LHIHC — Audit Report / Information 2019

Nov 13, 2019

Stock Code: 1229

Lien Hwa Industrial Holdings Corporation (Original name: Lien Hwa Industrial Corporation) and Subsidiaries

Consolidated Financial Statements and the Independent Auditor’s Audit Report

2018 and 2019

---

For the convenience of readers and for information purpose only, the 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. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors ’ report and financial statements shall prevail.

~1~

Declaration of Consolidated Financial Statements of Affiliates

The companies to be included by the Company in the consolidated financial statement of affiliated enterprises in 2019 (Jan. 1, 2019- Dec. 31, 2019) pursuant to the Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those to be included into the consolidated financial statement of the parent company and subsidiaries pursuant to the IFRS No. 10. Furthermore, the related information to be disclosed in the consolidated financial statement of affiliated enterprises has been disclosed in the said consolidated financial statement of parent company and subsidiaries. Accordingly, it is not necessary for the Company to prepare the consolidated financial statement of affiliated enterprises separately.

Hereby declare.

Company name: Lien Hwa Industrial Holdings Corporation Chairman: Matthew Feng-Chiang Miau Date: March 30, 2020

~2~

Report of Independent Accountants

To the Board of Directors and Shareholders of Lien Hwa Industrial Holdings Corporation:

Opinion

We have audited the consolidated balance sheet of Lien Hwa Industrial Holdings Corporation (Original name: Lien Hwa Industrial Corporation) and its subsidiaries (LHIHC Group) as at 31 December 2018 and 2019, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement, and the notes to consolidated financial statements (including the summary of significant accounting policies) for periods 1 January to 31 December 2018 and 2019.

In our opinion, all material disclosures of the consolidated financial statements mentioned above were prepared in accordance with Regulations Governing the Preparation of Financial Reports by Securities Firms, international financial reporting standards approved by the Financial Supervisory Commission, the International Accounting Standards and interpretations thereof, and presented a fair view of the consolidated financial position of LHIHC Group as at December 31, 2018 and 2019, and consolidated business performance and cash flow for the periods January 1 to December 31, 2018 and 2019.

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. Our responsibility to the standards will be explained in the paragraph of auditor’s responsibilities when auditing the consolidated financial statements. All relevant independent personnel subject to the CPA professional ethics within the firm remain independent from the LHIHC Group and implement responsibilities regulated in the ethics. We believe we have obtained sufficient appropriate audit evidence to serve as the basis for the audit opinion.

Key audit matters

Key audit matters are the most important matters that we audit in the 2019 consolidated financial statements of the LHIHC Group based on our professional judgment. All relevant matters were audited during the audit of the consolidated financial statements and the formulation of the audit opinions. We will not express our opinions on those matters separately. The key audit matters that we determine shall be listed on the audit report include:

• I. Recognition of revenue

Regarding the accounting policies for the recognition of revenue, please see note 4(16) to the Consolidated Financial Statements; for the important accounting estimate and the uncertainty assumed, please see note 6(23) to the Consolidated Financial Statements.

~3~

Description of the key audit matters:

LHIHC Group- The main product of the noodle business is flour made from wheat. The product is sold by distributors and chained stores. In addition, the food company will purchase the product to make food and sells it to the consumer. Since the main customers of the Group are distributors, chained stores and food companies, whether LHIHC Group gives the sales discount correctly is important to the recognition of revenue of the company. As a result, it is a matter we need to highly focus on when auditing the financial statements. Corresponding audit process:

The audit process we perform for the above key audit matters includes: We lean the reason of the sales discount and evaluate the accounting policies for recognition; We evaluate whether the management performs the recognition of the sales discount pursuant to the existing accounting policies of the Company; We perform sampling inspection to verify relative forms along with vouchers and check the if the calculation is correct.

LHIHC Group- It is a business group of integrated system service with the main business including information engineering projects and intelligent projects. The completion percentage is estimated pursuant to the accounting standards and the income of the engineering project is calculated based on that percentage and the total contract price. We have to refer to the internal and external vouchers and certain estimated information to calculate the completion percentage; as a result, the calculation is more complex. The income amount is a major item and, therefore, a matter of high focus during the auditing of the financial statements.

Corresponding audit process:

Our main audit process for the above key audit matters include: We learn and examine whether the design and implementation of the internal control mechanism is effective. The mechanism is related to the correctness of the estimated completion percentage and the project income recognition. In addition, we evaluate whether the use of the accounting policies in the calculation of the completion percentage are consistent. We also perform substantive tests on the project contract details that are not complete at the end of the period. This way, we can ensure the estimated completion percentage and the project income recognition are correct.

II. Inventory Valuation

Regarding the accounting policies for the inventory valuation, please see note 4(8) to the Consolidated Financial Statements; for the description of the inventory valuation, please see note 6(8) to the Consolidated Financial Statements. Description of the key audit matters:

LHIHC Group- The main product of the noodle business is flour made from wheat. The inventories are measures at the lower of cost and net realizable value. The material is mainly wheat purchased from foreign suppliers to produce flour and other products. The product is sold by distributors and chained stores. In addition, the food company will purchase the product to

~4~

make food and sells it to the consumer. The product price can be easily impacted by the international exchange rate and the material price fluctuation. Furthermore, the company is faced with the competition of similar products in the same trade. Also, the consumers become more concerned about food safety in recent years. All above factors result in the risk for the price of the company’s product to drop or expire. Therefore, the cost of inventories might exceed the net realizable value, and the allowance for inventory devaluation and obsolescence loss shall be set aside. Subjective major judgment of the management is pertained in the amount set aside; therefore, the matter is a high focus during the financial statements audit. Corresponding audit process:

The audit process we perform for the above key audit matters includes: We lean the accounting policies for setting aside the inventory decrease; evaluate whether the management sets aside the allowance for inventory devaluation and obsolescence loss pursuant to the existing accounting policies of the company; and perform sampling inspection to verify relative forms along with vouchers and check if the calculation is correct. Moreover, we evaluate whether the allowance for inventory devaluation and obsolescence loss set aside is appropriate. We also evaluate whether the management that sets aside the allowance for inventory devaluation and obsolescence loss has disclosed it as appropriate.

Other matters

We hereby express an unqualified opinion in favor of Lien Hwa Industrial Holdings Corporation on the financial statements of the parent company only so prepared for 2018 and 2019.

The responsibility of the management and the governing body for the consolidated financial statements

The management is responsible for preparing the appropriate consolidated financial statements in accordance with Regulations Governing the Preparation of Financial Reports by Securities Firms, international financial reporting standards approved by the Financial Supervisory Commission, the International Accounting Standards and interpretations thereof. Additionally, it is responsible for maintaining the internal control mechanism that is related to and necessary for the preparation of the consolidated financial statements. As a result, it can ensure material misstatement due to fraud or error is not pertained in the consolidated financial statements.

Other than the situation that the management intends to liquidate LHIHC Group or stop the business, or no other approaches can be used except for these two measures, during the preparation of the consolidated financial statements, the responsibility of the management also includes evaluating the going concern capacity of the LHIHC Group, disclosure of relative matters, and adoption of the going concern accounting basis.

The governing body of the LHIHC Group (including the Audit Committee) has the responsibility to supervise the financial reporting procedures.

Our responsibility for the audit of the consolidated financial statements

The purpose for us to audit the consolidated financial statements is to obtain reasonable assurance

~5~

that there is no material misstatement due to fraud or error in the consolidated financial statements, and we issue the audit report afterwards. Reasonable assurance means high assurance. Only that the audit work implemented in accordance with the generally accepted auditing standards cannot give the promise that every material misstatement in the consolidated financial statements are found. Misstatement might result from fraud or error. If we can reasonably expect the individual amounts or the total amount in the misstatement would influence the financial decision made by the user of the consolidated financial statements, the misstatement is considered material.

When performing the audit according to the generally accepted auditing standards, we exercise professional judgment and remain skeptical professionally. We also perform the following work:

1. We identify the material misstatement resulting from fraud or error in the consolidated financial statement and assess its risk. We design and implement appropriate corresponding measures for the assessed risk. We acquire sufficient and appropriate audit evidence to serve as the basis for the audit opinion. Due to the fact that fraud might include collusion, forgery, intended omission, misstatement and violation of internal control, the risk of the misstatement resulting from fraud is higher than that resulting from error.

2. We acquire necessary understanding of the internal control mechanism that is related to the audit to design appropriate audit process for the situation at the time. The purpose of the knowledge is not expressing opinions to the effectiveness of the internal control mechanism of the LHIHC Group.

3. We evaluate whether the accounting policies adopted by the management are suitable and whether the accounting estimation as well as relative disclosures are appropriate.

4. Based on the acquired audit evidence, we decide whether the going concern accounting basis adopted by the management is suitable, whether events that might affect the going concern capacity of Lien Hwa exist, and whether there is major uncertainty. A conclusion will be made afterwards. We believe under the circumstances that there is major uncertainty, a reminder shall be included in the audit report to inform the consolidated financial statements user to pay attention to relative disclosures in the statements. We shall modify the audit opinion when the disclosure is considered improper. Our conclusion is based on the audit evidence acquired as of the date of the audit report. Future events or circumstances might still result in the fact that LHIHC Group no longer has the going concern capacity.

5. We evaluate the overall statements, structures and contents of the consolidated financial statements (including relative notes) and see whether the statements appropriately state relevant transactions and events.

6. We examine the financial information of individual companies within the Group to acquire sufficient and appropriate audit evidence for expressing opinions in the consolidated financial statements. We are responsible to guide, supervise and implement the audit for the Company. In addition, we are responsible for the formulation of opinions for the company.

We communicate with the governing body on the scope and time of the audit as well as the

~6~

significant findings (including significant deficiencies of the internal control mechanism identified during the audit process).

We have issued a declaration of independence to the governing body, which assured that all relevant personnel within the CPA firm had complied with ethical rules of the CPA profession. Besides, we mention the relation or situation that may compromise the CPA’s independence (including relevant preventive measures) to the governing body.

After communicating the above matters with the governing body, we decide the key audit matters in the 2019 consolidated financial report of LHIHC Group. We clearly state all above matters in the audit report, unless the law prohibits us to publicly disclose certain matters, or under rare circumstances we decide not to include certain matters in the audit report since we can reasonably expect the resulting negative impact is greater than the public interest they bring.

The engagement partners on the audit resulting in this independent auditors’report are Linda Chiang and Liu-Fong Yang

KPMG

Taipei, Taiwan (Republic of China) March 30, 2020

---

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

~7~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries

Consolidated Balance Sheet

31 December in 2018 and 2019

(Expressed in Thousands of New Taiwan Dollars)

Assets Current assets: 1100 Cash and cash equivalent (note 6(1)) 1110 Financial assets measured at fair values through profit or loss- current (note 6(2)) 1120 Financial assets measured at fair values through other comprehensive profit or loss- current (note 6(3)) 1140 Contract assets – current (note 6(23)) 1150 Net receivable notes (note 6(4)) 1170 Net receivable accounts (note 6(4) and 7) 1200 Other receivables (note 6(5) and 7) 1220 Current income tax assets 130X Net inventory (note 6(6)) 1470 Other current assets Non-current assets: 1517 Financial assets measured at fair values through other comprehensive profit or loss- non-current (note 6(3)) 1550 Investment under the equity method (note 6(7)) 1600 Property, plant and equipment (note 6(10) and 8) 1755 Right-of-use assets (note 6(11)) 1760 Net investment property (note 6(12) and 8) 1780 Intangible assets (note 6(13)) 1840 Deferred income tax assets (note 6(20)) 1920 Guaranteed deposits paid (note 8) 1975 Net defined benefit assets – non-current (note 6(19)) 1985 Long-term lease prepayment 1995 Other non-current assets- others Total assets	12.31.2019 Amount % $ 1,758,023 4 285,264 1 440,588 1 1,781,951 4 174,615 - 1,241,682 3 29,153 - 48,460 - 1,155,720 2 313,896 1	12.31.2018 Amount % 707,098 3 - - - - - - 237,998 1 559,044 2 77,316 - 63,224 - 941,986 3 33,250 - 2,619,916 9 6,102,295 20 17,686,174 58 1,806,474 6 - - 2,070,323 7 14,975 - 12,680 - 12,984 - - - 43,929 - 19,554 - 27,769,388 91 30,389,304 100 Liabilities and equity Current liabilities: 2100 Short-term loan (note 6(15)) 2110 Short-term notes payable (note 6(14)) 2130 Contract liabilities– current (note 6(23)) 2150 Notes payable 2170 Accounts payable (note 7) 2200 Other payables (note 7) 2230 Current income tax liabilities 2280 Lease liabilities – current (note 6(17)) 2300 Other current liabilities Non-current liabilities: 2540 Long-term loan (note 6(16)) 2570 Deferred income tax liabilities:(note 6(20)) 2580 Lease liabilities – non-current (note 6(17)) 2640 Net defined benefit liabilities – non-current (note 6(19)) 2645 Deposits received 2670 Other non-current liabilities – other Total liabilities Equity attributable to the owners of the parent company (note 6(21)): 3110 Common stock share capital 3200 Additional paid-in capital 3300 Retained earnings 3400 Other equities 3500 Treasury stock Total equity attributable to the owners of the parent company 36XX Non-controlling interests Total equity Total liabilities and equity	12.31.2019 Amount % $ 5,050,000 11 1,039,800 2 101,787 - 22,648 - 810,459 2 445,511 1 107,671 - 34,030 - 20,426 -	12.31.2018 Amount % 3,750,000 12 499,900 2 - - - - 94,977 - 209,984 1 58 - - - 30,897 -
			7,632,332 16	4,585,816 15
			900,000 2 148,013 - 58,969 - 13,293 - 63,956 - 98,189 -	900,000 3 101,874 - - - 45,181 - 57,534 - 78,297 -
	7,229,352 16
	19,376,709 42 13,020,127 28 4,440,149 10 158,649 - 1,894,733 4 98,650 - 124,301 - 152,995 - 20,830 - - - 28,448 -
			1,282,420 2	1,182,886 3
			8,914,752 18	5,768,702 18
			11,047,399 24 765,121 2 12,875,954 28 2,494,677 5 (184,763) -	10,521,332 35 766,253 3 10,968,877 36 2,296,024 8 (2,393) -
			26,998,388 59 10,631,803 23	24,550,093 82 70,509 -
	39,315,591 84		37,630,191 82	24,620,602 82
			$ 46,544,943 100	30,389,304 100
	$ 46,544,943 100

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

~8~

Lien Hwa Industrial Holdings Corporation

(original name: Lien Hwa Industrial Corporation) and Subsidiaries

Consolidated comprehensive income statement

1 January to 31 December in 2018 and 2019

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

4000 Operating revenue (note 6(23) and 7) 5000 Operating cost (note 6(6) and 7) Operating gross profit Operating expenses: 6100 Marketing expense 6200 Management expense 6300 R&D expenses 6450 Estimate credit (reversal gain) loss (note 6(4)) Net operating profit Non-operating income and expenses: 7010 Other revenues (note 6(25)) 7020 Other profit and loss (note 6(25)) 7050 Financial cost (note 6(25)) 7060 Shareholding in the profit or loss of the affiliated companies and joint ventures under the equity method (note 6(7)) Net income before tax 7951 Less: Income tax expenses (note 6(20)) Net income 8300 Other comprehensive income: 8310 Titles not reclassified into income 8311 Re-measurement of defined benefit plan 8316 Unrealized valuation gains and losses from the equity instrument investment measured at fair value through other comprehensive income 8320 Share of other comprehensive income of affiliates and joint ventures under equity method 8349 Less: Income tax related to items not reclassified Total items not reclassified into profit or loss 8360 Titles potentially reclassified into income subsequently 8361 Exchange difference in the financial statements of foreign operations 8370 Share of other comprehensive income of affiliates and joint ventures under equity method 8399 Less: Income tax related to items may be reclassified Total items may be subsequently reclassified into profit or loss 8300 Other comprehensive income in current period (net amount after tax) Total comprehensive income Net profit attributable to: 8610 Parent company shareholders 8620 Non-controlling interests Net income Total comprehensive income attributable to: 8710 Parent company shareholders 8720 Non-controlling interests Total comprehensive income EPS (unit: NTD) (note 6(22)) 9750 Basic earning per share 9850 Diluted earning per share	2019	% 100 77	2018	% 100 83
	Amount $ 8,271,293 6,401,664		Amount 5,097,818 4,265,761
	1,869,629	23	832,057	17
	516,260 361,734 41,172 (4,907)	6 4 - -	299,474 192,844 38,513 1,053	6 4 1 -
	914,259	10	531,884	11
	955,370	13	300,173	6
	262,315 567,198 (60,063) 1,556,253	3 7 (1) 18	230,242 (963) (32,289) 1,973,581	5 - (1) 39
	2,325,703	27	2,170,571	43
	3,281,073 134,977	40 2	2,470,744 (2,696)	49 -
	3,146,096	38	2,473,440	49
	11,067 987,607 895,461 -	- 12 11 -	(2,581) (612,274) (1,045,631) -	- (12) (21) -
	1,894,135	23	(1,660,486)	(33)
	67,971 (291,542) -	1 (4) -	(28,284) (68,797) -	(1) (1) -
	(223,571)	(3)	(97,081)	(2)
	1,670,564	20	(1,757,567)	(35)
	$ 4,816,660	58	715,873	14
	$ 2,766,816 379,280	33 5	2,476,292 (2,852)	49 -
	$ 3,146,096	38	2,473,440	49
	$ 4,307,156 509,504	52 6	720,349 (4,476)	14 -
	$ 4,816,660	58	715,873	14
	$	2.51		2.24
	$	2.51		2.24

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

~9~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

1 January to 31 December in 2018 and 2019

(Expressed in Thousands of New Taiwan Dollars)

Balance on January 1, 2018 Adjustment applied to new standards retrospectively Balance on January 1, 2018 after restatement Net income (loss) Other comprehensive income Total comprehensive income Allocation and distribution of earnings: Legal reserve appropriated Cash dividends on ordinary shares Common stock dividends Changes of affiliates and joint ventures under equity method Increase/decrease in non-controlling equity Balance on December 31, 2018 Net income Other comprehensive income Total comprehensive income Allocation and distribution of earnings: Legal reserve appropriated Cash dividends on ordinary shares Common stock dividends Changes of affiliates and joint ventures under equity method Stock purchased by the subsidiary from the parent company that deemed as the treasury stock Distribution of dividend to the subsidiary to adjust the additional paid-in capital Disposal of investments under the equity method Disposal of equity instrument measured at fair value through other comprehensive income Increase/decrease in non-controlling equity Balance on December 31, 2019				**Equity **	attributable to the ow	ners of the parent company	ners of the parent company				Non-controlling interests	Total equities 25,285,915 309,709
	**Share capital **	Additional paid-in capital		Retained earnings			Other equities		Treasury stocks	Total equity attributed to parent company shareholders
						Exchange difference in the financial statements of foreign operations	Unrealized loss and profit of financial assets at fair value calculated through other comprehensive income	Unrealized loss and profit of available-for-sale financialproducts
	Common stock share capital		Legal reserve	Special reserve	Undistributed **earnings **
	$ 9,564,847 -	747,487 -	2,514,375 -	141,843 -	7,919,360 594,990	(99,739) (129)	- 4,148,532	4,433,684 (4,433,684)	(2,393) -	25,219,464 309,709	66,451 -
	9,564,847	747,487	2,514,375	141,843	8,514,350	(99,868)	4,148,532	-	(2,393)	25,529,173	66,451	25,595,624
	- -	- -	- -	- -	2,476,292 (3,303)	- (95,457)	- (1,657,183)	- -	- -	2,476,292 (1,755,943)	(2,852) (1,624)	2,473,440 (1,757,567)
	-	-	-	-	2,472,989	(95,457)	(1,657,183)	-	-	720,349	(4,476)	715,873
	- - 956,485 - -	- - - 18,766 -	297,402 - - - -	- - - - -	(297,402) (1,721,672) (956,485) 3,477 -	- - - - -	- - - - -	- - - - -	- - - - -	- (1,721,672) - 22,243 -	- - - - 8,534	- (1,721,672) - 22,243 8,534
	10,521,332 - -	766,253 - -	2,811,777 - -	141,843 - -	8,015,257 2,766,816 14,649	(195,325) - (206,410)	2,491,349 - 1,732,101	- - -	(2,393) - -	24,550,093 2,766,816 1,540,340	70,509 379,280 130,224	24,620,602 3,146,096 1,670,564
	-	-	-	-	2,781,465	(206,410)	1,732,101	-	-	4,307,156	509,504	4,816,660
	- - 526,067 - - - - - -	- - - (10,195) - 9,063 - - -	247,629 - - - - - - - -	- - - - - - - - -	(247,629) (1,683,413) (526,067) (8,748) - - 1,278,836 65,004 -	- - - - - - 16,802 - -	- - - - - - (1,278,836) (65,004) -	- - - - - - - - -	- - - - (182,370) - - - -	- (1,683,413) - (18,943) (182,370) 9,063 16,802 - -	- - - - - - - - 10,051,790	- (1,683,413) - (18,943) (182,370) 9,063 16,802 - 10,051,790
	$ 11,047,399	765,121	3,059,406	141,843	9,674,705	(384,933)	2,879,610	-	(184,763)	26,998,388	10,631,803	37,630,191

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

~10~

Lien Hwa Industrial Holdings Corporation

(original name: Lien Hwa Industrial Corporation) and Subsidiaries

Consolidated Statement of Cash Flow

1 January to 31 December in 2018 and 2019

(Expressed in Thousands of New Taiwan Dollars)

Cash flow from operating activities: Net income before tax Adjustments: Income/expenses Depreciation expense Amortization expense Estimate credit (reversal gain) loss Net earnings of financial assets and liabilities measured at fair value through profit or loss Interest expense Interest income Dividend income Shareholding in the profit of the affiliated companies and joint ventures under the equity method Loss from the disposal and scrap of property, plants and equipment Disposal of investment gain Impairment of non-financial assets Others Income/expenses Changes in operating activities related assets and liabilities: Net changes in assets relating to operating activities: Contract assets Receivable notes Accounts receivable Other receivable Inventory Other current assets Net changes in assets relating to operating activities Net changes in liabilities relating to operating activities: Contract liabilities Notes payable Accounts payable Other payable Reserve for liabilities Net defined benefit liability Other current liabilities Net changes in liabilities relating to operating activities Changes in operating activities related assets and liabilities Adjustments Cash flow from operating activities Interest received Dividend received Interest paid Returned income tax (paid) Net cash inflow from operating activities	2019 $ 3,281,073 308,454 25,209 (4,907) (2,214) 60,063 (16,366) (871,987) (1,565,904) 570 (582,634) 42,964 (128)	2018 2,470,744 207,578 13,998 1,052 - 32,289 (10,715) (218,475) (1,973,581) 1,203 - - -
	(2,606,880)	(1,946,651)
	32,849 83,995 (132,484) 77,782 (75,653) (48,679)	- (37,472) 27,972 49,368 59,641 (10,582)
	(62,190)	88,927
	(110,248) 17,730 114,746 109,727 965 (36,962) (24,277)	- - (64,502) (4,905) 1,727 (4,997) 14,406
	71,681	(58,271)
	9,491	30,656
	(2,597,389)	(1,915,995)
	683,684 16,336 2,166,913 (57,607) 12,065	554,749 10,715 1,783,413 (31,391) (97,780)
	2,821,391	2,219,706

(Continued)

~11~

Lien Hwa Industrial Holdings Corporation

(original name: Lien Hwa Industrial Corporation) and Subsidiaries

Consolidated Statement of Cash Flow

1 January to 31 December in 2018 and 2019

(Expressed in Thousands of New Taiwan Dollars)

Cash flow from investing activities: Acquisition of financial assets measured at fair values through other comprehensive profit or loss Refunds from decapitalization of financial assets measured at fair values through other comprehensive profit or loss Acquisition of financial assets measured at fair values through profit or loss Disposal of financial assets measured at fair values through profit or loss Acquisition of investments under the equity method Disposal of investments under the equity method Acquisition of property, plant, and equipment Disposal of property, plant, and equipment Increase in guaranteed deposits paid Acquisition of intangible assets Acquisition of investment property Increase of other non-current assets Cash inflow from mergers 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 of guaranteed deposits and margins received Lease principal payment Cash dividend distribution Uncontrolled equity Net cash outflow from financing activities Effect of foreign exchange rate change Current cash and cash equivalents increase (decrease) Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents	2019 $ (789,933) 64,630 (685,133) 552,040 - 477,796 (141,037) 353 (30,005) (3,948) (1,562) (13,727) 218,865	2018 (1,119,240) 7,939 - - (658,079) - (234,976) 653 (388) - (1,757) (22,237) -
	(351,661)	(2,028,085)
	650,000 (142,772) 900,000 (900,000) 2,935 (40,335) (1,674,350) (183,471)	2,278,464 (800,000) 900,000 (900,000) 3,100 - (1,721,672) -
	(1,387,993)	(240,108)
	(30,812) 1,050,925 707,098	5,592 (42,895) 749,993
	$ 1,758,023	707,098

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

~12~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the consolidated financial statements

For the years ended December 31, 2019 and 2018

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

I. Company profile

Lien Hwa Industrial Holdings Corporation (Original name: Lien Hwa Industrial Corporation Hereinafter referred to as “the Company”.) was approved by the Ministry of Economic Affairs and founded in July, 1955. The Company merged with China Chemical Co., Ltd. on December 1, 2002. And was registered at 6F., No. 44, Sec. 1, Chengde Rd., Datong Dist., Taipei City. The main business of the Company and subsidiaries (hereinafter referred to as “consolidated company”) includes flour production and sale, real estate rental, integrated system service, automatic system and other electronic business.

