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Lida Annual Report 2018

Jul 19, 2019

52404_rns_2019-07-19_f28d3606-7b9e-4ff7-8ced-c6817586b8d2.pdf

Annual Report

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Stock Code：4552

Market Observation Post System：http://mops.twse.com.tw

==> picture [216 x 70] intentionally omitted <==

Lida Holdings Limited

2018

Annual Report

Printed on 04/30/2019

Website：http://www.lidaholdings.com

  1. Company Spokesman

Name: Yi Ping Chen

Title: General Manager Tel.: (86)595-87599588

Email: [email protected] Deputy Spokesman

Name: Sharon Chen

Title: Investor Relations Manager

Tel.: (886)2-2732-8616

Email: [email protected]

  1. Locations of companies and Factories

  2. (1). Headquarters: Lida Holdings Limited

Address: Floor 4, Willow House, Cricket Square, P.O. Box 2582, Grand Cayman KY1-1103, Cayman Islands

Tel: (86)595-87599588

  • (2). British Virgin Islands Subsidiaries

Name: Wellsoon International Limited

Address: 263 Main Street, P.O. Box 2196, Road Town, Tortola, British Virgin Islands

Tel.: (86)595-87599588

  • (3). Hong Kong Subsidiary

Name: Lida (HK) Holdings Co., Limited

Address: Unit 311, 3/F., Camel Paint Centre, NO. 1 Hing Yip Street, Kwun Tong, Kowloon, Hong Kong

Tel.: (86)595-87599588

  • (4). Mainland China Subsidiary

Name: Lida (China) Mechanical and Electrical Co., Ltd.

Address: Quanzhou Taiwanese Investment Zone, Fujian Province, China. Tel.: (86) 595-87599588

Name: Lida (Jiangxi) Mechanical and Electrical Co., Ltd.

Address: North of Guangxing Road, Jiujiang Economic and Technological Development Zone, Jiangxi Province, China, Changhang Public Security, east of the border checkpoint.

1

Tel: (86)792-8228689

  1. Stock Transfer Agency

Name: KGI Securities Co., Ltd. – Stock Agency Department

Tel.: (886)2-2314-8800

Address: 5[th] Floor, No. 2, Section 1, Chongqing South Road, Taipei City. Website: http://www.kgi.com.tw

  1. Accountant

  2. Name: PricewaterhouseCoopers Taiwan

Names of the accounts: Hsien-Cheng Chen and Chin-Mu Hsiao

Address: 27[th] Floor, No. 333, Section 1, Keelung Road, Taipei

Website: www.pwc.tw

  1. The Company’s listed overseas securities: None

  2. Company website: http://www.lidaholdings.com/index. html

2

TABLE OF CONTENTS

I. Letter to Shareholders ...................................................................................... 6 II. Company Profile ............................................................................................. 12 1.Company and Group Profile .................................................................... 12 2. A Brief History of the Company ............................................................. 14 III. Corporate Governance Report .................................................................... 16 1. Organization System ............................................................................... 16 2. Information pf Directors, Supervisors, General Managers, Deputy General Managers, Assistant General Managers and Other Department And Branch Managers ................................................................................................ 18 3. Most Recent Remuneration for Directors, Supervisors, General Managers, Deputy General Managers ...................................................................... 27 4. Corporate Governance Status .................................................................. 33 5. Information on CPA Professional Fees ................................................... 64 6. Information on Replacement of Certified Public Accountant .................. 65 7. Information on Service of the Company’s Chairman, President, and Financial or Accounting Managers at the Accounting Firm or its Affiliates………………………………………………………………..65 8. Any Transfer of Equity Interests and/or Pledge of or Change in Equity Interests (during the most Recent Fiscal Year or during the Current Fiscal Year up to the Date of Publication of the Annual Report) by a Director, Supervisor, Managerial Officer, or Shareholder with a Stake of more than 10 Percent during the most Recent Fiscal year or during the Current Fiscal year up to the Date of Publication of the Annual Report ......................... 65 9. Relationship Information, if Among the Company’s 10 Largest Shareholders Any One is A Related Party or a Relative Within the Second Degree of Kinship of Another................................................................. 66 10. The Total Number of Shares and Total Equity Stake Held in any Single Enterprise by the Company, Its Directors and Supervisors, Mangers, and Any Companies Controlled either Directly or Indirectly by the Company ............................................................................................................... 67 IV. Capital Raising Activities ............................................................................. 68

3

  1. Capital And Shares ................................................................................. 68 2. Corporate Bonds ..................................................................................... 75 3. Preferred Shares ..................................................................................... 75 4. Global Depositary Receipts (Gdr)............................................................... 75 5.Employee Stock Warrants ......................................................................... 75 6. New Restricted Employee Shares............................................................ 75 7. Status Of New Shares Issuance In Connection With Mergers And Acquisitions ............................................................................................... 75 8. Status Of Implementation Of Capital Allocation Plans ........................... 75 V. Operation Highlights ...................................................................................... 76 1. Business Activities ................................................................................. 76 2. Market And Sales Overview ................................................................... 88 3. The Number of Employees Employed for The 2 most Recent Fiscal Years, And During The Current Fiscal Year up to the Date of Publication of The Annual Report, their Average Years of Service, Average Age, and Education Levels .................................................................................. 105 4. Disbursements for Environmental Protection ........................................ 106 5. Labor Relations .................................................................................... 106 6. Important Contracts .............................................................................. 108 VI. An Overview Of The Company’s Financial Status ................................. 111 1. Condensed Balance Sheets And Statements of Comprehensive Income for the Past 5 Fiscal Years ......................................................................... 111 2. Financial Analyses for the Past 5 Fiscal Years ...................................... 114 3. Supervisors’ or Audit Committee’s Report for the Most Recent Year’s Financial Statement .............................................................................. 118 4. Financial Statement for the Most Recent Fiscal Year, Including an Auditor’s Report Prepared by a Certified Public Accountant ................................ 120 5. A Parent Company Only Financial Statement for the Most Recent Fiscal Year, Certified By A CPA .................................................................... 120

4

  1. If The Company or its Affiliates have Experienced Financial Difficulties in the Most Recent Fiscal Year or During The Currnet Fiscal Year up to the Date of Publication of the Annual Report, the Annual Report shall Explain how Said Difficulites will Affect the Company’s Finacial Situation ..... 120 VII. A Review and Analysis of the Company’s Financial Position and Financial Performance, and a Listing of Risks ........................................... 121 1. Financial Position ................................................................................. 121 2. Finacial Performance ............................................................................ 121 3. Cash Flow............................................................................................. 122 4. Major Capital Expenditures During the Most Recent Fiscal Year ......... 123 5. Investment Policy for the Most Recent Fiscal Year, The Main Reasons for the Profits Or Losses, Improvement Plans, and Investment Plans for the Coming Year ........................................................................................ 123 6. Risk Management ................................................................................. 125 7. Other Important Matters ....................................................................... 156 VIII. Special Disclosure ..................................................................................... 157 1. Information Related to the Company’s Affiliates .................................. 157 2. Transaction about the Company’s Private Placement of Securities During the Most Recent Fiscal Year or During the Current Fiscal Year Up to the Date of Publication of The Annual Report ............................................ 158 3. Holding or Disposal of Shares in the Company by The Company’s Subsidiaries during the Most Recent Fiscal Year or During the Current Fiscal Year up the Date of Publication of the Annual Report ................ 158 4. Other Matters that Require Additional Description ............................... 159 5. Significant Issues in the Most Recent Fiscal Year and up to the Date of Publication of the Annual Report which might Affect Shareholders’ Equity or Price of Shares Pursuant to Item 2, Paragraph 3, Article 36 of the Securities Exchange Law ...................................................................... 159 Attachment 1. Auditor’s Report Prepared by a Certified Public Accountant ................................................................................................................. 160

5

I. Letter to Shareholders

Dear Shareholders,

1. Introduction:

The Company was established in the British Cayman Island on May 11, 2012. On August 12, 2013 the Company acquired 100% equity of Wellsoon International Limited to complete the restructuring of the organization. The main businesses of the Company and its subsidiaries (hereinafter collectively referred to as “the Group”) are designs, manufacturing and sales of air compressors.

2. The 2018 Operating Report

(1) Results of 2018 Business Plan Implementation

The Group’s consolidated revenue totaled NT$7,542,981 thousand, which was a decrease of 7.15% compared with the Group’s total revenue of NT$8,123,832 thousand in 2017. The net profit for the period was NT$769,605 thousand, and basic earnings per share were NT$7.70. The Group mainly produces and sells air compressors and market them in China and around the world in its own brands such as Luowei and Lida.

(2) Implementation of the operating revenue and expenditure budget

Unit: NT$ thousand

Items/Year 2017 Actual
8		 2018 Budget
Financial
Revenue and
Expenditure		 Revenue 7,542,981 8,664,140
Gross Profit 1,781,542 2,174,616
Operating Profit 1,241,357 1,593,007
Non-operating revenue and -52,127 21,323
Net profit before tax 1,189,230 1,614,330

6

The Capacity of Financial Revenue and Profitability

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Unit: NT$ thousand
Items/Year 2018 2017
Operating revenues 7,542,981 8,123,823
Gross profit 1,781,542 1,910,269
Financial Revenue and
Operating profit 1,241,357 1,385,923
Expenditure
Non-operating revenue and expenses -52 4,488
Net profit before tax 1,189,230 1,390,411
Shareholders' return on equity(%) 15.07 18.87
Income from Operations 124.14 138.59
Ratio of the paid-
Profitability
in capital(%) Pre-tax benefits 118.92 139.04
Earnings Per Share(TWD) 7.70 9.24
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(3) Asset impairment of Lida (Jiangxi) Electromechanical Co., Ltd.

Lida (Jiangxi) Electromechanical Co., Ltd. was established in 2012, and officially put into operation in 2014. It had been in operation for more than 4 years in 2018. The Company mainly produces and sells piston air compressors to China. The main configuration of the plant and the purchase of equipment are all purchased with a sufficient quantity of piston air compressors, and the production and assembly of the first-stage screw machine began in the past two years.

As the market demand for air compressors has gradually turn towards screw type, he demand for high-end air compressors such as screw type, scroll type and centrifugal type has been continuously improved. The development of screw miniaturization has gradually replaced the trend of piston type; as a result, the capacity utilization rate of the Jiangxi plant has not been increased. The Jiangxi factory is difficult to effectively replicate in high-end talent attraction and high-end production technology. Since the construction of machinery and equipment is mainly in accordance with the piston type, it has suffered losses in the past four years after the production.

7

The Quanzhou investment took place in 2018 which indicated the Lida New Industrial Park shall fully develop the screw application market after completion. Under the agenda of the maximization of the Group’s resource efficiency, the growth of the production efficiency of the Jiangxi plant in the future is somehow unpredictable. Under the overall consideration, a professional appraisal agency was hired to conduct an asset assessment of the property, plant and equipment of the Jiangxi plant. As there was no actual cash outflow, there was no significant impact on working capital and cash flow.

3. The 2019 Business Plan

(1) Operating principles and implementations

The Group develops, manufactures, and sells piston, screw and scroll air compressors of high efficiency, high quality and energy saving with self-operated brands. The products that the Group produces are mainly used in medicine, food, mining, chemical, electronic power, building materials, automobile, steel, furniture, machinery manufacturing and other industries. Since 2000, with the guidance and support of China’s policies, along with China’s transformation to the world’s machinery manufacturing powers, various industries are dedicated to industrial upgrading to improve production efficiency and quality. Highperformance automated pneumatic equipment tools have replaced the large number of labors, which has created a rapid development of China’s air compressor industry. The annual growth rate of air compressors in China has increased 7% in the last five years and the industry’s growth has been steady.

However, since the second half of 2018, due to the slowdown in macroeconomic growth and the Sino-US trade conflict, China’s domestic demand investment has shown an awaiting period which has also affected the weakening of air compressor market demand. To face the global economic outlook and intense completion in the industry,

8

Lida Group grasps the market trend. With years of experience in production and management of air compressors, Lida has adjusted the product line structure and focuses the developments on talents and training, technical research and development capabilities, quality and added value in order to achieve steady progress and development

Since the establishment, the Group has been involved in the R&D and manufacturing of air compressors, which focuses on self- research and development. In terms of production, the Company has successfully improved existing production performance and technology to achieve low-cost and high-quality air compressor production technology capabilities. The Group has consistently maintained the technical development and cooperation relationship of air compressors with various academic and technical units. Since the establishment, production technology and new product development have both taken the lead in the industry. In the future, the Group is expected to develop a new series of F-series energy-saving screw achiness and oil-free screw machines for new product development as well as continue to development different types of models for energy saving, efficiency, noise weight and size to meet different customer demands in the market.

  • (2) 2019 business plan and objectives include

  • i. Develop and upgrade the sales revenue and sales ratio of the new F- series energy-saving screw machines and scroll products, optimize product structure and increase gross profit margin;

    • ii. Accelerate the development for new products and plan to develop oilfree screw machine;

    • iii. Plan a mass production for screw head and stabilize the supply of core components;

    • iv. Further improve high-quality after-sales services, and cooperate with existing mature distributor system and strategic cooperation in order to expand selling locations;

    • v. Further improve corporate governance standards, improve the structure and internal control mechanisms, and form a scientific corporate

9

governance system and management mechanism.

(3) Research and Development Status

Since establishment in 1993, the Group has been engaged in the R&D and manufacturing of air compressors. It has always pursued independent R&D and technical cooperation to develop its own technology. In terms of production, it has successfully improved existing production efficiency and technology to achieve low-cost but high-quality air compressor production technology capabilities. The Group has consistently sustained the technical development and cooperation relationship of air compressors with a number of academic and technical units. Since the establishment, production technology and new product development have both taken the lead in the industry. The Group is expected to develop a new series of F-series energy-saving screw machines and oil-free screw machines for new product research and development in the future. It shall continue to develop different types of models for energy saving, efficiency, noise, weight and size to meet the different customer demands in the market.

Future Lida R&D focuses on

  • (1) Vertical integration of key components: Screw machines are becoming more and more popular and the application of highhorsepower, special specifications, and small horsepower economical models continue to replace traditional piston air compressors. The main engine is the most important core component of screw machines, independent R&D is an urgent task.

  • (2) Diversified development of high-end products: Lida has always adhered to the customer demand for product development, and with the continuous promotion of national energy conservation policies, air compressor product application areas and customer needs are increasingly diversified, and it is expected to develop E series high efficiency. Energy-saving screw machines, low-

10

pressure screw machines, and oil-free screw machines continuously develop different types of models for energy saving, efficiency, noise, weight and size to meet the customer demands in the market.

I wish you all good health and successful career.

Chairman: Chien-Leng Wu General Manager: Yi-Ping Chen Chief Financial Officer: Rea Huang

11

II. Company Profiles

1. Company and Group Profile

(1). Date of Establishment and Group Profile

Lida Holdings Limited (hereinafter referred to as “the Company” or “Lida Company”) is a holding company that established in the British Cayman Islands (hereinafter referred to as “Cayman”) on May 11, 2012. Its subsidiaries include Wellsoon International Limited (a holding company) registered in the British Virgin Islands, Lida (Hong Kong) Holdings Co., Ltd. (a holding company) registered in Hong Kong, and Lida (China) Mechanical and Electrical Co., Ltd. and Lida (Jiangxi) Machine Equipment Company Ltd., both registered in Mainland China. The main operating subsidiaries of the Company are Lida (China) Machine Equipment Company Ltd. and Lida (Jiangxi) Mechanical and Electrical Co., Ltd.

The Company’s main businesses are the designs, manufactures and sales of mechanical and electrical products such as air compressors, electric welders and power tools. The products are mainly divided into three categories – piston compressors, screw air compressors and scroll air compressors. We have established an extensive market from the distributors throughout Mainland China. In addition, we also import to other countries through numerous distributors from all over the world.

The Company’s management team has vast experience in the air compressor industry, together with the main brand “Luowei” and along with other own brands selling across Mainland China. The Company has successively won numerous honorary titles such as China Quality Miles Quality Designation Unit and the National Ministry of Agriculture’s National Brand Key Enterprise, Fujian Star Overseas Chinese Enterprise, and China Commodity Trading Center

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Standardized Management Quality Standard Advance Enterprise. It has also passed the ISO9001 Quality Management System Certification. Our products have received the National General Mechanical Product Certification, China Compulsory Certification (CCC) while some products received CE, GS, CSA, CUSA certification on quality. Our brand has also won grand titles including China’s Well-known Trademark, Fujian’s Export Famous Brand, Famous Product Brand of Fujian Province and Fujian’s Famous Trademark.

(2) Structure of the Group

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

LIDA HOLDINGS LIMITED
100%
Wellsoon International Limited
100%
Lida (HK) Holdings Co., Limited
100%
Lida (China) Machine Equipment
Company Limited 100%
100%
Lida (Jiangxi) Machine Equipment
Company Limited
----- End of picture text -----

13

2. A Brief History of the Company

Year
1993
October, 1998
November, 1997
October, 1999
March, 2001
June, 2004
November, 2006
June, 2009
September, 2009
December, 2008
September, 2010
December, 2010		 Important Events
Started in air compressor industry.
Established domestic-funded enterprise “Fujian Province Quanzhou
Lida Machinery Co., Ltd.”.
“Luowei” trademark registration.
“Lida” trademark registration.
Established Sino-foreign equity joint venture “Fujian Province
Quanzhou Yida Machine Equipment Company Ltd.”.
“Luowei” received “Famous Product Brand of Fujian Province”.
Reorganization of “Luowei” for “China’s well-known Trademark”.
Established “Lida” (Hong Kong) Holdings Co., Limited.
Established “Wellsoon International Limited” in British Virgin
Islands.
Lida received “Famous Product Brand of Fujian Province”.
Lida (Hong Kong) acquired 100% equity interest of Fujian Province
Quanzhou Yida Machine Equipment Company Limited in cash; this
transaction is a restructuring of the organization within the group.
Changed its name to “Lida (China) Machine Equipment Company
Limited”.

  • February, 2012 Investment in the establishment of “Lida(Jiangxi) Machine Equipment Company Limited”.

  • May, 2012 Primary listing “Lida Holdings Limited” applied and established in the Cayman islands.

  • March, 2013 Wellsoon International acquired 100% equity of Lida (Hong Kong) in the form of share swap; this transaction is a restructuring of the organization within the group

  • August, 2013 Primary listening “Lida Holdings Co., Ltd.” applied 100% equity of Wellsoon International Co., Ltd. with a ratio of 1,551:1.

  • September, 2013 Lida Holdings Co., Ltd. issued a 5-year secured corporate bond with an equity warrant share capital of USD$20,000.

14

Year
February, 2014
May, 2014
June, 2014
July, 2014
July, 2016
February, 2017
June, 2017
May, 2018
July, 2018
August, 2018		 Important Events
The denomination of Lida Holdings Co., Ltd. was changed from
USD$1 to NT$$10. After conversion, the company actually issued
46,554,084 common stocks, with a par value of NT$$10.00 per share
and a total share capital of NT$$465,540,840.
Capital surplus to capital increase, the number of shares increased by
29,910,916 shares.
Bonds with attached warrant were converted into share capital, and
the number of shares increased by 13,455,000 shares. The total of the
converted share capital was NT$$900,000,000.
Jiangxi Lida factory officially opened.
For the initial public offering of cash increase, the number of shares
increased by 10,000,000 shares, the total share capital of
NT$$1,000,000,000, and was officially listed on the Taiwan Stock
Exchange.
Lida Holdings Co., Ltd. started margin trading on February 6, 2017.
Passed the investment plan for producing screw head.
Budget was approved for the construction of Quanzhou Lida New
Industrial Park plant.
The screw head production plan was officially launched for
preliminary mass production.
The build of Lida New Industrial Park plant officially started.

15

III. Corporate Governance Report

  1. Organization System

  2. (1) Organization Structure

==> picture [416 x 243] intentionally omitted <==

(2) Department functions

Department Functions
Board of Directors Establishes polices and goals based on business sales
management and targets.
Audit Committee Supervises company business and financial status,
oversees financial statements and effectively control
internal rules.
Compensation
Committee		 Establishes polices, systems, standards and structures
of the board of directors and managers, regularly
evaluate their performance and decide on
remuneration.
Audit Room Audits internal rules and regulations, and makes
proposals for improvement.
Management Office In charge of employees’ benefits, administrative
affairs, operational management, health and safety,
hardware system and software purchases and their

16

maintenance. Help arrange board and shareholders’
meetings.
Materials Office Compose purchase plans, orders and manage suppliers
when needed and oversees the warehouses.
Research and
Development Office		 Design, develop and improve different air
compressors. Develops business and make plans based
on market researches, collect information on market
analysis.
Sales Office Sets goals for product sales and execute them
effectively. Oversees product sales and plans for
collection of payments. Strive for after-sales service.
Production Office Produces air processors and manages quality the
products.
Finance Office Handles financial planning and scheduling,
accounting, investments and business performances
analysis.

