active market Financial assets measured at fair value through other comprehensive gains and losses (financial assets for sale) - investment in equity instruments inactive market	Evaluation technique comparable to the listing company’s regulation Net assets valuation	Significant non-observable input values Co-relation between significant unobservable input value and fair value ‧Market multiplier (1.17 for December 31, 2018) ‧Discount on lack of market liquidity (20.84% for December 31, 2018) ‧The higher the multiplier, the higher the fair value ‧Higher discount due to lack of market circulation, lower fair value Net assets value Not applicable	Co-relation between significant unobservable input value and fair value

• (6) Sensitivity analysis of fair value to reasonable possible alternative hypothesis for third level fair value measurement

The Company's fair value measurement of financial instruments is reasonable. If

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

different evaluation models or parameters are used, the results of the evaluation may be different. For financial instruments classified as Level 3, if the evaluation parameters change, the impact on the current profit and loss or other comprehensive gains and losses is as follows:

losses is as follows:
December 31, 2018 Financial assets at fair value through other comprehensive gains and losses Equity instruments without active market Equity instruments without active market	Input value	Upward or downward	Current profit and loss at fairvalue Favorable change Unfavorable change $ - - - -		Changes in fair value reflected in other comprehensive gains and losses Favorable change Unfavorable change 1,380 (1,380) 300 (300)
				Unfavorable change	Favorable change
	Market multiplier Discount rate	0.5% 0.5%		- -	1,380 300
			$ -	-	1,680	(1,680)

The favorable and unfavorable changes refer to the fluctuation of fair value. Fair value is calculated via evaluation based on the unobservable input parameters of different degrees. If the fair value of a financial instrument is affected by more than one input value, the above table only reflects the impact of changes in a single input value, and does not take into account the correlation and variability between input values.

(XXIII) Financial risk management

1. Summary

The company is exposed to the following risks due to the use of the financial instruments:

(1) Credit risk

(2) Liquidity risk

(3) Market risk

The company’s risk exposure information and the company’s measurement and risk management objectives, policies, and procedures are expressed in this Note. Please refer to the respective notes to the parent company only financial statements for further quantification.

2. Risk management structure

The Board is solely responsible for setting up and supervising the company's risk management structure. The Board of Directors has authorized appropriate authorities to be responsible for the development and control of the company's risk management policy and

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

to report regularly to the Board on its operations.

Internal audit staff assists the company’s Audit Committee in a supervisory role. These personnel conduct regular and extraordinary review of risk management controls and procedures; also, have the outcome of the review reported to the Board of Directors.

(3) Credit risk

Credit risk is the risk of financial losses faced by the company when the client or the counterparty of financial instruments trade is unable to meet its contractual obligations. It is mainly from the company’s accounts receivables from customers and securities investment.

(1) Accounts receivable and other receivables

The financial products in the Company's accounts receivable were not significantly concentrated with a single customer while the sales locations were diversified. Hence, the credit risk pertaining to accounts receivable was not materially concentrated.

The Company has established a credit policy in which the credit rating for each new customer must be separately analyzed before granting them the company’s standard payment and shipping terms and conditions. The review includes, if available, external reviews, and in some cases, bank information. The purchase limit is established on the basis of individual customers and represents the maximum amount of uncollected amounts that are not required to be approved by the appropriate authority. This limit is subject to periodic review. Customers who do not meet the company's benchmark credit rating are only able to trade with the company on the basis of advance receipts.

The company belongs to a traditional industry with no major fluctuations in market conditions. We have a base of mostly long-standing customers for whom no impairment losses have been recognized. For monitoring purposes, a customer's credit risk is grouped according to the customer's credit characteristics.

The company has set up a loss provision account to reflect the estimated losses of the accounts receivable, if applicable. The allowance account mainly includes specific loss related to individual significant exposure and the combined loss of the similar assets cluster that has incurred but yet to be identified. The allowance account for combined loss is determined in accordance with the historical payment statistics of similar financial assets.