To become more competitive and improve the business performance, the Company performed organizational reconstructing and established a professional breakdown system. In the shareholder’s meeting on June 25, 2019, it was resolved that September 1, 2019 was the base date of company demerger. The flour business and the rental business were split in the form of surviving spin-off and transferred to the 100%-owned subsidiaries, Lien Hwa Milling Foods Corporation and Lien Hwa Properties Corporation, respectively.

The name of the Company was changed from “Lien Hwa Industrial Corporation” to “Lien Hwa Industrial Holdings Corporation” to be in line with the regulations for the transformation into an investment holding company. After the demerger and transformation, the main business became general investment.

II. Financial report approval date and procedures

The consolidated financial statements were approved and published by the Board of Directors on March 30, 2020.

III. Application of new standards, amendments and interpretations

• (I) We have adopted the new standards, amendments and interpretations approved by the Financial Supervisory Commission.

The consolidated company has adopted the international financial reporting standards approved by the Financial Supervisory Commission (hereinafter referred to as FSC) and becoming effective in 2019 to prepare the consolidated financial statements since 2019. Relative new standards, amendments, revisions and interpretations are listed as follow:

~13~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The new / amended / revised standards or interpretation IFRS 16 “Leases” IFRS Interpretation 23 “Uncertainty over Income Tax Treatments” Amendments to IFRS 9 “Prepayment Features with Negative Compensation” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” Amendments to IAS 28 “Long-term interests in Associates and Joint Ventures” IFRS 2015-2017 Annual Improvement	Effective date of IASB’s announcement
	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019

Other than the matters below, the application of the newly recognized IFRS mentioned above does not lead to material changes in the consolidated financial statements. The attributes of major changes and the impact are described below:

1. IFRS 16 “Leases”

The IFRS 16 “Leases” (hereinafter referred to as IFRS 16) replaced the existing IFRS 17 “Leases” (hereinafter referred to as IFRS 17), IFRS Interpretation 4 “Determining whether an Arrangement Contains a Lease” (hereinafter referred to as IFRS Interpretation 4), SIC 15 “Operating Leases- Incentives” and SIC 27 “Evaluating the Substance of Transactions in the Legal Form of a Lease”.

The consolidated company adopted the modified retrospective transition method for transition to IFRS 16. The cumulative effects of changes after the adoption of new standards were recognized in the 2019 profit and loss (and the year after 2019). The information in the comparative period was not prepared again and the opening retained earnings in January 1, 2019 were not adjusted. Relative features in the accounting policy change and the impact are described below:

(1) Definition of a lease

The consolidated company identified whether an agreement was (or contained) a lease on the commencement date of a contract based on IFRS Interpretation 4. After the change in accounting policies, the consolidated company identifies whether a contract is (or contains) a lease based on the definition of a lease in IFRS 16. The accounting policies are detailed in note 4(12).

During the transition to IFRS 16, the consolidated company chose to

~14~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

practice an expedient to waive the need to identify whether the transaction before the date of initial application is a lease. It means that IFRS 16 directly applies to the contract that has been identified as a lease. The contract that was not identified as a lease according to IAS 17 and IFRS Interpretation 4 was not reevaluated to determine whether it is a lease. Therefore, the definition of a lease in IFRS 16 was only applicable to the contract that is executed or amended after the date of initial application (incl.).

• (2) Lessee

For the transaction that the consolidated company was a lessee, its classification was assessed based on whether the lease contract has transferred the risk and return attached to the title of assets to the lessee. Under IFRS 16, for the lease contract, the right-of-use assets and lease liabilities was recognized on the balance sheet.

Where the consolidated company chooses to rent machinery and equipment, recognition exemptions of short-term lease were applicable.

• A. For the operating lease contract classified pursuant to IAS 17:

During the transition period, the lease liabilities were measured at present value of remaining lease payment. The consolidated company was permitted to use the incremental borrowing rate on the date of initial application for the discount.

For the amount of lease liabilities, adjust all prepayment of lease or lease amount payable that were related to the lease. The method was applied to all leases of the consolidated company other than those mentioned above.

In addition, the consolidated company practiced the following expedient for the transition to IFRS 16:

• a. We determined a single discount rate for the lease component with similar features.

• b. Based on relative assessment results of the onerous contract assessed pursuant to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” before the initial application, we determined the alternative method for the assessment on right-of-use asset loss.

• c. For the lease with the term ending within 12 months after the fist-time adoption, the recognition exemption of the right-of-use assets and lease liabilities was applicable.

~15~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

  - d. The initial direct cost was not calculated when measuring the right-of-use assets on the date of initial application.

  - e. When a lease contract contained options to extend or terminate the lease, practice the hindsight approach to determine the lease term.

• B. Contract that was classified as a financing lease.

  • For the contract of financing lease subject to IAS 17, the book values of

  • the right-of-use assets and lease liabilities on the date of initial application were the amounts of lease assets and liabilities measured based on IAS 17 before the date.

• (3) Lessor

Except for subleases, the consolidated company did not have to make any adjustment for the transition to IFRS 16 for the transaction in which the consolidated company was a lessor. And starting from the first-adoption date, the consolidated company applied IFRS 16 to its leasing transactions.

Under IFRS 16, use-of-right assets instead of underlying assets were used in the evaluation of the sublease classification. During the transition period, after the consolidated company reevaluates the classification of the sublease that was classified as an operating lease according to IAS 17, the sublease was now classified as a financing lease under the regulations of IFRS 16.

• (4) Impact on the financial statements

During the transition to IFRS 16, the amounts of the right-of-use assets and lease liabilities recognized by the consolidated company on the date of initial application were NTD146,850 thousand (including long-term lease prepayment) and NTD105,605 thousand, respectively. The consolidated company used the incremental borrowing rate on the date of initial application for the discount of lease payment and calculated the lease liabilities. The weighted average of the used rate was 1.10%.

The adjustment for the commitment amount of the operating lease disclosed a year before the initial application date and for the lease liabilities amount recognized on the initial application date is as follows:

~16~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Commitment amount of the operating lease disclosed in the consolidated financial statements on 12.31.2018. Recognition exemption: Short-term lease Optional lease extension or termination that can be implemented with reasonable assurance Discount amount using incremental borrowing rate on 1.1.2019. Amount of the financing lease liabilities recognized on 12.31.2018. Amount of the lease liabilities recognized on 1.1.2019.	1.1.2019 $ 150,893 (48) (3,995)
	$ 146,850
	$ 105,605 -
	$ 105,605

(II) Effect when the Company has yet to adopt the IFRSs approved by the FSC.

Pursuant to the Order Jin-Guan-Zheng-Shen-Zi No.1080323028 issued by the FSC on July 29,2019, starting from 2020, all public companies shall implement the IFRSs that are approved by the SFC and that become effective in 2020. Relative new standards, amendments, revisions and interpretations are listed as follow:

The new / amended / revised standards or interpretation Amendments to IFRS 3 “‘Definition of a Business” Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform” Amendments to IAS 1 and IAS 8 “Definition of Material”	Effective date of IASB’s announcement
	1.1.2020 1.1.2020 1.1.2020

The application of the newly recognized IFRS mentioned above shall have little chance leading to material changes in the consolidated financial statements. (III) New and amended standards and interpretations not yet recognized by FSC.

IFRSs that have been released and amended by the International Accounting Standards Board (hereinafter referred to as the IASB) but have not yet approved by the FSC are listed down below.

~17~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The new / amended / revised standards or interpretation Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IFRS 1 “Classification of Liabilities as Current or Non-Current”	Effective date of IASB’s announcement
	Pending IASB decision 1.1.2021 1.1.2022

The consolidated company was currently evaluating how the above standards and interpretations would affect its financial position and business performance. Further impacts will be disclosed once the evaluation is completed.

IV. Summary of Significant Accounting Policies

The important accounting policies applied by the financial statements are summarized as follows: The following accounting policies have been applied during the presentation period of the consolidated financial statements.

• (I) Statement of compliance

The consolidated financial statements were prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as the Regulations) and IFRSs, IASs, and interpretations thereof (collectively referred to as FSC-approved IFRS) that were recognized and released by the FSC.

• (II) Basis for preparation

• Basis for measurement

  • Except the following important items in the balance sheet, the consolidated

  • financial statement was prepared based on the historical cost:

  • (1) Financial assets measured at fair value through profit or loss;

  • (2) Financial assets measured at fair value through other comprehensive profit or loss; and

  • (3) Net defined benefit liabilities (assets) measured at the fair value of pension fund assets with the deduction of the present value of a defined benefit obligation and the ceiling effect described in note 4(19).

• Functional currency and presentation currency

  • Each vehicle of the consolidated company used the currency of the primary

  • economic environment as its functional currency. The consolidated financial statements were prepared in the Company’s functional currency, NT Dollar. All of the

~18~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

financial information presented in NTD should be held presented in NTD 1,000 as the currency unit.

(III) Basis for consolidation

1. Principle for the preparation of consolidated financial statements

The entities in the consolidated financial statements include the Company and the entities controlled by the Company (subsidiaries). When the Company is exposed to the changes of remuneration participated by the invested entities or is entitled to changes of remuneration, and is able to influence the remuneration by virtue of its power over the invested entities, the Company is held controlling the entities.

The financial statements of the subsidiaries are incorporated in the consolidated financial statements from the day the Company acquires control over the subsidiaries until the day it loses control over the subsidiaries. The inter-company transaction, balance amount, and unrealized income and expense of the consolidated company are eliminated when preparing the consolidated financial statements. The total amount of the comprehensive profit or loss of subsidiaries should be attributable to the owner of the Company and be stated as non-controlling interests, and the same shall apply if the non-controlling interests become loss.

The financial statements of subsidiaries are adjusted as appropriate for the purpose of consistency between their accounting policies and the accounting policies applied by the consolidated company.

If the consolidated company’s equity ownership change in a subsidiary does not result in the loss of control of the subsidiary, it is treated as equity transaction with the shareholders. The price difference between the adjustment value of non-controlling interests and fair value of paid or collected consideration shall be recognized as equity and attributed to the owner of the Company directly.

1. The subsidiaries included in the consolidated financial statements

The subsidiaries included in the consolidated financial statements include:

Name of investment company Name of subsidiary Nature of business	Shareholding ratio 12.31.2019 12.31.2018 Remarks
The Company Hua Cheng Investment Co., Ltd. General investment 〞 Lien Rui Investment Corp. 〞 〞 Fortune Dragon Holding Inc. 〞 〞 MiTAC Inc. Integrated system service, automatic system, applied software design and sale of industrial computer	100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 35.46% - (Note 1)

~19~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Name of investment company Name of subsidiary Nature of business

Shareholding ratio 12.31.2019 12.31.2018 Remarks

The Company MiTAC Information Technology Corp. 〞 〞 Lien Hwa Properties Corporation Rental and leasing business 〞 Lien Hwa Milling Foods Corporation Flour production and sale 〞 Lien Hwa Industrial Corporation (Original name: Lien Hwa Enterprise Corporation. General investment Hua Cheng Investment Co., Ltd. Jian Foods Incorporation Wholesaling and retailing business 〞 Camel Ring International Company 〞 〞 MiTAC Inc. Integrated system service, automatic system, applied software design and sale of industrial computer 〞 MiTAC Information Technology Corp. 〞 Lien Rui Investment Corp. Jian Foods Incorporation Wholesaling and retailing business 〞 Oggi Restaurant Group Co., Ltd. Restaurant business 〞 Camel Ring International Company Wholesaling and retailing business Fortune Dragon Holding Inc. Pacific Gateway Holdings Inc. General investment 〞 Hifood Co., Ltd. 〞 〞 Sun Lead International Limited 〞 Pacific Gateway Holdings Inc. Yantai Taihwa Food Industrial Co., Ltd. Flour production and sale Hifood Co., Ltd. Hifood(Shanghai) Co., Ltd. Rental and leasing business MiTAC Inc. Mix System Holdings Ltd. (MIX) General investment 〞 Ho Li Investment Co., Ltd. 〞 〞 MiTAC Hikari Corp. System integration service

43.93% - (Note 2) 100.00% - Approved and founded on March 18, 2019. 100.00% - Approved and founded on March 18, 2019. 100.00% - Approved and founded on August 7, 2019. 0.003% 0.003% Hua Cheng Investment Co., Ltd. and Lien Rui Investment Corp. hold 86.093% of the shares of the company. It is therefore deemed as a subsidiary. 0.33% 0.33% Hua Cheng Investment Co., Ltd. and Lien Rui Investment Corp. hold 70% of the shares of the company. It is therefore deemed as a subsidiary. 1.93% - (Note 1) 6.00% - (Note 2) 86.09% 83.93% 100.00% 100.00% 69.67% 69.67% 100.00% 100.00% 65.81% 65.81% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - (Note 1) 100.00% - (Note 1) 50.00% - (Note 1)

~20~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Name of investment company Name of subsidiary Nature of business

Shareholding ratio 12.31.2019 12.31.2018 Remarks

MiTAC Inc. MiTAC Information Technology Corp. Integrated system service, automatic system, applied software design and sale of industrial computer MIX Mitac Investment China Co., Ltd. (MICCL) General investment MICCL Mitac (Shanghai) Business Management Consulting Co., Ltd. Business management consulting, business information consulting and system integration services MiTAC Information Technology Corp. MiTAC Communication Co., Ltd. Sale, rental and maintenance of telephone switching systems and data communication products, communication system project contracting 〞 Claridy Solutions, Inc. Consulting for and development of libraries and information systems 〞 Samoa Mitac Information Holding Ltd. (MiTAC Information Holding Co., Ltd.) General investment MiTAC Information Holding Co., Ltd. Aidixun Investment Co., Ltd (Aidixun) General investment Aidixun Claridy Solutions (Wuxi), Inc. Research and development of Radio Frequency Identification (RFID) technology; production and sale of the products 〞 Claridy Solutions (Nanjing), Inc. Software research and development and software design 〞 MiTAC Service (Shanghai) Co., Ltd. Computer information and technology service, technology support, software design and software research and development 〞 Claridy Smart Solutions (Beijing) Co., Ltd. Technology development, technology promotion, technology transfer, technology consulting and technology service

23.11% - (Note 2) 100.00% - (Note 1) 100.00% - (Note 1) 100.00% - (Note 2) 100.00% - (Note 2) 100.00% - (Note 2) 100.00% - (Note 2) 64.91% - (Note 2) 100.00% - (Note 2) 100.00% - (Note 2) 100.00% - (Note 2)

~21~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

• Note 1. The Company acquired more than half of its BOD seats on March 28, 2019. Therefore, the Company has control over its business and financial policies. Thus, it has been included in financial statements of the subsidiaries from the day the Company acquired the control.

• Note 2. Since the Company acquired control over MiTAC Inc. on March 28, 2019, the consolidated company has had the majority of voting rights in the MiTAC Information Technology Corp. and thus the control over it. MiTAC Information Technology Corp. thus has been listed as a subsidiary of the consolidated company since that day.

• The subsidiaries that are not included in the consolidated financial statements:

Name of investment company Name of subsidiary Nature of business

Shareholding ratio 12.31.2019 12.31.2018 Remarks

Fortune Dragon Holding Inc. Pink Sky Investment Inc. General investment Pink Sky Investment Inc. Yantai Tailiang Food Industrial Co., Ltd. Its main business includes sale and production of peanuts and peanut products.

100.00% 100.00% Considering the business strategies of the Company, we are planning to apply for dissolution. Besides, the amount of it is not material, it is thus not incorporated in the consolidated statements. 60.00% 60.00% Considering the business strategies of the Company, we are planning to apply for dissolution. Besides, the amount of it is not material, it is thus not incorporated in the consolidated statements.

• (IV) Foreign currency

• Transactions in foreign currencies

Foreign currency transactions are converted into the functional currency using exchange rates on the date of transaction. Monetary foreign currency accounts as of the end of the reporting period (referred to as the reporting date) are converted into the functional currency using exchange rates on the reporting date.

~22~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

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

The foreign currency exchange difference generated from conversion shall be recognized in profit and loss. But under the circumstances below, it shall be recognized in other comprehensive income.

• (1) Equity instrument designated to be measured at fair value through other comprehensive income ；

• (2) Financial liabilities designated as hedges of foreign institution’s net investment are within the effective hedge scope ； or

• (3) Qualified cash flow hedge is within the effective hedge scope.

• Foreign operating agency

Assets and liabilities of foreign operations, including the goodwill and fair value adjustment generated at the time of acquisition, shall be converted into NTD on the reporting date. Income and expenses are converted into NTD at the average exchange rate in the current period, and the exchange different generated therefor shall be stated as other comprehensive profit or loss.

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 the disposal involves any subsidiary of the foreign operations, the relevant accumulated exchange difference shall be reclassified into the non-controlling interests on a pro rata basis. If the disposal involves any affiliate or joint venture of the foreign operations, the relevant accumulated exchange difference shall be reclassified into income or loss on a pro rata basis.

If no repayment program is defined with respect to monetary item receivable or payable of the foreign operations and it is impossible to settle in the foreseeable future, the foreign currency exchange gain or loss generated therefor shall be held as a part of the net investment of the foreign operations and recognized as other comprehensive profit or loss.

(V) Classification of assets and liabilities as current and non-current

Assets that meet any of the following criteria are classified as current assets; assets other than the current assets are classified as non-current assets:

~23~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

1. Assets expected to be realized, intent to be sold or consumed over the normal operating cycles ；

2. Assets held primarily for the trading purpose ；

3. Assets expected to be realized within 12 months after the reporting period ； or

4. Assets in cash or cash equivalents, except for those that are used for an exchange or to settle a liability, or otherwise remain restricted in more than 12 months after the reporting period.

Liabilities that meet any of the following criteria are classified as current liabilities; liabilities other than current liabilities are classified as non-current liabilities:

1. Liabilities expected to be settled over the normal operating cycles ；

2. Liabilities held primarily for the trading purpose ；

3. Liabilities expected to be settled within 12 months after the reporting period ； or

4. Liabilities whose settlement period may not be unconditionally extended for at least 12 months after the reporting period. Liabilities under the terms that give counterparties the option to repay in the form of equity instruments and without the effect on their classification due to such terms

   • The consolidated company- For the business entity of integrated system service responsible for the project of building an automated system and with an operating cycle longer than a year, assets and liabilities with respect to its business are classified as current or non-current with the normal operating cycle as the standard.

5. (VI) Cash and cash equivalents

Cash includes cash reserves and current deposit balance. Cash equivalent includes short-term and highly liquid investments that are readily convertible to known amounts of cash with insignificant risk of changes in value. The time deposits that fall into the above definition and are intended to satisfy the short-term cash commitment instead of investment or other purposes shall be stated as cash or cash equivalents.

For the time deposits with an initial maturity date that is within a year intended to satisfy the short-term cash commitment instead of investment or other purposes, they are readily convertible into fixed amounts of cash at any time and subject to an insignificant risk of changes in value. Therefore, they shall be stated as cash or cash equivalents.

• (VII) Financial instruments

Accounts receivable and debt securities issued are recognized at time of generation. All other financial assets and financial liabilities are recognized when the consolidated company becomes a contracting party of the terms and conditions of the financial

~24~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

instruments concerned. For the financial assets that are not measured at fair value through profit or loss (excluding accounts receivable that comprises material financial parts) or financial liabilities shall be initially evaluated based on the fair value, plus the directly attributable acquired or issued transaction cost. Accounts receivable that comprises material financial parts shall be initially measured based on the transaction price.

1. Financial assets

For the financial assets that are purchased or sold in accordance with the general trade practice, and the financial assets that are classified in the same way, the consolidated company processes the purchase and sale in accordance with the trade date accounting.

The financial assets can be classified into the following categories during the initial recognition: financial assets measured at amortized cost, debt instrument investment measured at fair value through other comprehensive income, equity instrument investment measured at fair value through other comprehensive income or financial assets measured at fair value through other profit and loss. When, and only when, the consolidated company changes its business model for managing financial assets, it must reclassify all affected financial assets from the first day of the reporting period.

• (1) Financial assets measured at amortized cost

The financial asset that meets the following criteria and is not designated to be measured at fair value through profit and loss shall be measured at amortized

cost:

• ・ The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

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

The above assets are measured at initial recognition value plus or minus, and the accumulated amortization is calculated with the effective interest method. And the amortized cost of the loss allowance is adjusted before the measurement. The interest revenue, foreign currency exchange gain or loss and impairment are recognized in profit or loss. During derecognition, the profit or loss is recognized in profit or loss.

• (2) Financial assets measured at fair values through other comprehensive profit or

~25~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

loss

The debt instrument investment that meets the following criteria and is not designated to be measured at fair value through profit and loss shall be measured at fair value through other comprehensive profit or loss:

• ・ The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows or to sell.

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

Part of the account receivable is held by the consolidated company within a business model whose objective is to hold assets in order to collect contractual cash flows or to sell. Therefore, the account is measured at fair value through other comprehensive profit or loss. Only that it shall be included in account receivable.

The consolidated company may, at initial recognition, irrevocably make a choice to recognize the later fair value change of the equity instrument investment held not for transaction in other comprehensive profit or loss. The above choice is made on the basis of the instrument-by-instrument approach.

The debt instrument investment shall be measured at fair value. The interest revenue, foreign currency exchange gain or loss and impairment calculated using the effective interest method are recognized in profit or loss. Other net profit or loss is recognized in other comprehensive profit or loss. When derecognizing, the accumulated amount of other comprehensive profit or loss will be reclassified as profit or loss.

The equity instrument investment shall be measured at fair value. Dividend income (excluding obvious recovery of partial investment cost) is recognized in profit or loss. Other net profit or loss is recognized in other comprehensive profit or loss and will not be reclassified as profit or loss.

Dividend income of the equity investment will be recognized on the day when the consolidated company has the right to collect the dividend income (usually the ex-dividend date).

• (3) Financial assets measured at fair value through profit and loss

Financial assets that are not measured at amortized cost or fair value through other comprehensive profit or loss shall be measure at fair value through profit or

~26~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

loss. The derivative financial assets are assets of this kind. If the consolidated company intends to sell the account receivable immediately or in the near future, and the account receivable is measures at fair value through profit or loss, the account receivable shall be included in the account receivable below. The consolidated company may, at initial recognition, irrevocably designate a financial asset that would otherwise have to be measured at amortized cost or fair value through other comprehensive income to be measured at fair value through profit or loss if doing so would eliminate or significantly reduce accounting mismatch.

The asset will be measured at fair value through profit or loss and the net profit or loss (including any dividend and interest income) is recognized in profit or loss.

• (4) Impairment of financial assets

The consolidated company recognizes the financial assets measured at amortized cost (including cash and cash equivalents, financial assets measured at amortized cost, notes and accounts receivable, other receivables, guaranteed deposits paid and other financial assets), debt instrument investment measured at fair value through other comprehensive income and expected credit losses of contract assets in loss allowance.

The loss allowance of the following financial asset is measured at 12-month expected credit losses. The other is measured at expected credit losses of the duration:

• ・ The determined credit risk of the debt security on the reporting date is low ； and

• ・ The credit risk of other debt securities and bank deposits (i.e. the default risk happened throughout the expected duration of the financial instrument) does not increase significantly after the initial recognition.

The loss allowance of notes receivable, accounts receivable and contract assets are measured at the expected credit losses throughout the duration.

When determining whether the credit risk has increased significantly after the initial recognition, the consolidated company shall take reasonable and supporting materials into consideration (acquired through not too much cost and effort), including qualitative and quantitative data. Besides, the experience of the consolidated company, credit assessment and forward-looking information shall

~27~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

be used for the analysis.

The consolidated company determines the expected credit loss rate based on the local industry environment where the business department is at and the customer’s credit rating. Taiwan, mainland China and the system integration business are assessed respectively.

If the payment of the above contracts has past due for over 120 days and 180 days, the consolidated company will assume the credit risk of the financial asset has increased significantly.

If the payment of the above contracts has past due for over 180 days and 365 days, the consolidated company takes it as a default of the financial asset contract has occurred.