17

  1. Information of Directions, Supervisors, General Managers, Deputy General Managers, Assistant General Managers and other Departments and Branch Managers

  2. (1) Information of Directors and Supervisors

i. Information of Directors

April 15, 2019

April 15, 2019 April 15, 2019 April 15, 2019
Title National
ity or
Place of
Registrat
ion		 Name Gender Date
First
Elected		 Elected
Date		 Term Shareholding
when
Elected		 Current
Shareholding		 Spouse &
Minor
Current
Shareholding		 Current
Shareholding
in the name of
others		 Experience (Education) Current Positions at the
Company and Other
Companies		 Executives, Directors or
Supervisors who are spouses
or within two degrees of
kinship
Shares Ratio Shares Ratio Shares Ratio Shares Ratio Title Name Relation
s
Chairman BVI Yi Yuan
Enterprise
s Limited		 2014.09.
28		 2017.06.
13		 3 31,500 31.50 31,500 31.50 － － － － Oriental Institute of
Technology, majored in
Electrical Engineering
General Manager of
Yida Household
Appliance Industry Co.,
Ltd, Quanzhou
Deputy General Manager
of Lun Dar (holding)
Electric Co., Ltd,
Taiwan
Assistant general
manager of Home
Appliances Division of
Tsann Kuen Enterprise
Co., Ltd, Taiwan
Technical Manager of
Sanyo Electric Co., Ltd,
Taiwan		 Director of Wellsoon
International Limited
Director of Lida (HK)
Holdings Co., Limited
General Manager of
Quanzhou Yida House
Appliance Industry Co., Ltd
Chairman of HKTDC Co., Ltd
Chairman of Ka Hang
Development International
Limited
Chairman of Yi Yuan
Enterprises Limited		 － － －
Taiwan Representa
tive:
Chien-
Leng Wu		 Male － － － － － － － － － － －
Director BVI Gain
Fortune
Developm		 2014.02.
19		 2017.06.
13		 3 16,440 16.44 16,440 16.44 － － － － Huinan High School Chairman of Lida(China)
Machine Equipment Company
Limited, Chairman of Lida		 － － －

18

Title National
ity or
Place of
Registrat
ion		 Name Gender Date
First
Elected		 Elected
Date		 Term Shareholding
when
Elected		 Shareholding
when
Elected		 Current
Shareholding		 Current
Shareholding		 Spouse &
Minor
Current
Shareholding		 Spouse &
Minor
Current
Shareholding		 Current
Shareholding
in the name of
others		 Current
Shareholding
in the name of
others		 Experience (Education) Current Positions at the
Company and Other
Companies		 Executives, Directors or
Supervisors who are spouses
or within two degrees of
kinship		 Executives, Directors or
Supervisors who are spouses
or within two degrees of
kinship		 Executives, Directors or
Supervisors who are spouses
or within two degrees of
kinship
Shares Ratio Shares Ratio Shares Ratio Shares Ratio Title Name Relation
s
ent
Limited		 (Jiangxi) Machine Equipment
Company Limited
China Representa
tive: Da-
Ping
Huang		 Male － － － － 64 0.06
%		 － － － － －
Director BVI Leo
Holdings
Investment
Limited		 2014.02.
19		 2017.06.
13		 3 12,455 12.46 1,172 1.17 － － － － Bachelor’s degree of
university of Toronto,
Canada
Prime PartnersAsset
Management Group
Investment Director
Cazenove Capital Asia
Investment Bank		 Excelsior Capital Asia
Investment Partner		 － － －
Hong
Kong		 Representa
tive: John
Yang		 Male － － － － － － － － － － －
Director Hong
Kong		 Johnny
Kong		 Male 2014.09.
28		 2017.06.
13		 3 － － － － － － － － Hong Kong Polytechnic
University –Bachelor
degree of Global Supply
Chain Management
American Registered
Logistician		 Oriental Partner Limited
Senior Trading Manager		 － － －
Independe
nt Director		 Taiwan Chia Ying
Ma		 Male 2014.02.
19		 2017.06.
13		 3 － － － － － － － － PhD in Accounting,
Lehigh University, USA
Professor in Accounting
Department, Soochow
University		 Director of San Chih
Semiconductor Company
Director of Tatung Fine
Chemicals Company
Institutional Shareholder
Representative of Union
Insurance (share) Company
Independent Director of
Medeon Biodesign Limited
Independent Director of
Dinghan TechnologyLimited		 － － －

19

Title National
ity or
Place of
Registrat
ion		 Name Gender Date
First
Elected		 Elected
Date		 Term Shareholding
when
Elected		 Shareholding
when
Elected		 Current
Shareholding		 Current
Shareholding		 Spouse &
Minor
Current
Shareholding		 Spouse &
Minor
Current
Shareholding		 Current
Shareholding
in the name of
others		 Current
Shareholding
in the name of
others		 Experience (Education) Current Positions at the
Company and Other
Companies		 Executives, Directors or
Supervisors who are spouses
or within two degrees of
kinship		 Executives, Directors or
Supervisors who are spouses
or within two degrees of
kinship		 Executives, Directors or
Supervisors who are spouses
or within two degrees of
kinship
Shares Ratio Shares Ratio Shares Ratio Shares Ratio Title Name Relation
s
Independent Director of
United Alloy-tech Company
Independe
nt Director		 Taiwan Ling Fang
Huang		 Male 2014.05.
22		 2017.06.
13		 3 － － － － 4 0.00
%		 － － Master Degree in Law,
National Chengchi
University
Lawyer of Xinyang Law
Firm
Lawyer of DeYao Law
Firm		 Lawyer of Cheng & Ku Law
Firm
Independent Director of
Pharmally International
Holding Company Limited		 － － －
Independe
nt Director		 Taiwan Kelvin
Shen		 Male 2015.03.
25		 2017.06.
13		 3 － － － － － － － － Master Degree in
Management of Fu Jen
Catholic University
Investment Assistant
general manager of
Zhirong Brand
Manage,emt Consulting
Company.
Investment Manager of
Chengxin Ventures Co.,
Limited		 Director of Thermaltake
Technology Company
Director of China
Development Financial		 － － －

20

Name Criteria
Name		 Meet One of the Following Professional Qualification
Requirements, Together with at Least Five Years Work Experience		 Meet One of the Following Professional Qualification
Requirements, Together with at Least Five Years Work Experience		 Meet One of the Following Professional Qualification
Requirements, Together with at Least Five Years Work Experience		 Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Number of
Holding
Concurrent
Independent
Director
Position in
Other Public
Companies		 Note
An Instructor or
Higher Position in a
Department of
Commerce, Law,
Finance, Accounting,
or Other Academic
Department Related
to the Business Needs
of the Company in a
Public or Private
Junior College,
College or University		 A Judge, Public
Prosecutor, Attorney,
Certified Public
Accountant, or Other
Professional or
Technical Specialist
Who has Passed a
National Examination
and been Awarded a
Certificate in a
Profession Necessary
for the Business of
the Company		 Have Work
Experience in the
Areas of Commerce,
Law, Finance, or
Accounting, or
Otherwise Necessary
for the Business of
the Company		 1 2 3 4 5 6 7 8 9 10
Independent
Director
Chia Ying
Ma		 v v v v v v v v v v v 3
Independent
Director
Ling Fang
Huang		 v v v v v v v v v v v v 1
Independent
Director
Kelvin
Shen		 v v v v v v v v v v v 0

Note: The Directors and Supervisors comply with the following conditions from two years before being elected and

appointed, and during his term of office, please tick the appropriate corresponding boxes.

(1) Not an employee of this Company or its affiliates.

(2) Not a Director or Supervisor of the Company or its affiliates (however, this does not apply, in case where the person is

21

an Independent Director of the Company or its parent company, subsidiary are set up according to this Act of local country ordinances).

  • (3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of one percent or more of the total number of outstanding share of the Company or ranking in the top ten in holdings.

  • (4) Not a spouse, second-degree relative or third-degree relative of those listed in the above three items.

  • (5) Not a director, supervisor, or employees of a corporate shareholder that directly holds five percent or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.

  • (6) Not a director, supervisor, manager or a shareholder holding five percent or more of the shares of a company or institution that has a business or financial relationship with the Company.

  • (7) Not a professional individual who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. These restrictions do not apply to any member of the remuneration committee who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Remuneration Committees of Companies whose Stock is Listed on the TWSE or Traded on the TPEx”.

22

  • (8) Not having a marital relationship, or a relative within the second degree of kinship or any other director of the

    • Company.

  • (9) Not been a person of any conditions defined in Article 30 of the Company Law.

  • (10) Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

  • ii. Supervisor: The Company has an Audit Committee, therefore there are no supervisors.

  • iii. Major shareholders of institutional shareholders：

April 15, 2019

Name of Institutional Shareholder Major Shareholders
Yi Yuan Enterprises Limited Gain Harvest Development Limited
Gain Fortune Development Limited Nina Luo
LEO HOLDING INVESTMENT LIMITED Excelsior Capital Asia Partners Ⅳ L.P.

23

April 15, 2019

iv. Major shareholders of the Company’s major institutional shareholders:

April 15, 2019
Name of Institutional
Shareholders		 Major Shareholders
Gain Harvest Development
Limited		 Chien-Leng Wu, Mei-Man Wuchen, Tzung-Han Wu
Excelsior Capital Asia
Partners Ⅳ L.P.		 Nakhoda III Holdings Limited(22.22%)、SFT Asset Plays LLC(17.78%)、
South Yorkshire Pensions Authority(11.11%)

24

  1. Information of Directors, Supervisors, General Managers, Deputy General Managers, Assistant General Managers and other Department and Brach Managers:
Title Name Natio
nality
Gender		 Elected Date Shareholdi
ng		 Shareholdi
ng		 Spouse &
Minor Current
Shareholding		 Spouse &
Minor Current
Shareholding		 Current
Shareholding
in the name
of others		 Current
Shareholding
in the name
of others
Experience (Education)		 Current Positions at the Company and
Other Companies		 Executives, Directors
or Supervisors who are
spouses or within two
degrees of kinship		 Executives, Directors
or Supervisors who are
spouses or within two
degrees of kinship		 Executives, Directors
or Supervisors who are
spouses or within two
degrees of kinship
Employe
e Stock
Warrant
s for
Manager
s

Share		 Ratio Share Ratio Share Ratio
Title		 Name Relatio
nship
General
Manager		 Yi Ping
Chen
China		 Male 2014.01.02 － － － － － － Bachelor of Fujian Normal University
Deputy general manager of Lida (China)
Machine Equipment Company Limited		 General manager of Lida (China)
Machine Equipment Company
Limited
General manager of Lida (Jiangxi)
Machine Equipment Company
Limited
Supervisor of Jiujiang Yida Real
Estate Co., Ltd.		 － － － －
Chief
Financial
Officer		 Rea
Huang		 China Male 2018.03.26 － － － － － － Jimei University School of Finance and
Economics
Chinese CPA and tax agent
Finance director of Tianshou (Fujian)		 CFO of Lida (China) Machine
Equipment Company Limited
CFO of Lida (Jiangxi) Machine
Equipment Company Limited		 － － － －

25

Microfiber Technology Co., Ltd.
Senior
Manager
in
Managem
ent		 Xiao-
Ling
Huang		 China Female 2017.03.24 Graduated from Huinan high school － － － － －
Sales
Manager		 Jie-Kun
Jiang
China		 Male 2009.08.18 － － － － － － Graduated from Xiujiang high school,
Quanzhou Taiwanese Investment Zone		 － － － －
Technical
Director		 Zong-
Hong
Wu		 Taiw
an		 Male 2012.01.02 － － － － － － Technical director of Taiwan Mingtyan
Iron Works Co., Ltd.		 － － － － －
Audit Tony
Chang		 Taiw
an		 Male 2014.01.02 － － － － － － Master of Accounting of Soochow
University
Taiwanese CPA
CPA of Deloitte		 － － － － －

26

3. Most Recent Remuneration for Directors, Supervisors, General Managers, Deputy General Managers

  • (1) Remunerations of Directors (including independent directors)

Unit: NT$ thousand, %

Unit: NT$ Unit: NT$ thousand, %
Title Name Directors Compensation Ratio of Total
Remuneration
(A+B+C+D) to
Net Income (%)		 Relevant remuneration received by directors who are also
employees		 Ratio of total
compensation
(A+B+C+D+E+F
+G) to net
income (note 1)		 Compensat
ion paid
from an
invested
company
other than
the
Company’
s
subsidiary
Base
Compensatio
n（A）		 Severance
Pay
（B）		 Directors
Compensatio
n（C）		 Allowance
s（D）		 Salary,
Bonuses and
Allowances
（E）		 Severance
Pay（F）		 Employee Compensation（G）
The
Co
mpa
ny		 All
compa
nies in
the
consol
idated
financ
ial
statem
ent		 T
h
e
C
o
m
p
a
n
y		 All
compa
nies in
the
consol
idated
financ
ial
statem
ent		 T
h
e
C
o
m
p
a
n
y		 All
compani
es in the
consolid
ated
financial
statemen
t		 T
h
e
C
o
m
p
a
n
y		 All
compa
nies in
the
consol
idated
financ
ial
statem
ent		 The
Co
mpa
ny		 All
compani
es in the
consolid
ated
financial
statemen
t		 Th
e
Co
m
pa
ny		 All
compa
nies in
the
consol
idated
financ
ial
statem
ent		 Th
e
Co
m
pa
ny		 All
compa
nies in
the
consol
idated
financ
ial
statem
ent		 The Company All
companies
in the
consolidated
financial
statement		 The
Co
mpa
ny		 All
companies
in the
consolidat
ed
financial
statement
Cash Stock Cas
h		 Stoc
k

27

Chairman Yi Yuan
Enterprises
Limited
Representative:
Chien-Leng Wu		 － 2,004 － － － － － 192 － 0.29% － － － － － － － － － 0.29% None
Director Gain Fortune
Development
Limited
Representative:
Da-Ping Huang
Director LEO HOLDING
INVESTMENT
LIMITED
Representative:
John Yang
Director Johnny Kong
Independen
t Director		 Chia Ying Ma

28

Independen
t Director		 Ling Fang
Huang
Independen
t Director		 Kelvin Shen

Note 1: Based on the current net profit of the 2018 consolidate income statement by verified accounts.

Range of remuneration Names of Directors Names of Directors Names of Directors Names of Directors
Total of (A+B+C+D) Total of ( (A+B+C+D+E+F+G)
The Company All companies in the
consolidated financial
statement		 The Company All companies in the
consolidated financial
statement
Under NT$2,000,000 Chia Ying Ma, Ling Fang
Huang,Kelvin Shen		 Chia Ying Ma, Ling Fang
Huang,Kelvin Shen		 Chia Ying Ma, Ling Fang
Huang,Kelvin Shen		 Chia Ying Ma, Ling Fang
Huang,Kelvin Shen
NT$2,000,000 (included)～NT$5,000,000 (excluded)
-		 - - -
NT$5,000,000 (included)～NT$10,000,000
(excluded)		 - - - -
NT$10,000,000 (included)～NT$15,000,000
(excluded)		 - - - -
NT$15,000,000 (included)～NT$30,000,000
(excluded)		 - - - -
NT$30,000,000 (included)～NT$50,000,000
(excluded)		 - - - -
NT$50,000,000 (included)～NT$100,000,000
(excluded)		 - - - -
Over NT$100,000,000 - - - -
Total 3 3 3 3

(2) Remunerations of Supervisors: The Company does not have a supervisor; therefore it is not applicable here.

29

(3) Remunerations of General Manager and Deputy General Manager

Unit: NT$ thousand

Unit: NT$ Unit: NT$ thousand
Title Name Salary（A） Severance
Pay（B）		 Bonus and
Allowance
s（C）		 Employee Compensation（D） Ratio of
Total
Remunerat
ion
(A+B+C+
D) to Net
Income
(note 1)		 Obtain
employee
stock		 Obtain
restricted
stock		 Compen
sation
paid
from an
invested
compan
y other
than
the
Compan
y’s
subsidia
ry
T
h
e
C
o
m
p
a
n
y		 All
companie
s in the
consolidat
ed
financial
statement		 T
h
e
C
o
m
p
a
n
y		 All
companie
s in the
consolidat
ed
financial
statement		 T
h
e
C
o
m
p
a
n
y		 All
companie
s in the
consolidat
ed
financial
statement		 The Company All companies in
the consolidated
financial
statement		 T
h
e
C
o
m
p
a
n
y		 All
companie
s in the
consolidat
ed
financial
statement		 T
h
e
C
o
m
p
a
n
y		 All
companie
s in the
consolidat
ed
financial
statement		 T
h
e
C
o
m
p
a
n
y		 All
compa
nies in
the
consoli
dated
financi
al
stateme
nt
Cash Stock Cash Stock
General
Manager		 Yi Ping Chen － 2,275 － 177 － 160 － － 812 － － 0.44% － － － － None
CFO Rea Huang

Note 1: Based on the current net profit of the 2018 consolidate income statement by verified accounts.

30

Range of remuneration paid to general managers
and deputy general managers		 Names of general manager and deputy general manager Names of general manager and deputy general manager
The Company All companies in the consolidated financial
statement
Under NT$2,000,000 - Yi Ping Chen, Rea Huang
NT$2,000,000(included)～NT$5,000,000(excluded) - -
NT$5,000,000(included)
～
NT$10,000,000(excluded)		 - -
NT$10,000,000(included)
～
NT$15,000,000(excluded)		 - -
NT$15,000,000(included)
～
NT$30,000,000(excluded)		 - -
NT$30,000,000(included)
～
NT$50,000,000(excluded)		 - -
NT$50,000,000(included)
～
NT$100,000,000(excluded)		 - -
Over NT$100,000,000 - -
Total - 2

31

Employees’ profit sharing granted to the management team

Ratio of total amount to pure
Title Name Stock Cash Total
profits after tax (%)
Yi Ping
General manager
Chen
Zong-Hong
Technical director
Wu
Chief Financial Yun-Xiang
Officer Huang
Manager 0.00 1,740,596 1,740,596 0.23
Senior manager in Xiao-Ling
Management Huang
Jie-Kun
Sales Manager
Jiang

  • (4) Analysis of the proportion of the total remuneration of directors, supervisors, general managers and deputy general managers of the Company paid the Company and all companies in the consolidated financial statement to net profit after tax in individual financial statements of the recent two years. Explanation of remuneration policies, standards and packages, the procedure for determining remuneration, and its linkage to operating performance and future risk exposure:

  • i. Analysis of the proportion of the total remuneration of directors, supervisors, general managers and deputy general managers of the Company paid the Company and all companies in the consolidated financial statement to net profit after tax:

Title 2017 2017 2018 2018
Amount % Amount %
Directors 1,838 0.20 2,196 0.29
General managers and
deputy general managers		 3,668 0.40 3,424 0.44
Total 5,506 0.60 5,619 0.73

32

  • ii. Explanation of remuneration policies, standards and packages, the procedure for determining remuneration, and its linkage to operating performance and future risk exposure: The remunerations paid to general managers and deputy general managers are based on their position, qualifications, performance, responsibilities, and contribution to the Company. According to the Company salary system criteria, the calculation is also referred to the industrial level. The remuneration is paid with the approval of the committee at the Company’s operating performance and future risk.

4. Corporate Governance Status

  • (1) The state of operations of the board of directors

The board of directors has held 6 meetings in the fiscal year of 2018; the attendance of directors is as shown below:

Title Name In-person
Attendance		 By
proxy		 In-person
Attendance Rate
(%)		 Remark
s
Chairman Chien-LengWu 6 0 100% None
Director Da-PingHuang 4 2 66.67% None
Director LEO HOLDING
Representative: John Yang		 6 0 100% None
Director JohnnyKong 5 0 83.33% None
Independe
nt
Director		 Chia Ying Ma 6 0 100% None
Independe
nt
Director		 Kelvin Shen 6 0 100% None
Independ
ent
Director		 Ling Fang Huang 6 0 100% None

33

Other matters to be recorded

  1. During operations of the Board of Directors, the meeting date, period, content, qualified opinion and resolution made by any independent director should be specified.

  2. (1) Matters specified in Article 14.3 of the Taiwan Securities and Exchange Act: None

Other Independent Directors who expressed opposition or qualified opinions that were recorded or declared in writing as: None

  1. To avoid conflict of interest among directors, the Director’s name, meeting content, and reason for avoiding conflict of interest and participation in the voting process must be properly recorded: None

  2. Strengthening the functions of the board in the current and recent fiscal years (e.g. establishing the Audit Committee, promoting information transparency, etc.) and conducting performance assessment:

  3. (1) In order to improve the functions of the Board of Directors and establish achievement targets to enhance efficiency, the Company has approved the “Regulations on Board Meetings” as a guideline for the operation of the Board of Directors, and has elected three independent directors through the shareholders’ meeting. The Company has established an audit committee and salary compensation committee to further improve the corporate governance structure.

  4. (2) The Company has a dedicated spokesperson and deputy spokesperson and has designated people for collection and disclosure of information. The Company also has planned to establish a public information network reporting operation system to ensure that information that may affect the decision-making of shareholders and stakeholders can be promptly disclosed.