(2) Investment

The credit risk of bank deposits and other financial instruments is measured and monitored by the Finance Department of the company. The company’s trade counterparty and performing parties are reputable banks and investing financial institutions and corporations with no significant performance concerns; therefore, there

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

is no significant credit risk.

(3) Guarantee

The company's policy provides that the subject of financial assurance shall be limited to the provisions of the company's "Endorsement guarantee processing procedure". Please refer to Note 13 for details on the company’s endorsement of its subsidiaries as of December 31, 2018.

4. Liquidity risk

Liquidity risk is the risk that the company unable to pay cash or financial asset to settle the financial liability and unable to perform its obligations. The Company managed the liquidity in a manner ensuring that the Company has sufficient working fund to repay matured liabilities under the general and critical circumstances, so as to avoid unacceptable loss or impairment on the Company's goodwill.

The Company will ensure that it has sufficient cash to meet the need for expected operating expenditure for 60 days, including performance of financial obligation, but excluding the potential effect that it is impossible to expect reasonably under extreme circumstances, e.g. natural calamity. As of 2018 and 2017 December 31, the company’s unused loan facilities amounted to $ 4,340,725 thousand and $ 5,260,000 thousand respectively.

5. Market risk

Market risk is the risk the company’s yield or financial instrument value affected by changes in market prices, such as, exchange rates, interest rates, etc. The objective of market risk management is to control the market risk exposure with in the affordable range and to optimize return on investment.

The company conducts derivative instruments transactions for managing market risk with financial liabilities then resulted. The execution of all transactions is guided by the internal control system and related operations.

• (1) Exchange rate risk

The company is exposed to exchange rate risk resulting from the sales, purchases or loans transacted in a currency other than the company’s functional currency. New Taiwan Dollar is the functional currency of the Group. The main currencies denominated in these transactions are NTD, HKD and USD.

(2) Interest rate risk

The interest rate risk of the Company results mainly from long-term and short-term borrowings with floating interest rates. Changes in the interest rate will cause the effective interest rate of long-term and short-term borrowings to change, thereby causing fluctuations in future cash flow. Please refer to Note 6[22] for information

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

related to interest rate analysis.

• (XXV) Capital management

It is the Board’s policy to maintain a sound capital base that will ensure the confidence of investors, creditors and the market and support the development of future operations. Capital includes the company's share capital, capital reserve, retained earnings and other interests. The Board of Directors controls the rate of return on capital, while controlling the dividend level of common shares.

The debt to equity ratio on the reporting date is as follows:

Total liabilities Minus: Cash and cash equivalent Net liabilities Total Capital Debt to equity ratio	December 31, 2018 $ 5,668,708 (422,980)	December 31, 2018 $ 5,668,708 (422,980)	December 31, 2017 4,212,586 (377,499)
	$ 5,245,728		3,835,087
	$ 24,550,093		25,219,464
		21.37%	15.21%

The company’s capital management method has not been changed as of December 31, 2018.

(XXV) Changes arising from financing liabilities

Long-term loan Short-term loans Short-term notes payable Total liabilities arising from financing activities	January 1, 2018 Cash flow $ 900,000 - 1,470,000 2,280,000 1,299,709 (800,000)	Non-cash changes Changes in fair value December 31, 2018 - 900,000 - 3,750,000 191 499,900
	$ 3,669,709 1,480,000	191 5,149,900

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

VII. Transactions with affiliates

(I) Names of affiliates and their relationship with the company

During the period covered by this parent company only financial report, the company's subsidiaries and other entities who have dealings with the company are as follows:

Name of related party

Relationship with the company

Hua Cheng Investment Co., Ltd. Subsidiary of the Company Lien Rui Investment Corp. Subsidiary of the Company Jian Foods Incorporation Subsidiary of the Company Oggi Restaurant Group Co., Ltd. Subsidiary of the Company Camel Ring International Company Subsidiary of the Company Fortune Dragon Holding Inc. Subsidiary of the Company Pink Sky Investment Inc. Subsidiary of the Company Sun Lead International Limited Subsidiary of the Company Pacific Gateway Holdings Inc. Subsidiary of the Company Hifood Co., Ltd. Subsidiary of the Company Yantai Taihwa Food Industrial Co., Subsidiary of the Company Ltd. Hifood (Shanghai) Co., Ltd. Subsidiary of the Company Lien Hwa Industrial HK Ltd. Subsidiary of the Company Linde Lien Hwa Industrial Gases Co., Invested company under the equity method Ltd MiTAC Inc Invested company under the equity method UPC Technology Corp. Invested company under the equity method MiTAC Information Technology Invested company under the equity method Corp. Lienhwa United LPG Co., Ltd Invested company under the equity method Yih Yuan Investment Corp. The representative Director of this company is the same person as the representative Chairman of the company. Pao Hwa Trading Co., Ltd The representative Director of this company is the same person as the Chairman of the company. MiTAC International Corp. The representative Director of this company is the same person as the Chairman of the company. Harbinger Venture Management Co., The representative Director of this company is the Ltd. same person as the Chairman of the company. Getac Technology Corp. The Chairman of this company is the representative

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Name of related party Relationship with the company

Director of the company.

MiTAC Computing Technology Corp. The Chairman of this company is the representative Director of the company. United industrial Gases Co., Ltd. The Chairman of this company is the representative Director of the company. SYNNEX Technology International The Chairman of this company is the same person as Corp. the Chairman of the company. MiTAC Holdings Corp. The Chairman of this company is the same person as the Chairman of the company. LienHwa LOX Cryogenic Equipment Subsidiary of the company's affiliate Corp.

Asia Union Electronic Chemical Corp. Subsidiary of the company's affiliate Far-Eastern Industrial Gases Co., Ltd. Subsidiary of the company's affiliate Yuan Rong Industrial Gases Co., Ltd. Subsidiary of the company's affiliate Lien Fung Precision Technology Subsidiary of the company's affiliate Development Co., Ltd. Lien Tong Gases Co., Ltd. Subsidiary of the company's affiliate MiTAC Communication Co., Ltd. Subsidiary of the company's affiliate Lien Chuan Industrial Gases Co., Ltd. Subsidiary of the company's affiliate Tung Bao Corp. Subsidiary of the company's affiliate

• (II) Significant transactions with affiliates

• Operating revenue

Value of the Company's sales to affiliates are as follows:

Subsidiaries Affiliated enterprises	2018 $ 532 -	2017 662 3
	$ 532	665

The conditions of the Company's sales to affiliated companies are not significantly different from the general sales prices. The collection period is 30 to 60 days. Receivables from affiliates are not subject to collateral pledge and there is no need to provide for bad debt, post-assessment.

2. Leasing to affiliates

The company collects rental income from the affiliates as follows:

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Subsidiaries Affiliated enterprises: Linde Lienhwa Industrial Gases Co., Ltd Other affiliated enterprises Other related parties: Getac Technology Corp. Other related party	2018 $ 2,537 46,700 42,800 59,934 186	2017 2,468 45,301 43,876 53,915 2,621
	$ 152,157	148,181

Lease period January 1, 2013 and December 31, 2023. The rentals for the above-mentioned leased assets are determined by reference to the published present value or the predetermined value of the land and construction materials. In 2018 and 2017, the Company also charged the above-mentioned related parties rental guarantee of $ 16,946 thousand and $ 17,253 thousand respectively.

3. Purchase

The Company's purchase value to related parties are stated as follows:

Subsidiaries Affiliated enterprises	2018 $ 49 54	2017 8 61
	$ 103	69

The company’s purchase price from the companies above is not significantly different from the purchase price from general manufacturers. The payment period is one to two months, which is not significantly different from the average manufacturer.