The expected credit loss is the weighted credit loss rate estimation of the financial instrument throughout the expected duration. The credit loss is measured at present value of the all cash shortfalls. The cash shortfall is the difference between the contractual cash flow that the consolidated company can collect and the cash flow the consolidated company expects to collect. The expected credit loss uses the effective rate of the financial asset for discount.

The consolidated company assesses whether credit impairment has occurred on every reporting date based on financial assets measured at amortized cost and debt securities measured at fair value through other comprehensive profit or loss. When one or several matters that will negatively affect the estimated future cash flow of financial assets happen, the credit impairment occurs. The evidence that proves the credit impairment of financial assets includes the following observable information:

• ・ The borrower or issuer has major financial difficulty ；

• ・ Contract default. Such as overdue or non-performance of payment for over 180 to 365 days.

• ・ Due to economic or contractual reason with respect to the borrower’s financial difficulty, the consolidated company compromises on things it would not give in.

• ・ The borrower is likely to file for bankruptcy or proceed with other financial reorganizations; or

• ・ The active market of financial assets might extinguish due to financial difficulty.

~28~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The loss allowance of financial assets measured at amortized cost is deducted from the book value of assets. The loss allowance of debt instrument investment measured at fair value through other comprehensive profit or loss adjusts profit or loss and is recognized in other comprehensive income (and the book value of assets will not decrease).

When the consolidated company cannot reasonably expect all or parts of the recovered financial assets, it will reduce the total book value of its financial assets directly. For company customers, the consolidated company analyzes the write-off time and amount respectively based on whether it can reasonably expect the recovery. The consolidated company expects the written-off amount will not result in significant reversal. However, the enforcement of the written-off financial assets can still be performed to be in conformity with the procedure for the consolidated company to recover the overdue amount.

• (5) Derecognition of financial assets

The consolidated company derecognizes financial assets only when the contractual rights on the cash flow of the assets are terminated, or financial assets are transferred and almost full risk and return of the asset ownership are transferred to other business, or almost full risk and return of the ownership is not transferred or retained and the control of financial assets is not retained.

When the consolidated company is entering a financial asset transaction, if all or almost full risk and return of the transferred assets ownership are retained, recognition in the balance sheet will still be performed.

1. Financial liabilities and equity instruments

2. (1) Classification of liabilities or equity

The debt and equity instruments issued by the consolidated 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.

• (2) Equity transaction

Equity instruments are the contracts that evidence a residual interest in the assets of the consolidated company after deducting all of its liabilities. The equity instruments issued by the consolidated company are recognized based on the amount of the acquired price with deduction of the direct issuance cost.

1. Treasury stocks

~29~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

When repurchasing the equity instrument that has been recognized by the Company, the consideration paid for the repurchase (including directly attributable costs) is recognized as equity loss. The share that is repurchased is classified as treasury stock. The collected amount of the sale or repurchase of treasury stocks will be recognized as equity increase. The surplus or deficit result from the transaction will be recognized as additional paid-in capital or retained earnings (if the additional paid-in capital is insufficient for write-off).

• (4) Financial liabilities

Financial liabilities can be classified as the liabilities measured at amortized cost or the liabilities measured at fair value through profit or loss. If the financial liabilities are held for trading, are derivatives or designated during initial recognition, the financial liabilities will be measured at fair value through profit or loss. The financial liabilities that are measured at fair value through profit or loss measured at fair value will be recognized in profit or loss. This applies to relative net profit and loss, including any interest payment.

Other financial liabilities are measured at amortized cost using the effective interest method. The interest payment and exchange gain or loss are recognized in profit or loss. Any profit or loss is recognized in profit or loss when derecognizing.

• (5) Derecognition of financial liabilities

Consolidated company will have financial liabilities derecognized when the contractual obligation is performed, discharged, or expired. When the financial liabilities clauses are modified and the cash flow of the modified liabilities has significant difference, the original financial liabilities will be derecognized and the new financial liabilities will be recognized at fair value based on the modified clauses.

When removing financial liabilities from the balance sheet, any differences between the book value and the amount paid or payable (including any non-cash assets transferred and any liabilities assumed as part of the arrangement) are recognized through profit and loss.

• (6) Offset of financial assets and liabilities

Financial assets and liabilities may be offset against each other and reported in the balance sheet in net amount only when the consolidated company is entitled to such offset exercisable under laws and intends to settle in net amount,

~30~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

or assets are realized and liabilities are repaid at the same time.

(VIII) Inventories

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.

The equipment related to the integrated system service purchased and stored at the location of the customer for pre-sale tests according to the contract is presented as contract assets.

(IX) Investment in Affiliated enterprise

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

The equities of the consolidated company in the affiliated enterprise are disposed under the equity method . Under the equity method, the original acquisition is recognized at cost and the investment cost includes the transaction cost. The book value of investments in an affiliated enterprise includes the goodwill identified in original investment net of any accumulated impairment loss.

The consolidated financial statements shall include the profit and loss from the invested affiliates recognized subject to the equity ratio and other comprehensive income upon adjustment made in line with the consolidated company’s accounting policy, from the date when the consolidated company has major influence till the date when the consolidate company loses the major influence. When changes to equity irrespective of profit and loss or comprehensive income occur to an affiliated enterprise with no impact on the shareholding ratio of the consolidated company, the consolidated company’s share of such changes in equity will be recognized as additional paid-in capital based on the shareholding ratio.

The unrealized gain and loss deriving from the transactions between the consolidated company and the affiliated enterprise are recognized in the financial statement of the enterprise within the scope of equity of the non-related investor in the affiliated enterprise.

When the loss in the affiliated enterprise recognized proportionally by the

~31~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

consolidated 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.

The investment is no longer recognized under the equity method from the date on which the consolidated company stops the investment in the affiliated enterprise. The preserved equity is measured at fair value. The difference between the fair value and the disposal amount of the preserved equity and the book value of investment on the date on which the equity method is not adopted is recognized as current profit and loss. Where the accounting treatment for the values related to the investment as recognized into other comprehensive income previously is identical with the basis for the affiliated enterprise’s direct disposition of related assets or liabilities, namely, when the related assets or liabilities are disposed, the gain or loss recognized in other comprehensive profit or loss previously is to be reclassified as retained earnings. If the ownership interest of the consolidated company in the affiliated enterprise decreases but remains under the equity method, the consolidated company will follow the method stated above to reclassify and adjust the gain or loss recognized in other comprehensive profit or loss previously relating to such ownership interest decrease based on the decline ratio.

• (X) 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 measured at cast and then subsequently measured at cost subtracting by accumulated depreciation and Impairment. The depreciation methods, life duration and residual values of investment property are same as the practice of the property, plant, and equipment.

The gain or loss on disposal of investment property (calculated based on the difference between the net disposal proceeds and the book value of such item) is recognized in profit and loss.

The rent income arising from investment property is recognized as rent income in accordance with the straight-line method over the lease period. Also, the given lease incentives is recognized as part of the overall rent income over the lease period.

• (XI) Property, plant, and equipment

• Recognition and Measurement

Property, plant and equipment are measured at cost (including the capitalization

~32~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

of borrowing costs) less accumulated depreciation and any impairment. Partial cost of the property, plant and equipment on January 1, 2012 (the date of conversion to IFRS by the consolidated company) is determined based on the fair value of that date.

When the crucial components of the property, plant and equipment have different useful years, the property, plant and equipment shall be disposed separately (for major components).

The gain or loss on disposal of property, plant and equipment is recognized in the profit or loss.

1. Subsequent cost

The subsequent cost may be capitalized only when its future economic effect will probably inflow to the consolidated company.

1. Depreciation

The depreciation shall be calculated at the cost of assets less residual value and recognized as income using straight-line method over the estimated useful years for each component.

No depreciation of land is required.

The estimated useful years in the current period and comparative period are stated as follows:

(1) Building and structure 2 - 55 years (2) Machine and equipment 1 - 20 years

(3) Transportation equipment 2 - 6 years (4) Office equipment 3 - 20 years (5) Other equipment 2 - 20 years

The consolidated company shall review the depreciation, useful years and residual value on the reporting date every year and make appropriate adjustment if necessary.

1. Reclassified to investment property

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

• (XII) Lease

Applicable from the date of January 1, 2019

1. Determination of lease

~33~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The consolidated company assesses whether the contract belongs to or includes the lease on the formation date of the contract. If the contract transfers the controlling interest in the use of identified asset for a period of time to exchange for consideration, then the contract belongs to or includes the lease. To assess whether the contract belongs to the lease or not, the consolidated company focuses on the following items for assessment:

• (1) Whether the contract involves one identified asset. Such identified asset is stated or implied whenever available in the contract and the entity can classify or represent the total substantive capacity. If the supplier has the substantive right to replace such asset, then the asset is not an identified asset; and

• (2) Whether the contract has the right to acquire almost all economic effects on the use of the identified asset during the whole period; and

• (3) Whether the contract acquires the leading right for the use of the identified asset when meeting one of the following conditions:

  • ・ The customer has the leading right concerning the usage method and purpose of the identified asset during the entire usage period.

  • ・ The relevant decision-making concerning the usage method and purpose of such asset is decided in advance, and:

    • The customer has the right to operate such asset during the entire usage period and the supplier has no right to change the operation instruction; or

    • The method used to design the asset by the customer determines its usage method and purpose during the entire usage period in advance.

• Lessee

The right-of-use assets and lease liabilities are recognized by the consolidated company on the starting date of the lease. The right-of -use asset is initially measured by the cost, including the initial measurement amount of the lease liabilities, any lease payment paid on the starting date of the lease adjustment or in advance plus the initial direct costs generated and the estimated costs for the removal and restoration of the underlying assets with its locations while deducing any received lease incentives.

The subsequent right-of-use assets are depreciated under straight-line method from the lease starting date to the end of its useful years or the expiration of the lease period, the earlier one expired shall prevail. In addition, the consolidated company

~34~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

regularly assesses whether the right-of-use assets have impairment, manages any occurred impairment losses and adjusts the right-of-use assets in case of re-measurement of the lease liabilities.

The lease liabilities are initially measured at current value of the unpaid lease payment on the lease starting date. If the interest rate implicit in a lease is easily defined, then the discount rate will be the interest rate. If not, the consolidated company’s incremental borrowing rate of interest will be adopted. Generally, the consolidated company adopts its incremental borrowing rate of interest as the discount rate.

The lease payments included in the lease liabilities measurement contains:

• (1) Fixed payments including the substantive fixed payment;

• (2) Variable lease payments depending on certain index or rate. The initial measurement adopts the index or rate on the lease starting date.

• (3) The residual guarantee amount of the expected payment; and

• (4) The exercise price or required penalties when exercising the purchase or lease termination options in reasonable and certain manner.

The interest of the lease liabilities is calculated by effective interest method afterwards, the its amount is measured in case of the following:

• (1) The changes in the index or rate determining the lease payments cause the changes in the future lease payments;

• (2) Changes in the residual guarantee amount of the expected payment;

• (3) Changes in the assessment relating the purchase options of underlying assets;

• (4) The assessment made during the lease term changes due to the changes in the assessment of whether to extend or terminate the options;

(5) Modification in the subject, scope or other clauses of the lease. When the lease liabilities are re-measured due to the changes in the index or rate determining the lease payments, changes in the residual guarantee amount and the re-measurement resulted from the assessment changes in the extension or termination of options, the book amount of the right-of-use assets shall be adjusted accordingly. When the book value of the right-of-use assets is reduced to zero, the remaining re-measured amount shall be recognized as income.

For the lease modification in reducing the scope of lease, the book value of the right-of-use assets is reduced to reflect the partial or overall termination of lease and the difference between the re-measured amounts of lease modification and liabilities

~35~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

shall be recognized as income.

The consolidated company will use line item to display the right-of-use assets and lease liabilities not conforming to the definition of investment property separately in the balance sheet of the consolidated company.

For the short-term lease of office and transportation equipment and lease of underlying low-value assets, the consolidated company chooses not to recognize the right-of-use assets and lease liabilities, but to recognize relevant lease payments as expenses on the straight-line basis over the lease term.

1. Lessor

For transactions concerning the consolidated company as lessor, the lease contract will be classified based on whether to transfer most risks and returns attached to the underlying assets on the contract date. If yes, it will be classified as a financial lease, otherwise it will be classified as business lease. During the assessment, the consolidated company will consider relevant specific indexes, such as whether the lease term covers the main part of economic life for the underlying assets.

If the consolidated company is the sublessor, it shall manage the main lease and sublease transactions separately and use the right-of-use assets generated from the main lease to assess the classification of the sublease transactions. If the main lease is short term and applicable to recognition exemption, the sublease transactions of the main lease shall be classified as business lease.

If the agreement includes the lease and non-lease components, the consolidated company shall allocate the consideration in the contract according to the regulations specified in IFRS 15.

The assets held under financial lease are presented as financial lease receivables by the amount of the net investment of lease. The original direct cost generated from negotiation and arrangement for business lease is included in the net investment of the lease. The net investment of lease is amortized and recognized as interest income over the lease term in the form which can reflect the fixed rate of return in each period. For the business lease, the consolidated company states the received lease payments as rent income on the straight-line basis over the lease term.

Applicable before the date of January 1, 2019

1. Lessor

The lease income on business lease shall be stated as income on the straight-line basis over the lease term. The original direct cost generated from negotiation and

~36~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

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 gain for the incentives provided to the lessee to achieve the lease arrangement shall be stated as decrease in lease revenue under straight-line method during the lease term.

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

1. Lessee

Other leases belong to business lease and such leases are not recognized in the balance sheet of the consolidated company.

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 gain for the incentives provided by the lessor to achieve the lease arrangement shall be stated as decrease in lease expense under straight-line method during the lease term.

• (XIII) Intangible asset

• Recognition and measurement

The Goodwill arising from the acquisition of subsidiaries is measured at the cost less accumulated impairment.

Relevant expenses of research activities are recognized as income upon occurrence.

The R&D expenditure may be capitalized only when the measurement, product or process of technology or business feasibility is completed, the future economic effect will probably inflow to the consolidated company, and the consolidated company intends to complete such development with sufficient resources for further usage or sale of such assets. Other R&D expenses are recognized as income upon occurrence. After initial recognition, the capitalized R&D expenditure is measured at its cost less accumulated amortization and impairment.

Other intangible assets with limited durability acquired by the consolidated company, including the customer relationship, patents and trademarks, is measured at the cost less accumulated amortization and impairment.

1. Subsequent expenses

The subsequent expenses may be capitalized only when they are able to increase the future economic effect of the relevant specific assets. All of the other expenses are recognized as income upon occurrence, including the goodwill and brands developed

~37~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

internally.

3. Amortization

Other than goodwill, the amortization shall be calculated at the cost of assets less residual value and recognized as income under straight-line method over useful years since the intangible assets become usable.

The estimated useful years in the current period and comparative period are stated as follows:

• (1) Computer software 1-3 years

The consolidated company shall review the amortization method, useful years and residual value of the intangible assets on the reporting date and make appropriate adjustment if necessary.

• (XIV) Impairment of non-financial assets

The company shall assess whether the book value of the non-financial assets (except inventories, contract assets, deferred tax assets) has any possible sign of impairment. In case of any possible sign of impairment, the consolidated company shall estimate the recoverable amount of such asset. Goodwill is tested regularly for impairment every year.

For the purpose of impairment testing, inflow the cash to one of the asset groups that has most cash inflow independent from other individual assets or asset groups as the minimum identifiable asset group. The goodwill acquired in a business consolidation shall be allocated to the consolidated company’s cash-generating units or cash-generating group that is expected to benefit from the synergies of the consolidation effort.

The collectible amount shall be the higher of the fair value of individual asset or cash generation unit less the disposal cost and the value in use. When assessing the value in use, the estimated future cash flow is discounted to current value by pre-tax discount rate. The pre-tax discount rate shall reflect the specific risk assessment of the current market toward the time value of money and the asset or cash generation unit.

If the collectible amount of individual asset or cash generation unit is less than the book value, the amount shall be recognized as impairment loss.

The impairment loss is immediately recognized as income and the book value of each amortized cash-generating unit shall be reduced first, then the book values of other assets shall be reduced based on each book value ratio of each asset in the unit.

The impairment loss on goodwill shall not be reversed. The non-financial assets other than goodwill can only be reversed within the book value of the asset (less depreciation or amortization) without impairment loss recognized in the previous year.

~38~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

• (XV) Reserve for liabilities

The reserve for liabilities shall be recognized when the consolidated company has a present obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The reserve for liabilities is discounted to current value by the pre-tax discount rate. The pre-tax discount rate shall reflect the specific risk assessment of current market toward the time value of money and the liabilities. The discounted amortization is then recognized as financial cost.

• (XVI) Recognition of revenue

• Revenue from Contracts with Customers

Revenue is measured by the expected consideration in which the consolidated company has the right to acquire from the product transfer or labor service. The consolidated company shall recognize the revenue as income when transferring the control of product or labor service to the customer to meet the performance obligation. The main income items of the consolidated company are described as follows:

• (1) Sale of goods

• a. Flour products

The consolidated company grinds and manufactures flour products and sells the products to each channel. The revenue is recognized as income when the control of product is transferred. The transfer of product control means the product is delivered to the customer and the customer can fully determine the sales channels and prices of the product without any undelivered obligation affecting the customer’s acceptance of the product. The delivery occurs when the product is delivered to the specified location, the risk of loss has transferred to the customer, the customer accepts the product according to the sales contract and the acceptance terms become invalid, or the consolidated company has objective evidence to prove that all acceptance conditions has been fulfilled.

When selling flour products to the distributor, the consolidated company will provide quantity discount to the customer if the shipment reaches the basis of certain quantity. The consolidated company recognizes the income based on the contract price less the net amount of estimated quantity discount. The amount of quantity discount is estimated by the expected value based on the past accumulated experience and is recognized as income only within the scope of height may not result in significant reversal.

~39~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

For the product selling, according to the contract, the consolidated company shall pay commissions and slotting fees to the customer based on the sales volume. The consideration is treated as decrease in transaction price and income because it cannot exchange for the classifiable product or labor service transferred by the customer.

The consolidated company recognizes the receivables upon product delivery because the consolidated company has the rights to receive consideration without any condition at that point in time.

b. Equipment product

The sale revenue of the consolidated company’s product is from the selling of equipment product. During the installation of the equipment product, because the customer has the right to price and use the product and is mainly responsible for the resale of product along with the obsolescence risk of product, the consolidated company shall recognize the income and receivables at that point of time.

• (2) Construction revenue

For the construction contract during the construction process, the consolidated company shall gradually recognize the income over time. Because the cost input of the construction has direct relation to the completion progress in the performance obligation, the consolidated company shall use the actual cost input proportion of the total expected cost to measure the progress in completion. The consolidated company shall gradually recognize the contract assets during the conduction process and recognize the receivables when issuing the invoice. If the construction payment on the issued invoice exceeds the amount recognized as income, the difference is recognized as contract liability.

• (3) Labor service revenue

According to the contract, the revenue generated from the labor service provided is recognized upon the completion of service.

(4) Financing components

The consolidated company expects the interval between the time of product transfer or labor service to all customers based on the contract and the payment time of the product or labor service by the customer shall not exceed one year, thus the consolidated company will not adjust the time value of money of the transaction price.

~40~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

• (XVII) Employee benefits

• Defined contribution plan

The obligation of defined contribution plan is recognized as expense during the service period of the employee. The prepaid contribution may be recognized as assets, insofar as it may result in the refunding of cash or the reduction of future payment. 2. Defined benefit plan

The net obligation of the defined benefit plan by the consolidated company is converted to the present value based on the future benefit earned from the services provided by the employees in the current period or in the past under each benefit plan subtracting the fair value of any planned assets.

A qualified actuary using the Projected Unit Credit Method estimates defined benefit obligations each year. When the calculation result may be favorable to the consolidated company, the assets recognized shall be no more than the refund under the plan or the present value of economic benefit to be earned by decrease in the contribution under the plan. The calculation of present value of economic benefit shall take into consideration the minimum funding contribution needed.

The re-measurement of net defined benefit liability, including the actuarial income, return on remuneration of planned assets (excluding interest) and any change in the asset cap effect (excluding interest), is immediately recognized in other comprehensive income and accumulated in the retained earnings. The consolidated company determines the net interest expense (income) of the net defined benefit liability (assets) by the net defined benefit liability (assets) and discount rate determined during the start of the reporting period. The net interest expense of the net defined benefit liability and other expenses are recognized as income.

When the plan is modified or reduced, the benefit variance generated in relation to the previous service cost or impaired gain or loss is immediately recognized as income. In the event of settlement of the consolidated company, recognize the profits and loss of settlement of the welfare plan.

1. Other long-term employee benefits

The net obligation of other long-term employee benefits by the consolidated company is converted to the present value based on the future benefit earned from the services provided by the employees in the current period or in the past. The re-measurement is recognized as income upon occurrence.

1. Short-term employee benefits

~41~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Short-term employee benefit obligation shall be recognized as expense when the service is provided by the employee. If the consolidated company has a present statutory or presumed benefit obligation due to the past service provided by employee and such obligation may be estimated reliably, the amount shall be recognized as liabilities.

• (XVIII) Income tax

The income tax consists of current income tax and deferred income tax. The current income tax and deferred income tax shall be recognized in profit or loss, other than the income tax related to combined entities, and items stated into other comprehensive income or stated into equity directly.

The current income tax includes the projected income tax payable or tax refund receivable based on the current taxable income (loss), and the adjustment on income tax payable or tax refund receivable in the previous years. The amount refers to the best estimates of the expected payables or receivables measured on the basis of the statutory tax rate or tax rate substantially enacted on the reporting date.

The deferred income tax is recognized based on the book value of assets and liabilities for the purpose of financial reporting and temporary difference generated from the taxation basis for assets and liabilities. No deferred income tax will be recognized in the case of the temporary difference generated under the following circumstances:

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. Taxable temporary difference generated from investment in subsidiaries, affiliates and joint ventures, of which the time of reverse is controllable by the consolidated company and which is not likely to be reversed in the foreseeable future;

3. Taxable temporary difference generate from the initial recognition of goodwill. The deferred income tax is measured at the tax rate prevailing when the temporary

difference is reversed, and based on the statutory tax rate or tax rate substantially enacted on the reporting date.

The merged company will have deferred income tax assets and deferred income tax liabilities offset only when meeting the following conditions:

1. When the consolidated 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

~42~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

subjects on whom the same tax collection authority imposed the income tax;

• (1) The same tax collection subject; or

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

The unused taxation loss and unused income tax credit carry-forward and deductible temporary difference shall be stated as deferred income tax assets when the temporary difference is very likely to credit against the future taxable income. Meanwhile, revaluation shall be conducted on each reporting date, so that the related income tax gains may be adjusted or decreased when they are not likely to be realized; or when it is very likely that there will be sufficient taxable income afford to reverse the decreased amount.

• (XIX) Business combination

The consolidated company adopts the acquisition method to proceed with each business combination. The goodwill is measured at the fair value of the considerations transferred on the acquisition date, including the non-controlling equity amount attributable to the acquired entity and net of the identifiable assets acquired and net liabilities assumed (usually it is the fair value). If the balance is a negative value, the consolidated company reassesses whether the assets acquired and liabilities assumed are identified correctly before recognizing the gains of the bargain purchase in the profit or loss.

Except for those related to debt issuance or equity instruments, the transaction cost related to corporate merger should be recognized as an expense of the consolidated company immediately upon occurrence.

Among the non-controlling equity attributable to the acquired entity, those attributed to the current ownership, of which the holder is entitled to the business’s net assets on a pro rata basis at the time of liquidation, the consolidated company will base on each transaction to choose to measure the fair value based on the fair value on the date of acquisition or subject to the current ownership instrument proportion in the recognized amount of the acquired identifiable net assets. Other non-controlling equity shall be measured at the fair value on the date of acquisition or other bases regulated in the IFRSs approved by FSC.

(XX) EPS

The consolidated company will enumerate the basic and diluted EPS vested in the consolidated company’s common stock holders. The consolidated company’s basic earnings per share is based on the profit or loss of the Company’s common stock shareholder divided

~43~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

by the weighted average number of outstanding common stock shares of the period. The diluted EPS is calculated upon adjustment of the effect of all potential diluted common stocks based on the income vested in the common stock holders and the number of shares of the weighted average outstanding common stock.

(XXI) Department information

An operating segment is an integral part of the consolidated company, engaged in the business activities that may earn income and incur expenses (including the income and expense of the transactions conducted with other divisions within the consolidated company). All operating segments’ operating results are regularly reviewed by the chief operator of the consolidated company for decision-making in regard of the resource allocation to each division and evaluating its performance. Each operating division has independent financial information provided.

V. Significant accounting judgments, estimations and major sources of assumption uncertainty

When the management has the quarterly consolidated financial statements prepared in accordance with the IFRSs approved by FSC, it is necessary to make judgments, estimations, and assumptions that are influential to the accounting policies adopted and the assets, liabilities, and income and expenses amount reported. Actual results may differ from those estimations.