  5. (2) The state of operations of the audit committee or the state of participation in board meetings by the supervisors：

The Audit Committee has held 5 meetings in the fiscal year of 2018; the attendance of directors is as shown below:

34

Title Name In-person
Attendance		 By proxy In-person Attendance
Rate(%)		 Remarks
Independent
Director		 Chia Ying Ma 5 0 100% None
Independent
Director		 Kelvin Shen 5 0 100% None
Independent
Director		 Ling Fang Huang 5 0 100% None
Other matters to be recorded:
1. While carrying out its operations, the Audit Committee must report the meeting date of the
Board of Directors, period, content, and results of the Audit Committee’s resolutions.
(1) Matters specified in Article 14.5 of Taiwan Securities and Exchange Act: None
(2) There were no resolutions rejected by the Audit Committee; two thirds or more directors
gave their approval.
2. There was no recusal by any independent director for conflict of interest.
3. Communication between independent directors and internal auditors (which should include
audit materials, methods, and results pertaining to corporate finances and/or operations,
etc.):
The Company evaluates the operating effectiveness of its internal control system based on
the criteria provided in the Regulations Governing the Establishment of Internal Control
System by Public Companies. It also set up an internal audit unit directly affiliated with
the board of directors. The Company’s audit unit prepares the annual internal audit plan
according to the regulations of the competent authority. After the completion of the
monthly audit report, the chairman and the independent directors shall be audited and the
internal audit business report is made to the board of directors. Therefore, the chairman,
independent directors and the board of directors of the Company will have a fair idea on the
implementation of the internal control system. In addition, because the independent
directors regularly review the financial statements of the Company, they also communicate
with the accountant when necessary and help the relevant departments of the Company to
improve.

35

(3) The state of the Company’s implementation of corporate governance, any departure of such implementation from the Corporate

Governance Best-Practice Principles for TWSE/TPEx Listed Companies and the reason for any such departure:

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
1. Does the Company establish and disclose the
Corporate
Governance
Best-Practice
Principles based on “Corporate Governance
Best-Practice Principles for TWSE/TPEx
Listed Companies”?



✓		 The Company has based on the “Corporate Governance
Best-Practice Principles” through the board of directors
and
adhered
to
the
principle
of
safeguarding
shareholders’ rights and strengthening the functions of
the board of directors. Respect the interests of
stakeholders and improve the transparent information.
The Company has also set up relevant corporate
governance regulation such as “Rules of the Board of
Directors”, Organization Rules for the Compensation
Remuneration
Committee”,
“Directors
Election
Measures”, “Administrative Measures for the Prevention
of Internal Transactions”, “Internal Audit Management
Measures”, “Ethical Code of Conduct”, “Code of
Integrity” and “Corporate The Code of Practice for













No difference

36

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
Social Responsibility”, the Board of Directors also
follows the responsibilities assigned by shareholders to
help the Company’s operations and effectively supervise
the management functions of each department. After
the public release in the future, the company will disclose
the Company’s major information in accordance with
relevant laws and regulations, and periodically disclose
financial and non-financial information.





2. Shareholding structure & shareholders’ rights
(1) Does the company establish an internal
operating procedure to deal with
shareholders’ suggestions, doubts,
disputes and litigations, and implement
based on the procedure?		 ✓ (1) The Company has appointed a dedicated
shareholders service agency to handle the
shareholding matters in Taiwan and a spokesperson
for shareholders’ proposals. The relevant internal
operating procedures will be set up to deal with
shareholders’ suggestions, doubts, disputes and
litigation matters.		 No difference

37

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
(2) Does the company possess the list of its
major shareholders as well as the ultimate
owners of those shares?
(3) Does the Company establish and execute
the risk management and firewall system
within its conglomerate structure?
(4) Does the Company establish internal
rules against insiders trading with
undisclosed information?
✓
✓
✓		 (2) The Company monitors the directors, general
manager and shareholders who hold more than 10%
of the shares.
(3) The Company has established a relevant control
mechanism in accordance with the Company’s
internal control system and the management of
related persons.
(4) The Company has established an Insider Trading
Policy to prohibit insiders from using market
undisclosed information to buy or sell securities.		 No difference
No difference
No difference
3. Composition and Responsibilities of the Board of
Directors
✓		 (1) The composition of the board of directors of the
No difference

38

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
(1) Does the Board develop and implement a
diversified policy for the composition of its
members?
(2) Does the Company voluntarily establish
other functional committees in addition to
the Remuneration Committee and the
Audit Committee?
(3) Does the Company establish a standard to
measure the performance of the Board, and
implement it annually?





✓
✓		 Company is based on its own operations, operation
patterns, and development needs. It is composed of
corporate leaders, business management experts,
investment experts, legal experts and financial
accounting experts.
(2) The Company currently has a compensation
committee and an audit committee at present.
Other functional committees will be established
according to actual needs in the future.
(3) The Company will establish rules and procedures for
the Board of Directors’ performance assessment to
evaluate performance according to its actual needs
in the future.






Other functional committees
will
be
established
according to actual needs in
the future.



The Company will establish
rules
and
procedures
according to its actual needs
in the future.
(4) Does the Company regularly evaluate the ✓ (4) The Company’s CPAs are a large Taiwan accounting No difference

39

Items
independence of CPAs?		 Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
firm, and checks the financial status of the Company
according to laws and regulations and was deemed
independent and suitable.
4. As a TWSE/TPEx listed company, does the
Company
have
set
corporate
governance
(concurrent) unit or personnel in responsible for
the concerned affairs (including but not limited
to offering necessary materials for the directors
and supervisors, executing matters pursuant to
board of directors’ resolutions, executing the
corporate registration and change of registration,
proceedings for the board of directors and
shareholder meetings and so on)








✓		 The Company has not set up a corporate governance
(concurrent) unit yet but has offered necessary materials
on handling matters, such as executing matters pursuant
to board of directors’ resolutions, executing the
corporate registration and change of registration,
proceedings for the board of directors and shareholder
meetings.





No difference

40

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
5. Does the Company establish communication
channels and dedicate section for stakeholder
(including but not limited to the shareholders,
employees, clients and suppliers) on its website
to respond to important issues of corporate social
responsibility concerns?




✓		 The Company maintains good communication channels
with its correspondents, suppliers and other stakeholders
and has designated people to handle matters of the
Company’s external relations and with stakeholders.
The Company has set up a stakeholder area on its website
to properly respond any concerns there might appear.




No difference
6. Does the Company appoint a professional
shareholder
service
agency
to
deal
with
shareholder affairs?

✓		 The Company has appointed a professional shareholders
service agency in Taiwan to handle shareholder affairs
and matters related to the shareholders’ meetings.

No difference
7. Disclosure of information
(1) Does the Company have a corporate website
to disclose both financial standings and the
status of corporate governance?
(1) The Company has set up a corporate website and will
continue disclose information related to the
Company.

No difference

41

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
(2) Does the Company have other information
disclosure channels (e.g. building an
English website, appointing designated
people to handle information on collection
and disclosure, creating a spokesperson
system, webcasting investor conferences)?




✓		 (2) The Company has designated people to handle
information on collection and disclosure, and
implement a spokesperson system.

No difference
8. Is there any other important information to
facilitate a better understanding of the
Company’s corporate governance practices
(e.g., including but not limited to employee
rights, employee wellness, investor relations,
supplier relations, rights of stakeholders,
directors’ and supervisors’ training records,
the implementation of risk management
policies and risk evaluation measures, the
implementation of customer relations policies,









✓		 (1) Interests and rights of employees: The employee
handbook and the Company’s welfare policy are
clearly stated in accordance with the law with
employees’ rights, obligations and benefits in order
to safeguard their rights and interests.
(2) Care for employees: Social insurance is provided
according to the relevant regulations of the local
government
to
ensure
employees’
welfare.
Regularly organize gatherings and recreation and
other activities in order to balance theirphysical and








No difference

42

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
and purchasing insurance for directors and
supervisors)?		 mental health.
(3) Investor relations: Keep smooth communication
channels with investors, suppliers and stakeholders
and maintain their legitimate rights and interests.
(4) Supplier relationship: The Company maintains good
relations with suppliers at all times and have
established Supplier Manager Policy.
(5)
Relationship
with
stakeholders:
Stakeholders
communicate with the Company and give proposals
to protect their legal rights and interests.
(6) Continuing education opportunities for directors and
supervisors: The directors of the Company have all
participated in corporate governance related courses,
and there are no supervisors.
(7) Implementation of risk management policy and risk
measurement standards: Various internal regulations









43

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
are created for risk management and evaluation, and
are carried out to prevent and reduce any possible
risks.
(8) Implementation of customer policies: There is a
specific department for handling customer enquiries
and complaints.
(9) Liability insurance for the Company’s directors and
supervisors: Liability insurance is covered for
directors.




9. According to the latest result of the Corporate
Governance
Evaluation
System
by
the
Corporate Governance Center of TWSE,
explains the amendments or propose the
priority measurements to the items which have
not been improved (unnecessary for the
excluded companies):





✓		 The
Company
carries
out
corporate
governance
assessments to review and improve the results of the
Corporate Government Assessment for the year of 2017.
It was mainly aimed at improving information
transparency, strengthening the functioning of the Board
of
Directors
and
implementing
corporate
social
responsibility and safeguarding shareholders’ rights and






No difference

44

Items Implementation Status Implementation Status Implementation Status Deviations
from
“the
Corporate Governance Best-
Practice
Principles
for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
interests. Will complete uploading in both Chinese and
English version of the shareholders’ meetings. The
Company is committed to meeting the target of early
upload while evaluating, and gradually improve
information transparency also implement corporate
social responsibility improvement.



  • (4) If the Company has a compensation committee in place, the composition, duties, and operation of the compensation committee shall be disclosed

  • i. Disclosure of Compensation Committee

The Company has established the third Compensation Committee on June 13, 2017. The Company’s Compensation Committee consists of 3 members who are the Company’s independent directors. The professional qualifications are based in accordance of the law and have been proven suitable. Chia Ying Ma was the convener.

45

Information on members of the Compensation Committee

Identity Conditi
on
Name		 Meet One of the Following Professional
Qualification Requirements, Together with at
Least Five Years Work Experience		 Meet One of the Following Professional
Qualification Requirements, Together with at
Least Five Years Work Experience		 Meet One of the Following Professional
Qualification Requirements, Together with at
Least Five Years Work Experience		 Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Independence Attribute (note) Current
compensation
committee
position in
other publicly
listed
companies		 Remarks
An Instructor
or Higher
Position in a
Department
of
Commerce,
Law,
Finance,
Accounting,
or Other
Academic
Department
Related to
the Business
Needs of the
Company in
a Public or
Private
Junior
College,
College or
University		 A Judge, Public
Prosecutor,
Attorney,
Certified Public
Account, or Other
Professional or
Technical
Specialist Who
has Passed a
National
Examination and
been Awarded a
Certificate in a
Profession
Necessary for the
Business of the
Company		 Has Work
Experience
in the Areas
of
Commerce,
Law,
Finance, or
Accounting,
or
Otherwise
Necessary
for the
Business of
the
Company
1		 2 3 4 5 6 7 8 Position
Independ
ent
director		 Chia
Ying
Ma		 v v v v v v v v v 3 Read 2
Independ
ent
director		 Ling
Fang
Huang		 v v v v v v v v v v 1 Read 2
Independ
ent
director		 Kelvin
Shen		 v v v v v v v v v 0 Read 2

46

  • Note: All members comply with the following conditions from two years before being elected and appointed, and during his term of office, please tick the appropriate corresponding boxes.

  • (1) Not an employee of the Company or any of its affiliates.

  • (2) Not a director or supervisor of affiliated companies. Not applicable in case where the person is an independent director of the parent company, or any subsidiary as appointed in accordance with the Act or with th e laws of the country of the parent or subsidiary.

  • (3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of t he total number of outstanding shares of the Company, or raking in the top ten in holdings.

  • (4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three sub-paragraphs.

  • (5) Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company, or who olds shares ranking in the top five holdings.

  • (6) Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has a financial or business relationship with the Company.

  • (7) Not a professional individual, who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.

  • (8) Not a person of any conditions defined in Article 30 of the Company Act.

ii. The responsibility of Compensation Committee

The Compensation Committee will pay attention as a good faith manager to perform the following authority and submit the recommendations to the Board for discussion:

  • A. Sets and periodically reviews the evaluation of the directors and managers performance and compensations’ policy, system, criteria and structure.

  • B. Periodically evaluates and sets the compensation for the directors and mangers. The Compensation Committee is convened by the

47

convener at least twice a year and may be more if necessary.

  • iii. Operation status of the Compensation Committee

  • A. There are 3 members in the Company’s Compensation Committee.

  • B. Current Term: From June 13, 2017 to June 12, 2020.

The Compensation Committee held 3 meetings in the recent year up to the date of printing of the annual report, the qualifications and attendance of the Committee are shown as follows:

Title Name In-Person
Attendance		 By proxy In-person
Attendance
Rate(%)		 Remarks
Convener Chia Ying Ma 3 0 100% None
Independent
director		 Kelvin Shen 3 0 100% None
Independent
director		 Ling Fang
Huang		 3 0 100% None
Other mentionable items:
1.
If the board of directors declines to adopt or modifies a recommendation of the
remuneration committee, it should specify the date of the meeting, session,
content of the motion, resolution by the board of directors, and the Company’s
response to the remuneration committee’s opinion (e.g., the remuneration
passed by the Board of Directors exceeds the recommendation of the
remuneration committee, the circumstances and cause for the difference shall
be specified): None.
2.
Resolutions of the remuneration committee objected by members or expressed
reservation and recorded or declared in writing, the date of the meeting, session,
content of the motion, all members’ opinions and the response to members’
opinions should be specified: None.
  • (5) The state of the Company’s performance of corporate social responsibilities

48

Items Implementation Status Implementation Status Implementation Status Deviations from “the
Corporate Social
Responsibility Best-Practice
Principles for TWSE/TPEx
Listed Companies” and
Reasons
Yes No Descriptions
1. Corporate Governance Implementation
(1) Does the Company declare its corporate social
responsibility policy and examine the results of the
implementation?
(2) Does the Company provide educational trainings
on corporate social responsibility on a regular basis?
(3) Does the Company establish exclusively (or
concurrently) dedicated first-line managers authorized
by the board to be in charge of proposing the corporate
social responsibility policies and reporting to the
board?
(4) Does the Company declare a reasonable salary
remuneration policy, and integrate the employee
performance appraisal system with its corporate social
responsibility policy, as well as establish an effective

✓

✓




✓




✓		 (1) The Company has established a corporate social
responsibility policy on 16 May, 2014 that
prioritizes the development of CSR as guidance
locally.
(2) The Company carries out regular trainings and
education on corporate social responsibility.
(3)The
Company
will establish
exclusively
(or
concurrently) according to its actual needs.
(4)The Company has established a performance
appraisal system and regularly promotes it at
meetings and employee training.


✓

✓

✓


✓

49

reward and disciplinary system?
2. Sustainable Environment Development
(1) Does the Company endeavor to utilize all resources
more efficiently and use renewable materials which
have low impact on the environment?
(2) Does the Company establish proper environmental
management systems based on the characteristics of
their industries?
(3) Does the Company monitor the impact of climate
change on its operations and conduct greenhouse gas
inspections, as well as establish company strategies for
energyconservation and carbon reduction?

✓


✓



✓		 (1) The Company maximizes the use of various
resources including using E-mails rather than
paper and electronic files instead of printing letters
to protect the environment.
(2)
The
Company
complies
with
domestic
environmental
safety
regulations
and
has
appointed management department to be in charge
of environmental management matters who assigns
cleaning and promotes the implementation of 6S
environmental sanitation management standards to
maintain a clean workplace.
(3)
The
Company
conducts
air-conditioning
temperature control in the summer and effectively
uses energy to achieve the goal of reducing carbon.


✓






✓



✓
3. Preserving Public Welfare
(1)
Does
the
Company
formulate
appropriate
management policies and procedures according to
relevant regulations and the International Bill of
Human Rights?


✓		 (1) i. In accordance with labor laws, the Company
respects employees’ legal rights.
ii. Participate in the relevant labor law curses
regularly and review the Company management


✓

50

(2) Has the Company set up an employee hotline or
grievance mechanism to handle complaints with
appropriate solutions?
(3) Does the Company provide a healthy and safe
working environment and organize training on health
and safety for its employees on a regular basis?
(4) Does the Company set up a communication channel
with employees on a regular basis, as well as
reasonably inform employees of any significant
changes in operations that may have an impact on
them?
(5) Does the Company provide its employees with
career development and training sessions?
(6) Does the Company establish any consumer
protection mechanism and appealing procedures
regarding
research
development,
purchasing,
producing, operating and service?
(7) Does the Company advertise and label its good and
services according to relevant regulations and
international standards?

✓


✓




✓

✓



✓

 program after class.
(2) Employees can give feedback to the relevant
department mangers through E-mail, WeChat etc.
(3) The Group values employees’ health and safety of
their working environment and has regularly arrange
educational trainings.
(4) The Group regularly updates its employees
information on recent business management, and
employees can give feedback to relevant department
managers through Email, WeChat, etc.
(5) The group sets up an effective career development
training program for its employees each year, and
regularly implements educational trainings.
(6) The Group’s product responsibilities are in
compliance
with
regulatory
requirements,
and
consumers can also give feedback through distributors
and customer service lines.
(7) The Company complies with relevant laws and
regulations as well as international standards and
commits
to
environmental
sustainability
when
✓


✓



✓


✓



✓

51

performing.

  • (8) Does the company evaluate the records of ✓ (8) The Group will take green environmental protection ✓ suppliers’ impact on the environment and society into consideration in terms of targeting suppliers and before taking on business partnerships? will be working together to enhance social responsibility delicately..

  • (9) Do the contracts between the Company and its ✓ (9) The Group has set up supplier management policy. ✓ major suppliers include termination clauses which Suppliers with violations or corporate social come into force once the suppliers breach the responsibility failure, resulted in a negative outcome on corporate social responsibility police and cause the environment and society, their contract may be appreciable impact on the environment and society? terminated effectively. 4. Enhanced information disclosure (1) Does the Company disclose relevant and reliable ✓ (1) The Company has set up a website, and conducts ✓ information regarding its corporate social public announcement on the MOPS in accordance with responsibility on its website and the Market the regulation. The Company continues to disclose its Observation Post System (MOPS)? latest information. 5. If the Company has established the corporate social responsibility principles based on “the Corporate Social Responsibilit y Best-Practice Principles for TWSE/TPEx Listed Companies”, please describe any discrepancy between the Principles and their implementation: The Company has made corporate social responsibilities and devoted to promote the CSR, has no difference with the Rules.

6 Other important information to facilitate better understanding of the Company’s corporate social responsibility practices: The Company is aware of the impact of corporate social responsibility on the public. In response to environmental protection emplo yees are encourage to use electronic files instead of papers and make good use of used ad recycled paper. The Company is also working on other social responsibilities and social welfare in order to give back to the society.

52

7 A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions: None

(6) Ethical Corporate Management
Items Implementation Status Deviations from “the Ethical
Corporate
Management
Best-Practice Principles for
TWSE/TPEx
Listed
Companies” and Reasons
Yes No Description
1. Establishment of ethical corporate management
policies and programs
(1) Does the Company declare its ethical
corporate
management
policies
and
procedures in its guidelines and external
documents, as well as commitment from its
board to implement the policies?
(2) Does the Company establish policies to
prevent unethical conduct with clear
statements regarding relevant procedures,
guidelines of conduct, punishment for
violation,
rules
of
appeal,
and
the
commitment to implement the policies?
(3) Does the Company establish appropriate
precautions
against
high-potential




✓





✓


✓		 (1) The Company has established the “Integrity
Operations Code”. The Board of Directors and
management have taken into account the Company’s
current situation and legal requirements, and have
implemented in a gradual manner.
(2)The Company not only promotes its Integrity
Operations Code within the Company, also on its
product launch meetings and other activities, so that
the
suppliers,
customers
or
other
relevant
organizations share the understanding of its integrity
management philosophy for preventing dishonest
behavior and is actively implemented.
(3) If the Company’s employees know another person’s
act of dishonest conduct against the Companyand



No difference






No difference


No difference

53

unethical conducts or listed activities and
stated in Article 2, Paragraph 7 of the
Ethical
Corporate
Management
Best-
Practice Principles for TWSE/TPEx Listed
Companies

are of illegal acts, the Company shall notify the
judicial and prosecutorial authorities. Integrity
authority should be notified if the person involved is
of a government institution.