4. Accounts receivable - affiliates

The Company's receivable accounts-related parties are stated as following:

Title	Type	December 31, 2018 $ 74 5,698 181 1,108 1,224 $ 8,285	December 31, 2017 106 4,235 268 1,077 1,119 6,805
Accounts receivable Other receivables	Subsidiaries Affiliated enterprises Subsidiaries Affiliated enterprises Other related party

The above receivables are rental and advance payments for the rental of the Nangang building.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

5. Account payable -affiliates

The Company's accounts payable -affiliates are stated as follows:

Title	Type	December 31, 2018 $ 18 19 15 4,056 248 $ 4,356	December 31, 2017 2 20 5 42 360 429
Accounts payable Other payables	Subsidiaries Affiliated enterprises Subsidiaries Affiliated enterprises Other related party

6. Prepayments

The Company's prepayments -affiliates are stated as follows:

Affiliated enterprises	December 31, 2018 $ 114	December 31, 2017 104

7. Equipment Purchase

In 2018 and 2017, the Company purchased business equipment and other equipment from affiliated companies totaling $25,135 thousand and $ 4,188 thousand respectively.

8. Disposal of investment property

Sold to affiliate in February 2017 for $ 240 thousand and gain $ 133 thousand.

9. Loans to affiliates

The Company’ s loans to affiliates are applied as follows:

Subsidiaries: Fortune Dragon Holding Inc. Other subsidiaries	December 31, 2018 $ 373,187 10,200	December 31, 2017 169,632 10,000
	$ 383,387	179,632

10. Other

In 1985 and 1998, the Company sold the land on which the factory was built to Linde Lienhwa Industrial gases Co., Ltd for a gain of $71,934 thousand. Since the company has not been sold, the Company has accounted for deferred credits to the affiliate.

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

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

(Continued)

~80~

LIEN HWA INDUSTRIAL CORPORATION Notes to the Financial Statements

respectively.

1. Endorsements and guarantees

Please refer to Note 13 (1) for the details of the endorsement and guarantee of the subsidiaries due to financing borrowings on December 31, 2018.

• (III) Transactions involving key management personnel

Remuneration to key management personnel includes the following:

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

VIII. Pledged Assets

The book value of the assets provided by the company to guarantee the pledge is as follows

Assets name	Evidence of collateral	December 31, 2018 $ 107,386 121,951 3,421 $ 232,758	December 31, 2017 108,195 123,436 3,549 235,180
Property, plant, and equipment Investment property Guarantee deposits paid	Bank loan 〞

IX. Significant contingent liabilities and contractual commitments

• (I) Significant unrecognized contractual commitments

• Letter of credit issued by the company but not presented:

L/C issued but not presented USD CHF Swiss francs	December 31, 2018 $ 7,578 -	December 31, 2017 3,575 1,702

1. In 2016, the company signed a joint venture contract with USI Corp. for the FuJian Gurley investment case. The main contents : (1) in accordance with the contract, the shareholders will establish Ever Victory Global Limited (Heng Kai Global Limited, hereinafter referred to as the "JV Company"), It also agreed to invest in the refining and production of ethylene in Gurley Park, Zhangzhou, Fujian Province, China through the establishment of a 100%-shareholding Dynamic Ever Investments Limited (hereinafter referred to as "HK Company") in Hong Kong. In addition, any other businesses approved by the relevant authorities of the Republic of China and decided by the Board of Directors of the JV company. (2) The HK company will jointly establish a joint venture with Fujian

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

Petrochemical Co., Ltd. (hereinafter referred to as Gurley Company) and acquire a 50% stake in the issued shares of Gurley Company.

In 2018, the Board of directors resolved to participate in the JV company's capital increase of no more than US$72,810 thousand to indirectly invest in Gurley Company. As of December 31, 2018, the company has Invested US$31,891 thousand.