The management continues to review estimations and assumptions. Changes in accounting estimates will be recognized in the period of change and future periods affected.

Relevant information in the assumptions and estimations uncertainty which many cause a significant risk of material adjustment within the next year is listed as follows:

(I) Recognition of revenue

The consolidated company estimates the possible amount of sales discount and completion costs according to the historical experience, market and the economic situation, project features and other known causes. The estimated sales discount is recognized as the deduction from sales revenue in the period in which the product is sold. The recognition of construction revenue is estimated based on the percentage of completion. The consolidated company periodically reviews the reasonableness of estimation. Significant adjustment may occur due to changes in the estimated amount and basis caused by elements such as the market price competition, economy and impact of construction conditions.

~44~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

VI. Description of significant accounting items

• (I) Cash and cash equivalent

Cash Demand deposit Time deposit Cash and cash equivalent on the Consolidated Statement of Cash Flow	12.31.2019 $ 7,366 847,133 903,524	12.31.2018 3,192 389,967 313,939
	$ 1,758,023	707,098

For the interest rate risk and sensitivity analysis disclosure of the consolidated company’s financial assets and liabilities, please refer to Note 6(26).

(II) Financial assets at fair value through profit or loss

12.31.2019 Financial assets at fair value enforced through profit or loss Beneficiary certificate of domestic listed open-ended funds $ 203,741 Structured deposit 81,523 Total $ 285,264 (III) Financial assets at fair value through other comprehensive income 12.31.2019 Equity instruments at fair value through other comprehensive income: TWSE(GTSM) domestic listed stocks $ 17,174,446 TWSE(GTSM) foreign listed stocks 175,615 TWSE(GTSM) domestic unlisted stocks 954,261 TWSE(GTSM) foreign unlisted stocks 1,512,975 Total $ 19,817,297	12.31.2019 $ 203,741 81,523	12.31.2018 - -
	$ 285,264	-
		12.31.2018 4,066,020 157,855 690,263 1,188,157
	$ 19,817,297	6,102,295

The equity instrument investment held by the consolidated company is for strategic investment instead of trading purposes, and therefore is designated to be measured at fair value through other comprehensive income.

Since the Company has combined the MiTAC Inc. and MiTAC Information Technology Corp. on March 28, 2019, the consolidated company has significant influence on the designated financial assets initially held at fair value through other comprehensive income–Lien Yung Investment Corp.. and Tung Da Investment Co., Ltd. Therefore, on the

~45~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

date in which the consolidated company acquires significant influence, the consolidated company re-measures the financial assets at fair value and reclassifies all of the amount relevant to the investment initially recognized in other comprehensive income and totaled NT$65,004 thousand to the retained earnings.

For the credit risk and market risk information, please refer to Note 6(26).

For information of the partial financial assets provided as collaterals stated above, please refer to Note 8.

(IV) Notes and accounts receivable

Receivable notes Accounts receivable Less: Loss allowance	12.31.2019 $ 174,615 1,247,951 (6,269)	12.31.2018 237,998 571,865 (12,821)
	$ 1,416,297	797,042

For the noodle business, rental business and other departments of the consolidated company in Taiwan, the consolidated company applies simplified method to estimate the expected credit losses of all notes and accounts receivable, i.e. using the expected credit losses throughout the duration for measurement. For this measurement purpose, the notes and accounts receivable is classified according to the common credit risk features concerning the representative customers’ capacity of paying all amount due on the contract and is included in the forward-looking information. For the expected credit losses of the notes and accounts receivable in relation to the noodle business, rental business and other departments of the consolidated company in Taiwan, the analysis is as follows:

12.31.2019

		12.31.2019	12.31.2019
Undue Overdue within 30 days Overdue for 31~60 days Overdue for 61~90 days Overdue over 91 days Individual evaluation	Book value of notes and accounts receivable $ 668,652 28,350 1,615 232 - 643	Weighted average rate of expected credit losses 0.00%~0.01% 0.28% 3.49% 12.08% 28.38% 100%		Allowance for expected credit losses throughout the duration 50 79 56 28 - 643
	$ 699,492			856

~46~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

12.31.2018

		12.31.2018	12.31.2018
Undue Overdue within 30 days Overdue for 31~60 days Overdue over 181 days	Book value of notes and accounts receivable $ 720,034 11,677 145 596	Weighted average rate of expected credit losses 0.00%~0.03% 0.76% 2.66% 100.00%		Allowance for expected credit losses throughout the duration 142 89 4 596
	$ 732,452			831

For the expected credit losses of the notes and accounts receivable in relation to the overseas noodle business of the consolidated company in China, the analysis is as follows:

Undue Overdue within 30 days Overdue for 31~60 days Undue Overdue within 30 days Overdue for 31~60 days Overdue for 61~90 days Overdue for 91~120 days Overdue for 121~365 days Overdue over 366 days		12.31.2019	12.31.2019	Allowance for expected credit losses throughout the duration 60 21 5
	Book value of accounts receivable $ 21,939 4,379 432	Weighted average rate of expected credit losses 0.00%~0.27% 0.73% 1.12% 12.31.2018
	$ 26,750			86
				Allowance for expected credit losses throughout the duration 237 164 146 275 491 76 10,601
	Book value of accounts receivable $ 42,168 10,850 5,178 4,509 3,969 136 10,601	Weighted average rate of expected credit losses
	$ 77,411			11,990

Since the consolidated company has combined the MiTAC Inc. and MiTAC Information Technology Corp. to the business entity of integrated system service on March 28, 2019, the business entity recognizes the loss allowance of the receivables for all notes

~47~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

and accounts receivable based on the expected credit losses throughout the duration. The expected credit losses throughout the duration takes the past default record of the customer, the present financial status and the economic situation of the industry into consideration and applies different customer’s credit ratings of the receivables to establish the rate of expected credit losses. 100% of loss allowance shall be recognized if there is evidence showing that the counterparty is facing serious financial difficulty and the recoverable amount cannot be reasonably expected. For the expected credit losses of the notes and accounts receivable in relation to the system integration business of the consolidated company, the analysis is as follows:

Individual evaluation–undue Individual evaluation–overdue	12.31.2019 Book value of notes and accounts receivable Allowance for expected credit losses throughout the duration $ 589,158 - 107,166 5,327	12.31.2019 Book value of notes and accounts receivable Allowance for expected credit losses throughout the duration $ 589,158 - 107,166 5,327
	Book value of notes and accounts receivable $ 589,158 107,166
	$ 696,324	5,327

The statement of changes in the loss allowance for the notes and accounts receivable of the consolidated company is as follows:

Beginning balance Acquired by business combination Recognized (reversed) impairment loss Amounts irrecoverable and written off in the current period Profit or loss of currency translation Ending balance	2019
	$ 6,269 12,821

The financial assets stated above are not used as long-term loan or financing collateral.

(V) Other receivables

Other receivables
Others Less: Loss allowance	12.31.2019 $ 29,153 -	12.31.2018 77,316 -
	$ 29,153	77,316

According to the historical experience, other receivables stated above is estimated to have no expected credit losses generated since there are no defaults throughout the duration, therefore the rate of its expected credit losses is estimated to be zero.

~48~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

(VI) Inventory Raw material and consumables Work in progress Finished goods System integration products	12.31.2019 $ 797,392 60,417 179,940 117,971	12.31.2018 689,113 59,202 193,671 -
	$ 1,155,720	941,986

The operating cost details concerning the continuing operations of the consolidated company in 2019 and 2018 are as follows:

Cost of sales Construction cost Labor service cost Rental cost Idle capacity Inventory devaluation, scrap and obsolescence (revaluation gains) Revenue from sale of scraps	2019 $ 5,095,476 912,121 285,201 111,669 3,366 (6,041) (128)	2018 4,141,119 - - 112,074 14,748 (2,080) (100)
	$ 6,401,664	4,265,761

As of December 31 2019 and 2018, the consolidated company had not pledged its inventory as collaterals.

(VII) Investment under the equity method

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

Affiliates	12.31.2019 $ 13,020,127	12.31.2018 17,686,174

1. Affiliates

The investment of the consolidated company was changed and listed in the investment under the equity method since it has significant influence on Lien Yung Investment Corp. and Tung Da Investment Co., Ltd. in March 28, 2019. Please refer to Note 6(3). In addition, the investment originally adopting the equity method terminated its adoption to adopt the acquisition method for business combination. Please refer to Note 6(8).

The information about affiliates important to the consolidated company is stated as follows:

~49~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Name of Affiliate	Nature of relationship with consolidated company	Principal business place/country where the company is registered	Proportion of ownership and voting right	Proportion of ownership and voting right
			12.31.2019 32.25% 50.00% -	12.31.2018
UPC Technology Corporation and its subsidiaries Linde Lienhwa Industrial Gases Co., Ltd. and its subsidiaries MiTAC Inc. and its subsidiaries (Note)	The affiliate of the consolidated company which primarily engaged in producing and selling organic acid, acid anhydride and its derivatives, plastic toughener. The affiliate of the consolidated company which primarily engaged in manufacturing liquid and industrial gases such as helium, hydrogen and ethane. The affiliate of the consolidated company which primarily engaged in system integration service, automatic system, application software designing and selling of industrial computer.	Taiwan Taiwan Taiwan		32.75% 50.00% 37.39%

Note: The consolidated company acquired more than half of its BOD seats on March 28, 2019. Therefore, the investment initially under the equity method has changed to become the subsidiary of the consolidated company. Please refer to Note 6(8).

For listed affiliates important to the consolidated company, its fair value is stated as follows:

UPC Technology Corporation and its subsidiaries	12.31.2019 $ 4,768,699	12.31.2018 4,839,445

The summarized financial information of affiliates important to the consolidated company is shown below. The financial information has adjusted the amounts included in each affiliate’s consolidated financial statements adopting the IFRSs to reflect the fair value adjustment made by the consolidated company upon the acquisition of the affiliate stock and adjustment made according to the accounting policy differences.

(1) Summarized financial information of the UPC Technology Corporation and its subsidiaries

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to investee	12.31.2019 $ 18,684,583 26,472,414 (10,641,914) (13,943,367)	12.31.2018 20,662,769 25,107,080 (10,529,011) (15,466,775)
	$ 20,571,716	19,774,063
	$ 20,571,716	19,774,063

~50~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Operating revenue Net profit (loss) from continuing operations Other consolidated income/loss Total comprehensive income Total comprehensive income attributable to investee Consolidated company’s shares of the affiliate’s net assets at the beginning The affiliates recognized in current period apply to the effects of the new standards retrospectively Total comprehensive income attributable to the consolidated company in current period Affiliates purchased in current period Dividend acquired from affiliates in current period Book value concerning the consolidated company’s equity in affiliates at the ending	2019 $ 62,714,942	2018 61,258,498
	$ (140,376) 979,017	753,610 (1,495,817)
	$ 838,641	(742,207)
	$ 838,641	(742,207)
	$ 6,384,849 - 242,573 - (82,794)	6,719,600 49,084 (241,600) 243,870 (386,105)
	$ 6,544,628	6,384,849

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

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to non-controlling equity Net assets attributable to investee	12.31.2019 $ 10,197,748 31,259,287 (21,286,395) (5,323,800)	12.31.2018 15,192,416 26,828,612 (23,280,212) (4,366,301)
	$ 14,846,840	14,374,515
	$ 2,984,678	3,417,333
	$ 11,862,162	10,957,182

~51~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Operating revenue Net profit from continuing operations Other consolidated income/loss Total comprehensive income Total comprehensive income attributable to non-controlling equity Total comprehensive income attributable to investee Consolidated company’s shares of the affiliate’s net assets at the beginning Total comprehensive income attributable to the consolidated company in current period Dividend acquired from affiliates in current period Book value concerning the consolidated company’s equity in affiliates at the ending	2019 $ 23,401,293	2018 23,548,186
	$ 3,941,166 143,154	3,539,980 43,470
	$ 4,084,320	3,583,450
	$ 777,756	696,030
	$ 3,306,564	2,887,420
	$ 5,461,041 1,721,750 (1,184,303)	5,152,881 1,426,160 (1,118,000)
	$ 5,998,488	5,461,041

(3) Summarized financial information of the MiTAC Inc. and its subsidiaries

Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to non-controlling equity Net assets attributable to investee Operating revenue Net profit from continuing operations Other consolidated income/loss Total comprehensive income Total comprehensive income attributable to non-controlling equity Total comprehensive income attributable to investee	January to March, 2019	12.31.2018 $ 1,016,599 12,976,999 (548,322) (82,513)	12.31.2018 $ 1,016,599 12,976,999 (548,322) (82,513)
		$ 13,362,763
		$ 5,235
		$ 13,357,528
			2018 846,295
	13,609 786,815		646,098 (1,702,133)
	$ 800,424		(1,056,035)
	$ (2,553)		(8,182)
	$ 802,977		(1,047,853)

~52~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Consolidated company’s shares of the affiliate’s net assets at the beginning The affiliates recognized in current period apply to the effects of the new standards retrospectively Total comprehensive income attributable to the consolidated company in current period Dividend acquired from affiliates in current period Book value concerning the consolidated company’s equity in affiliates at the ending	2018 $ 5,331,862 98,110 (383,764) (56,520)
	$ 4,989,688

The financial information about the individually unimportant affiliates of the consolidated company under the equity method is summarized as follows. The financial information refers to the amounts included into the consolidated financial statements of the consolidated company:

Summarized book value of equity in individually unimportant affiliate at the ending Shares attributable to the consolidated company: Net profit from continuing operations Other consolidated income/loss Total comprehensive income	12.31.2019 $ 477,011	12.31.2018 850,596
	2019 $ 12,972 (16,415)	2018 409 (17,068)
	$ (3,443)	(16,659)

2. Sale of subsidiaries

The consolidated company sold all of the subsidiary’s equity (Lien Hwa Industrial HK Ltd.) to the affiliate, BOC LIENHWA HOLDING CO., LTD in November, 2019. The disposal amount was NT$477,796 thousand and the gain or loss from disposition was NT$30,618 thousand.

3. Collateral

As of December 31 2019 and 2018, the investment under the equity method of the consolidated company had not been pledged as collaterals.

(VIII) Acquisition of subsidiaries and non-controlling equity

Since the consolidated company acquired more than half of its BOD seats on March 28, 2019, the consolidated company has control over MiTAC Inc. Therefore, MiTAC Inc. and MiTAC Information Technology Corp., affiliates of the consolidated

~53~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

company originally under the equity method, have been included in financial statements of the subsidiaries from the day the consolidated company acquired the control.

• (1) The fair value of the identifiable assets and liabilities acquired and borne on the date of acquisition is stated as follows:

Cash and cash equivalent Financial assets at fair value through profit or loss Inventory Notes and accounts receivable and other receivables Other current assets Financial assets at fair value through other comprehensive income Net amount of property, plant, and equipment Intangible assets-Cost of computer software Other non-current assets Short-term loan and short-term notes payable Payable notes and payable accounts Other payables and other current liabilities Other non-current liabilities Fair value of identifiable net assets	MiTAC Inc. $ 353,856 104,927 537 50,921 1,870 12,428,279 2,615,174 2,511 642,836 (509,811) (15,759) (21,199) (82,789)	MiTAC Information Technology Corp. 239,778 51,453 483,091 553,207 1,710,963 - 20,092 15,487 433,509 (822,819) (590,312) (364,159) (182,337)
	$ 15,571,353	1,547,953

The consolidated company has control over MiTAC Inc. and MiTAC Information Technology Corp. on March 28, 2019. On that date, the consolidated company re-measured the investment initially under the equity method, which was the preserved equity of the MiTAC Inc. and MiTAC Information Technology Corp., at fair value and recognized a total of NT$552,016 thousand from the gain on disposal of such investment and included it in other gains and losses of the consolidated income statement. The gain on disposal includes the amount relevant to the affiliate which was initially recognized in other comprehensive income and reclassified as profit or loss and uses the fair value of such equity as

~54~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

the consideration of reacquisition. In addition, the above amount which the affiliate initially recognized in other comprehensive income has been reclassified to the retained earnings and the amount totaled NT$1,278,836 thousand.

(2) Goodwill

Goodwill recognized due to acquisition: Transfer consideration Non-controlling equity (measured by the identifiable net assets at the non-controlling equity ratio) Less: Fair value of identifiable assets	$ 1,176,663 445,873 (1,547,953)
	$ 74,583

No income tax effect was expected to be derived from the recognized goodwill.

(3) Acquisition of non-controlling equity

The consolidated company separately use NT$5,000 thousand of cash to increase the acquisition of Jian Foods Incorporation equity on July, 2019 and August, 2018. The equity increased from 83.933% to 86.093% in 2019 and from 80.994% to 83.933% in 2018, causing NT$7,097 thousand and NT$7,691 thousand of changes in the shareholders’ equity separately. The amount is recognized stated as capital surplus and retained earnings.

(IX) Subsidiaries with significant non-controlling equity

Subsidiaries with non-controlling equity important to the consolidated company are listed as follows:

listed as follows:
Name of subsidiary	Principal business place/ Ownership and voting right proportion of non-controlling equity Country where the company is registered 12.31.2019 Taiwan 62.61%
MiTAC Inc.	Taiwan

The summarized financial information of the above subsidiaries is listed as follows. The financial information is prepared in accordance with the IFRSs approved by FSC and reflects the fair value adjustment made upon the acquisition date of the consolidated company and adjustment made according to the accounting policy differences. Also, the financial information refers to the amount of the inter-company transactions before canceling.

~55~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Summarized financial information of the MiTAC Inc. and its subsidiaries: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Book value of non-controlling equity at the ending Operating revenue Net income Other consolidated income/loss Total comprehensive income Net profit attributable to non-controlling equity Total comprehensive income attributable to non-controlling equity Cash flow from operating activities Cash flow from investment activities Cash flow from financing activity Foreign exchange rate effect Decrease of cash and cash equivalent	12.31.2019 $ 934,871 15,439,833 (184,500) (73,587)
	$ 16,116,617
	$ 10,097,275
	April to December, 2019
	$ 687,216
	607,224 218,014
	$ 825,238
	$ 377,306
	$ 513,853
	$ 37,615 413,343 (670,947) 1,975
	$ (218,014)

(X) Property, plant, and equipment

The details of changes in the property, plant, and equipment of the consolidated company in 2019 and 2018 are as follows:

Land Cost or identified cost: Balance, January 1, 2019 $ 320,959 Acquisition through business combination (Note 6(8)) 1,735,656 Additions - Transfer in 242,710 Transfer out (157,215) Disposal -	Land	Building and structure	Machine & equipment	Transport ation equipment	Office equipment	Other equipment	Constructi on in progress	Total
		1,687,400 1,040,669 16,693 42,179 (986) (49,205)	1,184,961 11,871 36,884 203,049 - (286,128)	36,168 6,914 2,371 - - (12,044)	47,886 10,137 5,140 - - (14,632)	518,415 63,001 35,714 35,048 (9,145) (154,265)	211,606 - 36,566 - (216,905) -	4,007,395 2,868,248 133,368 522,986 (384,251) (516,274)

~56~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Effect of foreign exchange rate change Balance, December 31, 2019 Balance, January 1, 2018 Additions Transfer in Transfer out Disposal Effect of foreign exchange rate change Balance, December 31, 2018 Depreciation and impairment loss: Balance, January 1, 2019 Acquisition through business combination (Note 6(8)) Current depreciation Transfer in Transfer out Impairment Disposal Effect of foreign exchange rate change Balance, December 31, 2019 Balance, January 1, 2018 Current depreciation Disposal Effect of foreign exchange rate change Balance, December 31, 2018 Book value: December 31, 2019 January 1, 2018 December 31, 2018	Land	Building and structure	Machine & equipment	Transport ation equipment	Office equipment	Other equipment	Constructi on in progress	Total
	-	(20,316)	(21,128)	(485)	(1,024)	(2,069)	(235)	(45,257)
	$ 2,142,110	2,716,434	1,129,509	32,924	47,507	486,699	31,032	6,586,215
	$ 320,959 - - - - -	1,510,461 31,412 157,135 - - (11,608)	1,156,743 12,214 31,383 - (4,295) (11,084)	37,138 1,106 - - (1,790) (286)	35,335 3,078 10,270 - (292) (505)	479,403 36,470 12,319 - (8,874) (903)	310,242 166,654 1,316 (266,357) - (249)	3,850,281 250,934 212,423 (266,357) (15,251) (24,635)
	$ 320,959	1,687,400	1,184,961	36,168	47,886	518,415	211,606	4,007,395
	$ - - - - - - - -	821,847 182,540 65,978 17,862 (1) - (49,205) (8,483)	968,789 5,431 69,082 2,433 - 42,964 (286,128) (21,123)	30,556 4,832 3,277 - - - (12,031) (344)	27,783 4,833 5,953 - - - (14,632) (461)	351,946 35,346 54,138 - (2,433) - (153,535) (1,148)	- - - - - - - -	2,200,921 232,982 198,428 20,295 (2,434) 42,964 (515,531) (31,559)
	$ -	1,030,538	781,448	26,290	23,476	284,314	-	2,146,066
	$ - - - -	784,757 41,279 - (4,189)	933,122 49,129 (3,150) (10,312)	28,647 3,546 (1,433) (204)	24,535 3,715 (292) (175)	321,186 39,828 (8,696) (372)	- - - -	2,092,247 137,497 (13,571) (15,252)
	$ -	821,847	968,789	30,556	27,783	351,946	-	2,200,921
	$ 2,142,110	1,685,896	348,061	6,634	24,031	202,385	31,032	4,440,149
	$ 320,959	725,704	223,621	8,491	10,800	158,217	310,242	1,758,034
	$ 320,959	865,553	216,172	5,612	20,103	166,469	211,606	1,806,474

~57~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

1. Impairment loss and subsequent reversal

Because part of the cash generating unit (its cash generating unit is classified by the production lines) attributable to the noodle business had insufficient capacity utilization in its fixed assets causing sign of impairment, the consolidated company thus recognized it as impairment loss of assets in 2004. As of December 31, 2019 and 2018, the accumulated impairment separately are NT$191,161 thousand and NT$253,934 thousand. There is no sign of reversal because there is no evidence showing the recognized impairment loss of such asset may decrease definitely.

In December 31, 2019, the subsidiary Yantai Taihwa Food Industrial Co., Ltd. recognized NT$42,964 thousand as impairment loss due to the estimated recoverable amount of the cash generating unit was lower than the book value of the property. As of December 31, 2019 and 2018, the accumulated impairment separately are NT$185,595 thousand and NT$149,832 thousand. In December 31, 2018, there is no sign of reversal because there is no evidence showing the recognized impairment loss of such asset may decrease definitely.

In 2017, because the estimated recoverable amount of the cash generating unit was lower than the book value of its property, plant, and equipment, the subsidiary Jian Foods Incorporation recognized the amount as impairment loss of assets. As of December 31, 2019 and 2018, the accumulated impairment separately are NT$42,533 thousand and NT$49,633 thousand. There is no sign of reversal because there is no evidence showing the recognized impairment loss of such asset may decrease definitely.

2. Collateral

As of December 31, 2019 and 2018, please refer to Note 8 for the details of long-term loan or financing collateral.

• (XI) Right-of-use assets

The details of changes in the cost and depreciation of the land, buildings and transportation equipment rented by the consolidated company are as follows:

~58~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Cost of right-of-use assets: Balance, January 1, 2019 Applicable to effects of IFRS16 retrospectively Balance after restatement, January 1, 2019 Acquisition through business combination (Note 6(8)) Additions Other decrease Effect of foreign exchange rate change Balance, December 31, 2019 Depreciation and impairment loss of right-of-use assets: Balance, January 1, 2019 Applicable to effects of IFRS16 retrospectively Balance, January 1, 2019 Acquisition through business combination (Note 6(8)) Current depreciation Other decrease Effect of foreign exchange rate change Balance, December 31, 2019 Book value: December 31, 2019	Land $ - 47,678	Building and structure	Transportation equipment - 2,501	Total - 146,850
		- 96,671
	47,678 29,633 - - (3,451)	96,671 5,474 36,734 (20,216) -	2,501 1,556 935 - -	146,850 36,663 37,669 (20,216) (3,451)
	$ 73,860	118,663	4,992	197,515
	$ - -	- -	- -	- -
	- 164 3,043 - (80)	- 517 35,033 (2,313) -	- 109 2,393 - -	- 790 40,469 (2,313) (80)
	$ 3,127	33,237	2,502	38,866
	$ 70,733	85,426	2,490	158,649

The consolidated company rented the offices, warehouses and factory equipment by operating lease in 2018. Please refer to Note 6(18).