2. Fulfill operations integrity policy
(1) Does the Company evaluate business
partners’ ethical records and include
ethics-related
clauses
in
business
contracts?
(2)
Does
the
Company
establish
and
exclusively (or concurrently) dedicated
unit supervised by the Board to be in
charge of corporate integrity?
(3) Does the Company establish policies to
prevent conflicts of interest and provide
appropriate communication channels, and
implement it?
(4) Has the Company established effective
systems for both accounting and internal
control to facilitate ethical corporate


✓



✓



✓



✓		 (1) Before establishing a business relationship with
others, the Company should first assess the legality
and integrity management policies of agents,
suppliers, customers or other business contracts, and
whether there have been records of dishonesty to
ensure that its business operations are fair,
transparent, undemanding, offering or taking bribes.
(2) The Company will set up a concurrent unit that
promotes corporate integrity in order to supervise
the operations of the business.
(3) The directors of the Company are highly self-
disciplined; when there’s a conflict of interest with
the
Company’s
employees
when
performing
business, the direct supervisor will provide direct
guidance.
(4) The Company has established an effective internal
control system, methods and accounting system.
The internal auditing unit sets up an audit plan for






No difference


No difference



No difference



No difference

54

management, and are they audited by either
internal auditors or CPAs on a regular
basis?
(5) Does the Company regularly hold internal
and external educations trainings on
operational integrity?



✓		 implementation.
(5) The Company will plan to hold educational training
courses regularly on integrity management to
strengthen the integrity management concept of all
employees.


No difference
3. Operation of the integrity channel
(1) Does the Company establish both a
reward/punishment
system
and
an
integrity hotline? Can the accused be
reached by an appropriate person for
follow-up?
(2) Does the Company establish standard
operating procedures for confidential
reporting on investigating accusation
cases?
(3) Does the Company provide proper
whistleblower protection?



✓



✓

✓		 (1) The Company has set a specific reports and rewards
system, also has a transparent and unobstructed
reporting channel. If there is any complaint or
report, the management department and audit unit
are in charge of the investigation and disposal.
(2)The Company has established management system for
reporting including standard operating procedures
and
keeping
the
investigating
accusation
confidential.
(3) The supervisors of management and auditing
department are handling reporting cases at the
moment. They also provide proper whistleblower
protection and keepthe cases confidential.



No difference



No difference



No difference
4. Strengthening information disclosure
(1) Does the Company disclose its ethical
corporate management policies and the
results of its implementation on the


✓		 (1) The Company has a website and will create a specific
area
to
disclose
information
on
integrity
management accordingto its needs. An English


No difference

55

  • Company’s website and MOPS? website has been set up and has appointed people to be responsible of collecting and disclosing company information, and have it published on the website.

    1. If the Company has established the ethical corporate management policies based on the “Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies”, please describe any discrepancy between the policies and their implementation: The Company h as established “Ethical Corporate Management Best-Practice Principles”, and has implemented gradually, therefore there’s no difference.

  • Other important information to facilitate a better understanding of the Company’s ethical corporate management policies (such as review and revision of regulations): The board of directors approved “Ethical Corporate Management Best-Practice Principles” on January 2, 2014 and will plan to enhance its implementation and review its effectiveness in the future.

  • (7) If the Company has adopted corporate governance best-practice principles or related bylaws, disclose how these are to be searched:

The Company has established “Rules of Procedure of Board Meetings”, “Rules of Shareholder Meetings”, “Corporate Governance Best-Practice Principles”, “Ethical Corporate Management Best-Practice Principles”, “Code of Conduct and Ethics”, “Corporate Social Responsibility Policy” etc..

  • (8) Other significant information that will provide a better understanding of the state of the Company implementation of corporat e governance may also be disclosed: None.

  • (9) The implementation of the internal control system shall disclose the following: A. Internal Control Statement. B. If an accounted is entrusted to audit the internal control system, the report shall be disclosed.

56

Lida Holdings Co., Ltd. Statement of Internal Control System

Date: 3/22/2019

  • Based on the findings of a self-assessment, Lida Holdings Co., Ltd states the following with regard to its internal control system during the year 2019:

  • The Company’s board of directors and managements are responsible for establishing, implementing, and maintaining an adequate internal control system and have already established it. Its purpose is: i. to provide reasonable assurance over the effectiveness and efficiency of our operations (including profitability, performance and safeguarding of assets); ii. The report has reliability, timeliness, transparency; iii. It is compliance with applicable rulings, laws and regulations.

  • An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing its three stated objectives above. Moreover, the effectiveness of an internal control system may be subject to changes due to extenuating circumstances beyond our control. Nevertheless, our internal control system contains self-monitoring mechanisms, and the Company takes immediate remedial actions in response to any identified deficiencies.

  • The Company evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control System by Public Companies (herein below, the Regulations). The criteria adopted by the Regulations identify five key components of managerial internal control: i. control environment, ii.risk assessment, iii. Control activities, iv. information and communication, and v. monitoring activities.

  • The Company has evaluated the design and operating effectiveness of its internal control system according to the aforesaid Regulations.

  • Based on the findings of such evaluation, the Company believes that, on December 31, 2018, it has maintained, in all material respects, an effective internal control system (that includes the supervision and management of our subsidiaries), to provide reasonable assurance over our operational effectiveness and efficiency, reliability, timeliness, transparency of reporting, and compliance with applicable rulings, laws and regulations.

  • In order to comply with the provisions of Article 4 of the “Taiwan Stock

57

Exchange Corporation Rules for Regulating Primary Listed Foreign Issuers”, the Company entrusted the account to review the reliability of the opening period and external financial reports to ensure the safety of assets (so that the assets are not to be obtained, used or disposed without authorization). As describe in the preceding paragraph, its design and execution are effective, and without affecting the recording, processing, handling, summarizing and reporting its lack of reliability, it does not affect the safety of the assets. The assets may be obtained, used or disposed without authorization.

  1. This Statement is an integral part of the Company’s annual report and prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171 and 174 of the Securities and Exchange Law.

  2. This Statement was approved by the board of directors in their meeting held on March 22, 2019, with none of the seven attending directors expressing dissenting opinions, and the remainder all affirming the content of this Statement.

Lida Holdings Co., Ltd.

Chairman: Chien-Leng Wu

General Manager: Yi Ping Chen

58

18008611

Lida Holdings Co., Ltd

Internal Control System Audit Report

Enclosed is a valid statement after the assessment on March 22, 2019 for its external financial reporting and safeguarding asset security protection and related internal control system, which was declared effective on December 31, 2018 for its effective design and implementation. It is the Company’s management’s responsibility for the internal control system to maintain effective, and evaluate its effectiveness. It is our responsibility is to express any opinion it might occur on the effectiveness of the Company’s internal control system and the Company’s internal control system statement based on the results of the audit.

We evaluated the design and operation effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies and generally accepted auditing standards to reasonably audit to make sure the Company’s internal control system remains effective in all major aspects. This audit included the recognition of the Company’s internal control system, assessing the process by which management assessed the effectiveness of overall internal control system, testing and evaluating the effectiveness of the design and implementation of the internal control system, and other audit procedures we deemed necessary. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

An internal control system has inherent limitations, the above internal control system may fail to prevent or predict the occurrence of errors or fraud. Therefore, the future environment may change, and the degree of compliance with internal control system may also be reduced. The effective internal control system in this period does not mean it will remain the same in the future.

Based on our opinion, in accordance with the Regulations Governing the Establishment of Internal Control Systems by Public Companies, the Company’s internal control system relating to external financing reporting and safeguarding of all assets was designed and implemented at December 31, 2018, and may remain effective in all major aspects. The Company issued a

59

statement of the effective design and implementation of the Company’s internal control system relating to external financing reporting and safeguarding of all assets at March 22, 2019, in which it remained effective in all major aspects.

PricewaterhouseCoopers, Taiwan

Gary Hsu Hsien-Cheng Chen

Financial Supervisory Commission R.O.C (Taiwan) Securities and Futures Bureau

Approval Reference: 0990047105 Financial Supervisory Commission R.O.C (Taiwan) Securities and Futures Bureau Approval Reference: 1060025060

March 26, 2019

60

  • (10) For the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, disclose any sanctions imposed in accordance with the law upon the Company or its internal personnel, any sanctions imposed by the Company upon its internal personnel for violations of internal control system provisions, principal deficiencies, and the state of any efforts to make improvements: None

  • (11) Material resolutions of a shareholders meeting or a board of directors meeting during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report:

  • i. Important resolutions made by the board of directors’ Meeting during the

current fiscal year and up to the date of printing of the annual report:

Meeting
Date		 Important Resolutions
2018/03/26 1. Reported 2017 consolidated financial statements
2. Rectification of 2017 business report and financial statements
3. Proposed the Company’s 2017 Internal Control Statement
4. Employee and Director compensation distribution of 2017
5. Distribution of remuneration of 2017
6. Revision of the Company’s articles of association
7. Proposed the Company’s 2018 shareholders meeting regarding date, place
and reason etc.
8. Reassignment of the Company’s manager
9. Approved the monthly fixed-income of the new manager of the Company
10. Landpurchase
2018/05/11 1. Report of the first quarter 2018 consolidated financial statements
2. Budget for new plant
3. Appointment and remuneration of the Company’s accountants
2018/08/09 1. Report of the second quarter 2018 consolidated financial statements
2. Bank application for short-term financing.
2018/09/17 Proposed relevant matters such as setting the ex-right and ex-dividend date
for the Company’s and theperiod of suspension of the transfer
2018/11/13 1. Reported the third quarter 2018 consolidated financial statements
2. Company’s 2017 distribution of remuneration to employees
3. Distribution of remuneration to subsidiaries
4. Fund and loan to the subsidiaries

61

2018/12/25 1. Set the Company for 2019
2. Set the Company’s “2019 Auditing Plans”
3. Proposed the fixed monthly salary for Company’s manager for 2019
4. Proposed to review the 2018 Company employee year-end bonus payment
policy and measures
5. Proposal for the Company’s managers 2018year-end bonus
2019/03/22 1. The Company’s 2018 business report and the Company’s 2018
consolidated financial statements
2. Proposed the Company’s 2018 Internal Control Statement
3. Distribution of remuneration of 2018 Employee and Director
compensation distribution of 2017
4. Distribution of remuneration of 2018
5. Proposed to apply for the transfer of surplus to capital increase and issue
new shares
6. Revision of the Company’s articles of association
7. Revision of the Company’s Rules of the Shareholders’ Meeting
8. Revision of the Company’s Rules of the Directors’ Meeting
9. Revision of the Company’s Directors’ Election Method
10. Revision of the Company’s Acquisition or Disposition of Asset
Handling Procedures
11. Revision of the Company’s Funding and Others Operating Procedures
12. Revision of the Company’s Procedures for Endorsement and Guarantee
13. Proposed to set the content of the date, place and convening of the 2019
shareholders’ meeting of the Company
14. Plan to purchase screw head production equipment
15. Revision of Acquisition or Disposition of Asset Handling Procedures,
Funding and Others Operating Procedures and Procedures for Endorsement
and Guarantee of the subsidiaries of Wellsoon International Limited, Lida
(HK) Holdings Co., Limited, Lida (China) Machine Equipment Company
Limited and Lida(Jiangxi)Machine Equipment CompanyLimited

62

ii. Important resolutions made by the Shareholders Meeting during the current fiscal year and up to the date of printing of the annual report

Meeting
Date		 Important
Resolutions		 Implementation Status
2018/6/13 Rectification of
2017 business
report and financial
statements		 The voting rights in favor of voting by
shareholders are 64,496,291. The number of
votes in favor of voting right is 92.55% of the total
number of shares represented by the shareholders,
which are more than two-thirds of the attending
shareholders. Theproposal has been approved.
Rectification of
2017 earnings
distribution		 The voting rights in favor of voting by
shareholders are 64,492,291. The number of
votes in favor of voting right is 92.54% of the total
number of shares represented by the shareholders,
which are more than one-half of the attending
shareholders. The proposal has been approved.
November 7 is set as the ex-right and ex-dividend
date, and November 29 as the distribution date.
The cash dividend is NT$5.0per share.
Revision of the
Company’s
“Procedures for
Acquisition or
Disposal of Assets”		 The voting rights in favor of voting by
shareholders are 64,495,291. The number of
votes in favor of voting right is 92.55% of the total
number of shares represented by the shareholders,
which are more than two-thirds of the attending
shareholders. The proposal has been approved
and disclosed on the Company website after
revising.

(12) Where, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, a director or supervisor has expressed a dissenting opinion with respect to a material resolution passed by the board of directors, and said dissenting opinion has been recorded or prepared as a written declaration, disclose the principal content thereof: None.

63

  • (13) A summary of resignations and dismissals, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, of the Company’s chairman, general manager, principal accounting officer, principal financial offer, chief internal auditor, and principal research and development officer: In response to the adjustment of the Company, the board of directors has dismissed Daniel Kwan on March 26, 2018 as Accounting and Financial director and has appointed Rea Huang as the new one.
Title Name Date
Assumed		 Date
Dismissal		 Reason for
Resignation or
Dismissal
Finance
Director		 Daniel Kwan 2016.06.20 2018.03.26 Transfer of
position due to
Company’s
operations

  1. Information on CPA Professional Fees

  2. (1) CPA fee brackets

(1) CPA fee brackets
CPA Firm Name of CPAs Period
Covered by
CPA’s
Audit		 Remarks
PricewaterhouseCoopers
Taiwan		 Hsien-
Cheng Chen		 Chin-Mu
Hsiao		 2018 None

64

Unit: NT$ thousand

Fee Range Fee Item Fee Range Fee Item Audit fee Non-Audit
fee		 Subtotal
1 Under 2,000 thousand
2 2,000 thousand（included）～
4,000 thousand
3 4,000 thousand（included）～
6,000 thousand
4 6,000 thousand（included）～
8,000 thousand
5 8,000 thousand（included）～
10,000 thousand
6 Over 10,000 thousand
（included）		 V V

  • (2) The non-audit fee paid to certified CPA, certified Officer of CPA and affiliated companies’ accounts for over 1/4 to audit fee: None.

  • (3) Alter the CPA Firm and the audit fee in altering year is less than that in the previous year: None.

  • (4) The audit fee is reduced by over 15% compared with the previous year, the reduction in the amount of audit fees, reduction percentage, and reason(s) therefore shall be disclosed: None.

  • Information on Replacement of Certified Public Accountant: None.

  • Information on Service of the Company’s Chairman, President, and Financial or Accounting Managers at the Accounting Firm or Its Affiliates: None

  • Any Transfer of Equity Interests and/or pledge of or Change in Equity Interests (during the most Recent Fiscal Year or during the Current Fiscal

65

Year up to the Date of Publication of the Annual Report) by a Director, Supervisor, Managerial Officer, or Shareholder with a Stake of more than 10 Percent during the most Recent Fiscal year or during the Current Fiscal year up to the Date of Publication of the Annual Report: None

  1. Relationship Information, if among the Company’s 10 Largest Shareholders any one is Related Party or a Relative within the Second Degree of Kinship of another:

Date: April 15, 2019 Unit: Share%

Name Shareholding Shareholding Spouse &
Minor
Current
Shareholdin
g		 Spouse &
Minor
Current
Shareholdin
g		 Current
Shareholdin
g in the
name of
others		 Current
Shareholdin
g in the
name of
others		 Relationships among the
top 10 Shareholders,
anyone who is a related
party, spouse, or second-
degree kinship of
another: Name and
relation		 Relationships among the
top 10 Shareholders,
anyone who is a related
party, spouse, or second-
degree kinship of
another: Name and
relation		 Remarks
Share % Share
%		 Share
%		 Name Relation
Yi Yuan Enterprises
Limited		 31,500,000 31.50 - - - - - - -
Gain Fortune
Development Limited		 16,440,136 16.44 64 0.06% - - - - -
Leo Holdings Investment
Limited
1,172,000		 1.17 - - - - - - -
Citibank Trust Pacific
Capital UCITS		 1,000,000 1.00 - - - - - - -
HSBC Hosting Morgan
Stanley International
Co., Ltd.		 987,000 0.99 - - - - - - -
Chen Si Chang 500,000 0.50 - - - - - - -
Hua Nan Securities Co.,
Ltd.		 500,000 0.50 - - - - - - -
Citi Hosting DFA
Emerging Markets Core
Securities Investment
Account		 475,000 0.48 - - - - - - -
Lai Guo Chen 428,000 0.43 - - - - - - -
Prudential Small and
Medium Stock Fund
Account		 409,000 0.41 - - - - - - -

66

  1. The Total Number of Shares and Total Equity Stake Held in any Single Enterprise by the Company, its Directors and Supervisors, Mangers, and any Companies Controlled either Directly or Indirectly by the Company:

April 15, 2019；Unit: Thousand, %

Affiliated Enterprises Ownership by
the Company		 Ownership by
the Company		 Direct or Indirect Ownership by
Directors/Supervisors/Managers		 Direct or Indirect Ownership by
Directors/Supervisors/Managers		 Total Ownership Total Ownership
Shares (%) Shares (%) Shares (%)
Wellsoon International
Limited		 10 100 － － 10
100
Lida (HK) Holdings Co.,
Limited		 201,669 100 201,669
100
Lida (China) Machine
Equipment Company
Limited		 － 100 － 100
Lida (Jiangxi) Machine
Equipment Company
Limited		 － 100 － 100

Note: The Company is a limited company, so there are no shares.

67

IV. Capital Raising Activities

1. Capital and Shares

  • (1) Sources of capital

i. Type of stock

April 15, 2019 Unit: 1,000 shares

April 15, 2019 Unit: 1,000 shares
Type of
stock		 Authorized capital Remarks
Issued
Shares		 U-issued
Shares		 Total
Registered
common
stock
100,000		 50,000 150,000 2016 listed company stock

ii. The formation of capital

Unit: 1,000 Shares, NT$ thousand

Year/
month		 Par
Value
(NT$)		 Authorized capital Authorized capital Paid-in capital Paid-in capital Remarks Remarks Remarks
Shares Amount Shares Amount Source of capital Capital
increased by
assets other
than cash
Othe
r
2014/02
10		 150,000 1,500,000 46,554 465,541 Conversion of
stock		 － －
2014/05
10		 150,000 1,500,000 76,545 765,450 Increase in the
capital surplus		 － －
2014/06 45.98 150,000 1,500,000 90,000
900,000		 Conversion of
bond of warrant
to common
stock		 － －
2016/07
96		 150,000 1,500,000 100,000
100,000		 Primary listing
for cash
replenishment

iii. General information about the reporting system: None.

(2) Shareholder structure

Date: April 15, 2019; Unit: person, share, %

Shareholder
Structure
Quantity

Government
Institutions		 Financial
Institutions		 Other
Juridical
Persons		 Domestic
Natural
Persons		 Foreign
Institutions
and Foreign
Persons		 Total

68

Number of
Shareholders		 － 40 2 7,889 73 8,004
Shareholding － 2,207,000 339,000 40,639,262 56,814,738 100,000,000
Holding
Percentage (%)		 － 2.21% 0.34% 40.64% 56.81% 100.00%

Note: The primary listed company at stock exchange market and over the counter market ought to disclose the distribution of their shares held by the people of the Mainland; Chinese investors refers to the people of the Mainland, institutional shareholders, groups and other or institutions or investment companies from the third region as stipulated in Article 3 of the Measures Governing Investment Permit to the People of the Mainland Area.

Note: The Company’s shareholding ratio of shares held by t he people of the Mainland is to be 16.5%.

(3) Diffusion of ownership

i. Common stock

Date : April 15, 2019 ; Unit: person, share, %

Class of Shareholding Number of
Shareholders		 Shareholding Percentage (%)
1~
999		 184 28,765 0.03%
1,000~
10,000		 7,052 18,849,618 18.85%
10,001~
20,000		 403 6,067,392 6.07%
20,001~
30,000		 139 3,590,989 3.59%
30,001~
40,000		 69 2,500,498 2.50%
40,001~
50,000		 44 2,048,000 2.05%
Subtotal
1,000~50,
000		 7,891 33,085,262 33.09%
50,001~
100,000		 56 4,082,622 4.08%
100,001~
200,000		 30 4,525,000 4.53%
200,001~
400,000		 17 4,895,980 4.90%
400,001~
600,000		 5 2,312,000 2.31%
600,001~
800,000		 - - -
800,001~ 1,000,000 2 1987000 1.99%
Over1,000,001 3 49,112,136 49.11%
Total 8,004 100,000,000 100%

ii. Preferred share: None

69

(4) List of Major Shareholders

(4) List of Major Shareholders (4) List of Major Shareholders (4) List of Major Shareholders
April 15, 2019
Name Shareholding %
Yi Yuan Enterprises Limited 31,500,000
31.50
Gain Fortune Development
Limited		 16,440,136
16.44
Leo Holdings Investment Limited 1,172,000 1.17
Citibank Trust Pacific Capital
UCITS		 1,000,000 1.00
HSBC Hosting Morgan Stanley
International Co., Ltd.		 987,000 0.99
Chen Si Chang 500,000 0.50
Hua Nan Securities Co., Ltd. 500,000 0.50
Citi Hosting DFA Emerging
Markets Core Securities
Investment Account		 475,000 0.48
Lai Guo Chen 428,000 0.43
Prudential Small and Medium
Stock Fund Account		 409,000 0.41
Total 53,411,136 53.42

(5) Provide share prices for the past 2 fiscal years, together with the Company’s net worth per share, earnings per share, dividends per share, and related information

share, and related information share, and related information
Item Year 2017 2018
Market
Price Per
Share		 Highest (NT) 126 109
Lowest(NT) 94 48.5
Average(NT) 106.88 79.56
Net Worth
Per Share		 Before distribution 49.29 51.06
After distribution 44.29 48.76
Earnings
Per Share		 Weighted average shares (1,000 shares) 100,000 100,000
Net profit per share after tax (loss) (NT) 9.24 7.70
Dividend
Per Share		 Cash Dividend (NT) 5 2.3
Stock Dividends Stock Dividends － 1.6

70

Appropriated from Retained
Earnings
Stock Dividends
Appropriated from capital
surplus		 － －
Accumulated Undistributed Dividends － －
Return on
Investment		 P/E ratio 11.57 10.33
Price-dividend ratio 21.38 20.44
Cash dividend yield 4.68% 2.89%

  • (6) Company’s dividend policy and implementation thereof i. Dividend Policy provided in the Articles of Incorporation

  • A. The Company is currently at a growth stage, the dividends of the Company can be distributed to the shareholders of the Company in cash or/and in the form of shares, and the dividends of the Company should be considered for the Company’s capital expenditure, future business expansion plans, financial planning and others according to necessity.