1. In 2018, the company signed a joint venture contract with Fujian Petrochemical Co., Ltd to establish Fujian Fuhua Gases Co., Ltd. The contract specifies that, through its 100% owned investment company (hereinafter called Lienhwa HK), the company will, jointly with Fujian Petrochemical Co., Ltd, establish Fujian Fuhua Gas Co., Ltd. for an agreed equity investment of RMB 95,000 thousand and 50% of the shares. As of December 31, 2018, the Company has invested RMB 89,500 thousand in Fujian Fuhua Gas Co., Ltd.

2. (II) Contingent liabilities:

3. As of 2018 and December 31, 2017, the Company's deposit guarantee notes for loans, issuance of commercial promissory notes, and customs guarantees, and wheat import guarantees were $ 5,720,295 thousand and $ 4,975,460 thousand.

X. Losses Due to Major Disasters:None

XI. Subsequent Events:None

XII. Others:

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

is as follows:
By funtion 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 Remuneration to Directors Others Depreciation Amortization	96,219 7,500 4,474 - 9,368 139,241 3,841	101,311 8,816 8,542 8,857 11,896 25,592 2,776	197,530 16,316 13,016 8,857 21,264 164,833 6,617	92,802 6,962 4,168 - 9,214 131,155 3,930	95,239 8,157 4,336 7,074 9,059 26,155 1,730	188,041 15,119 8,504 7,074 18,273 157,310 5,660

By the end of December 31, 2018 and 2017, the number of employees of The Company are respectively 287 and 272, of which the numbers of non-employee directors are respectively 7 and 4.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

XIII. Other disclosures:

(I) 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 Company in 2018:

1. 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.

• 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	Subsidiary endorsements/ guarantees to third parties on behalf of parent company	Endorsements/ guarantees to third parties on behalf of companies in Mainland China
		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 fincnacial 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 fincnacial statement.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

1. 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 (%)	Note
				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.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

1. 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	Beginning Balance	Purchases	Purchases	Sales	Sales	Sales	Sales	Ending Balance	Ending Balance
					Shares	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 ：The gains and losses of the investment are included.

3. Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock:None

4. Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock:None

5. Related-party transactions for purchases and sales with amounts exceeding the lower of NT$300 million or 20% of the capital stock:None

7. 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	-	-		-	-

1. Trading in derivative instruments:None

2. (II) 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 wnership	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2018	December 31, 2017	Shares (thousands)	Percentage of wnership	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

Notes to the Financial Statements

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 wnership	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2018	December 31, 2017	Shares (thousands)	Percentage of wnership	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)	Subsidia
〞	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.

(Continued)

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LIEN HWA INDUSTRIAL CORPORATION

Notes to the Financial Statements

(III) Information on investment in mainland China:

1. 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	Accumu-lated remittance of earnings in current period
					Outflow	Inflow
Yantai Taihwa Food Industrial Co., Ltd. (a).2	Flour production and sales	961,	5 (2)	961,594	-	-	961,594	(121,067)	100.00%	100.00%	(121,067)	484,38	0 -
Yantai Tailiang Food Industrial Co., Ltd. (a).3	Production and sales of peanuts and peanut products	32,	4 (2)	19,488	-	-	19,488	-	60.00%	60.00%	-	-	-
Hifood(Shangh ai) Co., Ltd.(a).2	Leasing	656,	7 (2)	408,880	-	-	408,880	15,906	65.81%	65.81%	10,468	137,56	-
BOCLH Industrial Gases(Shanghai )Co., Ltd(a).3	gas production	580,	4 (2)	1,744	-	-	1,744	-	0.25%	0.25%	8,120	201,34	-
Fujian Fuhua Gases Co., Ltd.(a).1	Industrial gas research、 development and technical services	824,	9 (2)	-	416,367	-	416,367	(17,216)	50.00%	50.00%	(8,608)	391,80	2 -

1. Limitation on investment in Mainland China:

itation 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 commision, MOEA for cancellation. The investment amount will be remitted back to deduct the approval amount from the mainland China.

3.Significant transactions:None

XIV. Department information

Please refer to the year 2018 consolidated financial statements.

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