~59~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

(XII) Investment property

Cost or identified cost: Balance, January 1, 2019 Additions Disposal and scrap Transfer in Transfer out Effect of foreign exchange rate change Balance, December 31, 2019 Balance, January 1, 2018 Additions Transfer in Disposal and scrap Effect of foreign exchange rate change Balance, December 31, 2018 Depreciation and impairment loss: Balance, January 1, 2019 Depreciation Transfer out Transfer in Disposal and scrap Effect of foreign exchange rate change Balance, December 31, 2019 Balance, January 1, 2018 Depreciation Disposal and scrap Effect of foreign exchange rate change Balance, December 31, 2018	Self-owned assets Land and improvements Building and structure $ 473,241 2,681,606 - 1,562 - (36,684) 157,215 - (242,709) (29,465) - (15,167)	Self-owned assets Land and improvements Building and structure $ 473,241 2,681,606 - 1,562 - (36,684) 157,215 - (242,709) (29,465) - (15,167)	Total 3,154,847 1,562 (36,684) 157,215 (272,174) (15,167)
	Land and improvements $ 473,241 - - 157,215 (242,709) -
	$ 387,747	2,601,852	2,989,599
	$ 473,241 - - - -	2,619,299 1,757 69,679 (751) (8,378)	3,092,540 1,757 69,679 (751) (8,378)
	$ 473,241	2,681,606	3,154,847
	$ - - - - - -	1,084,524 69,557 (17,862) 1 (36,684) (4,670)	1,084,524 69,557 (17,862) 1 (36,684) (4,670)
	$ -	1,094,866	1,094,866
	$ - - - -	1,017,577 70,081 (751) (2,383)	1,017,577 70,081 (751) (2,383)
	$ -	1,084,524	1,084,524

~60~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Book value: December 31, 2019 January 1, 2018 December 31, 2018 Fair value: December 31, 2019 December 31, 2018	Self-owned assets	Self-owned assets	Total 1,894,733
	Land and improvements $ 387,747 $ 473,241 $ 473,241	Building and structure
		1,506,986
		1,601,722	2,074,963
		1,597,082	2,070,323
			$ 11,906,088
			$ 11,286,772

Investment property contains a number of commercial properties leased to others. The lease term differs in areas and the term is 1-20 years. The consolidated company will negotiate the following lease term with the lessee without collecting the contingent rent. Please refer to Note 6(18) for relevant information.

The fair value of investment property is based on the evaluation of the company personnel (with relevant experience and has relevant experience recently in the location and type of the investment property) in compliance with the property evaluation method of the consolidated company. The evaluation performs the market value assessment based on the income approach of the Regulations on Real Estate Appraisal and adopts the comparison approach to decide the value of the property only in case of insufficient information on the objective net operating income. The interval of the operating income rate adopted in 2019 and 2018 is 1.44%~5.00%.

As of December 31, 2019 and 2018, please refer to Note 8 for the details of long-term loan or financing collateral.

(XIII) Intangible asset

Cost: Balance, January 1, 2019 Acquired by business combination Acquisition Transfer in Balance, December 31, 2019	Goodwill	Patents and trademarks		Computer software - 34,991 3,948 7,030	Total 14,975 109,574 3,948 7,030
	$ - 74,583 - -	14,975 - - -
	$ 74,583	14,975		45,969	135,527

~61~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

			Patents and	Computer	Computer	Computer
		Goodwill	trademarks	software			**Total **
Balance, January 1, 2018	$	-	14,975		-		14,975
Balance, December 31, 2018	$	-	14,975		-		14,975
Amortization
Balance, January 1, 2019	$	-	-		-		-
Acquired by business combination		-	-		16,993		16,993
Current amortization		-	-		13,789		13,789
Transfer in		-	-		6,005		6,005
Effects of changes in foreign		-	-			90	90
exchange rate
Balance, December 31, 2019	$	-	-		36,877		36,877
Balance, January 1, 2018	$	-	-		-		-
Balance, December 31, 2018	$	-	-		-		-
Net book value
December 31, 2019	$	74,583	14,975		9,092		98,650
January 1, 2018	$	-	14,975		-		14,975
December 31, 2018	$	-	14,975		-		14,975
The intangible assets of the consolidated company have no				material addition, disposal,
impairment recognition or reversal		during 2018. Please refer to Note					XII for the
amortization amount in current period.
Sort-term notes payable
			12.31.2019			12.31.2018
Commercial paper payable			$ 1,040,000				500,000
Unamortized discount				(200)			(100)
			$ 1,039,800				499,900
Outstanding quota			$ 2,040,000				1,430,000
Interest rate interval			0.51%~1.09%			0.49%~0.76%

(XIV) Sort-term notes payable

For loan term within a year, please refer to Note 6 (25) for relevant interest expense.

~62~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

(XV) Short-term loan

Unguaranteed bank loans Outstanding quota Interest rate interval	12.31.2019 $ 5,050,000	12.31.2019 $ 5,050,000	12.31.2018 3,750,000
	$ 8,150,297		2,955,388
		0.88%~1.08%	0.88%~1.00%

(XVI) Long-term loan

The long-term loan details of the consolidated company are as follows:

Unguaranteed bank loans Outstanding quota Interest rate interval Expiry date			12.31.2019 900,000		12.31.2018 900,000
	$
	$		500,000		800,000
			1.03%~1.05% 2021.07.12~2021.11. 30		0.99%~1.04% 2020.01.11~2020.11. 30

(XVII) Lease liabilities
The book value of the consolidated company’s lease liabilities is as follows:
		12.31.2019
Current	$	34,030
Non-current	$	58,969
Please refer to Note 6 (26) Financial Instruments for maturity analysis.
The amount of lease recognized in profit or loss is as follows:
		2019
Interest expense of lease liabilities	$	1,003
Income from the sublease of right-of-use assets	$	960
Expense of short-term loan	$	566
Expense of low-value lease assets (excluding low-value lease of	$	198
short-term lease)
Amount recognized in the statement of cash flows is as follows:
		2019
Total cash outflow of lease	$	42,102

~63~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

(XVIII) Operating lease

1. Lease of lessee

The consolidated company’s payable rent of the irrevocable operating lease is as follows:

Within 1 year 1-5 years More than 5 years	12.31.2018 $ 34,587 68,150 4,466
	$ 107,203

The consolidated company rented the land, offices and stores by operating lease. Generally, the lease term is 1 to 20 years. The rent payment is adjusted according to the announced land values or rental rate.

The expense of operating lease recognized in profit or loss was NT$36,830 thousand in 2018 and the contingent rent recognized as expense was NT$1,082 thousand.

2. Lease of lessor

When renting its investment property, because the consolidated company does not transfer the risk and return attached to the title of assets, the lease contract is classified as operating lease. Please refer to Note 6(12) Investment property.

The maturity analysis of the lease payment as of December 31, 2019 will be listed in the following as the total undiscounted lease payment which will be collected after the reporting date:

Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years More than 5 years Total undiscounted lease payment	12.31.2019 $ 329,242 254,677 209,382 153,971 72,430 186,885
	$ 1,206,587

For the consolidated company’s investment property leased as operating rental, please refer to Note 6(12). The future minimum lease payment receivable of the irrevocable lease term is as follows:

~64~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Within 1 year 1-5 years More than 5 years	12.31.2018 $ 347,384 822,641 262,323
	$ 1,432,348

The lease income generated from the consolidated company’s investment property in 2018 was NT$346,430 thousand.

(XIX) Employee benefits

1. Defined benefit plan

For the present value of the consolidated company’s defined benefit obligations and the fair value of the plan assets, the adjustments are as follows:

Present value of defined benefit obligation The fair value of plan assets Net defined benefit (assets) liabilities	12.31.2019 $ 108,740 (116,277)	12.31.2018 101,746 (56,565)
	$ (7,537)	45,181

Contributions for defined benefit plans of the consolidated company are appropriated to a dedicated pension fund account opened with Bank of Taiwan. The pension payment to each employee that is subject to the Labor Standards Act is based on the pension point received for the years of service and the average salary six months prior to the retirement.

(1) Composition of plan assets

The pension fund appropriated by the consolidated company in accordance with the Labor Standards Act is managed by the Bureau of Labor Funds, Ministry of Labor (referred to as the “Bureau of Labor Funds” 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 consolidated company’s labor pension fund account at the Bank of Taiwan is with a balance of NT$116,277 thousand as of the reporting date. For information of the Labor Pension Fund Asset Management, including the fund yield rate and pension asset allocation, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

~65~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

• (2) Changes in the present value of defined benefit obligation:

The details of changes in the present value of the consolidated company’s defined benefit obligation in 2019 and 2018 are as follows:

Present value of defined benefit obligation, January 1 Current service cost and interest Re-measurement of net defined benefit liabilities －Actuarial gains/losses due to change of demographic assumption －Actuarial gains/losses due to change of financial assumption －Actuarial gains/losses due to empirical adjustment Acquired by business combination Benefits planned to be paid Effects of changes in consolidated entity Present value of defined benefit obligation, December 31	2019 $ 101,746 3,522 85 1,595 (9,782) 28,245 (17,450) 779	2018 101,363 3,567 772 1,100 2,428 - - (7,484)
	$ 108,740	101,746

(3) Changes in the fair value of plan assets

The details of changes in the fair value of the consolidated company’s defined benefit plan assets in 2019 and 2018 are as follows: 2019 2018 Fair value of plan assets, January 1 $ 56,565 53,766 Interest income 909 610 Re-measurement of net defined benefit liabilities －Return on remuneration of planned assets (excluding current interest) 3,127 1,719 The amount appropriated to the plan 46,970 7,954 Acquired by business combination 29,467 - Benefits paid by the plan (20,807) (7,484) Effects of changes in consolidated entity 46 - Fair value of plan assets, December 31 $ 116,277 56,565	The details of changes in the fair value of the consolidated company’s defined benefit plan assets in 2019 and 2018 are as follows: 2019 2018 Fair value of plan assets, January 1 $ 56,565 53,766 Interest income 909 610 Re-measurement of net defined benefit liabilities －Return on remuneration of planned assets (excluding current interest) 3,127 1,719 The amount appropriated to the plan 46,970 7,954 Acquired by business combination 29,467 - Benefits paid by the plan (20,807) (7,484) Effects of changes in consolidated entity 46 - Fair value of plan assets, December 31 $ 116,277 56,565	The details of changes in the fair value of the consolidated company’s defined benefit plan assets in 2019 and 2018 are as follows: 2019 2018 Fair value of plan assets, January 1 $ 56,565 53,766 Interest income 909 610 Re-measurement of net defined benefit liabilities －Return on remuneration of planned assets (excluding current interest) 3,127 1,719 The amount appropriated to the plan 46,970 7,954 Acquired by business combination 29,467 - Benefits paid by the plan (20,807) (7,484) Effects of changes in consolidated entity 46 - Fair value of plan assets, December 31 $ 116,277 56,565
	$ 116,277	56,565

~66~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

(4) Expenses recognized in profit or loss

The details of expenses recognized in profit or loss by the consolidated company in 2019 and 2018 are as follows:

Current service cost Net interest of net defined benefit liabilities Effects of changes in consolidated entity Operating cost Marketing expense Management expense R&D expenses	2019 $ 2,161 451 3,858	2018 2,427 530 -
	$ 6,470	2,957
	$ 2,986 1,277 1,291 916	1,536 404 587 430
	$ 6,470	2,957

In addition, NT$8,856 thousand and NT$3,718 thousand of pension paid to the employee by the consolidated company in 2019 and 2018 were recognized as operating expense.

(5) Actuarial assumptions

The consolidated company’s principal actuarial assumptions are as follows:

Discount rate Future salary increases	12.31.2019 0.75%~1.00% 2.00%~2.75%	12.31.2018 1.00% 2.25%

The consolidated company plans to pay NT$842 thousand for the defined benefit plan within one year after the reporting date as of 2019.

The weighted average duration of the defined benefit plan is 9.3~31.7 years.

(6) Analysis of sensitivity

The influence of changes in the adopted principal actuarial assumptions on the present value of defined benefit obligations in December 31, 2019 and 2018 are as follows:

~67~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

12.31.2019 Discount rate Future salary increases 12.31.2018 Discount rate Future salary increases	Effect on defined benefit obligation	Effect on defined benefit obligation
	Increase 0.25% $ (2,768) 2,785 $ (2,193) 2,211	Decrease 0.25%
		2,877 (2,695) 2,278 (2,140)

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, a lot of changes in hypotheses might be linked with each other. The analysis of sensitivity adopted the same method used for calculation of net benefit liabilities 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.

1. Defined contribution plan

The consolidated company’s defined contribution plan is based on the Labor Pension Act. An amount equivalent to 6% of the monthly wages is appropriated to the personal labor pension accounts of the Bureau of Labor Insurance. In this plan, after appropriating a fixed amount to the Bureau of Labor Insurance, the consolidated company has no legal or constructive obligation to make additional contribution.

The consolidated company’s pension expense as of 2019 and 2018 under the defined contribution plan amounted to NT$39,934 thousand and NT$10,399 thousand, respectively, and it has been appropriated to the Bureau of Labor Insurance already. Besides, each overseas subsidiaries’ pension expense as of 2019 and 2018 recognized according to relevant local regulations amounted to NT$11,375 thousand and NT$5,057 thousand respectively.

(XX) Income tax

1. Income tax expenses

The details of income tax expenses of the consolidated company in 2019 and 2018 are as follows:

~68~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

		2019	2019	2018
Income tax expenses in current period
Generated in current period	$		108,728	58
Adjustment to previous year’s income tax expense			(1,206)	420
			107,522	478
Deferred income tax expenses
Changes in income tax rate		-		(402)
Occurrence and reversal of temporary difference			5,803	(2,772)
Recognition of taxation loss not recognized in			21,652	-
previous period
			27,455	(3,174)
Income tax expenses	$		134,977	(2,696)
The relationship between the consolidated company’s			income tax expenses and
net income before tax in 2019 and 2018 is adjusted	as	follows:
		2019		2018
Net income before tax	$	3,281,073		2,470,744
Income tax calculated based on the income tax rate of	$		656,214	494,149
the country the Company operates
Tax rate difference effect in foreign jurisdiction			8,272	(5,258)
Changes in income tax rate		-		(402)
Nontaxable income		(404,694)		(355,163)
Adjustment not attributable to temporary difference		(206,938)		(98,902)
Tax Incentive		(21,652)		-
Imposition of 5% tax on undistributed earnings			57,661	-
Unrecognized changes in temporary difference			11,844	(85,485)
Underestimation in previous period			(1,206)	420
Current taxation loss of unrecognized deferred income			35,476	47,945
tax assets
Total	$		134,977	(2,696)

1. Deferred income tax assets and liabilities

2. (1) Unrecognized deferred income tax assets

As of December 31, 2019 and 2018, the total deductible temporary differences of the deferred income tax assets not recognized in the consolidated balance sheet were NT$733,206 thousand and NT$263,116 thousand separately.

~69~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

As of December 31, 2019, the deduction period of the consolidated company’s future deductible income and the taxation loss of unrecognized deferred income tax assets based on the Income Tax Act is as follows: Subsidiaries not situated in the location of the Company

Year of loss 2015 2016 2017 2018 2019	Unrecognized Losses yet to be deducted $ 62,390 69,218 72,932 144,378 89,132	**Last year for deduction **
		2020 2021 2022 2023 2024

2015 $ 62,390 2020 2016 69,218 2021 2017 72,932 2022 2018 144,378 2023 2019 89,132 2024	2015 $ 62,390 2020 2016 69,218 2021 2017 72,932 2022 2018 144,378 2023 2019 89,132 2024	2015 $ 62,390 2020 2016 69,218 2021 2017 72,932 2022 2018 144,378 2023 2019 89,132 2024
Subsidiaries situated inthe location of the Company
Year of loss 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019	Unrecognized Losses yet to be deducted 24,928 141,915 165,349 361,879 530,908 625,521 425,848 140,910 80,833 82,609	**Last year for deduction **
		2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

(2) Recognized deferred income tax assets and liabilities

The changes in the deferred income tax assets and liabilities in 2019 and 2018 are as follows:

~70~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Long-term investment under the equity method Unrealized exchange gain Deferred income tax liabilities: Balance, January 1, 2019 $ (5,872) (2,459) (Acquisition through business combination (Note 6(8)) (33,140) - (Debit) credit profit and loss 5,052 1,354 Debit (credit) equity - - Exchange difference from translation of the - 41 financial statement of foreign operations Balance, December 31, 2019 $ (33,960) (1,064) Balance, January 1, 2018 $ - (1,128) Credit income statement (5,872) (1,355) Exchange difference from translation of the - 24 financial statement of foreign operations Balance, December 31, 2018 $ (5,872) (2,459) Loss carryforwa rds Deferred income tax assets: Balance, January 1, 2019 $ - Acquisition through business combination (Note 6(8)) 83,683 (Debit) credit profit and loss 640 Debit (credit) equity - Balance, December 31, 2019 $ 84,323 Balance, January 1, 2018 $ - (Debit) credit profit and loss - Balance, December 31, 2018 $ -	Long-term investment under the equity method $ (5,872) (33,140) 5,052 - -	Long-term investment under the equity method $ (5,872) (33,140) 5,052 - -	Unrealized exchange gain	Land incremental **tax **	Others - (23,067) (439) 4,060 -	Total (101,874) (56,207) 5,967 4,060 41
			(2,459) - 1,354 - 41	(93,543) - - - -
	$ (33,960)		(1,064)	(93,543)	(19,446)	(148,013)
	$ - (5,872) -		(1,128) (1,355) 24	(93,543) - -	- - -	(94,671) (7,227) 24
	$ (5,872)		(2,459)	(93,543)	-	(101,874)
		Loss carryforwa rds		Investment credit - 34,400 (20,610) -	Others 12,680 25,320 (13,452) 1,640	Total 12,680 143,403 (33,422) 1,640
		$ - 83,683 640 -
		$ 84,323		13,790	26,188	124,301
		$ - -		- -	2,279 10,401	2,279 10,401
		$ -		-	12,680	12,680

1. Authorization of income tax

The income tax returns of the Company’s profit-seeking business have been audited

~71~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

by the tax authorities up to 2017.

• (XXI) Capital and other equity

• Issuing of common shares

The total authorized capital of the Company were NT $15,000,000 thousand and NT$12,800,000 thousand separately at NT$10 par value with 1,500,000 thousand and 1,280,000 thousand shares separately issued as of December 1, 2019 and 2018. The total authorized capital stated above were common shares and the shares issued were 1,104,740 thousand and 1,052,133 thousand shares, respectively.

The outstanding stock of the Company in 2019 and 2018 is adjusted as follows:

(Stated in thousand shares)

Beginning balance, January 1 Capitalization of retained earnings Ending balance, December 31		Common shares 2019 2018 1,052,133 956,485 52,607 95,648	Common shares 2019 2018 1,052,133 956,485 52,607 95,648
		2019
		1,052,133 52,607
		1,104,740	1,052,133

1. Capital surplus

The balance of the Company’s capital surplus is as follows:

Stock premium Treasury stock trading Changes in net worth of equity of affiliates and joint ventures recognized under the equity method	12.31.2019	12.31.2018 289,318 11,862 465,073 766,253
	$ 289,318 20,925 454,878
	$ 765,121

Pursuant to the Company Act, the capital surplus shall be first used to offset losses, then new shares or cash may be allocated based on realized capital surplus subject to shareholding ratio. The term realized capital surplus mentioned above includes the shares issued at premium excessing the par value and the gains in the form of gifts. According to the Regulations Governing the Offering and Issuance of Securities by the Issuer, the capital surplus that can be capitalized annually shall not exceed 10% of the total paid-in capital.

1. Retained earnings

Pursuant to the Company’s Articles of Incorporation, if the Company has annual earnings, it shall first pay taxes, make up any losses from past years and then

~72~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

appropriate 10% as legal reserves, unless the legal reserve reaches the amount of the Company’s paid-in capital; if necessary, make provision of special reserves according to the laws and the needs of company operation. The residual earnings shall be added to undistributed earnings at the beginning. The Board of Directors shall draft a motion for the distribution of the residual earnings and submit to the shareholders’ meeting for distribution.

The Company is now at the stable growth stage and most of the earnings are from the investees recognized under the equity method. For the sustainable operation and long-term development of the company, the Company shall appropriate 10% of the earnings concluded at year-end as legal reserve and appropriate or reverse the special reserve according to the laws and regulations besides offsetting the accumulated losses and paying all taxes. The Board of Directors shall propose a motion for the distribution of the remaining earnings with the accumulated earnings undistributed in the previous year and submit to the shareholders’ meeting for approval before distribution.

The directors’ meeting shall consider the financial structure of the Company, future funding demand and profit-seeking conditions to plan the ratio of the earning distribution and shareholder’s cash dividends and the cash dividends shall not be less than 10% of the total dividends.

• (1) Legal reserve

When the Company suffers no loss, new shares or cash may be allocated from the legal reserve upon resolution of the shareholders’ meeting, provided that the new shares or cash allocated shall be no more than 25% of the paid-in capital

• (2) Special reserve

When first applying the IFRS approved by the FSC, the Company chose to adopt the exemption in IFRS 1 “First-time Adoption of International Financial Reporting Standards”. The unrealized revaluation increment under the shareholder’s equity was stated following the rule of using the fair value on the conversion date as the recognized cost to increase retained earnings. Pursuant to the regulations of Gin-Guan-Zheng-Fa-Zi No.1010012865 issued on April 6, 2012, a same amount of special reserves should be stated. When relative assets were used, disposed or reclassified, the original rate to state the special reserves could be used to reverse the allocation of earnings. The special reserves balances on December 31 in 2018 and 2019 were both NTD141,843 thousand.

According to the regulations above, when the Company distributes the distributable earnings, for the deduction net amount of other shareholders’ equity stated in the current year and the difference of special reserves balance stated

~73~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries

Notes to the Consolidated Financial Statements

above, the special reserves shall be stated from current profit or loss and the undistributed earnings in the previous period. For the deduction amount of other shareholders’ equity in the previous period, special reserves shall be stated from undistributed earnings in the previous period and shall not be distributed. If the deduction amount of other shareholders’ equity reverses, the earnings of the reversing part can be distributed.

The proposals for the earning distribution for the year of 2017 and 2018 were resolved in the shareholder’s meetings on June 26, 2018 and June 25, 2019. The dividend amount distributed to the shareholders is as follows:

Dividend distributed to common stock shareholders: Cash Stocks Total	2018 Share distribution rate (NT$) Amount $ 1.60 1,683,413 0.50 526,067 $ 2,209,480	2018 Share distribution rate (NT$) Amount $ 1.60 1,683,413 0.50 526,067 $ 2,209,480	2017 Share distribution rate (NT$) Amount 1.80 1,721,672 1.00 956,485 2,678,157	2017 Share distribution rate (NT$) Amount 1.80 1,721,672 1.00 956,485 2,678,157
			Share distribution rate (NT$) 1.80 1.00
		$ 2,209,480

The proposal for the distribution in 2019 was drafted in the meeting of the board of directors on March 30, 2020. The dividend amount distributed to the shareholders is as follows. Other than the cash dividend, other items on the earning distribution form need to be recognized by the shareholders:

Dividend and share distribution rate distributed to common stock shareholders: Cash Stocks Total	2019 Share distribution rate (NT$) Amount $ 1.60 1,767,584 1.60 1,767,584 $ 3,535,168	2019 Share distribution rate (NT$) Amount $ 1.60 1,767,584 1.60 1,767,584 $ 3,535,168
		$ 3,535,168

4. Treasury stocks

The list of stocks of the consolidated company held by the subsidiaries on December 31 in 2018 and 2019 is as follows:

~74~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Ledger account	12.31.2019	12.31.2018
	Number of shares (thousand shares) Cost marketprice	Number of shares (thousand shares) Cost
Financial assets measured at fair values through other comprehensive profit or loss- current 1,494 $ 47,895 55,221 Financial assets measured at fair values through other comprehensive profit or loss- non-current 4,453 136,868 164,531

Pursuant to the Securities and Exchange Act, the treasury stocks held by the subsidiaries cannot be pledged. And before the transfer, the shareholder’s right is not permitted.