  • B. During the period of listing, except for the provisions of the Cayman Act and listed company at stock exchange market and over the counter market policy which have different regulations, if the Company is at profit in the current year, the board of directors should be attended by more than twothirds of the directors and more than half of the directors present to approve to distribute 0.5%-3% remuneration to employees of the Company in cash or/and in the form of shares. The board of directors should be attended by more than two-thirds of the directors and more than half of the directors present to approve to distribute no more than 2% compensation to directors. But the Company shall pay its losses (including adjusting undistributed surplus) first and some of the surplus shall be reserved before distributing to employees and directors as mentioned in order to make up for the losses. The distribution of the compensation for the

71

employees and directors shall be reported to the shareholders’ meeting. Except for the different regulations of listed companies at stock exchange market and over the counter market, the board of directors shall not issue any shares. The term “profit” used in the item refers to the pre-tax benefit that has not been deducted from the compensation of employees and the compensation of directors.

C. During the period of listing, except for the different provisions of the Cayman Act and listed company at stock exchange market and over the counter market policy which have different regulations, or different regulations attached to the right of shares, when the Company has a surplus at the end of fiscal year, the Company will pay for all relevant taxes in accordance with the law, make up for the losses, (including the loss of the previous year and adjust the undistributed surplus amount, if any) special surplus reserve (if any). If there is a surplus still, it shall be distributed (including the rotated of the special surplus), the board of directors can distribute no more than 10% of the surplus, plus all or part of the undistributed surplus of the previous year’s shareholders’ meeting of the Company. Dividends/bonuses are paid to shareholders according their shareholding ratio, and the amount of cash dividends/bonuses shall not be less than 10% of the total dividends/bonuses paid.

  • D. During the period of listing, except for other resolutions f the shareholders meeting, the distribution of employees and directors compensation, as well as dividends, bonuses or other benefits to shareholders, shall paid in New Taiwan dollars.

  • E. Any dividends, bonuses or other payables relating to the shares paid to the board of directors shall deduct any amount due to be paid to the Company.

72 

  - F. Any dividends, bonuses or other share-related payables may be wired to a bank account designated by the shareholders, or post checks or money order directly to their registration address, or to the person or address specified by the holder in writing.  In the case of joint shareholding, any holder may effectively receive dividends, bonuses or other sharerelated payables.

  - G. except for the different provisions of the Cayman Act and listed company at stock exchange market and over the counter market policy which have different regulations, any special surplus reserve will be rotated to the Company’s undistributed surplus.

  • ii. Distribution of dividends at this fiscal year: The Company has proposed the distribution of earning on March 22, 2019. The cash dividend per share is NT$2.3 and stock dividend per share is NT$1.6 which are to be submitted at the shareholders’ meeting.

  • (7) Effect upon business performance and earnings per share of any stock dividend distribution proposed or adopted at the most recent shareholder’ meeting:

shareholder’ meeting: shareholder’ meeting:
Year
Item		 2019 (estimated)
Initial Paid-up Capital 1,000,000 thousand
Stock Dividend
Distribution of
the year		 Cash dividend per share NT$2.3

Earnings o increase capital shares per share		 NT$1.6
Capital reserve to capital increase 0 shares
Changes
in
Business
Performance		 Operating profit Not applicable
(Note)
Increase (decrease) in operating profit over the same
period last year
After-tax net profit
Increase (decrease) in after-tax net profit over the same
period last year
Earnings per share

73

Increase (decrease) in earnings per share over the same
period last year		 Increase (decrease) in earnings per share over the same
period last year
Annual average return on investment (annual average
P/E ratio)
Proposed
earnings per
share and P/E
ratio		 If the surplus is transferred to
the capital increase, the cash
dividend will be fully
adjusted		 Proposed earnings per
share
Proposed annual
average return on
investment
If the capital reserve is not
transferred to the capital
increase		 Proposed earnings per
share
Proposed annual
average return on
investment
If the capital reserve is not
processed and the surplus is
transferred to the capital, the
cash dividend will be
distributed		 Proposed earnings per
share
Proposed annual
average return on
investment

Note 1: Not yet been approved by the 2019 Annual General Meeting of Shareholders.

Note 2: In accordance with the Regulations Governing the Publication of Financial Forecasts of Public

Companies, the Company does not need to disclose the 2019 financial forecast information, so there

is no estimate for 2019

  • (8) Compensation of employees, directors, and supervisors

  • i. Ratio or scope of compensation for employees, directors and supervisors, as set forth in the Company’s Articles of Incorporation: See (6) i. Company’s dividend policy and implementation thereof.

  • ii. The estimated amount of compensation for employees, directors and supervisors for the current period shall be calculated based on number of employee shares of stock considering any accounting discrepancy between the actual distributed amount and compensation for employee stock dividend and estimated figure: No difference.

74 

  - iii. Information on the amount of compensation for distribution and calculation of earnings per share as approved by the Board of Directors:

     - A. The compensation of employees, directors and supervisors is distributed in the form of cash dividend or stock dividend. If there is any discrepancy between the actual distributed amount and figure, the difference, reason and response should be disclosed: No difference.

     - B. The amount of stock dividend and ratio of the total net profit after-tax and individual employee compensation or separate financial report for the current period: None.

  - iv. The actual distribution of compensation for employees, directors and supervisors in the previous fiscal year (including number of shares, monetary amount, stock price, shares distributed) and any discrepancy between the actual distributed amount and amount of compensation for employees, directors, or supervisors.  The discrepancy, cause, and response shall be stated: No difference.

  • (9) Share repurchases: None

  • (10) Others: None

  • Corporate Bonds: None.

  • Preferred Shares: None.

  • Global Depository Receipts (GDR): None.

  • Employee Stock Warrants: None.

  • New Restricted Employee Shares: None.

  • Status of New Shares Issuance in Connection with Mergers and Acquisitions:

None

  1. The Status of Implementation of Capital Allocations Plans: The plan to issue or privately place securities has not been complete, or it was complete in the last three years but the benefits have not been shown.

75

V. Operational Highlights

1. Business Activities

  • (1) Scopes of the business

  • i. The main operational categories of the Company: The Company’s main business is design electromechanical products such as air compressors, electric welders and power tools.

ii. The sales proportion of the main products of the business

Unit: NT$ thousand, %

Unit: NT$ thousand, % Unit: NT$ thousand, %
Main Products 2017 2018
Sales Amount % Sales Amount %
Piston Air
Compressors		 3,383,355 41.65 2,698,833 35.78
Screw Air
Compressors		 3,581,067 44.08 3,669,030 48.64
Scroll Air
Compressors		 991,152 12.20 975,188 12.93
Others 168,258 2.07 199,930 2.65
Total 8,123,832 100.00 7,542,981 100.00

iii. The Company’s currently offered products

iii. The Company’s currently offered products
Main Products Applications
Piston Air
Compressors		 The price is relatively cheaper than the ones with more aspects.
Customers include individuals and small and medium enterprises.
They are mainly used at home for decoration purpose, small-scale
companies and transportation industries.
Screw Air
Compressors		 They are suitable for large high-end enterprises, such as large-scale
industrial, pharmaceutical, chemical, textile and food processing
industries, mainly to factories and manufacturing industry as a bulk
demand, especially the need for long term continuous stable
operation, in order to build more business.
Scroll Air
Compressors		 They are of high efficiency, high reliability, low noises, light weight
and there is no need for maintenance. It is widely used in high-end
or precision industries such as electronics industry, pharmaceutical,
food and textile industries.

76

iv. New products (services) in developing and planning

iv. New products (services) in developing and planning
Project Main functions and applications
Screw head of
Compressor		 The head is one of the key components for screw air compressor.
Sales for crew air compressors have been growing every year,
therefore, self-research and produce the heads of the screw
compressor can reduce the cost of the production in the long run,
and effectively control the supply stability and improve the product
quality to reach the goal of self-made component.
Other Types
Oil Scroll
Compressor		 They have unique qualities such as high efficiency, reliable, low
noses, light weight and relatively small in size. To develop various
models will be able to offer high-end customers more suitable
choices.
Oil Free Screw
Compressor		 The unique trait of the oil free screw compressors is irreplaceable.
The oil-free screw is used to supply the compressed gas to the
outside, and the host load is not greatly reduced due to the pressure
loss caused by the oil-free equipment, therefore energy efficiency
is achieved.
Low Pressure
Screw
Compressor		 The dual separation system effectively ensures separating oil, and
the system pressure difference is minimal. Nearly zero pressure
loss achieves the ultimate energy saving. It is highly suitable for
the textile and household glass industries.
E series High
Efficiency
Energy Saving
Screw
Compressor		 It is highly efficient, energy-saving and of low noises. It adopts
advanced vector control technology to automatically adjust the
speed of the host. Combined with the new permanent magnetism
host integrated power system, it achieves an average energy saving
of 50% and an average life cycle cost savings of 37%. It is highly
effective through the unique noise reduction design which achieves
low-noise environmental indicators; the use of stainless steel pipe
to connect further enhances product reliability.

77

(2) Industry Overview

i. Industry status and development

Air compressors are the power source of pneumatic technology (full term is pressurized air transmission and control technology) Pneumatic technology is powered by compressed air from air compressors, the air is compressed and stored in the air storage tank, and through the storage tank the air transforms as smooth gases before releasing. Then the control element that adjusts the frequency and rate of air going in and out coverts the contained energy into kinetic energy which becomes the basic foundation of production control and automated production. The advantages of such technology are the speed and it is highly efficient, clean and safe, low cost and easy maintenance. It is also widely used in various machinery and production lines. The key components for automated mechanical equipment are as follows:

==> picture [364 x 159] intentionally omitted <==

Various industries are facing competitive pressure due to

Globalization, plus the cost of labors in various countries keeps rising, a transformation of business is accelerated to increase the ratio of automated production to lower the dependence on human labor which is the only way to upgrade the enterprise. Air compressor is a key component of pneumatic technology. Pneumatic technology plays a crucial role in large-scale system development such as factory automatic and robotic production. It is widely used in various industries such as manufacturing, construction and decoration, textile and garment, food,

78

pharmaceutical, medicine, transportation, chemical and petrochemical, mining and metallurgy industries (the application areas of each industry are briefly describe in the following table). The demand of the downstream industry has driven the raid development of air compressor industry, and according to the industry report which cited China General Machinery Industry Association, the global air compressor market in 2018 is about 47 billion US dollars. In recent years, it has shown a steady and continues growth. The size of China’s air compressor market accounts for approximately 20% of the global market.

Application of air compressor in various industries

Manufacturing Car/motorbike/bicycle repair Application areas: automated production Application areas: cleaning and dust equipment (driver of all kinds of removing, tire inflation, surface pneumatic machinery), lifting treatment, dismantling and and handling, cleaning and dust installing, lifting and handling, removing, spray painting, spray painting, road recue vacuum packaging, cutting and welding. Construction and Decoration Food and Drink Application areas: drilling, concrete Application areas: pneumatic conveying, conveying or spraying, cleaning and dust removing, automated ventilation systems, dismantling production (packaging, filling, bottling), and installing, repairing and fermentation, bottle blowing decorating, painting Chemical and Petrochemical Medical and Dental Application areas: research experiments, Application areas: medical equipment, fermentation, control of dental (high-speed hand piece, precision instruments, remote blowing machine, air and water transportation of gas and natural syringe, etc.), sterilization gas equipment, inspection rooms

79

==> picture [437 x 398] intentionally omitted <==

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

Mine, metallurgy Pharmaceutical Industry
Application areas: drilling equipment drive,
high pressure blasting mining, Application areas: Transportation and
mine air supply, convey packaging accelerated drying,
combustion gas pill production.
Transportation Recreation
Application areas: air braking system, Application areas: theme park rides
pneumatic doors and windows (carousel, Ferris wheel,
switch, rail changer, dock rollercoaster, pirate ship, etc.)
loading and unloading, track fountain, inflating, diving
installation engineering
equipment
Textile and Garment industry Life and Art/DIY Home
Application areas: air jet weaving, weft Application areas: cleaning and dust
blowing, denim sand washing removing, tire pumping,
----- End of picture text -----

As China gradually becomes a global manufacturing center, with rapid development of manufacturing, food, pharmaceutical, chemical and petrochemical, mining and metallurgical industries, the demand for automated production in various industries is increasing day by day which has also increased the demand for compressors and other related general machineries. According to the industry report, the size of China’s air compressor market in 2014 was RMB 28.8 billion, and it grew up to RMB 44.5 billion in 2018, which shows that the size of China’s air compressor market continues to expand in addition to China’s economic growth. Focusing on the national policy of energy conservation and emission reduction and increase energy efficiency, the industries have been actively engaged in industrial upgrading, and automated production equipments have been introduced. The demand for air compressors has grown rapidly under the influence of downstream industries. According to

80

the industry report, it is expected that the size of China’s air compressor market will reach RMB 63.2 billion by 2023, and the compound growth rate is estimated at 7.23% from 2019 to 2023.

==> picture [393 x 224] intentionally omitted <==

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

The Size of China ’ s Air Compressor Market Unit: RMB Billion
----- End of picture text -----

ii. Industry relevance of upstream, midstream and downstream

companies

The Company specializes in developing, manufacturing and selling various air compressors. The products of the Company are used in a vast range of applications, including automated production lines or various types of production in automobile, food, pharmaceutical, textile and decoration industries. As the Company keeps on developing new products, the current application areas continue to expand. The Company is at the middle in the industrial chain, upstream being steel, copper, aluminum and air compressor screw head and other raw material manufacturers, midstream manufacturing industries include host assembly, machine head assembly, welding and other technologies and downstream include mechanical equipment and related application of automated production lines in various industries.

81

Upstream raw material
industry
Crankcases
Cylinders
Machine frames
Iron cores
Gas barrels
Machine heads
Hosts
Body of valves
Fans
Coolers
Control systems		 Midstream air compressor
manufacturing
Various air compressor
manufacturing		 Downstream
application industry
Machinery
manufacturing
Textile
Food
Pharmaceutical
Electronic
appliances
Transportation
Chemical and
petrochemical
Refrigeration and
gas separation
Mine, metallurgy

iii. Various product development trends

Saving resources is the basic country policy of Mainland China, therefore energy conservation and emission reduction has become the guiding direction of China’s industrial development. As air compressors are one of the most important tools in industrial manufacturing, the Chinese government has included them to manage energy efficiency effectively. On October 26, 2009, China National Development and Reform Commission, General Administration of Quality Supervision Inspection and Quarantine and National Certification and Accreditation Administration jointly issued the “Implementation of Energy Efficiency Labeling Product Catalog of Republic of China” to integrate volumetric air compressors into the energy efficiency labeling system. The relevant products produced, sold and imported in Mainland China shall be subject to energy efficiency labeling in accordance with the “Measures for the Administration of Energy Efficiency Labels as

82

of March 1, 2012. Any manufacturers shall not sell products that shall be marked but not marked with energy efficiency labels. All the authorities at all levels are required to strengthen the audit which goes to show the importance that the Chinese government clearly values on the issues of energy conservation and emission reduction.

iv. Competition status

There are a large number of air compressor manufacturers in China, especially in the middle and low-end air compressor market with large number of concentrated production enterprises are, but the scale is usually small so the profitability is naturally not strong. In recent years, with the rapid development of China’s air compressor industry, industrial concentration has gradually increased. With China being a global manufacturing center, the global compressor manufacturing focus has steadily shifted to China, and major international compressor manufacturers have flocked into China. Atlas Copco, Ingersoll Rand and Sullair entered the Chinese market in the 1980s. Ingersoll Rand was the first to set up a production base in China in 1997, after that, Companies such as Atlas have also invested and built factories in China. At the moment, the world’s major compressor manufacturers have production based in China who value great importance to the development in China, and China has become the world’s second largest market for Atlas Copco (according to the sales revenue contribution). The entry of major international compressor manufacturers into China has intensified market competition in China’s compressor industry. According to Qianinfo Consulting, Atlas Copco Compressor Co., Ltd., which was established in 1994 in Wuxi, has more than 10 factories in China, and has achieved excellent results as well as rapid growth. Ingersoll Rand of the United States is a research and development dedicated company to air and gas compressors, mining machinery and pneumatic tools. It

83

is the largest manufacturer of machinery and equipment in United States. In 1937, it established a joint venture with a Shanghai Compressor company and together Shanghai Ingersoll Rand was established, and there are 12 factories in China.

Zhejian Kaishan Compressor and Lida (China) Machine Equipment Company Limited are among the middle and high-end Chinese brands. Zhejian Kaishan mainly engages in the R&D and manufacturing of screw air compressors which is an A-share listed Company with their 2018 revenue of RMB 2.602 billion. Their products are mainly used in large-scale screw air compressors and geothermal expansion power generation of mining machinery whereas the Company mainly focuses on various general-purpose air compressors suitable for all factories and manufacturing industry which has gradually transformed from high-end to the mainstream.

China’s air compressor industry is highly competitive, and with foreign major air compressor brands entering the Chinese market it now has better competitive advantage. The market competition shall prompt China’s large-scale, comprehensive and strong air compressor enterprises to increase product research and development and innovation, improve product technology content and quality, and promote the development of China’s air compressor industry. Therefore industry competition is another leading drive of the development of the air compressor industry.

(3) Technology and R & D Overview

i. Technical level and R&D status

The Company has been working in the air compressor industry for more than 20 years. The products are general-purpose air compressors, and we have customers all over the world. However, there are many air compressor manufacturers in China which makes

84

the industry highly competitive, especially the medium and lowcost air compressors. To differ from the other manufacturers, the Company has very high requirements on the performances, appearances and precision of products. Therefore, it is safe to say the Company is very experienced in technological design, metal processing, spraying, assembly and testing. Other than the production of traditional piston air compressors, the Company has recently developed a high-capacity, energy-saving and environmentally-friendly screw air compressors and scroll air compressors that have lower noise and are more reliable.

The Company’s research team is led by the technical director with more than 30 years of experience in air compressor development, and has maintained a stable R%D manpower in product development each year with college degree or above accounts for more than 50%. Since the year of 2011, the Company has accelerated the development of new products and commissioned a number of profession academic units to jointly develop products. Although the Company’s R&D team is rather small, it still continues to develop new products. The R&D results of the Company’s outsourcing research or any relevant research while being employed by the Company are owned by the Company. In order to avoid the risk of R&D interruption caused by the flow of personnel, all the significant documents of R&D work are archived by dedicated personnel.

ii. R&D personnel and education

Education End of 2016 End of 2016 End of 2017 End of 2017 End of 2018 End of 2018
Number
of People		 Ratio Number
of People		 Ration Number
of People		 Ration
College 8 72.73 13 81.25 21 100
Senior High School 2 18.18 2 12.5 0 0
Below High School 1 9.09 1 6.25 0 0

85

Total 11 100.00 16 100 21 100

iii. R&D expenses in the past 5 years

Item 2014 2015 2016 2017 2018
R&D Expenses (A) 130,562 153,463 166,572 164,431 192,853
Net Operation Revenue(B) 6,748,419 7,615,649 8,266,171 8,123,832 7,542,981
Ratio (A/B) 1.93 2.02 2.02 2.02 2.56

iv. Product or technology development accomplishments in the past 5

years

years
Year Item
2013 0.22 piston oil-free air compressors
Model LW-15A, model LW-20A scroll air compressors
2014 Model WX-7.5A, model WX-5.5A scroll air compressors
750W oil-free scroll air compressors
2015 Model LZ-1.6/40, model LZ-0.7/40 medium pressure piston air compressors
Model WWX-3KW, model WWX-4KW oil-free scroll air compressors
2016 Model: WWX-1.1KW, WWX-1.5KW oil-free scroll air compressors
2017 Screw (two-stage compression) - LW-100MP (two-stage compression 1.0MPa)
Model TWX-10HP scroll air compressors (two-stage compression 1.0MPa), TWX-
7.5HP scroll compressors
2018 Two-stage energy efficient screw compressors Models 75HP, 100HP, 125HP,
150HP, 175HP
The heads for screw compressors model 22KW_30HP

  • (4) Long-term and short-term business development plans

  • i. Short-term development plans

    • A. Increase the level of automated production equipment in order to improve production efficiency and reduce labor costs.