1. Other equity (net amount after tax)

Balance, January 1, 2019 Exchange difference gathered for the calculation of net assets of foreign operations Share of the exchange difference of affiliated companies using the equity method Unrealized profit or loss of the financial assets measured at fair values through other comprehensive profit or loss Disposal of investments under the equity method that is reclassified as profit or loss Disposal of equity instrument accumulated income measured at fair value through other comprehensive income that is reclassified as profit or loss Unrealized profit or loss of the financial assets measured at fair values through other comprehensive profit or loss of affiliated companies using the equity method Others Balance, December 31, 2019	Exchange difference in the financial statements of foreign operations $ (195,325) 85,132 (291,542) - 16,802 - - -	Unrealized profit or loss of the financial assets measured at fair values through other comprehensiv e profit or loss 2,491,349 - - 840,212 (1,278,836) (65,004) 891,889 -	Non-controlli ng interests 70,509 (17,161) - 147,395 - - - 10,431,060
	$ (384,933)	2,879,610	10,631,803

~75~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Balance, January 1, 2018 Adjustment applied to new standards retrospectively Balance after restatement, January 1, 2018 Exchange difference gathered for the calculation of net assets of foreign operations Share of the exchange difference of affiliated companies using the equity method Unrealized profit or loss of the financial assets measured at fair values through other comprehensive profit or loss Unrealized profit or loss of the financial assets measured at fair values through other comprehensive profit or loss of affiliated companies using the equity method Others Balance, December 31, 2018	Exchange difference in the financial statements of foreign operations $ (99,739) (129)	Unrealized profit or loss of the financial assets measured at fair values through other comprehensiv e profit or loss - 4,148,532	Unrealized profit or loss of available-for- sale financial products 4,433,684 (4,433,684)	Non-controlli ng interests 66,451 -
	(99,868) (26,660) (68,797) - - -	4,148,532 - - (612,274) (1,044,909) -	- - - - - -	66,451 (1,624) - - - 5,682
	$ (195,325)	2,491,349	-	70,509

(XXII) Earning per share

1. Basic earnings per share

Basic earnings per share of the consolidated company in 2018 and 2019 was calculated based on the net profit attributed to common stock shareholders of the Company and weighted average outstanding shares of common stocks. The calculation is as follows:

~76~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

• (1) Net profit attributed to common stock shareholders of the Company

Net income attributable to the Company’s common stock shareholders:	2019 $ 2,766,816	2018 2,476,292

• (2) Weighted average outstanding shares of common stocks (thousand shares)

Common stocks issued on January 1 Effect of the treasury stock Effect of the stock dividend Weighted average outstanding shares of common stocks on December 31 Basic earnings per share (NTD)	2019 $ 1,052,133 (4,560) 52,607	2018 1,052,133 (399) 52,607
	$ 1,100,180	1,104,341
	$ 2.51	2.24

2. Diluted earnings per share

Diluted earnings per share in 2018 and 2019 was calculated based on the net profit attributed to common stock shareholders of the Company and weighted average outstanding shares of common stocks with adjusted diluted effect of all potential common stocks. The calculation is as follows:

• (1) Net profit attributed to common stock shareholders of the Company (diluted)

Net profit attributed to common stock shareholders of the Company (diluted)	2019 $ 2,766,816	2018 2,476,292

• (2) Weighted average outstanding shares of common stocks (diluted) (thousand shares)

Weighted average outstanding shares of common stocks (basic) Effect of employee stock compensation Weighted average outstanding shares of balance common stocks on December 31 (diluted) Diluted earnings per share (NTD)	2019 $ 1,100,180 260	2018 1,104,341 1,046
	$ 1,100,440	1,105,387
	$ 2.51	2.24

(XXIII) Revenue from contracts with customers

~77~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

1. Income details

Main area and market: Taiwan People’s Republic of China Other countries Main product/service line: Product sale Investment property and rental revenue Construction revenue Maintenance revenue Investment revenue Others Main area and market: Taiwan People’s Republic of China Other countries Main product/service line: Product sale Investment property and rental revenue			2019	2019		Total 7,311,368 773,049 186,876 8,271,293 5,772,933 347,989 994,409 449,138 634,258 72,566 8,271,293 Total 4,236,652 769,156 92,010 5,097,818 4,751,388 346,430 5,097,818
	Rental business $ 307,698 34,030 -	Noodle business 3,648,804 572 94,605	Noodle business overseas - 651,558 11,859	System integration business 2,374,736 86,889 80,412	All other department s 980,130 - -
	$ 341,728	3,743,981	663,417	2,542,037	980,130
	$ - 341,728 - - - -	3,743,981 - - - - -	663,417 - - - - -	1,025,924 - 994,409 449,138 - 72,566	339,611 6,261 - - 634,258 -
	$ 341,728	3,743,981	663,417	2,542,037	980,130
			2018
	Rental business $ 314,421 32,009 -	Noodle business 3,598,938 544 78,970	Noodle business overseas - 736,603 13,040	System integration business - - -	All other department s 323,293 - -
	$ 346,430	3,678,452	749,643	-	323,293
	$ - 346,430	3,678,452 -	749,643 -	- -	323,293 -
	$ 346,430	3,678,452	749,643	-	323,293

The operating revenue of the system integration business was added since the second quarter in 2019. Please refer to the description of note 4(2).

~78~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

2. Contract balance Contract assets- System engineering Contract assets- Maintenance and trading Contract liabilities- System engineering Contract liabilities- Maintenance and trading	12.31.2019 $ 1,425,430 356,521
	$ 1,781,951
	$ 98,157 3,630
	$ 101,787

The disclosure of the notes and accounts receivable and the impairment are detailed in note 6(4).

The above contract assets and liabilities were incorporated in when the consolidated company merged with MiTAC Inc. and MiTAC Information Technology Corp. on March 28, 2019.

(XXIV) Remunerations of employees, directors and supervisors

According to the Articles of Incorporation, annual profits concluded by the Company shall be subject to employee remuneration of no less than 0.1% in 2019 and 0.5% in 2018. In addition, directors’ remuneration may be provided up to 1% of the annual profit. 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 of affiliated companies that satisfy certain criteria.

The amounts of employee remuneration in 2019 and 2018 were estimated at NTD2,837 thousand and NTD25,066 thousand. The amounts of director and supervisor’s remuneration were NTD8,400 and NTD8,000 both in 2019 and 2018. These estimates were made by applying the Company’s before-tax profits with the deduction of the remunerations to employees, directors and supervisors. Besides, the appropriate percentages for the remuneration to employees, directors and supervisors were referenced and past experience was referred for the estimation. The operating cost and expense in 2019 and 2018 were stated. All relevant information is available on the Market Observation Post System. The above amounts of remuneration to employees, directors and supervisors were consistent with the estimated amounts reported in the Company’s 2018 standalone financial report.

~79~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Any differences between the amounts actually paid in 2019 and the amount previously estimated would be treated as a change in accounting estimate, and recognized as profit or loss in 2020.

• (XXV) Non-operating revenue and expense

• Other revenue

The consolidated company’s other revenues as of 2019 and 2018 were as follow:

Interest income Dividend income Labor service revenue	2019 $ 16,366 244,302 1,647	2018 10,715 218,475 1,052
	$ 262,315	230,242

1. Other profit and loss

The consolidated company’s other profit and loss in 2019 and 2018 were as follow:

(Loss) or profit from the disposal and scrap of property, plants and equipment Foreign exchange gain (loss) Impairment of non-financial assets Disposal of investment gain Other revenue Other expense	2019 $ (570) 9,049 (42,964) 582,634 32,695 (13,646)	2018 (1,203) (10,405) - - 16,370 (5,725)
	$ 567,198	(963)

1. Financial cost

The consolidated company’s financial cost in 2019 and 2018 were as follow:

Interest expense

2019 $ 60,063	2018 32,289

(XXVI) Financial instruments

1. Credit risk

2. (1) Credit risk exposure

The book value of financial assets and contract assets represents the maximum credit risk exposure amount.

• (2) Concentration of credit risk

The consolidated company has a broad customer base and does not have

~80~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

business conducted significantly focusing on single customer. Besides, the sales regions are dispersed. Therefore, there is no significant and concentrated credit risk in accounts receivable. The consolidated company continues to regularly assess the financial condition of customers in order to reduce credit risk. Only that it usually does not require customers to provide collaterals.

1. 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.

12.31.2019 Non-derivative financial liabilities Unsecured short-term notes Unguaranteed bank loans Payable notes and payable accounts Other payable Lease liabilities 12.31.2018 Non-derivative financial liabilities Unsecured short-term notes Unguaranteed bank loans Payable notes and payable accounts Other payable	Book value	Contractual cash flows	Within 6 months	6-12 months	1-2years	2-5years	Over 5 years
	$ 1,039,800 5,950,000 833,107 226,294 92,999	1,046,000 6,009,963 833,107 226,294 94,610	443,000 824,813 676,161 206,313 18,115	603,000 4,275,880 156,946 19,981 16,731	- 909,270 - - 30,650	- - - - 29,114	- - - - -
	$ 8,142,200	8,209,974	2,168,402	5,072,538	939,920	29,114	-
	$ 499,900 4,650,000 94,977 114,858	504,650 4,704,275 94,977 114,858	2,250 21,525 94,977 114,858	502,400 3,773,410 - -	- 909,340 - -	- - - -	- - - -
	$ 5,359,735	5,418,760	233,610	4,275,810	909,340	-	-

• The consolidated 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

• (1) Exchange rate risk exposure

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

~81~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Financial assets Monetary items USD HKD MYR EUR RMB Financial assets Monetary items USD HKD MYR		12.31.2019	TWD 121,899 4,696 13,848 10 43,398 3,963 68,327 TWD 250,374 6,197 370 10 13,643
	Foreign currency (thousand) $ 4,066 1,220 1,969 1 1,292 920 15,872	Rate USD:TWD 29.9800 HKD:TWD 3.8490 MYR:USD 0.2346 MYR:TWD 7.0330 EUR:TWD 33.5900 RMB:USD 0.1436 RMB:TWD 4.3050 12.31.2018
	Foreign currency (thousand) $ 8,152 1,581 94 1 1,918	Rate USD:TWD 30.7150 HKD:TWD 3.9210 HKD:USD 0.1277 MYR:TWD 7.1120 MYR:USD 0.2315

(2) Sensitivity analysis

The exchange rate risk of the monetary account of the consolidated company is mainly from foreign currency denominated cash and cash equivalent as well as accounts receivable. Foreign exchange gain and loss arise from the translation. If the main accounting currency used for preparing the reports on December 31, 2019 and 2018 appreciated or depreciated 1%, under the condition that all other factors stayed unchanged, the net profit after tax would increase NTD2,050 thousand in 2019 and decreased NTD2,165 thousand in 2018.

(3) Exchange gain or loss of monetary items

In consideration of multiple functional currency types used in the consolidated company, the information about exchange gain or loss for currency

~82~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

is disclosed by summarization. The foreign currency exchange gain (including the realized and unrealized) was NTD9,049 thousand and NTD10,405 thousand in 2019 and 2018.

4. Interest rate analysis

Please refer to the Note regarding liquidity risk management for the interest rate risk exposure of the consolidated company’s financial assets and 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 outstanding the entire year. The rate of change used in the consolidated company’s internal report to the management was the interest rate with an increase or decrease of 0.5% pips. In addition, the interest rate is assessed within the reasonable and possible range of change by the management.

If interest rate is increased or decreased by 0.5% , with all other variables stayed unchanged, the consolidated company’s net profit would decrease by NTD27,960 thousand in 2019 and increase by NTD20,600 thousand in 2018.

1. Other pricing risk

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 income is as follows:

Stock price on the reporting date	2019 Other comprehensiv e profit or loss after tax Profit or loss after tax $ 520,502 - (520,502) -	2018	2018
	Other comprehensiv e profit or loss after tax $ 520,502 (520,502)	Other comprehensi ve profit or loss after tax 126,716 (126,716)	Profit or loss **after tax **
Increased by 3% Decreased by 3%			- -

6. Information about fair value

• (1) Type and fair value of the financial instrument

Financial assets measured at fair values through other comprehensive profit or loss by the consolidated company is based on repetition and measured at fair value. The book value and fair value of different financial assets and liabilities (including fair value rating information, but financial instruments not measured at

~83~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

fair value but with a book value close to the reasonable amount of fair value and leasing liabilities are not required for the disclosure of fair value according to the regulations) are listed down below:

Book value Financial assets at fair value through profit or loss Beneficiary certificates of funds $ 203,741 Structured deposit 81,523 Subtotal 285,264 Financial assets at fair value through other comprehensive income Domestic and international listed (OTC) stock 17,350,061 Domestic and international unlisted (OTC) stock 2,467,236 Subtotal 19,817,297 Financial assets measured at amortized cost Cash and cash equivalent 1,584,189 Notes and accounts receivable 1,416,297 Other receivable 29,153 Guarantee deposits paid 152,995 Subtotal 3,182,634 Total $ 23,285,195 Financial liabilities measured at amortized cost Short-term loans $ 5,050,000 Short-term notes payable 1,039,800 Notes payable 22,648 Accounts payable 810,459 Other payable 445,511 Long-term loan 900,000 Deposits received 63,956 Lease liabilities 92,999 Total $ 8,425,373			12.31.2019	12.31.2019	Total 203,741 81,523
	Book value $ 203,741 81,523		Fair value
		Class I 203,741 -	Class II - 81,523	Class III - -
	285,264	203,741	81,523	-	285,264
	17,350,061 2,467,236	17,350,061 -	- -	- 2,467,236	17,350,061 2,467,236
	19,817,297	17,350,061	-	2,467,236	19,817,297
	1,584,189 1,416,297 29,153 152,995	- - - -	- - - -	- - - -	- - - -
	3,182,634	-	-	-	-
	$ 23,285,195	17,553,802	81,523	2,467,236	20,102,561
		- - - - - - - -	- - - - - - - -	- - - - - - - -	- - - - - - - -
	$ 8,425,373	-	-	-	-

~84~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Book value Financial assets at fair value through other comprehensive income Domestic and international listed (OTC) stock $ 4,223,875 Domestic and international unlisted (OTC) stock 1,878,420 Subtotal 6,102,295 Financial assets measured at amortized cost Cash and cash equivalent 707,098 Notes and accounts receivable 797,042 Other receivable 77,316 Guarantee deposits paid 12,984 Subtotal 1,594,440 Total $ 7,696,735 Financial liabilities measured at amortized cost Short-term loans $ 3,750,000 Short-term notes payable 499,900 Accounts payable 94,977 Other payable 209,984 Long-term loan 900,000 Deposits received 57,534 Total $ 5,512,395			12.31.2018	12.31.2018
	Book value $ 4,223,875 1,878,420		Fair value		Total 4,223,875 1,878,420
		Class I 4,223,875 -	Class II - -	Class III - 1,878,420
	6,102,295	4,223,875	-	1,878,420	6,102,295
	707,098 797,042 77,316 12,984	- - - -	- - - -	- - - -	- - - -
	1,594,440	-	-	-	-
	$ 7,696,735	4,223,875	-	1,878,420	6,102,295
		- - - - - -	- - - - - -	- - - - - -	- - - - - -
	$ 5,512,395	-	-	-	-

• (2) Evaluation technology of the fair value for the financial instrument measured at fair value

Non-derivative instruments

If a financial instrument has a quoted price in the active market, the quoted price will be the fair value. The market price announced by the Taiwan Stock Exchange Corporation is the basis for listed (OTC) equity instrument.

If the financial instrument possessed by the consolidated company is in the active market, its fair value is listed by category and attribute below:

The fair value of financial assets and liabilities and listed company (OCT) stocks with standard terms/conditions and traded in the active market shall be

~85~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

decided subject to the market quotation.

Except for the financial instrument in the active market, the fair value of other financial instruments is based on the evaluation technology or the quotation of the counterparty. The fair value acquired through the evaluation technology can take reference from other substantial conditions and the evaluation technology used on similar financial instruments, including the market information that can be acquired on the date of preparing the consolidated balance sheet. The information is then used on a calculation model.

If the financial instrument possessed by the consolidated company is an equity instrument that does not have an open quotation, its fair value is measured using the cash flow discount model. The main assumption is to apply the expected cash flow estimated by the investee to reflect the time value of money and the risk and rate of return on investment and measure with the discount. When adopting the market approach to measure the fair value, the main assumption uses the quotation of the listed (OCT) company to calculate the P/S ratio (sales multiple) and applies it on the measurement. The discount effect resulting from the lack of market liquidity of the equity security is considered and the estimated number has been adjusted.

• (3) Transfer between Class I and Class II

There was no transfer of financial assets from Class II to Class I in 2019 and 2018.

• (4) Details of change in Class III

~86~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

January 1, 2019 Total profit or loss Recognized in other comprehensive income Acquisition through business combination Purchase Deemed disposition Refunds from decapitalization Foreign exchange rate effect December 31, 2019 January 1, 2018 Total profit or loss Recognized in other comprehensive income Purchase Refunds from decapitalization Foreign exchange rate effect December 31, 2018	Measuring at fair values through other comprehensive profit or loss Equity instrument with no open quotation $ 1,878,420 (144,903) 538,117 486,121 (206,037) (45,574) (38,908)
	$ 2,467,236
	$ 1,310,107 (96,365) 643,439 (7,939) 29,178
	$ 1,878,420

The above total profits or losses are stated in “unrealized valuation gain (loss) of financial assets measured at fair value through other comprehensive profit or loss”. Items related to the assets possessed in 2019 and 2018 are as follow:

Total profit or loss Recognized in other comprehensive profit and loss (stated in “unrealized valuation gain (loss) of financial assets measured at fair value through other comprehensive profit or loss”)	2019 $ (144,903)	2018 (96,365)

~87~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

• (5) Quantitative data used on measuring the fair value of the unobservable major input (Class III)

The consolidated company’s item that is measured at fair value and classified as Class III includes financial assets measured at fair value through other comprehensive profit or loss- equity security investment.

Most of the fair value of the consolidated company has only one unobservable major input. Only the equity instrument investment that is not in an active market has multiple unobservable major inputs, The unobservable major inputs of the equity instrument investment that is not in an active market are separated from one another. They are not relevant to each other.

For some of the consolidated company’s equity investment instruments that do not have an active market quotation and with the purpose not for short-term trading, the management will refer to the recent financial report of the invested company, evaluate the industry development and examine the information that is available to the public. Based on that information, the consolidated company assesses the operating status and future operating performance of the invested company. And after that the fair value of the invested company will be estimated. The change in the industry and future of the market is in highly positive correlation with the change of the invested company’s operation and future performance.

The quantitative data of the unobservable major input are as follow:

Item Financial assets measured at fair values through other comprehensive profit or loss- equity instrument investment that is not in an active market	Evaluation technology Discounted cash flow method	Unobservable major input Relationship between the unobservable major input and the fairvalue ・Long-term revenue growth rate (3% on 12.31.2019) ・Weighted average cost of capital (8.57% on 12.31.2019) ・Discount for minority interest (19.97% on 12.31.2018) ・Discount for minority ・The higher the weighted average cost of capital, discount for minority interest and discount for lack of marketability are, the lower the fair value is.	Relationship between the unobservable major input and the fairvalue

~88~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Item Financial assets measured at fair values through other comprehensive profit or loss- equity instrument investment that is not in an active market 〃	Evaluation technology Comparable public company method Net asset value method	Unobservable major input Relationship between the unobservable major input and the fairvalue interest (21.45% on 12.31.2019) ・The higher the long-term revenue growth rate is, the higher the fair value is. ・Market multiple (1.17 on 12.31.2018) ・Discount for minority interest (20.84% on 12.31.2018) ・The higher the multiple is, the higher the fair value is. ・The higher the discount for minority interest is, the lower the fair value is. ・Net asset value N/A	Relationship between the unobservable major input and the fairvalue

• (6) Fair value measurement of Class III. Fair value is used for the sensitivity analysis of reasonably possible alternative.

The fair value measurement of the consolidated company’s financial instrument is reasonable. If different valuation model or valuation parameter is used, it might result in different valuation results. When the valuation parameter of the financial instrument classified as Class III is changed, it will have effect on other comprehensive profit or loss. The effect is as follows:

~89~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

December 31, 2019 Financial assets at fair value through other comprehensive income Equity instrument not in an active market Equity instrument not in an active market 12.31.2018 Financial assets at fair value through other comprehensive income Equity instrument not in an active market Equity instrument not in an active market	Input	Increase or decrease	Change in fair value reflected on other comprehensiveprofit or loss Advantageous change Disadvantageous change $ 8,440 (7,250) 790 (790)	Change in fair value reflected on other comprehensiveprofit or loss Advantageous change Disadvantageous change $ 8,440 (7,250) 790 (790)
	Weighted average cost of capital Discount rate Market multiple Discount rate	0.5% 0.5% 0.5% 0.5%
			$ 9,230	(8,040)
			$ 1,380 300	(1,380) (300)
			$ 1,680	(1,680)

The advantageous and disadvantageous change of the consolidated company is the change in fair value. The fair value is based on unobservable input parameters of different levels and calculated using the evaluation technology. The fair value of the financial instrument might be affected by more than 1 input value. The above table only reflects the effect resulting from a single input value change. The relevance between and variability in the input values are not taken into account.

(XXVII) Financial risk management

1. Summary

The consolidated 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 consolidated company’s risk exposure information and the consolidated company’s measurement and risk management objectives, policies, and procedures are expressed in this Note. Please refer to the notes to the standalone financial statements for further quantitative disclosure.

1. Risk management structure

~90~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The board of directors is fully responsible for the establishment and supervision of the consolidated company’s risk management structure. The board of directors has authorized a responsible department as appropriate. The department is responsible for developing and controlling the risk management policies of the consolidated company. Besides, it is required to report its operation to the board of directors regularly.

Internal audit staff will assist the consolidated company’s board of directors to play the supervisory role. These personnel conduct regular and extraordinary review for the risk management control mechanism and procedure. The review result will be reported to the board of directors.

1. Credit risk

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

• (1) Accounts receivable and other receivables

The financial product included in the accounts receivable of the consolidated company is not significantly concentrated on one customer. Besides, the sales regions are dispersed. As a result, the credit risk of accounts receivable is not significantly concentrated.

The credit policy of the consolidated company is established. Pursuant to the policy, the consolidated company shall analyze the credit rating of every new customer before giving it payment standards and delivery terms and conditions. When applicable, the consolidated company’s review includes external ratings and bank reference under some circumstances. The purchase limit of each customer is established separately. The limit represents the maximum uncollected amount allowed without the authorization of the appropriate responsible department. The limit amount is reviewed regularly. Customers that do not meet the standard credit rating of the consolidated company can only enter into transaction with the consolidated company when prepayment is paid.

The consolidated company is in the traditional business with little change in the market environment. The customers of the consolidated company are mainly old customers. As a result, not impairment due to customers has been recognized before. Customers shall be classified based on their credit features when the consolidated company monitors their credit risk.

~91~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The consolidated company has the allowance account setup to reflect the estimated losses of the accounts receivable. 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 consolidated company. The consolidated company’s trading counterparty and performing party are reputable banks, investing financial institutions and corporate organizations with no significant performance concerns. Therefore, there is no significant credit risk.

• (3) Guarantees

Pursuant to the consolidated company’s regulations, the subject to whom the consolidated company provides financial guarantees to shall be meet the criteria in the “Guidelines for Endorsements and Guarantees”. The subsidiaries receiving the consolidated company’s endorsement and guarantee as of December 31, 2019 are detailed in Note 13.

4. Liquidity risk

Liquidity risk is the risk that the consolidated company is unable to pay cash or financial asset to settle the financial liability and unable to perform its obligations. The method applied by the consolidated company to manage liquidity is to ensure that the consolidated company in general practice or under pressure has sufficient current fund to liquidate liabilities when due, without incurring unacceptable losses or causing harm to the consolidated company’s reputation.

The consolidated 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 which it is impossible to expect reasonably under extreme circumstances such as natural disaster. Besides, the unused loan amounts of the consolidated company as of December 31 in 2019 and 2018 were NTD10,690,297 and NTD5,185,388 thousand.

5. Market risk

Market risk is the risk that the market price change, such as exchange rate, interest rate and equity instrument price change, will affect the profit or value of the

~92~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

financial instrument possessed by the consolidated company. The objective of market risk management is to control the market risk exposure within the affordable range and to optimize return on investment.

The consolidated company conducts derivative instruments transactions for managing market risk with financial liabilities then resulted. All transactions are made in compliance with internal control mechanisms and relative operation guidelines.

• (1) Exchange rate risk

The consolidated company is exposed to exchange rate risk resulting from the sale, procurement and load transactions measured with a currency other than the functional currency of the Company. The functional currency of the Company mainly includes New Taiwan Dollar, RMB and US Dollar. These transactions are denominated in major currencies of New Taiwan Dollar, Hong Kong Dollar and US Dollar.

• (2) Interest rate risk

The rate risk of the consolidated company comes from the floating-rate of the long-term and short-term loans. The change of rate will result in changes in the effective rate of long-term and short-term loans. Therefore, the future cash flow will also change. Relative interest rate analysis is detailed in Note 6(26).

(XXVIII) Capital management

The policy of the board of directors maintains the basis of unimpaired capital. It helps maintain the confidence of the investor, creditor and market. It also supports future operating development. Capital includes stock, additional paid-in capital, retained earnings, and other equity and non-controlling equity. The board of directors controls the return on capital. It also controls the dividend quality 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	12.31.2019 $ 8,914,752 (1,758,023)	12.31.2019 $ 8,914,752 (1,758,023)	12.31.2018 5,768,702 (707,098)
	$ 7,156,729		5,061,604
	$ 37,630,191		24,620,602
		19.02%	20.56%

As of December 31, 2019, the capital management method of the consolidated company did not change.