    • B. Have good relationship with distributors, continue regular training, maintain a good and stable interaction model, improve the quality

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of service, and choose sound dealers, strengthen the policy of staying strong, provide high-quality after-sale service, and improve the quality of cooperation between mature dealers, and strategic cooperation with high-end products for one-stop services.

  • C. Focus on market-competitive R&D, such as screw line improvement, increase exhaust volume, increase product cost performance.

  • D. Optimize the composition of the operating margin and accelerate the proportion of revenue from high-margin products.

  • E. Start the internal and external sales, continue to expand the turnover of overseas markets, and grasp the market entry opportunities.

  • F. Speed up the development of the screw head and stabilize the quality and stability of the key components.

  • ii. Long-term development plans

  • A. Continue to steadily expand production capacity and deepen the leading position of air compressors for small and medium-size specifications.

  • B. Continue to recruit international talents in order to increase the core competiveness of the Company.

  • C. Besides growing steadily within the industry, actively seek for cooperation opportunities with related field market.

  • D. Make good use of the characteristics of high efficiency, high reliability, low noise and light weight of scroll air compressors and continue to develop new scroll air compressors to increase the application ratio in the high-end pharmaceutical industry.

  • E. Improve corporate governance standards, the Company’s information disclosure and smooth channels with investors, strengthen corporate governance structure and internal control mechanisms, and fulfill the concept of corporate social responsibility to achieve the spirit of sustainable business management.

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  - F. Continue to increase the proportion of air compressors with energy saving and high efficiency, including high-end products such as F- series and two-stage compression screw machines and scroll machines. To optimize product structure in order to improve profitability and improve the diversification of screw products.

  - G. The build of Lida New Industrial Park, create a full-automatic factory, integrate production capacity and improve production efficiency, and focus on developing high-end screw air compressor market in the future.

  1. Market and Sales Overview

  2. (1) Market analysis

    • i. Sales areas of main product (service)

Unit: NT$ thousand; %

Sales
Region		 2016 2016 2017 2017 2018 2018
Sales
Amount		 Sales
Proportion		 Sales
Amount		 Sales
Proportion		 Sales
Amount		 Sales
Proportion
China 7,532,458 91.12 7,250,205 89.25 6,547,928 86.81
Others 733,713 8.88 873,627 10.75 995,053 13.19
Total 8,266,171 100.00 8,123,832 100.00 7,542,981 100.00

ii. Market share

There are a large number of air compressor manufacturers in China, especially in the middle and low-end air compressor market with large number of concentrated production enterprises are, but the scale is usually small so the profitability is naturally not strong. In recent years, with the rapid development of China’s air compressor industry, industrial concentration has gradually increased, especially the foreign brands in the middle and high-end market such as Atlas Copco of Sweden and Ingersoll Rand of the United States. According to the statistics of Compressor Branch of China General Machinery Industry Association, the size of China’s air compressor market in 2018 is RMB 44.5 billion, and the market share of the Company’s 2018 sales volume in China’s air

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compressor products accounted for around 3.7%. According to the 2018 annual reports of Zhejiang Kaishan and Shanghai Hanbell Precision Machinery Co., Ltd., the market share of their 2018 sales volume in China’s air compressor products accounted for 5.8% and3.9%, respectively. It is estimated that large foreign-funded enterprises still occupy most Chinese air compressors’ market share.

iii. Market supply and demand and growth in the future

A. Market supply in the future

With China’s gradually developing into a global manufacturing center, internationally well-known air compressor manufacturers such as Atlas Copco, Ingersoll Rand, Gardoner Denver and Sullair, etc., have established factories in China because of the large domestic demands. Foreign-funded compressor manufacturers have occupied the dominant position in the compressor market based on technological advantages, especially in the mid-to-high-end products market. Although the number of private air compressor manufactures in China is large, the scale is typically small, and many of them do not have the ability to manufacture core components which leads to the fact that the products they make are similar and mostly low-end. As a result, the air compressor market is high competitive. With China’s introduction of “13[th] Five-Year-Plan” to promote energy conservation, emission reduction and industrial upgrading, con summers of terminal applications are increasingly demanding quality of air compressors, especially in terms of specific power (energy saving effect) and noise level of products. Therefore, many of the Chinese air compressor manufacturers might face the elimination of the market due to lack of technical capabilities. In addition, in accordance with the “Regulation of the People’s Republic of China on the Administration of Production Licenses for Industrial Products” (No. 440 of the State Council) and the “Measures for the

89

Implementation of the Regulations of the People’s Republic of China on the Administration of Production Licenses for Industrial Products” (No. 156 of the General Administration of Quality Supervision, Inspection and Quarantine) that enterprises that produce and sell air compressor products in China are required to obtain production licenses. Any enterprise that fails to obtain licenses shall not produce air compressor products. No unit or individual may sell or use production licenses without obtaining production licenses in business activities. As mentioned above, the Chinese air compressor industry is becoming more and more technical, and the production license is strictly controlled by the state. The entry level of the industry is not as easy for competitors to join in. In the future, the market share of enterprises with R&D capabilities and brand management capabilities is expected to increase.

B. Market demand situation and future growth

China’s above-scale growth rate of industrial added value (Note)

China’s above-scale growth rate of industrial added value (Note) China’s above-scale growth rate of industrial added value (Note) China’s above-scale growth rate of industrial added value (Note) China’s above-scale growth rate of industrial added value (Note) China’s above-scale growth rate of industrial added value (Note)
Category 2014 2015 2016 2017 2018
Manufacturing 9.4% 7.0% 6.8% 7.2% 6.5%
General
Equipment
Manufacturing		 9.1% 2.9% 5.9% 10.5% 7.2%
Automobile
Manufacturing		 11.8% 6.7% 15.5% 12.2% 4.9%
Food
Manufacturing		 8.6% 7.5% 8.8% 9.1% 6.7%
Textile 6.7% 7.0% 5.5% 4.0% 1.0%
Pharmaceutical
Manufacturing		 12.3% 9.9% 10.8% 12.4% 9.7%

Source of Information: National Bureau of Statistics of China

Note: The growth rate of industrial added value: meaning the rate of industrial growth is an indicator used to reflect the degree of changes in the volume of industrial production in a given period of time.

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The Growth Rate of China’s investment in fixed assets (Excluding farmers) (Note)

==> picture [67 x 42] intentionally omitted <==

The Growth Rate of China’s investment in fixed assets
(Excluding farmers) (Note)		 The Growth Rate of China’s investment in fixed assets
(Excluding farmers) (Note)		 The Growth Rate of China’s investment in fixed assets
(Excluding farmers) (Note)		 The Growth Rate of China’s investment in fixed assets
(Excluding farmers) (Note)		 The Growth Rate of China’s investment in fixed assets
(Excluding farmers) (Note)		 The Growth Rate of China’s investment in fixed assets
(Excluding farmers) (Note)
Category 2014 2015 2016 2017 2018
Manufacturing 13.5% 8.1% 4.2% 4.8% 9.5%
General
Equipment
Manufacturing		 16.4% 10.1% -2.3% 3.9% 8.6%
Automobile
Manufacturing		 8.3% 14.2% 4.5% 10.2% 3.5%
Food
Manufacturing		 22.0% 14.4% 14.5% 1.7% 3.8%
Textile 12.4% 12.8% 10.7% 5.9% 5.1%
Pharmaceutical
Manufacturing		 15.1% 11.9% 8.4% -3.0% 4.0%

Source: National Bureau of Statistics of China

Note: Investment of the Whole Society is a comprehensive indicator for measuring the total expenditure on the construction of the society and purchase of fixed assets in a certain period of time, and measuring the scale, structure and development speed of fix assets in various industries.

The Company’s main products of air compressors currently account for nearly 90% of the revenue from the Chinese market, and the manufacturing industry has the widest range of application. Due to fluctuations in the overall environmental climate of the downstream application industry, the air compressor manufacturers may be affected. Therefore, in the Chinese manufacturing industry, the main applications of the Company are general equipment manufacturing, automobile manufacturing, food manufacturing, textiles and pharmaceutical manufacturing. According to the growth rate of industrial added value of industrial enterprises above designated size issued by the National Bureau of Statistics of China, the growth rate of industrial added value of various industries in 2014 to 2018 has maintained growth. It is obvious that the main downstream application industries of the Company still maintain

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stable growth, and because of its wide application industry, it is less likely to be affected by single industry fluctuations.

Also take a look at the growth rate of national fixed asset investment (exclude farmers) issued by the National Bureau of Statistics of China. The manufacturing, general equipment manufacturing, automobile manufacturing, food manufacturing, textile and pharmaceutical manufacturing industries also maintained growth in 2014 to 2018. Various industries still continue to increase investment in fixed assets, and the growth rate for fixed asset investment in the main application industries of air compressors in each period is bigger than the industrial growth rate. This shows that with the promotion of industrial upgrading under the Chinese policy, the adoption of automation equipment in various industries is promoted. The demand for the air compressor industry will continue to grow.

In summary, the possible future market demand of the air compressor industry in which the Company is located,, the overall market size in China shall grow steadily if it is not caused by major non-systematic risk. The Chinese government is actively pursuing a number of major economic policies, such as the “Made in China 2025” which aims to transform China’s manufacturing industry from a “big country” to a “great country” and will assist key industries such as robots and aviation, new energy vehicles, advanced transportation tools through policies and carry out industrial upgrading for automated production is one of the key elements for industrial upgrading. Therefore, the implementation of this policy to automation related manufacturers is expected to benefit. Also, the Chinese government has actively promoted the “One Belt, One Road” policy which aims to build a new network of trans-Asian trade through the expansion of infrastructure, so relevant suppliers are expected to benefit from it. The main product of the Company is air compressors which is one of the key elements that are indispensable for automated production and infrastructure. Therefore, the market demand for air compressors is expected to grow steadily under the promotion of national economic policies.

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  • iv. Competitive niche

A. The quality and brand of high quality and reliability

  • (a) Consistent brand

The establishment of brand image is by no means overnight stroke; the Group has long adhered to high-quality brand image of Luowei with the level of international design and high-performance and high-quality air compressor market.

(b)Product performance comparable to international manufacturers

The performance quality of many of the Group’s product lines has been in comparison with major international brands. For example, one of Chinese’ most important buildings “Bird’s Nest Stadium” in Beijing chose to use the Luowei’s screw air compressors out of more than ten other competitors that had undergone a series of rigorous environmental testing which is the best proof of example.

  • (c) Wide range of products

Trademark registration does not represent a brand. Only products that meet the demand of the market is the foundation of a sustainable brand. The mainstream products of the general air compressor market consist of piston compressors, screw air compressors and scroll air compressors; the Group has launched a product line that is suitable for various industries.

(d) Excellent after-sale service

The Group actively and continuously trains distributors on their ability for maintenance and repair to meet any installation questions customers may have. The Group has set up a 24 hour phone line regarding product technical enquiries to ensure immediate resolution that enhances

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customers’ scarification and confidence in the Group.

B. Stable distributor channels

  • (a) Experienced industrial sales

The distributors selected by the Group are mainly with rich experience in operation hardware machinery, especially pneumatic tools and equipment. It not only saves time and cost, but more importantly, it adds more positivities to the professional image of marketing.

(b) One-stop shopping

Most of the Group’s distributors offer one-stop service that provides a wide range of products. In addition to meeting the needs of customers to purchase enough equipment, distributors can offer customers with complete package of design and installation which has more sales advantages compared to brand branches.

  • (c) Provide excellent after-sale service at low cost

Since the one-stop distributors manage various equipment sales, the use of efficiency of overall transportation and repair manpower will maximize to avoid the problem that the people working in brand branches might come across, such as having too little to do or lack comprehensive repair capability.

C. Experienced production technology

  • (a) More than 20 years of production experience

  • ”People of Lida” have more than 20 years of experience on producing air compressors. Its team is stable and high efficient that keeps on improving which builds the advantage of strong producing technology the Company possesses.

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  • (b) Quality-oriented factory management

The Group has set up quality control for each inspection in each process, strictly controlling quality thoroughly and creating high quality products.

  • D. Strong research and development capabilities

  • (a) Taiwanese with outstanding technical skills

The Company has paid a high price and specially hired the director of the Taiwan Air Compressor Factory, which has been established for 50 years, as the R&D director of Lida Company to rapidly develop or improve products and technologies with its rich and advanced Taiwan air compressor manufacturing experience and technology.

  • (b) Cooperation of professional academic units

In order to strength the instant grasp of new technologies and new products, the technical talents of the Group communicate with academic institution and sign R&D contracts for new technologies and products. They have an open attitude on the usage of academic resources as well as strengthening and accelerating the Company’s development capabilities without being excluded from the outside world.

  • (c) Continuous improvement and innovation

The R&D and production department work closely alongside to continuously develop and improve to deepen the advantages on product costs. For example, the design of the iron plate cutting has further changed the size of the purchased iron plates, thereby greatly reducing the residuals of material and the efficiency of stamping.

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  • v. Favorable development prospects, unfavorable factors and countermeasures

  • A. Favorable factors

    • (a) Rapid growth of Mainland market

In March 2016, the 4[th] meeting of the 12[th] National People’s Congress of China officially announced the draft of the 13[th] Five-Year Plan for National Economic and Social Development (2016-2020), which is the review and approval of the draft outline of the so called “Thirteenth Five-Year Plan”, which sets out the new program of governing the country and determines the guiding principles for the industrial upgrading of the 13[th] Five-Year Plan. It is different from the past Five-Year Plan, and aims to build a well-off society by the year of 2020. Its core contents consists of five development concepts, including innovation, coordination, being green, openness and sharing which predicts that all industries in Mainland China will continue to invest in high-end equipment in the next few years, and air compressors are an indispensable main source of power for various industries which also shows the fact that air compressors will keep on developing rapidly in the future of Chinese market.

  • (b) The labor costs in the Mainland China continue to rise, and the automation ratio is increasing each year.

The Chinese labor cost continues to rise, and the problem of lack of work has also been known. There are already manufacturers who have moved to the southeast, but more competitive manufacturers have chosen to stay for industrial upgrading and automation engineering to change the production line that used to require a lot of labor to an automated one. Both productivity and product quality have been effectively improved. As the automation ratio of each industry has increased year by year, the demand for

96

air compressors has also been raised year by year.

  • (c) In Mainland, environmental protection requirements have raised and green industries have emerged

The air pollution in mainland has become more and more concerning, hence the local government’s attention on the issue of environmental protection. In many industries, environmental pollution will be gradually regulated and eliminated in the process of production. Air compressors use air as a medium, and air does not pollute the environment like hydraulic systems, which operates with various oils that create large consumption of energy and pollution. New air compressors such as scroll air compressors generate very low noises and provide a better production environment.

  • (d) Industry entry threshold is high

Besides the accumulation of product technology and production experience, in accordance with the “Regulations on the Administration of Industrial Product Production Licenses of the People’s Republic of China (Order No. 440 of the State Council) and the “Implementation Measures for the Administration of Industrial Products Production Licenses of People’s Republic of China” (National Quality supervision and Inspection) Quarantine General Administration Order No.80), “Industrial Structure Adjustment Guidance Catalogue (2005)” (National Development and Reform Commission Order No.40), etc., companies that produce and sell air compressor products in China are required to have production licenses. Enterprises that do not have production licenses are not permitted to produce air compressor products, making it rather challenging for newcomers to enter the industry.

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  • (e) Wide range of applications, unaffected by the boom in single industry.

Industries that require automation and reduce labor and improve the efficiency of production will use air compressors, such as assembly lines and maintenance plant in automotive industry; food/pharmaceutical processing and blow molding; air-jet weaving and weft blowing in textile and garment industry even spray guns for decoration, therefore the demand for air compressors is less susceptible to fluctuations in the single industry boom.

  • B. Unfavorable factors and countermeasures

  • (a) The fluctuation of raw material prices has increased the challenge of raw material inventory management and cost control.

    • Steel, motor materials and host of air compressors are the main raw materials of the Company. As the revenue increases each year, the usage of raw materials increases as well. Raw materials tend to fluctuate with the fluctuation of the economy which affects production costs or stocking. Respond to measures: Establish a good relationship with the upstream raw material suppliers to mitigate the impact of fluctuations in prices of raw materials and the stability of supply. Regularly review the market supply and demand as well as price fluctuations in order to adjust the purchase quantity. At the same time, make downstream distributors aware when the cost of raw materials rises to a certain extent to reduce the impact of the increase in raw materials.

  • (b) Increased labor costs in the Mainland increases production cost

The Company’s main production base is in China. With the rise of China’s prices in recent years, the cost of labor

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has also increased. Since the implementation of the Labor Contract Law in 2008, local wages and welfare requirements have increased year by year, resulting in an increase in the production costs of local manufacturers that affects its own gross profit and competitiveness. Although the current direct labor accounts for less than 10% of the Company’s production costs, if the cost of labor continues to rise, it will have an adverse impact on operating profit.

Respond to measures: The Company has been introducing automated production equipment in recent years, and is actively engaged in the improvement of production processes. In the future, the labor efficiency will be improved through the production process design and staff training, and it is expected to effectively reduce the dependence on labor. In response to the rapid increase of labor cost in China’s coastal areas, the Company has plans to expand a plant to the inland areas where the labor costs are lower. So far, the Company has invested in Jiangxi to establish a subsidiary – Lida (Jiangxi) Machine Equipment Company Limited as a production base of the Group in the inland provinces. After gradually expanding its production capacity, it is expected to decrease the pressure on rising labor costs.

  • (c) Serious counterfeiting in the mainland makes brand management difficult

The market in the mainland is vast, and the demand for air compressors keeps growing which has made local smallscale manufacturers to claim their sub-quality product as well-know brand to make enormous profits. It often leads to unnecessary disputes after the poor-quality products breaking down.

Respond to measures: The Company’s “Lida” and “Luowei”

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are registered trademarks in the local area to avoid the use of similar trademarks in the industry to mislead consumers. The Company’s new technology research and development will also apply for patents to avoid imitation within the industry. To protect the Company’s rights, the Company educates distributors around the country to keep an eye out for counterfeit products and look for evidence then call the local police for penalties to make them aware that selling counterfeit products has to be punished to an extent so that they will think twice next time.

(2) Important uses of the main products and production process i. Important uses

Application
areas		 Functions Examples of applications
Manufacturing
Aerodynamics		 Drive a variety of pneumatic machinery, such as
pneumatic picks, riveting machines, presses,
tamping machines, lifts, wind drills, etc.
Instrument control and automation devices,
including pneumatic instruments, pneumatic valves,
power instruments, instrument control, etc.
Spray blasting, including spray painting, rust
removal, etc.
Textile and
Garment		 Aerodynamics Jet weaving, including driving a jet weaving
machine with a compressor.
Weft blowing, denim sand washing
Food,
pharmaceutical
Aerodynamics		 Bottle blowing and molding, for example, blowing
and molding bottles using bottle blowing machine
with a compressor.
Compression stirring
Canned food and medicine, including insert carbon
dioxide into canned beer, packing production line

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automation equipment
Transportation
Aerodynamics		 Vehicle braking, door opening and closing, track
installation engineering equipment
Chemical and
Petrochemical		 Aerodynamics Oil well fracturing, fracturing the ground using air
pressure, oil extraction
Synthesis and
polymerization		 Synthetic polymerization of chemical raw materials
including synthetic nitrogen, synthetic methanol and
synthetic urea.
Gas transportation Remote transportation of gas and natural gas.
Refrigeration
and Gas
separation		 Refrigeration and
Gas separation		 Artificial refrigeration including nitrogen
compressors, Freon compressors
Gas transportation Transport of refrigeration gas or separated gas
Mine,
metallurgy		 Aerodynamics Drilling equipment drives, including rock drills,
pneumatic drills, mechanical impactors
High pressure blasting mining, including high
pressure blasting coal mining
Gas transportation Transportation of combustion-supporting gas,
including blast furnace air supply, blast furnace
oxygen supply, cement transportation, mine air
supply

ii. Production process

A. Piston air compressor production process

Outsourcing power and other components Outsourcing components to assemble control

==> picture [312 x 89] intentionally omitted <==

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

Piston air
Adj Test Pack
compressors Storage
usti ing aging
assembling
ng
----- End of picture text -----

Resource：Qianinfo Consulting

101

B. Screw air compressor production process

==> picture [573 x 565] intentionally omitted <==

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

Physical and Rough Refi Fine axle Milling
chemical axle shaft ning shaft machine
Raw Temper
materials ing property bearing bearing
examination
Screw
Fine
rotor
grinding
Anti-corrosive Examina shaft
Cleaning Deburring Grinding
treatment tion bearing
As-cast Temper Physical and Aging Milling Rough Second
Body ing chemical property treatment support bore and temperin
examination surface and both
housing g
plane ends
Drilling Fine Fine bore
Anti-corrosive Examina Cleaning Deburring and grinding and both
treatment tion
tapping plane ends
Screw air
compressor
assembly
Outsourcing
accessories
Screw
Pressure
host Tempering Examination Packing Storage
vessels,
assembly
casting, etc.
Outsourcing
power parts
----- End of picture text -----

Resource：Qianinfo Consulting

102

  • (3) Primary raw materials

The Company’s primary raw materials are machinery heads, crankcases, hosts, iron plates, iron cores, rotors, etc., and there are more than two sources that supply related materials. The Company maintains a good and stable cooperative relationship with major raw material suppliers. Not only does the Company have enough supplies but also strictly control the quality and delivery period to ensure that the supply of major raw materials is sufficient. There has been no shortage or interruption of supply in the past three years and the application year which makes the sources of supply very stable.