~93~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

• (XXIX) Non cash transactions investing/financing activities

The non cash transactions financing activities of the consolidated company in 2019 and 2018 were as follow:

1. For the right-of-use assets acquired by lease are detailed in Note 6(11).

The liability adjustment from financing activities is as follows:

Long-term loan Short-term loans Lease liabilities Short-term notes payable Total liabilities from financing activities Long-term loan Short-term loans Short-term notes payable Total liabilities from financing activities	1.1.2019 $ 900,000 3,750,000 105,605 499,900	Cash flow - 650,000 (40,335) (142,772)	Non cash change Acquired by business combinatio n Exchange rate change Other changes - - - 650,000 - - - - 27,729 682,630 - 42	Non cash change Acquired by business combinatio n Exchange rate change Other changes - - - 650,000 - - - - 27,729 682,630 - 42	Non cash change Acquired by business combinatio n Exchange rate change Other changes - - - 650,000 - - - - 27,729 682,630 - 42	12.31.2019 900,000 5,050,000 92,999 1,039,800
			Acquired by business combinatio n - 650,000 - 682,630	Exchange rate change - - - -
	$ 5,255,505	466,893	1,332,630	-	27,771	7,082,799
	1.1.2018 $ 900,000 1,471,488 1,299,709	Cash flow - 2,278,464 (800,000)	Non cash change Acquired from business merger Exchange rate change Other changes - - - - 48 - - - 191			12.31.2018 900,000 3,750,000 499,900
	$ 3,671,197	1,478,464	- 48 191			5,149,900

VII. Transactions with related party

• (I) Names of related parties and their relationship with the company

Related parties that have performed transactions with the consolidated company during the period of the consolidated financial statement include:

Name of related party

MiTAC Inc.

Relationship with the consolidated company

Affiliated companies of the consolidated company (note)

~94~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Name of related party	Relationship with the consolidated company
MiTAC Information Technology Corp.	Affiliated companies of the consolidated company
	(note)
MiTAC Communication Co., Ltd.	Affiliated companies of the consolidated company
	(note)
Ho Li Investment Co., Ltd.	Affiliated companies of the consolidated company
	(note)
Linde Lienhwa Industrial Gases Co.,	Affiliated companies of the consolidated company
Ltd.
UPC Technology Corp.	Affiliated companies of the consolidated company
Lienhwa United LPG Co., Ltd.	Affiliated companies of the consolidated company
Boc Lienhwa (B.V.I) Holding Co., Ltd.	Affiliated companies of the consolidated company
United Industrial Gases Co., Ltd.	Subsidiaries of affiliated companies of the
	consolidated company
Lien Hwa Cryo Equipment Co., Ltd.	Subsidiaries of affiliated companies of the
	consolidated company
Asia Union Electronic Chemical Corp.	Subsidiaries of affiliated companies of the
	consolidated company
Far Eastern Industrial Gases Co., Ltd.	Subsidiaries of affiliated companies of the
	consolidated company
Yuan Rong Industrial Gases Co., Ltd.	Subsidiaries of affiliated companies of the
	consolidated company
Lien Fung Precision Technology	Subsidiaries of affiliated companies of the
Development Co., Ltd.	consolidated company
Lien Tong Gases Co., Ltd.	Subsidiaries of affiliated companies of the
	consolidated company
Lien Quan Industrial Gases Co., Ltd.	Subsidiaries of affiliated companies of the
	consolidated company
Tung Bao Corporation	Subsidiaries of affiliated companies of the
	consolidated company
Yih Yuan Investment Corp.	Other related party of the consolidated company
Pao Hwa Trading Co., Ltd.	Other related party of the consolidated company
MiTAC International Corporation	Other related party of the consolidated company
Harbinger Venture Management Co.,	Other related party of the consolidated company
Ltd.
Getac Technology Corp.	Other related party of the consolidated company
MiTAC Computing Technology	Other related party of the consolidated company

~95~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Name of related party Corporation MiTAC Digital Technology Synnex Technology International Corp. MiTAC Holdings Corp. EasyCard Corporation Hikari Tsushin, Inc.	Relationship with the consolidated company
	Other related party of the consolidated company Other related party of the consolidated company Other related party of the consolidated company Other related party of the consolidated company Other related party of the consolidated company

Note: It used to be one of the affiliated companies of the consolidated company. The company was listed as a subsidiary in the consolidated financial statements since March 28, 2019.

(II) Material transactions with related parties

1. Operating revenue

The amount of material transactions between the consolidated company and related parties is as follows:

related parties is as follows:
Affiliates Other related party	2019 $ 31,642 47,742	2018 1,120 2,530
	$ 79,384	3,650

The price of the consolidated company’s sale to affiliated companies was not significantly different from the general selling price. The collection term is O/A 60 to 90 days. No collateral is collected for the accounts receivable of related parties. After assessment, not bad debt shall be recognized.

1. Renting to related parties

The revenue of leased assets collected from related parties by the consolidated company is as follow:

Affiliated enterprise: Linde Lienhwa Industrial Gases Co., Ltd. Other affiliated enterprise: Other related party: Getac Technology Corp. Other related party	2019 $ 47,036 32,912 55,773 140	2018 46,700 42,800 59,934 186
	$ 135,861	149,620

~96~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The start and end dates of the lease are between September 1, 2016 to August 31, 2024. The rent of above lease assets took reference from the assessed present value or predetermined value and the consolidated company negotiated the price. Besides, the consolidated company collected lease deposits of the amount of NTD15,375 and NTD16,946 thousand from above related parties on December 31 in 2019 and 2018.

1. Purchase

The consolidated company’s purchase value to related parties are stated as follows:

Affiliates Other related party	2019 $ 41 63,319	2018 55 -
	$ 63,360	55

The purchased conditions for the related party required by the consolidated company are the same as general transaction conditions. The payment term is 1 to 2 months.

1. Receivable accounts-related parties

The consolidated company’s receivable accounts-related parties are stated as following:

Title	Type	12.31.2019 $ 7,300 3,657 - 1,113 1,797	12.31.2018 5,712 3 61,430 1,108 1,224
Accounts receivable Other receivable	Affiliates Other related party Affiliated enterprise: Boc Lienhwa (B.V.I) Holding Co., Ltd. Other affiliated enterprise: Other related party
		$ 13,867	69,477

The above accounts receivable include the rent of the Nangang building, advance money and the cash dividend receivable of affiliated enterprises.

1. Payable accounts-related parties

The consolidated company’s payable accounts-related parties are stated as following:

~97~

Lien Hwa Industrial Holdings Corporation

(original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Title	Type	12.31.2019 $ 14 12,381 65 270	12.31.2018 19 - 4,056 248
Accounts payable Other payable	Affiliates Other related party Affiliates Other related party
		$ 12,730	4,323

6. Prepayment

The consolidated company’s payable accounts-related parties are stated as follow:

Affiliates Other related party	12.31.2019 $ - 27	12.31.2018 114 3
	$ 27	117

7. Purchased equipment

The total price spent on purchasing equipment from affiliated companies in 2019 and 2018 was NTD1,206 and NTD25,135 thousand.

The total price spent on purchasing equipment from other related parties in 2019 and 2018 was NTD1,435 and NTD1,119 thousand.

8. Others

The consolidated company sold factory land to Lienhwa Industrial Gases Co., Ltd. in 1985 and 1998. The sales revenue was NTD71,934 thousand. Since the company is not sold, the consolidated company stated the deferred credits as company profits.

The consolidated company sold the subsidiary to the affiliated enterprise in 2019. For more details please see the description of Note 6(7).

(III) Key management personnel transactions

Remuneration to key management personnel includes the following:

Short-term employee benefits Post-employment benefits Other long-term benefits	2019	2018 27,935 1,751 232
	$ 30,104 2,757 695
	$ 33,556	29,918

~98~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

VIII. Pledged Assets

Pledged Assets	Pledged Assets	Pledged Assets
The book value of the consolidated company’s pledged assets is as follows: Assets name Charged and pledged guarantees 12.31.2019 Other non-current assets- others Bank loan $ 4,512 Financial assets at fair value through other comprehensive income 〞 906,000 Property, plant and equipment 〞 189,138 Investment property 〞 124,072 Guarantee deposits paid 152,995 $ 1,376,717			12.31.2018 - - 107,386 121,951 12,984 242,321
Other non-current assets- others Financial assets at fair value through other comprehensive income Property, plant and equipment Investment property Guarantee deposits paid
	Bank loan 〞 〞 〞
		$ 1,376,717

• IX. Significant contingent liabilities and unrecognized contractual commitments Significant unrecognized contractual commitments

(I) The consolidated company’s letter of credit that is issued but not used 12.31.2019 Letter of credit issued but not used USD $ -	12.31.2018 7,578

• (II) In 2016, the consolidated company signed a joint venture agreement on the Gulei petrochemical investment case with the USI Corporation and other companies. The Agreement included that (1) all shareholders should invest and found the Victory Global Limited (hereinafter referred to as the “Joint Venture”) and shall agree to invest the oil refining and ethylene product manufacturing business in the Zhangzhou Gulei Industrial Park in Fujian Province in China through the wholly owned Dynamic Ever Investments Limited founded in Hong Kong (hereinafter referred to as the “Hong Kong Company”) in compliance with the regulations in the Agreement. Shareholders should also agree to run the business that was approved by the competent authorities in Taiwan and resolved in the board of director’s meeting of the consolidated company. (2) The Hong Kong Company and the Fujian Petroleum Refining Chemical Corporation joined the venture to found a Company (hereinafter referred to as the Gulei Company). Together they acquired 50% of issued shares of the Gulei Company.

• A resolution was made in the board of director’s meeting in 2018. The consolidated

• company decided to participate in the capital increase of the joint venture with the amount under USD72,810 thousand. This way, the consolidated company could invest the Gulei Company indirectly. The consolidated company had invested USD44,537 thousand as of

~99~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

December 31, 2019.

X. Losses due to major disasters: None.

XI. Materiality after the period: None.

XII. Others

• (I) Classification of employee benefits, depreciation, depletion and amortization expenses by function is summarized as follows:

function is summarized	as follows:	as follows:	as follows:
By function By nature	2019			2018
	Classified as operating cost	Classified as operating expense	Total	Classified as operating cost	Classified as operating expense	Total
Employee benefit expense Salary expense Labor and health insurance expense Pension expense Other employee welfare expense Depreciation expense Amortization expense	146,844 16,183 30,990 8,913 206,396 10,214	784,669 74,457 35,645 46,319 102,058 14,995	931,513 90,640 66,635 55,232 308,454 25,209	115,878 10,358 6,560 10,346 166,474 5,290	208,881 18,534 15,571 16,722 41,104 8,708	324,759 28,892 22,131 27,068 207,578 13,998

~100~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

XIII. Supplementary disclosure

• (I) Information on material transactions

According to the Regulations Governing the Preparation of Financial Reports by Securities Issuers, the consolidated company should also disclose the information about material transactions in 2019:

1. Loaning of funds to others:

Unit: NTD thousand

No.	Lender	Borrower (Note 8)	Accoun t titles	Relate d party	Current maximum amount	Ending balance	Drawdow n	Interest rate interval	Natur e of loans to others (Note 1)	Business transactio n amount	Reasons of necessary short-term financing	Amount recognized in loss allowance	Collateral	Collateral	Limit of loans to individual borrowers	Limit of total loans
													Name	Value
0 0 1 1 2 2 2 3 4 5 6	Lien Hwa Industrial Holdings Corporation 〞 Lien Hwa Properties Corporation 〞 Fortune Dragon Holding Inc. 〞 〞 MiTAC Inc. Mitac (Shanghai) Business Management Consulting Co., Ltd. MiTAC Information Technology Corp. Claridy Solutions (Nanjing), Inc.	Fortune Dragon Holding Inc. Jian Foods Incorporation Lien Hwa Milling Foods Corporation Lien Hwa Industrial Holdings Corporation Yantai Taihwa Food Industrial Co., Ltd. Hifood Co., Ltd. Hifood(Shan ghai) Co., Ltd. MiTAC Information Technology Corp. Mitac (Shanghai) Computer Co., Ltd. MiTAC Communicati on Co., Ltd. MiTAC Service (Shanghai) Co., Ltd.	Other receiva ble 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞	Yes 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞	474,000 100,000 300,000 500,000 752,008 21,973 104,788 200,000 865 80,000 32,060	299,800 100,000 300,000 500,000 590,606 20,986 59,960 200,000 - 80,000 -	- 1,500 300,000 500,000 545,636 15,889 44,970 - - 20,000 -	2% 1.1% 1.1% 1.1% - 2% - - - 1.1% -	2 2 2 2 2 2 2 2 2 2 2	- - - - - - - - - - -	營運周轉 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞	- - - - - - - - - - -	- - - - - - - - - - -	- - - - - - - - - - -	2,699,839 2,699,839 1,217,833 1,217,833 4,018,216 1,607,286 1,607,286 1,469,815 13,676 613,036 47,374	5,399,678 5,399,678 1,217,833 1,217,833 5,625,502 5,625,502 5,625,502 2,939,630 54,705 613,036 47,374

Note 1: 1. A business associate.

1. Company that needs short-term financing.

2. Note 2: The limit amount of loans to each borrower shall not exceed 10% of the net value of the recent financial statements audited or reviewed by the CPA. And the total limit of loans shall not exceed 20% of that.

3. Note 3: The limit amount of loans to each borrower and the total limit of loans of Lien Hwa Properties Corporation shall not exceed 40% of the net value of the recent financial statements audited or reviewed by the CPA.

4. Note 4: If both the borrower and lender are a foreign company that the parent company owns directly or indirectly with 100% of voting rights, the limit amount for the Fortune Dragon Holding Inc. to loan to each borrower and the limit amount of total loans shall not exceed 100% of the net value of the recent financial statements audited or reviewed by the CPA. If the borrower and lender do not meet the above criteria, the amount shall not exceed 40%. The above amount loaned shall not exceed 140% in total.

5. Note 5: The limit amount of loans of MiTAC Inc.to each borrower shall not exceed 10% of the net value of the recent financial statements audited or reviewed by the CPA. And the total limit of loans shall not exceed 20% of that.

6. Note 6: The limit amount of loans of Mitac (Shanghai) Business Management Consulting Co., Ltd. to each borrower shall not exceed 10% of the net value of the recent financial statements audited or reviewed by the CPA. And the total limit of loans shall not exceed 20% of that.

7. Note 7: The limit amount of loans to each borrower and the total limit of loans of the MiTAC Information Technology Corp. shall not exceed 40% of the net value of the recent financial statements audited or reviewed by the CPA.

Note 8: The limit amount of loans to each borrower and the total limit of loans of Claridy Solutions (Nanjing) Inc. shall not exceed 100% of the net value

~101~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

of the recent financial statements audited or reviewed by the CPA.

Note 9: The above transactions related to the consolidated entity have been written off during the preparation of the consolidated report.

2. Making endorsements/guarantees for others:

Unit: NTD thousand

==> picture [482 x 301] intentionally omitted <==

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

No. Endorsing/g Endorsed/guaranteed Limit amount Current Current Drawdown Endorseme Ratio of the Maximum Endorseme Endorseme Endorseme
uaranteeing company of maximum endorsement/ nt/guarante cumulative endorsements/g nt/guarante nts/guarant nt/guarante
company endorsement/g endorsement/ guarantee - e amount endorsement/guaran uarantees e made by ees made by e made for
uarantee to a guarantee ending secured tee amount to the the parent the the
Company name single balance with net worth in the company subsidiaries operations
enterprise property as most recent for its for its in Mainland
collateral financial statements subsidiaries parent China
company
0 Lien Hwa Pacific Gateway 2 26,998,388 339,020 209,860 - - 0.78% 26,998,388 Y N N
Industrial Holdings Inc.
Holdings
Corporation
0 〞 Fortune Dragon 2 26,998,388 521,400 494,670 - - 1.83% 26,998,388 Y N N
Holding Inc.
0 〞 Lien Hwa 2 26,998,388 1,500,000 1,500,000 141,340 - 5.56% 26,998,388 Y N N
Milling Foods
Corporation
0 〞 Lien Hwa 2 26,998,388 1,000,000 1,000,000 - - 3.70% 26,998,388 Y N N
Properties
Corporation
1 MiTAC Inc. MiTAC 1 14,698,151 5,225,082 4,775,082 2,299,722 997,777 32.49% 14,698,151 N N N
Information
Technology
Corp.
2 MiTAC MiTAC 2 1,532,591 55,300 55,300 2,026 - 3.61% 1,532,591 N N N
Information Communication
Technology Co., Ltd.
Corp.
2 〞 Claridy 2 1,532,591 32,000 32,000 19,401 - 2.09% 1,532,591 N N N
Solutions, Inc.
〞 Claridy 2 1,532,591 170,942 170,942 - - 11.15% 1,532,591 N N Y
Solutions
(Nanjing), Inc.
3 MiTAC MiTAC 3 200,000 11,471 10,558 - - 15.46% 200,000 N N N
Communicati Information
on Co., Ltd. Technology
Corp.
(Note 1)
Relationship
----- End of picture text -----

• Note 1: The relationship between the endorsing/guarantying subject and the endorsed/guaranteed subject is classified into 3 categories as follows: 1. A business associate.

• The Company holds the majority shareholdings with voting rights of the company directly and indirectly.

• The company holds the majority shareholdings with voting rights of the Company directly and indirectly.

• Note 2: The endorsement and guarantee amount made by the Company shall not exceed 100% of the net value in the most recent financial statements. The endorsement and guarantee amount made by the Company to a single subsidiary shall not exceed 100% of the net value in the most recent financial statements.

• Note 3: The limit of the endorsement and guarantee amount made by MiTAC Inc.to MiTAC Information Technology Corp. shall not exceed 100% of the net value in the most recent financial statements of MiTAC Inc. audited or reviewed by the CPA.

• Note 4: The limit of the endorsement and guarantee amount made by MiTAC Information Technology Corp. to a single company shall not exceed 100% of the net value in the most recent financial statements of MiTAC Information Technology Corp. audited or reviewed by the CPA.

• Note 5: The limit of the endorsement and guarantee amount made by MiTAC Communication Co., Ltd. to MiTAC Information Technology Corp. shall not exceed 30% of the net value in the most recent financial statements of MiTAC Communication Co., Ltd. audited or reviewed by the CPA, and shall not exceed NTD200,000 thousand.

Note 6: The above transactions related to the consolidated entity have been written off during the preparation of the consolidated report.

~102~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries

Notes to the Consolidated Financial Statements

1. Marketable securities held at yearend (excluding the equity held by invested subsidiaries, affiliated enterprises and joint ventures):

Unit: NTD Thousand/ Thousand shares

Company in possession	Type and name of marketable securities	Relationship with the security issuer	Ledger account		Yea	rend		Highest shareholding in the interim or contribution status	Remarks
				Number of shares (Number of unit)	Book value	Percentage held	Fair value (Note 1, 3)
Lien Hwa Industrial Holdings Corporation 〞 〞 〞	Great Wall Enterprise Co., Ltd. MiTAC Holdings Corp. Synnex Technology International Corp. Pao Long International Co., Ltd.	The Company is the juridical person director of the company The chairman of the company is the one of the Company 〞 -	Financial assets measured at fair values through other comprehensive profit or loss- non-current 〞 〞 〞	17,580 76,734 49,893 2,365	767,368 2,225,282 1,870,992 33,471	2.12% 7.12% 2.99% 1.57%	767,368 2,225,282 1,870,992 33,471	2.12% 7.12% 2.99% 1.57%
〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 Hua Cheng Investment Co., Ltd. 〞 〞 〞 Fortune Dragon Holding Inc. 〞 〞 〞 〞	Getac Technology Corp. Taian Insurance Co .,Ltd. China Trade and Development Corp. Formosa Golf and Country Club Corp. Hsin Yu Energy Development Co., Ltd. Harbinger Venture Capital Corp. Harbinger VI Venture Capital Corp. Asia-Pacific Emerging Industry Venture Capital Co., Ltd., Harbinger VII Venture Capital Corp. Shihlien Fine Chemicals Co., Ltd. B Current Impact Investment Inc. Harbinger VIII Venture Capital Corp. Lien Hwa Industrial Holdings Corporation Waffer Technology Corp. Shihlien Fine Chemicals Co., Ltd. Harbinger Venture Management Co., Ltd. Budworth Investment Limited Asia Global Venture Capital Co., Ltd Harbinger Ruyi Venture Limited Asia Global Venture Capital II Co., Ltd Ever Victory Global Limited.	The chairman of the Company is the representative of the juridical person director of the company - - - - The Company is the juridical person chairman of the company - The Company is the juridical person director of the company The chairman of the Company is the representative of the juridical person chairman of the company The Company is the juridical person vice chairman of the company - - The company invests the Company and evaluates it under the equity method. - - - - - - - -	〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞	7,210 921 50 2 6,076 7 2,809 3,000 10,000 35,384 500 7,500 122 2 1 863 30 1,000 500 300 44,537	336,707 20,466 1,199 317 - 216 35,009 30,624 113,855 126,040 4,644 72,433 4,491 20 7 12,165 15 28,622 10,061 7,221 1,318,414	1.24% 0.31% 0.08% 0.01% 2.44% 3.35% 9.96% 3.33% 9.39% 13.88% 6.25% 11.57% 0.01% - % - % 19.99% 3.33% 10.00% 14.29% 3.00% 9.12%	336,707 20,466 1,199 317 - 216 35,009 30,624 113,855 126,040 4,644 72,433 4,491 20 7 12,165 15 28,622 10,061 7,221 1,318,414	1.24% 0.31% 0.08% 0.01% 2.44% 3.35% 9.96% 3.33% 9.39% 15.06% 6.25% 19.05% 0.01% - % - % 19.99% 3.33% 10.00% 14.29% 3.00% 9.12%	Note 2

~103~

Lien Hwa Industrial Holdings Corporation

(original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Company in possession	Type and name of marketable securities	Relationship with the security issuer	Ledger account		Yea	rend		Highest shareholding in the interim or contribution status	Remarks
				Number of shares (Number of unit)	Book value	Percentage held	Fair value (Note 1, 3)
Fortune Dragon Holding Inc. 〞 Sun Lead International Limited MiTAC Inc. 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞	eT Capital, L.P. Acorn Accelerator I, L.P. KELINGTON GROUP BERHAD Lien Hwa Industrial Holdings Corporation Ares International Corp. Synnex Technology International Corp. MiTAC Holdings Corp. EasyCard Investment Holding Co., Ltd. Far Eastern Electronic Toll Collection Co, Ltd. Digital economy limited partnership Harbinger VII Venture Capital Corp. Harbinger III Venture Capital Corp. Harbinger Venture Capital Corp. LienJie II Investment Co., Ltd. Harbinger VIII Venture Capital Corp. ProMOS Technologies Inc. General Motors corporate bond Financial products of Shanghai Pudong Development Bank Co., Ltd.	- - - The chairman of the company is the one of the Company The Company is the juridical person director of the company The chairman of the company is the one of the Company 〞 - The Company is the juridical person director of the company - The chairman of the company is the one of the Company 〞 〞 - The chairman of the company is the one of the - - -	Financial assets measured at fair values through other comprehensive profit or loss- non-current 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 Financial assets measured at fair values through profit or loss- current	- 300 19,818 4,331 1,486 240,827 84,180 6,538 27,724 - 10,000 6 19 1,625 5,000 44 500 -	123,886 8,596 175,615 160,040 27,796 9,031,015 2,441,207 73,450 191,220 31,741 114,686 260 614 16,267 48,156 - - 81,523	11.15% 14.08% 6.39% 0.41% 3.15% 14.44% 8.99% 6.28% 9.24% 6.29% 9.39% 6.00% 9.50% 16.25% 7.71% - % - % - %	123,886 8,596 175,615 160,040 27,796 9,031,015 2,441,207 73,450 191,220 31,741 114,686 260 614 16,267 48,156 - - 81,523	11.30% 14.08% 7.44% 0.43% 3.15% 14.44% 8.99% 6.28% 9.24% 6.29% 9.39% 6.00% 9.50% 16.25% 12.70% 0.10% - % - %	Note 2
Mix System Holdings 〞 〞 Ho Li Investment Co., Ltd. 〞 〞 〞 〞 〞	Budworth Investment Limited Dyna comware Harbinger Ruyi II Venture Limited MiTAC Inc. MiTAC Information Technology Corp. Harbinger VI Venture Capital Corp. Far Eastern Electronic Toll Collection Co, Ltd. UPC Technology Corp. Synnex Technology International Corp.	- - - Parent company Fellow subsidiary of the parent company The chairman of the parent company is its chairman The parent company is its director The chairman of the parent company is its chairman 〃	Financial assets measured at fair values through other comprehensive profit or loss- non-current 〞 〞 〞 〞 〞 〞 Financial assets measured at fair values through other comprehensive profit or loss- current 〞	91 21 5 2,244 - 1,873 5,256 7,467 460	45 1,423 11,255 93,338 2 21,609 36,249 82,887 17,250	10.00% 0.97% 16.13% 0.63% - % 6.64% 1.75% 0.56% 0.03%	45 1,423 11,255 93,338 2 21,609 36,249 82,887 17,250	10.00% 0.97% 16.13% 0.73% - % 6.64% 1.75% 0.62% 0.03%	Note 2

~104~

Lien Hwa Industrial Holdings Corporation

(original name: Lien Hwa Industrial Corporation) and Subsidiaries

Notes to the Consolidated Financial Statements

==> picture [452 x 311] intentionally omitted <==

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

Yearend Highest
Company in possession Type and name of marketable securities Relationship with the security issuer Ledger account Number of shares Book value Percentage held (Note 1, 3)Fair value shareholdinginterim or in the Remarks
(Number of contribution
unit) status
Ho Li Investment Co., Lien Hwa Industrial Holdings The chairman of the parent Financial assets 1,494 55,221 0.14% 55,221 0.14% Note 2
Ltd Corporation company is its chairman measured at fair
values through
other
comprehensive
profit or
loss- current
〞 MiTAC Holdings Corp. 〃 〞 3,916 113,569 0.36% 113,569 0.36%
〞 Getac Technology Corp. Invested company of 〞 4,858 226,869 0.83% 226,869 0.84%
MiTAC Holdings
Corporation under the
equity method
〞 Waffer Technology Corp. - 〞 1 13 - % 13 - %
〞 Prudential Financial Money - Financial assets 4,449 70,661 - % 70,661 - %
Market Fund measured at fair
values through
profit or loss-
current
Shen Tong Mitac (Shanghai) Computer - Financial assets 800 3,437 10.00% 3,437 10.00%
International Co., Ltd. measured at fair
Management values through
Consulting Co., Ltd. other
comprehensive
profit or loss-
non-current
MiTAC Information Fubon Chi-Hsiang Money - Financial assets 6,125 96,424 - % 96,424 - %
Technology Corp. Market Fund measured at fair
values through
profit or loss-
current
〞 Ju Shi Cai Fu Tien Tien Money - 〞 5,530 23,765 - % 23,765 - %
Market Fund
〞 E Ling Tong Money Market - 〞 3,000 12,891 - % 12,891 - %
Fund
----- End of picture text -----

• Note 1: For the listed (OCT) company with a public market price, the closing price on the last transaction date in the accounting period would be used. Note 2: The Company’s stocks possessed by subsidiaries have been deducted from the book value. The stocks are disposed as treasury stocks. Note 3: The market price listed by the non-listed (OCT) company is the equity net value. Some of it is listed in the financial statements of the same period that is prepared by the invested company or audited by the CPA.