  • (4) Based on the number of customers and their purchase amount and ratio that accounted for more than 10% of the total sales in the past two years, any changes that had occurred are explained as follows

  • i. Data of major supplier for the past two years who accounted for more than 10% of the total sales in the past two years

Unit: NT$ thousand

Unit: NT$ thousand Unit: NT$ thousand Unit: NT$ thousand Unit: NT$ thousand
2017 2018
Item Title Amount Annual net
purchase
(%)		 Relation
with
issuer		 Company Amount Annual net
purchase
(%)		 Relation
with
issuer
1 A1 750,542 13.34 None A1 697,285 13.36 None
2 Other 4,875,841 86.66 － Other 4,520,355 86.64 －
Net purchase 5,626,383 100.00 － Net purchase 5,217,640 100.00 －

The main supplier of the Company for the past two years is A1 who the Company mainly purchases heads of air compressors from. As the sales amount of screw air compressors of the Company is increasing each year, the purchase amount of the related screw compressor hosts is also increasing each year.

  • ii. The Company’s distributors are scattered. In the past two years, there were no distributors who accounted for more than 10% of the total sales.

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(5) Production value for the past two years

Year
Production
Key products		 2017 2017 2018 2018
Capacity Output Output
Value		 Capacity Output Output
Value
Piston air compressors 1,029,458 910,696 3,383,355 1,028,540 630,024 2,698,833
Screw air compressors
32,045		 29,174 3,581,067 32,124 26,558 3,669,030
Scroll air compressors
26,695		 24,278 991,152 26,722 22,991 975,188
Other 0 67,062 168,258 0 107,957 199,930
Total 1,088,198 1,031,210 8,123,832 1,087,386
787,530
7,542,981

(6) Sales value for the last two years

(6) Sales value for the last two years Sales value for the last two years Sales value for the last two years Sales value for the last two years
Year
Production
Key products		 2017 2018
Domestic Foreign Domestic Foreign
Output Output
Value		 Output Output
Value		 Output Output
Value		 Output Output
Value
Piston air
compressors		 867,653 3,126,433 43,043 256,922 582,917 2,436,320 47,107 262,513
Screw air
compressors		 24,932 3,106,844
4,242		 474,223 22,187 3,138,536
4,371		 530,494
Scroll air
compressors		 21,196 872,537 3,082 118,615 19,022 816,575 3,969 158,613
Other 33,892 144,391 33,170 23,867 30,392 156,497 77,565 43,433
Total 947,673 7,250,205 83,537 873,627 654,518 6,547,928 133,012 995,053
  1. The Number of Employees Employed for the 2 most Recent Fiscal Years, and during the Current Fiscal Year up to the Date of Publication of the Annual Report, their Average Years of Service, Average Age, and Education Levels

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Persons, age, year, %

Year 2017 2018
Number of
employees		 Manager 5 5
General employee 263 278
Production line employee 1,258 1,245
Total 1,526 1,528
Average age 38 38
Average years of service 5.43 6.1
Education
level
distribution
ratio		 Master (above) 1 2
University 104 114
Senior High school 182 175
Below high school 1,239 1,237

  1. Disbursements for Environmental Protection

  2. (1) Instructions for the application, payment or establishment of a pollutant installation permit or a pollution discharge permit or a person who should set up an environmental protection special unit in accordance with the law:

A subsidiary of the Company, Lida (China) applied for pollutant discharge permit at the Fujian Provincial Department of Environmental Protection in accordance with regulations. The license number is 350521-2016-000075-TS. The validity period of the license is October 24, 2021.

A subsidiary of the Company, Lida (Jiangxi) applied for pollutant discharge permit at the Jiujiang Environmental Protection Bureau of Jiangxi Province in accordance with regulation. The license number is Jiukaihuan [2016]003. The validity period of the license is July 14, 2027

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  • (2) List the Company’s investments in the primary equipment for preventing and controlling environmental pollution and its used and possible benefits: None.

  • (3) Explain the Company’s efforts to improve environmental pollution in the past two years and up to the date of publication of the annual report: its incidents of pollution disputes, and should explain its process of resolution: None

  • (4) Explain in the total amount of damage (including compensation) the Company suffered due to environmental pollution in the last two years and up to the date of publication of the annual report, and disclose its future countermeasures (including improvement measures) and possible expenses (including the estimated amount of possible loss, punishment and compensation if failing to respond to countermeasures, if it cannot be reasonably estimated, the facts shall be stated): None

  • (5) Explain the impact of the current pollution status and its improvement on the Company’s earnings, competitive position and capital expenditures, and the estimated major environmental capital expenditures for the next two years.

  • i. Current pollution status and its impact on the Company’s earning, competitive position and capital expenditures: None.

  • ii. The estimated and major environmental capital expenditures for the next two years: None.

5. Labor Relations

  • (1) Various aspects of employee welfare measures, continuing education, job training, retirement system and its implementation, as well as labor agreements, labor rights and employment protection measures.

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  • i. Employee welfare measures

  • A. The Company encourages and promotes its employees in a timely manner.

  • B. The Company conducts excellent employee evaluation each year and give recognition.

  • C. The Company rewards those who achieve exceptional results in production to encourage positivity.

  • D. The Company pays for its employees’ social insurance.

  • E. The Company provides pleasant living entertainment such as dormitory, basketball, temporary baby care center, staff convenience store, etc.

  • ii. Continuing education and training

The Company provides induction training for all employees, including factory regulations, environmental protection, 6S (sort, set in order, shine, safety, standardize, sustain),etc. It also provides skills and safety management training for employees and supervisors. Combining with the employees’ personal development planning, the Company offers professional training to enhance employees’ personal capabilities from time to time. The Company also invites distributors who have excellent performance to share their sales skills and after-sale service experiences to improve the quality of service of each distributor, along with internal or external professional training for full-time employees if needed to improve their personal qualities and working skills.

  • iii. Retirement system and the status of its implementation

The Company’s main operating location is in mainland China. The Company pays for five basic social insurances to the local

107

Social Security Bureau such as endowment insurance for employees in accordance with the law. When an employee reaches the statutory retirement age, they can apply for pension from the Social Security Bureau to which procedures the Company also handles s in accordance with the relevant regulations of the local government.

iv. Labor agreements, maintenance of employee rights and interests

The Company has always valued the rights and interests of the employees, engages communications actively, and strives for humane management. The employees can express their opinions through meetings, emails or mailboxes to keep the labor and management communication smooth and open.

  • (2) List any loss sustained as a result of labor disputes in the most recent fiscal year, and during the current fiscal year up to the date of publication of the annual report, disclose an estimate of losses incurred to date or likes to be incurred in the future, and indicate mitigation measures being or to be taken. If the loss cannot be reasonably estimated, make a statement to that effort: There have not been any disputes.

  • Important contracts

  • (1) Lida Holdings Limited: None

  • (2) Wellsoon International Limited: None

  • (3) Lida (HK) Holdings Co., Limited: Loan contract, Lida (HK) provided RMB 95 million in loan to Lida (China)

  • (4) Lida (China) Limited

Type of
Contract		 Party Contract Duration Contract Content Restrictions
Maximum
Mortgage
Contract		 Industrial and
Commercial Bank of
China Co., Ltd.
Quanzhou Taiwanese
Investment Zone Sub-
branch		 June 14, 2016 to
June 13, 2019		 Signed Lida
(China) Real Estate
and Land Mortgage
Contract		 None

108

Type of
Contract		 Party Contract Duration Contract Content Restrictions
Loan Contract Lida (HK) Holdings Co.,
Limited.		 November 1,
2013to October
31, 2020		 Lida (HK)
Holdings Co.,
Limited: Loan
contract, Lida
(HK) provided
RMB 95 million in
loan to Lida
(China)		 None
Venue Lease
Contract		 Fujian Province
Quanzhou Lida
MachineryCo., Ltd.”.		 January 1, 2015 to
December 31,
2020		 Signed 2015-2020
Housing Lease
Contract		 None
Technology
Development
Commission
Contract		 Fuzhou University January 16, 2017
to January 15,
2019		 Design and
development of
screw air
compressor		 None
Liquidity Loan
Contract
(2016 version)		 Industrial and
Commercial Bank of
China Co., Ltd.
Quanzhou Taiwanese
Investment Zone Sub-
branch		 June 22, 2017
to May 10, 2018		 Signed Loan
Contract		 None
Loan
Commitment
Agreement		 Industrial and
Commercial Bank of
China Co., Ltd.
Quanzhou Taiwanese
Investment Zone Sub-
branch		 June 22, 2017 to
May 10, 2018		 Signed Loan
Commitment
Agreement		 None
Technology
Development
Commission
Contract		 Fuzhou University January 11, 2018
to January 10,
2020		 Design and
development of
two-stage high
efficiency energy-
saving frequency
conversion screw
machine		 None
Technology
Development
Commission
Contract		 Fuzhou University January 17, 2018
to January 16,
2020		 Design and
development of oil-
free screw air
compressor		 None
Contract of
State-owned
Construction
Land Use
Right		 Quanzhou Municipal
Bureau of Land and
Resources, Taiwanese
Business Investment
Zone		 Since March 30,
2018		 Signed land
contract		 None
Liquidity Loan
Contract		 Industrial and
Commercial Bank of
China Co., Ltd.		 April 10, 2018 to
February 20, 2019		 Signed Loan
Contract		 None

109

Type of
Contract		 Party Contract Duration Contract Content Restrictions
Quanzhou Taiwanese
Investment Zone Sub-
branch
Loan
Commitment
Agreement		 Industrial and
Commercial Bank of
China Co., Ltd.
Quanzhou Taiwanese
Investment Zone Sub-
branch		 April 10, 2018 to
February 20, 2019		 Signed Loan
Commitment
Agreement		 None
Liquidity Loan
Contract		 Industrial and
Commercial Bank of
China Co., Ltd.
Quanzhou Taiwanese
Investment Zone Sub-
branch		 May 15, 2018 to
May 15, 2019		 Signed Loan
Contract		 None
Liquidity Loan
Contract		 Industrial and
Commercial Bank of
China Co., Ltd.
Quanzhou Taiwanese
Investment Zone Sub-
branch		 May 16 2018April
12, 2019		 Signed Loan
Commitment
Agreement		 None
Contract
Agreement		 Fujian Minyu
Construction
Engineering Co., Ltd.
Quanzhou Taiwanese
Investment Zone		 Since August 29,
2018		 Pile foundation
construction		 None

(5) Lida (Jiangxi) Limited

Type of
Contract		 Party Contract Duration Contract Content Restrictions
Construction
Contract
Supplementary
Agreement		 Jiujiang First
Construction
Engineering
Company		 Since March 25,
2013		 General Contract
of
Comprehensive
Construction		 None
Factory Lease
Agreement		 Jiujiang Heguang
Machinery
Manufacturing Co.,
Ltd.		 December 20, 2017
to December 19,
2022		 Signed Lease
Agreement		 None
Contract
Change
Agreement		 Jiujiang Heguang
Machinery
Manufacturing Co.,
Ltd.		 December 20, 2017
to December 19,
2022		 Signed Change of
Lease Unit Price
Agreement		 None

110

VI. An Overview of the Company’s Financial Status

  1. Condensed balance sheets and statements of comprehensive income for the past 5 fiscal years, showing the name of the certified public account and the auditor’s opinion given thereby

  2. (1) Condensed balance sheet and consolidated income statement

    • i. Condensed balance sheet- International Financial Reporting

Standards (Consolidated)

Unit: NT$ thousand

Unit: NT$ thousand Unit: NT$ thousand Unit: NT$ thousand Unit: NT$ thousand
Year
Item		 Financial information in the past 5 year
2014 2015 2016 2017 2018
Current Assets 2,875,603
3,819,422
5,659,807
5,563,368
5,387,654
Property, plant and equipment 510,467
483,323
445,417
669,336
774,378
Intangible assets － － － － －
Other assets 44,590
42,461
47,154
64,507
175,743
Total assets 3,430,660
4,345,206
6,152,378
6,297,211
6,337,775
Current liabilities Before
distribution		 802,851
855,615
951,786
960,251
760,843
After
distribution		 919,851
1,035,615
1,751,786
1,460,251
Note 2
Non-current liabilities 162,978
260,137
336,599
407,913
470,549
Total liabilities Before
distribution		 965,829
1,115,752
1,288,385
1,368,164
1,231,392
After
distribution		 1,082,829
1,295,752
2,088,385
1,868,164
Note 2
Attributable to the equity
holders of the company		 2,464,831
3,229,454
4,863,993
4,929,047
5,106,383
Share Capital 900,000
900,000
1,000,000
1,000,000
1,000,000
Capital surplus 536,966
536,966
1,548,200
1,548,200
1,548,200
Retained earnings
Before
distribution		 923,280
1,740,810
2,582,641
2,439,676
2,976,129

After
distribution		 806,280
1,560,810
1,782,641
1,939,676
Note 2
Other equity interest 104,585
51,678
-266,848
-325,677
(417,946)
Treasury stock － － － － －
－

111

Non-controlling interests Non-controlling interests － － － － －
－
Total equity Before
distribution		 2,464,831
3,229,454		 4,863,993
4,929,047
5,106,383
After
distribution		 2,347,831
3,049,454		 4,063,993
4,429,047
Note 2
Note1: The consolidated financial reports for 2014~2018 have been audited and signed by public certified
accountants.
Note 2: The 2018 annual surplus distribution ispendingresolution of the shareholders’ meeting.

ii. Condensed Consolidated Income Statement – International

Financial Reporting Standards

Unit: NT$ thousand

Year
Item		 Financial information in the past 5 years Financial information in the past 5 years Financial information in the past 5 years Financial information in the past 5 years
2014 2015 2016 2017 2018
Operating revenues 6,748,419
7,615,649
8,266,171
8,123,832
7,542,981
Gross profit 1,604,375
1,896,336
1,980,860
1,910,269
1,781,542
Net operating income 1,154,017
1,392,685
1,443,630
1,385,923
1,241,357
Non-operating income and
expenses		 (9,460)
10,390
74,990
4,488
(52,127)
Profit before income tax, net 1,144,557
1,403,075
1,518,620
1,390,411
1,189,230
Continuing operations
Profit		 758,945
934,530
1,021,831
923,883
769,605
Loss from discontinued
operations		 － － － － －
Profit 758,945
934,530
1,021,831
923,883
769,605
Other comprehensive income
Profit after income,tax,net		 96,936
( 52,907 )
(318,526)
(58,829)
(92,269)
Total comprehensive income 855,881
881,623
703,305
865,054
677,336
Profit attributable to the equity
holders of the company		 758,945
934,530
1,021,831
923,883
769,605
Net profit attributable to non-
controllinginterests		 － － － － －
Comprehensive income
attributable to the equity
holders of the company		 855,881
881,623
703,305
865,054
677,336

112

Comprehensive income
attributable to non-controlling
interests		 － － － － －
Earnings per share (Note 1) 9.15
10.38
10.80
9.24
7.70
Note1: The consolidated financial reports for 2014~2018 have been audited and signed by public certified
accountants.

  • (2) Significant matters affecting the financial statements stated above for consistency comparison, such as accounting changes, company mergers or suspension of business operations, etc. and their impact on the financial statements for the year: None.

  • (3) The names of appointed certified accounts and their audit opinions in the last 5 years

  • i. appointed certified accounts and their audit opinions in the last 5

    • years
years
Year Name of accounting firm N a m e o f C P A A u d i t o p i n i o n
2014 PwC Taiwan Zuo-Cheng Zhang,
Chin-Mu Hsiao		 Unqualified opinion
2015 PwC Taiwan Zuo-Cheng Zhang,
Chin-Mu Hsiao		 Unqualified opinion
2016 PwC Taiwan Zuo-Cheng Zhang,
Chin-Mu Hsiao		 Unqualified opinion
2017 PwC Taiwan Hsien-Cheng Chen,
Chin-Mu Hsiao
Unqualified opinion
2018 PwC Taiwan Hsien-Cheng Chen,
Chin-Mu Hsiao
Unqualified opinion
  • ii. If there is any change of accounts in the past five years, the Company, ex-accounts and new accounts shall state the reason for the replacement: With the adjustments of the internal organization of PwC, the replacement of the CPAs was approved by the board of directors on July 14, 2017 and was effective from the second quarter of 2017. The new CPAs are Hsien-Cheng Chen, Chin-Mu Hsiao.

113

2. Financial Analyses for the Past Five Fiscal Years

(1) Adoption of International Financial Reporting Standards

Unit: NT$ thousand

Unit: NT$ thousand Unit: NT$ thousand Unit: NT$ thousand Unit: NT$ thousand Unit: NT$ thousand
Item Year
Financial information in the past five years
2014 2015 2016 2017 2018
Financ
ial
structu
re
(%)		 Debt Ratio 28.15
25.68
20.94
21.73
19.43
Long-term Funds to Property, Plant
and Equipment Ratio
514.79
722
1167.58
797.35
720.18
Solven
cy
(%)		 Current Ratio 358.17
446.39
594.65
579.37
708.12
Quick Ratio 325.94
419.34
567.97
549.72
667.30
Times Interest Earned 76
230
330
522
318
Operat
ing
Perfor
mance		 Average Collection Turnover
(Times)		 10
10.02
9.59
8.66
9.38
Average Number of Days 36.51
36.43
38.08
42.14
38.90
Inventory Turnover (Times) 19.28
23.35
25.91
23.09
19.34
Average Payment Turnover
(Times)		 12.43
12.73
12.21
10.39
10.82
Average Sales Day 18.94
15.63
14.08
15.8
18.87
Property, Plant and Equipment Turnover
(Times)		 12.31
14.2
17.8
14.58
10.45
Total Assets Turnover (Times) 231.13
195.88
157.49
130.51
119.4
Profita
bility		 Return on Total Assets (%) 26.39
24.15
19.53
14.87
12.23
Return on Equity (%) 43.93
32.82
25.25
18.87
15.34
Operating
income		 Net Profit to Paid-
in Capital Ratio
 128.22
154.74
144.36
138.59
124.14
Pre-tax
Net
Profit		 127.17
155.9
151.86
139.04
118.92
Net Margin (%) 11.25
12.27
12.36
11.37
10.20
Earnings per share (NT) 9.15
10.38
10.8
9.24
7.70
Cash
flow
(%)		 Cash Flow Ratio 106.10
124.41
112.36
106.96
130.29
Cash Flow Adequacy 160.02
215.73
290.05
240.10
231.92

114

Cash Flow Reinvestment Ratio 32.42
27.15
17.1
4.25
8.81










Levera
ge		 Operating Leverage 127.47
126.19
126.8
129.61
138.04
Financial Leverage 1.01
1.00
1.00
1.00
1.00
Analysis of significant changes in financial ratios over the last two years (20% change):
1. The current ratio and quick ratio increased in 2018, mainly due to the decrease in the balance of
current liabilities over the decline in current assets.
2. The ratio of interest coverage decreased in 2018 mainly due to the decrease in sales performance
and profit, the net profit before income tax and interest expenses decreased. At the same time,
short-term loans were added in 2018, which resulted in an increase in interest expenses in 2018.
3. The ratio of property, plant and equipment turnover decreased in 2018 mainly because the
Company had started building the new plant in 2018, which resulted in an increase in property,
plant and equipment. At the same time, the declines in sales performance reduce the turnover
rate of property, plant and equipment.
4. The ratio of cash flow increased in 2018 mainly due to the decrease in current liabilities and the
decrease in net cash inflows from operating activities due to the declines in sales performance.
5. The ratio of cash reinvestment increased in 2018, mainly due to the decrease in cash dividends
issued in 2018 compared to 2017.

Source: The consolidated financial reports and proposed consolidated financial reports have been audited or reviewed by appointed certified public accountants in each period.

  1. Financial structure

  2. (1) Debts ratio = Total Liabilities / Total Assets.

  3. (2) Long-term Fund to Property, Plant and Equipment Ratio = (Shareholders’ Equity + Noncurrent Liabilities) Net Property, Plant and Equipment.

  4. Solvency

  5. (1) Current Ratio = Current Assets / Current Liabilities.

  6. (2) Quick Ratio = (Current Assets – Inventories – Prepaid Expenses) / Current Liabilities.

(3) Times Interest Earned = Earnings before Interest and Taxes / Interest Expenses.