• Note 4: The above transactions related to the consolidated entity have been written off during the preparation of the consolidated report.

• The amount of the accumulated purchase or sale of the same securities is over NT$300

• million or 20% of the paid-in capital:

Unit: NTD Thousand/ Thousand shares

==> picture [453 x 140] intentionally omitted <==

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

Buying/selling Type and name Ledger account Trading Beginning of the period Buy Sell Yearend
company of marketable counterpart
securities Relationship Amount Book Gain or
Number of Amount Number of (Note 1) Number of Selling cost (Note loss Number of Amount
shares shares shares price 2) from shares
disposal
MiTAC Fubon Financial - - 17,238 270,000 43,506 683,060 54,619 857,000 856,636 364 6,125 96,424
Information Chi-Hsiang instruments
Technology Corp. Money Market measured at fair
Fund values through
profit or loss-
current
Fortune Dragon Ever Victory Equity instrument - - 31,891 976,034 12,646 342,380 - - - - 44,537 1,318,414
Holding Inc. Global Ltd. investment
measured at fair
value through other
comprehensive
profit or loss
“ Lien Hwa Long-term - - 13,900 400,288 - - 13,900 477,796 400,288 30,618 - -
Industrial HK investment under
Ltd. the equity method
evaluation
----- End of picture text -----

Note 1: Including the adjustments for change in the recognized amount.

Note 2: Including the recognized investment profit or loss and the difference amount of the cumulative translation adjustment.

1. Purchase amount of real property that exceeds NTD300 million or 20% of the paid-in capital: None.

~105~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

1. Amount for the disposal of real property exceeds NTD300 million or 20% of the paid-in capital: None.

2. Amount of the purchase from and the sale to related parties exceeds NTD100 million or 20% of the paid-in capital: None.

3. Amount receivable from related parties exceeds NTD100 million or 20% of the paid-in capital: None.

paid-in capital: None.	paid-in capital: None.	paid-in capital: None.	paid-in capital: None.	paid-in capital: None.
					Unit: NTD thousand
Stated company of account receivable	Name of the trading counterpart	Relationship	Balance of receivable accounts-rela ted parties	Turnover rate	Overdue receivable accounts-related parties		Subsequent recovered amount of receivable accounts-related parties	Appropriated allowance for bad debt
					Amount	Treatment
Lien Hwa Industrial Holdings Corporation Lien Hwa Properties Corporation “ Fortune Dragon Holding Inc.	Lien Hwa Milling Foods Corporation Lien Hwa Milling Foods Corporation Lien Hwa Industrial Holdings Corporation Yantai Taihwa Food Industrial Co., Ltd.	Parent-subsidiary Fellow subsidiary Parent-subsidiary “	116,792 300,000 500,000 545,636	- - - -	- - - -		116,792 - - -	- - - -

Note: The above transactions related to the consolidated entity have been written off during the preparation of the consolidated report.

1. Engaging in derivative transactions: None.

2. Business relationship and important transactions between the parent company and subsidiaries: None.

In 2019, there was no material transaction between the parent company and subsidiaries other than the loan funding. Details about the loan funding are in Note 13(1).

• (II) Information about invested business:

The information about invested business (excluding the invested business in Mainland China) of the consolidated company in 2019 is as follows:

~106~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Unit: NTD Thousand/ Thousand shares

Name of investment company	Name of invested company	Location	Main business	Original i amo	nvestment unt	H	eld at yearend	eld at yearend	Highest shareholding in the interim or contribution status	Investee income recognized in the current period	Investment income recognized in the current period	Remarks
				End of the period	End of last year	Number of shares	Ratio	Book value
Lien Hwa Industrial Holdings Corporation 〞 〞 〞 〞 〞 〞 〞 〞 〞 〞 Hua Cheng Investment Co., Ltd. 〞 〞 〞 〞 〞 〞 Lien Rui Investment Corp. 〞 〞 〞 〞 Fortune Dragon Holding Inc. 〞	UPC Technology Corp. Linde Lienhwa Industrial Gases Co., Ltd. MiTAC Inc. MiTAC Information Technology Corp. Hua Cheng Investment Co., Ltd. Lienhwa United LPG Co., Ltd. Lien Rui Investment Corp. Fortune Dragon Holding Inc. Lien Hwa Milling Foods Corporation Lien Hwa Properties Corporation Lien Hwa Industrial Corporation UPC Technology Corp. MiTAC Inc. MiTAC Information Technology Corp. Jian Foods Incorporation Camel Ring International Company Lien Yung Investment Corp. Tung Da Investment Co., Ltd. Jian Foods Incorporation Oggi Restaurant Group Co., Ltd. New Plus Food & Beverage Co., Ltd. Farmdirect Corp. Camel Ring International Company Pacific Gateway Holdings Inc. Pink Sky Investment Inc.	Taipei City 〞 〞 〞 〞 〞 〞 B.V.I. Taipei City 〞 〞 Taipei City 〞 〞 〞 〞 〞 〞 〞 〞 Taichung City Taoyuan City Taipei City B.V.I. 〞	Organic acid, acid anhydride and its derivatives, plastic toughener, etc. Production of fluids, nitrogen, hydrogen, acetylene and other industrial gases. Integrated system service, automatic system, applied software design and sale of industrial computer 〞 General investment Installation, purchase/sale and technical maintenance of the equipment for propane, butane and the mixture. General investment 〞 Manufacturing and sale of flour Rental and leasing business General investment Organic acid, acid anhydride and its derivatives, plastic toughener, etc. Integrated system service, automatic system, applied software design and sale of industrial computer 〞 Wholesaling and retailing business 〞 General investment 〞 Wholesaling and retailing business Restaurant business 〞 Wholesaling and retailing business 〞 General investment 〞	3,142,213 400,000 731,636 1,289,599 476,000 62,253 463,500 3,312,626 1,601,000 3,001,000 1,000 54,933 84,354 140,128 10 10 87,969 72,699 321,000 35,000 99,995 13,500 2,090 916,163 19,650	3,142,213 400,000 731,636 990,599 405,000 62,253 413,500 2,915,605 - - - 54,933 84,354 61,988 10 10 - - 271,000 35,000 99,995 13,500 2,090 916,163 19,650	424,881 1,886 125,710 65,900 61,800 6,848 11,335 105,782 100,100 200,100 100 4,732 6,840 9,004 1 1 9,217 4,848 32,100 3,500 7,000 600 209 30,461 605	31.89% 50.00% 35.46% 43.93% 100.00% 24.04% 100.00% 100.00% 100.00% 100.00% 100.00% 0.36% 1.93% 6.00% 0.00% 0.33% 19.99% 19.99% 86.09% 100.00% 50.00% 31.58% 69.67% 100.00% 100.00%	6,470,570 5,203,918 5,493,128 704,630 727,808 79,595 68,366 4,018,216 1,695,624 3,044,583 1,000 74,058 310,952 96,159 1 11 99,366 97,916 21,899 35,888 2,689 - 2,304 357,977 162	32.14% 50.00% 35.46% 43.93% 100.00% 24.04% 100.00% 100.00% 100.00% 100.00% 100.00% 0.36% 1.93% 6.00% 0.00% 0.33% 19.99% 19.99% 86.09% 100.00% 50.00% 31.58% 69.67% 100.00% 100.00%	(140,376) 2,109,818 630,742 26,226 53,408 26,130 (37,906) 427,078 93,664 44,627 - (140,376) 630,742 26,226 (43,202) 219 28,383 19,854 (43,202) 66 (2,903) (9,208) 219 (120,837) -	(44,976) 1,054,909 222,957 11,938 53,223 6,283 (37,883) 427,078 93,812 44,627 - (505) 12,621 1,369 (1) 1 5,665 3,985 (36,649) 66 (1,449) - 153 (120,837) -	Subsidiar y Note 1 Subsidiar y Subsidiar y Note 1 Subsidiar y 〞 〞 〞 Subsidiar y Note 3 Subsidiar y 〞 〞 〞 Note 2 〞 Subsidiar y 〞 〞 〞 〞

~107~

Lien Hwa Industrial Holdings Corporation

(original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Name of investment company	Name of invested company	Location	Main business	Original investment amount	Original investment amount	Held at yearend	Held at yearend	Held at yearend	Highest shareholding in the interim or contribution status	Investee income recognized in the current period	Investment income recognized in the current period	Remarks
				End of the period	End of last year	Number of shares	Ratio	Book value
Fortune Dragon Holding Inc. 〞 〞 〞 MiTAC Inc. 〞 〞 〞 Mix System Holdings Ho Li Investment Co., Ltd. MiTAC Information Technology Corp. 〞 〞 Samoa Mitac Information Holding Ltd.	Boc Lienhwa (B.V.I) Hifood Co., Ltd. Lien Hwa Industrial HK Ltd. Sun Lead International Limited Mix System Holdings Ltd. Ho Li Investment Co., Ltd. MiTAC Hikari Corp. MiTAC Information Technology Corp. Mitac Investment China Co. Ltd. Lien Yung Investment Corp. Tung Da Investment Co., Ltd. MiTAC Communication Co., Ltd. Claridy Solutions, Inc. Samoa Mitac Information Holding Ltd. Aidixun Investment Co., Ltd.	B.V.I. Cayman Islands Hong Kong B.V.I. B.V.I. Taipei City 〞 〞 B.V.I. Taipei City 〞 〞 Hsinchu City American Samoa 〞	General investment 〞 〞 〞 General investment 〞 System integration service Integrated system service, automatic system, applied software design and sale of industrial computer General investment 〞 〞 Sale, rental and maintenance of telephone switching systems and data communication products, communication system project contracting Consulting for and development of libraries and information systems General investment 〞	1,744 470,630 - 73,525 268,342 564,035 30,000 343,024 166,065 96,553 92,791 201,312 50,000 154,096 149,954	1,744 470,630 414,701 73,525 - - - - - - - - - - -	50 14,150 - 3 8,610 74,165 3,000 34,669 5,450 9,217 4,848 20,000 5,000 4,965 6,885	50.00% 65.81% - % 100.00% 100.00% 100.00% 50.00% 23.11% 100.00% 19.99% 19.99% 100.00% 100.00% 100.00% 100.00%	794,570 134,305 - 198,113 389,746 929,040 4,985 354,218 229,030 99,366 97,917 68,306 59,886 92,380 90,426	50.00% 65.81% 100.00% 100.00% 100.00% 100.00% 50.00% 23.11% 100.00% 19.99% 19.99% 100.00% 100.00% 100.00% 100.00%	1,053,591 17,447 (7,789) 3,347 6,807 34,367 (19,819) 26,225 4,515 28,338 19,936 5,152 15,533 (6,114) (5,734)	519,317 11,482 (7,789) 3,347 6,807 32,531 (9,910) 6,290 - 5,666 3,985 5,152 15,533 (6,114) (5,734)	〞 〞 〞 Subsidiar y Subsidiar y Note 1 Subsidiar y 〞 〞 Note 4 〞 Subsidiar y 〞 〞 〞

Note 1: The Company’s stocks possessed by subsidiaries have been deducted from the book value. The stocks are disposed as treasury stocks. Note 2: The above transactions related to the consolidated entity have been written off during the preparation of the consolidated report. Note 3: The original name is

Note 4: Please refer to the description in Note 6(7).

~108~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

(III) Information about the investment in China:

1. Relative information about the invested business in Mainland China:

Unit: NTD thousand

Name of the invested company in China (Note 2)	Main business	Paid-in capital amount	Investm ent method (Note 1)	Accumulate d investment amount remitted from Taiwan at the beginning of current period	Investment amount remitted or recovered in the current period	Investment amount remitted or recovered in the current period	Accumulated investment amount remitted from Taiwan at the end of current period	Investee income recognized in the current period	Direct and indirect shareholdin g of the Company	Highest sharehold ing in the interim or contributi on status	Investment income recognized in the current period	Investment book value at year end	Investment revenue received in the current period
					Remittance	Collection
Yantai Taihwa Food Industrial Co., Ltd. (II).1 Yantai Tailiang Food Industrial Co., Ltd. (II).2 Hifood(Shangh ai) Co., Ltd. (II).2 Fujian Fuhua Gases Co., Ltd. (II).2 (Note 6) BOCLH Industrial Gases(Shangha i)Co., Ltd (II). 2 and 3 Lien Xiong Investment (Shanghai) Co., Ltd. (II). 2 and 3 Shengpin Precision Gas (Shanghai) Co., Ltd. (II). 2 and 3 Lien Hwa Precision Gas (Chengdu) Co., Ltd. (II). 2 and 3 Lien Hwa Precision Gas (Dalian) Co., Ltd. (II). 2 and 3 Linde Lienhwa Gases (Wuhan) Co., Ltd. (II).2 and 3 Linde Lienhwa Gases (Chengdu) Co., Ltd. (II).2 and 3	Manufacturing and sale of flour and flour processed food Manufacturing and sale of peanut and peanut food Rental and leasing business Research and development of industrial gases, development and technical service of electronics industrial gases Mainly in the business of gas production General investment Mainly in the business of gas production 〞 〞 〞 〞	961,594 32,480 656,700 824,911 580,438 5,725,631 729,024 501,638 478,312 629,663 718,696	(II) (II) (II) (II) (II) (II) (II) (II) (II) (II) (II)	961,594 19,488 408,880 416,367 1,744 - - - - - -	- - - - - - - - - - -	- - - - - - - - - - -	961,594 19,488 408,880 416,367 1,744 - - - - - -	(120,324) - 19,191 (14,695) (71,451) 573,087 197,176 9,102 134,877 158,051 139,937	100.00% 60.00% 65.81% 25.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00%	100.00% 60.00% 65.81% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.00%	(120,324) - 12,630 (7,112) (35,725) 286,544 98,588 4,551 67,438 79,026 69,968	350,466 - 144,586 185,049 164,621 3,025,196 366,727 254,352 326,918 348,957 406,753	- - - - - - - - - - -

~109~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

Name of the invested company in China (Note 2)	Main business	Paid-in capital amount	Investm ent method (Note 1)	Accumulate d investment amount remitted from Taiwan at the beginning of current period	Investment amount remitted or recovered in the current period	Investment amount remitted or recovered in the current period	Accumulated investment amount remitted from Taiwan at the end of current period	Investee income recognized in the current period	Direct and indirect shareholdin g of the Company	Highest sharehold ing in the interim or contributi on status	Investment income recognized in the current period	Investment book value at year end	Investment revenue received in the current period
					Remittance	Collection
Mitac (Shanghai) Business Management Consulting Co., Ltd. (II).2 Claridy Solutions (Wuxi), Inc. (II).2 Claridy Solutions (Nanjing), Inc. (II).2 MiTAC Service (Shanghai) Co., Ltd. (II).2 Claridy Smart Solutions (Beijing) Co., Ltd. (II).2	Business management consulting, business information consulting and system integration services Research and development of Radio Frequency Identification (RFID) technology; production and sale of the products Software research and development and software design Computer information and technology service, technology support, software design and software research and development Technology development, technology promotion, technology transfer, technology consulting and technology service	82,898 86,695 94,046 56,787 15,746	(II) (II) (II) (II) (II)	31,708 3,864 60,800 30,956 15,998	- - - 36,996 -	- - - - -	31,708 3,864 60,800 67,952 15,998	2,128 (5,016) (4,949) (6,372) 8,868	100.00% 64.91% 100.00% 100.00% 100.00%	100.00% 64.91% 100.00% 100.00% 100.00%	2,128 (3,256) (4,949) (6,372) 8,868	136,523 18,286 47,291 2,176 21,319	- - - - -

~110~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries

Notes to the Consolidated Financial Statements

2. Information related to ceiling on investment in Mainland China

Company name	Accumulated amount of remittance from Taiwan to Mainland China at the end of period	Investment amount approved by the Investment Commission of the Ministry of Economic Affairs	Ceiling on investment in Mainland China imposed by the Investment Commission of the Ministry of Economic Affairs (Note 3)
The Company MiTAC Inc. MiTAC Information Technology Corp.	3,090,906 49,114 148,614	3,210,549 189,212 148,614	16,199,033 8,818,891 919,554

Note 1: (I) Engaged in direct investment in Mainland China.

• (II) Investment in Mainland China through a third country company.

• (III) Others.

Note 2: In the column of the investment income recognized in the current period:

• (I) It shall be specified if the investment is in preparation without any investment income.

• (II) The base for the recognition of investment income can be classified into three categories and it shall be specified.

(1) The financial statement audited by the CPA firm of the parent company in Taiwan.

• (2) Other- Self prepared financial statement

(3) The investment income is recognized based on that Fortune Dragon Holding Inc. holds 25% of the equity of the company indirectly.

Note 3: According to the regulation in the “Principle of Review on Investment and Technical Cooperation in Mainland China” issued by the Investment Commission on August 29, 2008, 60% of the net value is used for the calculation.

Note 4: The numbers in the above table are stated in New Taiwan Dollars.

Note 5: The Company invested in the Quan Ye Trading Co., Ltd indirectly. The original investment cost was USD1,000 thousand. The equity was disposed and USD486 thousand of the investment amount was collected and settled. It was reported to the Investment Commission of the Ministry of Economic Affairs for future reference and cancellation. After the money is received in Taiwan, the amount will be deducted from the used amount of the approved limit in Mainland China.

Note 6: The Company’s indirect shareholding of the company dropped from 50% to 25% in November, 2019.

Note 7: The above transactions related to the consolidated entity have been written off during the preparation of the consolidated report.

3. Material transactions: None.

(XIV) Department information

(I) General information

The consolidated company has 5 reportable segments: Rental business, noodle business, noodle business overseas, administrative resource center and system integration service business. The rental business provides real property rental and development services. The noodle business manufactures and sells all kinds of noodles and processed foods. The noodle business overseas is the subsidiary, Yantai Taihwa Food Industrial Co., Ltd. Its performance is evaluated independently. The company is located in China and is a noodles manufacturing and sale company. The system integration service business provides the system integration service, automatic system, applied software design and sale of industrial computer. The administrative resource center is responsible for the management of domestic/foreign investment business.

The reportable segments of the consolidated company are strategic business departments that provide different products and laboring services. Since different technologies and marketing strategies are required for individual strategic business departments, they need to be managed separately. Most of the business departments were acquired respectively. Their initial management teams were retained.

~111~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

The business decision maker of the consolidated company was not provided with the measured asset amount of the consolidated company. Therefore, the measured asset amount that should be disclosed was zero.

The consolidated company listed the MiTAC Inc. and MiTAC Information Technology Corp. as subsidiaries of the consolidated company on March 28, 2019. As a result, the system integration service business was incorporated in since Q2 in 2019.

(II) Information about the income, assets and liabilities, and measurement basis and reconciliation of the reportable segment

The consolidated company mainly uses the department income before tax (excluding extraordinary gain or loss and exchange gain or loss) in the internal management report that is reviewed by the business decision maker to be the basis for resource distribution and performance evaluation for the management. Since the income tax, extraordinary gain or loss and exchange gain or loss were managed based on the Group, the consolidated company did not distribute the income tax expense (profit), extraordinary gain or loss and exchange gain or loss to the reportable segment. In addition, material non-cash item other than depreciation and amortization is not included in the income of every reportable segment. The reported amount shall be consistent with the amount in the report used by the business decision maker.

Except for that the pension expense of every business department is recognized and measured based on the pension scheme paid in cash, the accounting strategy of the business department is the same as what’s stated in Note 4 “Summary of Significant Accounting Policies”.

The consolidated company deems the sale and transfer between departments as third-party transactions. And the transaction is measured at current market price.

The consolidated company’s operating segments and adjustment are as follows:

2019	Rental business $ 341,728 16,873 2,226	Noodle business 3,743,981 488 59	Noodle business overseas	Administrat ive resource center - - 10,116	System integration business 2,542,037 819 1,348	All other department s 980,130 43,991 6,465	Adjustment and elimination - (62,171) (5,585)	Total 8,271,293 - 16,366
Income: Income from external customers Inter-segment income Interest income Total income Financial cost Depreciation and amortization Share of income of affiliates and joint ventures under equity method Reportable segment profit or loss Reportable segment assets (Note)			663,417 - 1,737
	$ 360,827	3,744,528	665,154	10,116	2,544,204	1,030,586	(67,756)	8,287,659
	$ 24 84,766 - $ 205,529	621 117,466 - 359,477	- 36,757 - (121,487)	50,596 3,110 1,831,968 2,294,223	8,290 56,491 - 14,609	7,926 74,817 534,116 1,350,106	(7,394) (39,744) (809,831) (821,384)	60,063 333,663 1,556,253 3,281,073
	$ -	-	-	33,146,061	-	-	-	33,146,061

~112~

Lien Hwa Industrial Holdings Corporation (original name: Lien Hwa Industrial Corporation) and Subsidiaries Notes to the Consolidated Financial Statements

2018

Income: Income from external customers Inter-segment income Interest income Total income Financial cost Depreciation and amortization Share of income of affiliates and joint ventures under equity method Reportable segment profit or loss Reportable segment assets	$ 346,430 3,678,452 749,643 - - 323,293 - 5,097,818 2,537 532 - - - 459 (3,528) - 207 - 932 8,084 - 1,492 - 10,715
	$ 349,174 3,678,984 750,575 8,084 - 325,244 (3,528) 5,108,533
	$ - - - 32,012 - 277 - 32,289 83,715 92,255 34,360 4,271 - 6,975 - 221,576 - - - 1,848,835 - 546,353 (421,607) 1,973,581 $ 207,616 341,007 (121,096) 1,940,849 - 523,975 (421,607) 2,470,744
	$ - - - 24,760,753 - - - 24,760,753

(Note)

Note: The total assets of departments are measured based on the funds and investments of the Company.

(III) Information by territory

The information by territory of the consolidated company is stated in the following. The revenue is classified based on the customers’ geographical locations, while the non-current assets are classified based on the geographical locations of the assets.

By territory Revenue from external customers: Taiwan China Others Total By territory Non-current assets: Taiwan China Total	2019 $ 7,311,368 773,049 186,876	2018 4,236,652 769,156 92,010
	$ 8,271,293	5,097,818
	12.31.2019 $ 5,827,954 776,204	12.31.2018 3,165,120 790,135
	$ 6,604,158	3,955,255

Non-current assets include real property, plant and equipment, right-of-use assets, investment property, intangible assets and other assets, but exclude financial instruments, deferred income tax assets, assets of retirement/termination benefits and non-current assets generated from insurance contracts.

(IV) Main customer information: The consolidated company does not have a customer that takes up over 10% of its operating revenue.

~113~