  1. Operating Performances

  2. (1) Average Collection Turnover = Net Sales / Average Trade Receivables.

(2) Days Sales Outstanding = 365 / Average Collection Turnover

(3) Average Inventory Turnover = Cost of Sales / Average Inventory.

  • (4) Average Inventory Turnover = Cost of Sales / Average Inventory.

  • (5) Average Payment Turnover = Cost of Sales / Average Trade Payables.

(6) Property, Plant and Equipment Turnover = Net Sales / Average Net Property, Plant and Equipment.

(7) Total Assets Turnover = Net Sales / Average Total Assets

  1. Profitability

  2. (1) Return on Total Assets = (Net income + Interest Expenses *( - Effective Tax Rate)) / Average Total Assets.

(2) Return on Equity = Net Income / Average Return on Equity

  • (3) Net Margin = Net Income / Net Sales

(4) Earnings Per Share = (Net Income Attributable to Shareholders of the Parent – Preferred Stock

115

Dividend) / Weighted Average Number of Shares Outstanding

  1. Cash Flow

  2. (1) Cash Flow Ration = Net Cash Provided by Operating Activities / Current Liabilities

  3. (2) Cash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year Sum of Capital Expenditures, Inventory Additions, and Cash Dividend

  4. (3) Cash Flow Reinvestment Ratio = (Cash Provided by Operating Activities – Cash Dividends) / (Gross Property Plant and Equipment – Long-term Investments + Other Noncurrent Assets + Working Capital)

  5. Leverage

  6. (1) Operating Leverage = (Net Sales – Variable Cost) / Income from Operations.

  7. (2) Financial Leverage = Income from Operations / (Income from Operations – Interest Expenses).

  8. (2) Significant changes in accounting items: Compare the balance sheet and statement of comprehensive income of the past two years, if the amount is different by more than 10% and the amount reaches 1% of the total assets of the current year, the reasons shall be stated.

Unit: NT$ thousand, %

Unit: NT$ thousand, %
Accounting Items 2017 2018 Increased
(Decreased) Amount
Difference Description
Amount % Amount % Amount %
Cash and cash
equivalents		 2,331,573 37.03 2,619,243 41.3
287,670		 12.34%
Due to the Continuous profit
in 2018 and there was no
significant fluctuation in the
receivables
and
accounts
payable turnover rate.
Accounts
receivables, net		 950,824 15.1
656,437		 10.4
-294,387		 -30.96% Due to the decrease in sales.
Other current
assets		 1,989,759 31.6
6,226
0.1		 -1,983,533 -99.69%
In 2018, demand deposits
were transferred to time
deposits, which resulted in
an decrease in other current
assets.
Current income
tax liabilities		 89,448 6.54
67,189		 1.06
-22,259		 -24.88%
Due to the decrease in pre-
tax net profit, resulting in a
decrease
in
income
tax
expenses
Undistributed
earnings		 2,439,676 38.74 2,650,452 41.8
210,776
8.64%
Due to the continuous profit
in 2018 and the dividend
distributed was less than the
net profit created.

116

Unit: NT$ thousand, %

Unit: NT$ thousand, %
Accounting Items 2017 2018 Increased
(Decreased) Amount
Difference Description
Amount % Amount % Amount %
Other equity
interest		 -325,677 -5.17 -417,946 -6.59
-92,269		 28.33%
Due to the impact of changes
in exchange rate, resulted in
a reduction in the exchange
difference for the conversion
of financial statements of
foreign
operating
institutions.
Operating
revenues		 8,123,832
100		 7,542,981 100
-580,851
-7.15%
Due to the impact affected
by the Sino-US trade war
and the overall economic
environment.
Operating costs 6,213,563 76.49 5,761,439 76.4
-452,124
-7.28%
Due to the decrease in
revenue.
Gross profit
Operating
expenses		 1,910,269 23.51 1,781,542 23.6
-128,727
-6.74%
Due to the decrease in
revenue.
Operating
expenses		 524,346 6.45
540,185		 7.16
15,839
3.02%
Due
to
the
increase
investment in R&D in 2018.
Operating interests 1,385,923 17.06 1,241,357 16.5
-144,566		 -10.43%
Due to the decrease in
revenue in 2018 and the
increase investment in R&D
Pre-tax benefits 1,390,411 17.12 1,189,230 15.8
-201,181		 -14.47%
Due to the decrease in
revenue in 2018 and the
increase investment in R&D.
The impairment of Jiangxi
assets led to an increase in
operating expenses and non-
operating expenses.
Income tax
expenses		 466,528 5.74
419,625		 5.56
-46,903		 -10.05%
Due to the decrease in net
profit before tax, resulted in
increased related income tax
expenses.

117

Unit: NT$ thousand, %

Unit: NT$ thousand, %
Accounting Items 2017 2018 Increased
(Decreased) Amount
Difference Description
Amount % Amount % Amount %
Current net profit 923,883 11.37
769,605		 10.2
-154,278		 -16.70%
Due to the decrease in
revenue in 2018 and the
increase investment in R&D.
The impairment of Jiangxi
assets led to an increase in
operating expenses and non-
operating expenses.
Exchange
differences on
translation of
foreign financial
statements		 -58,829 -0.72
-92,269		 -1.22
-33,440		 56.84%
Due to the impact of changes
in exchange rate in 2018,
resulted in a reduction in the
exchange difference for the
conversion
of
financial
statements
of
foreign
operating institutions.
Profit (loss)
attributable to the
equity holders of
the company		 923,883 11.37
769,605		 10.2
-154,278		 -16.70%
Due to the decrease in
revenue in 2018 and the
increase investment in R&D.
The impairment of Jiangxi
assets led to an increase in
operating expenses and non-
operating expenses.
  1. Supervisors’ or Audit Committee’s Report for the most Recent Year’s Financial Statement:

118

Lida Holdings Limited

Inspection Report of Audit Committee

The Board of Directors made the Company’s 2018 business report, financial statements and appropriation of earnings. The abovementioned business report, the financial statements and appreciation of earnings have been approved by the Audit Committee, and it is considered that there is no disagreement, and in accordance with Article 14.4 of the Securities and Exchange Act and Article 219 of the Company Act made a report, please review it.

To

2019 Annual Shareholders’ Meeting of Lida Holdings Limited

Audit Committee Convener: Chia Ying Ma

March 22, 2019

119

  1. Financial Statement for the Most Recent Fiscal Year, Including an Auditor’s Report Prepared by a Certified Public Accountant.

See Attachment 1

  1. A Parent Company only Financial Statement for the most Recent Fiscal Year, Certified by a CPA.

Accounting Item Schedule is not included. N/A

  1. If the Company and its Affiliates have Experienced Financial Difficulties in the more Recent Fiscal Year or during the Current Fiscal Year up to the Date of Publication of the Annual Report the Annual Report shall Explain how said Difficulties will Affect the Company’s Financial Situation: None.

120

VII. A Review and Analysis of the Company’s Financial Position and Financial Performance, and a Listing of Risks

1. Financial Positions

Unit: NT$ thousand, %

Unit: NT$thousand,% Unit: NT$thousand,%
Year
Item
2017		 2018 Difference
Amount %
Current assets 5,563,368
5,387,654		 -175,714 -3.16%
Property, plant and
equipment		 669,336
774,378		 105,042 15.69%
Intangible assets － － － －
Other assets 64,507
175,743		 111,236 172.44%
Total assets 6,297,211
6,337,775		 40,564 0.64%
Current liabilities 960,251
760,843		 -199,408 -20.77%
Non-current liabilities 407,913
470,549		 62,636 15.36%
Total liabilities 1,368,164
1,231,392		 -136,772 -10.00%
Share capital 1,000,000
1,000,000		 0
0.00%
Capital surplus 1,548,200
1,548,200		 0
0.00%
Retained earnings 2,706,524
2,976,129		 269,605 9.96%
Other interests -325,677
-417,946		 -92,269 28.33%
Total amount of equity 4,929,047
5,106,383		 177,336 3.60%
Analysis of significant changes in the last two years (over 20% of the previous period and the
change amounted to NT$ 10 million):
Other assets: Mainly due to the new purchase of 278 acres of new plant land.
Current liabilities: Mainly due to the decreased revenue, the amount of raw materials purchased
decreased, and the balance of accounts payable decreased accordingly.
Other interests: Mainlydue to the changes in exchange rates.

2. Financial Performance

(1) Financial Performance

Unit: NT$$ thousand, %

Year
Item
2017		 2018 Amount %
Operating revenues 8,123,832
7,542,981		 -580,851 -7.15%
Operating cost 6,213,563
5,761,439		 -452,124 -7.28%
Gross profit 1,910,269
1,781,542		 -128,727 -6.74%
Operating expenses 524,346
540,185		 15,839 3.02%
Operating interest 1,385,923
1,241,357		 -144,566 -10.43%

121

Non-operating revenue and expenses 4,488
-52,127		 -56,615 -
1261.4
8%
Pre-tax benefits 1,390,411
1,189,230
-201,181		 -14.47%
Income tax expense 466,528
419,625
-46,903		 -10.05%
Current net profit 923,883
769,605
-154,278		 -16.70%
Other comprehensive income
profit after income, tax, net		 -58,829
-92,269
-33,440
56.84%
Total comprehensive income 865,054
677,336
-187,718		 -21.70%
Net income attributed to Shareholders
of the parent company		 923,883
769,605
-154,278		 -16.70%
Comprehensive income attributable to
non-controlling interests		 865,054
677,336
-187,718		 -21.70%
Analysis of significant changes in assets, liabilities and in shareholders’ equity in the last two
years (over 20%) of the previous period and the change amounted to NT$ 10 million):
1. Non-operating revenue and expenses: Mainly due to the depreciation of assets of NT$61.27
million in the 2018 Lida Jiangxi plant and machinery.
2. Other comprehensive gains and losses in the current period: Mainly due to the changes
in exchange change rates in 2018, the changes in the exchange difference to the
financial statements of foreign operation institutions
3. Total comprehensive income in the current period: Due to the exchange rate changes.
4. Comprehensive income attributable to non-controlling interests: Due to the exchange rates
changes.

3. Cash Flow

  • (1) Cash flow analysis for the most recent fiscal year

Unit: NT$ thousand, %

Unit: NT$ thousand, % Unit: NT$ thousand, %
Item 2017 2018 Increase (decrease)
Amount %
Cash inflow from
operatingactivities		 1,027,039
991,266
-35,773
-3.48%
Cash inflow from
investment activities		 -631,760
-229,688
402,072
-63.64%
Cash inflow from financing
activities		 -845,650
-454,399
391,251
-46.27%
The main reasons in cash flow changes for the most recent fiscal year are as follows:

122

  • (1) Cash inflow from operating activities decreased was mainly due to the decrease in revenue in 2018.

  • (2) Cash inflow from investment activities increased was mainly due to the new deposits in 2017 and the purchase and construction of property, plant and equipment resulted in less than 2018 compare to 2017.

  • (3) Cash inflow from financing activities increased was mainly due to the dividends distributed in 2018 were lower than in 2017 and the new loans were added for NT$45,601.

  • (2) Insufficient Capital liquidity improvement plan:

    • The Company has a number of capital expenditure plans in 2019, the revenue and profitability continue to be stable, and the business activities shall continue to generate net inflows. It is expected to be sufficient to support the outflow of investment and financing activities. Therefore, there shall not be shortage of liquidity for the next coming year.

  • Major Capital Expenditures during the Most Recent Fiscal Year

  • The amount of fixed assets purchased by the Company in 2017 and 2018 was NT$240,104 thousand and NT$235,834 thousand. The Company assessed the capacity status according to market demand for air compressors. In the past three years, the Company’s fixed assets and total assets turnover rate remained at a certain stable level, and there was no situation in which the increase in capital expenditures adversely affected the financial business of the Company.

of the Company.
Turnover ratio 2016 2017 2018
Fixed assets turnover ratio (times) 17.80 14.58 10.45
Total assets turnover ratio (times) 1.57 1.31 1.19
  1. Investment Policy for the most Recent Fiscal Years, the Main Reasons for the Profits or Losses, Improvement Plans, and Investment Plans for the coming Year:

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(1) Investment policy

The Company’s current investment policy is based on the basic business-related investment targets, and is not engaged in investment in other industries. The relevant executive departments follow the internal control system in accordance with “Investment Cycle”,

“Affiliated Company, Specific Companies and Related Party Trading Operations” and “Procedures for Acquisition or Disposal of Assets” and the above procedures were approved by the board of directors or the shareholders meeting.

  • (2) Main reasons for the profit or loss of investment in the most recent fiscal year (2017)
fiscal year (2017) fiscal year (2017) fiscal year (2017) fiscal year (2017)
Unit: NT$ thousand
Investment
Company		 Net Profit
after Tax		 Reason for Profit or Loss Improve
ment
Plan
Wellsoon
International
Limited		 808,131 Mainly due to the transfer of invest
income from the evaluation of equity
method		 －
Lida (HK) Holdings Co.,
Limited		 808,130 Mainly due to the transfer of invest
income from the evaluation of equity
method		 －
Lida
(China)
Machine
Equipment
Company
Limited		 908,962 The industry is stable in profitability －
Lida (Jiangxi) Machine
Equipment
Company
Limited		 (78,623) Established
in
2012
and
started
production in July 2014		 Detailed
descripti
on

Lida (Jiangxi) started production in July 2014. The products of production are mainly piston air compressors. Since April 2017, a small amount of basic screw had been shipped. It is still in the process of R&D technology transplantation and talent cultivation. As the production and sales amount are not yet sufficient to share the fixed operating costs, therefore it is still at loss. The operation has not reached the scale of the

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economy. As the Company is fully focusing on the development of energy-saving screws and vortex machines, and is in the process of building a new Lida industrial park to integrate and provide the growth momentum needed to expand the high-end market for long-term, taking into account the location of the plant and the overall operational efficiency. In accordance with the provisions of the International Accounting Standards No. 36, the Jiangxi factory is assessed for property, plant and equipment impairment, and the amount is NT$61,273 thousand, which is recognized as non-operating item in the fourth quarter of the financial statements for 2018 as there is no actual cash outflow. Therefore, it has no significant impact on working capital and cash flow, and is expected to reduce the operational burden of the Jiangxi plan.

(3) Investment plans for the coming year: None.

6. Risk Management

  • (1) The effect upon the Company’s profits (losses) of interest and exchange rate fluctuations and changes in the inflation rate, and response measures to be taken in the future:

i. Change in interest rate

The interest rate risk of the Company is mainly from bank deposits and loans. The interest revenue of the Company in 2017 and 2018 were NT$37,250 thousand and NT$43,604 thousand respectively, accounting for 0.46% and 0.58% of the total net profit, and the interest expenses were NT$2,668 thousand and NT$3,747 thousand respectively, accounting for 0.03% and 0.05% of the total net profit. Overall, the interest revenues and interest expenses in 2017 and 2018 had little effect on the overall operation of the Company, so the change in the market interest rate has not yet had a significant impact on the financial business of the Company. However, if there is a large fluctuation in the future interest rate, the Company will not only keep close contact

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with the banks, but also understand the interest rate trend in order to obtain the most favorable loan interest rate. The Company will also use other financial instruments to improve the risk of interest rate changes through thorough financial planning.

ii. Change in exchange rate

In 2017 and 2018, the exchange loss were NT$11,609 and NT$24,735 thousand respectively, and the conversion loss accounted for 1.26% and 3.21% of the operating net profit respectively, which makes insignificant ratio. The Company’s main operating base is in mainland China, currently, the foreign exchange denominated in US dollars accounts for less than 10% of the total turnover. The remaining import and sales transactions are mainly denominated and received in RMB which means the Company’s functional currency is RMB. The proportion of foreign sales and outsourcing is still low, so the exchange rate risk is limited. However, in response to the operation risks that may arise from future exchange rate changes, the financial department of the Company actively collects relevant information on exchange rates and the exchange rates of various banks, it pays close attention to exchange rates and determines foreign currency holdings base on actual capital demand and exchange rate. In addition, the Company has an “Acquisition or Disposal of Asset Processing Procedures” which regulates derivate financial commodity trading procedures to enhance the Company’s future risk involvement when it engages in derivative financial commodity contracts such as forward foreign exchange due to the risk of hedging exchange rate variables.

iii. Effect on inflation

The profit and loss of the Company for 2017 and 2018 has not been significantly affected by inflation. The Company will continue to maintain close and good communication with customers and suppliers while adjusting its purchasing policies and sales strategies, monitors closely on market price fluctuations, grasp the price trend of upstream

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materials, thereby reducing the impact of inflation on the Company.

(2) The Company’s policy regarding high-risk investments, highly leveraged investments, loans to other parties, endorsements, guarantees, and derivatives transactions; the main reasons for the profits/losses generated thereby; and response measure to be taken in the future: The Company is committed to its core business and has not engaged in high risk or highly leveraged investments, and its financial policy has always been conservative, therefore the impact of risk is limited. The has established the “Acquisition and Disposal of Assets Procedures”, “Operational Procedures for Lending Capital to Others” and “Operational Procedures for Endorsements and Guarantees” and other related operations to standardize the Company and its subsidiaries to engage in high-risk and highly leveraged investments, capital loans to others, endorsements, guarantees and transactions of financial derivative products. In recent years as of the date of report publication, the Company has not engaged in high-risk, highly leveraged investments, endorsements, guarantees and transactions of financial derivative products.

  • (3) Research and development work to be carried out in the future, and further expenditures expected for research and development work:

  • i. Research and development plan: In line with the national energysaving policy, the application of screw air compressors continues to expand. The host is one of the main components of screw air compressors. In June 2017, the board of directors approved the project of producing the hosts of screw air compressors, and when the equipment was officially put in place in March 2018, after a series of test and trials of production, part of them were officially being produced at the end of July. The current self-developed research and development plans continue to increase; by being self developed it lowers the cost of production and increase the quality of the product of the hosts of air compressors.

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  • ii. R&D expenses: The research and development of the Company in 2017 and 2018 were NT$164,431 thousand and NT$ 192,853 thousand respectively, accounting for 2.02% and 2.56% of the new revenue. It is estimated to invest NT$236,670 thousand in 2019 to support the development of the future product and the improvement of the performance of old products, which will increase the competitiveness of the Company’s products.

  • (4) The impact of important policies and legal changes in Taiwan and abroad on the Company’s financial business and the corresponding measures.

The country of registration of the Company is Cayman, and the country of registration or the country of operation on the subordinate company includes the British Virgin Islands, Hong Kong and Mainland China. The implementation of each business of the Company and its subsidiaries is handled in accordance with the important policies and laws of the country of registration and the country of operation, and is always ware of the policy development trends and changes in the law and timely respond to changes in the market environment as well as take appropriate countermeasures. In the most recent year and up till the publication date of the annual report, there is no significant impact on the Company’s financial business due to changes in important domestic and international policies and laws.

  • (5) The impact of technological changes and industrial changes on the Company’s financial business and the corresponding measures.

The Company always keeps an eye on the relevant technological changes in the industry, grasps the market trends and evaluates its impact on the Company operation. In the most recent year and up till the publication date of the annual report, there are no significant technological changes or industrial changes, whereas it had a significant

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impact on the Company’s financial business.

  • (6) Analysis of the security risk assessment.

The Company is always aware of the information security situation in the industry and assesses the risk forecasts that may arise at any time to capture market trends and control impact on the Company’s operation in a timely manner. There is no significant capital in the most recent fiscal year and up to the date of the publication of the annual report. The security risk has no significant impact on the Company’s financial business.

  • (7) Effect on the Company’s risk management of changes in the Company’s corporate image, and measures to be taken in response.

Since the establishment of the Company, it has focused on the operation of the industry. The operation results and the Company’s reputation have always been positive. In the most recent year and up to the publication date of the annual report, there is no corporate risk.

  • (8) Expected benefits and possible risks associated with any merger and acquisitions, and mitigation measures being or to be taken.

The Company has not conducted any merger or any plans to do so in recent years as of the date of report publication.

  • (9) Expected benefits and possible risks associated with any plan expansion, and mitigation measures being or to be taken.

The Company has been committed to transforming its business to high-end air compressor manufacturers in recent years, and has also achieved remarkable results in optimizing product proportion. In line with the Chinese government’s policy planning for industrial land use and the Company’s long-term operation development, considering the Quanzhou plant has been unable to meet the needs of development and

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the market demand of the future, in May 2018 the board of directors decided to invest Lida New Industrial Park plant. The new location of the plant is in Quanzhou Taiwanese Investment Zone which cost about RMB489 million to plan and build. It covers an area of 185,333 square meters and the construction officially started in August 2018 which will take two to 3 year to complete. It will gradually integrate existing Quanzhou plants for relocation. To increase production efficiency, there are plans in the future to build a high-end automated production plant, fully develop the self production of the host of compressors and high-end energy efficient screw compressors for screw head. Gradually, the Company will increase the capacity utilization rate of new plants and expand its operational objectives and business scales.

The Company is a leading product manufacturer of generalpurpose air compressor in domestic market, but it does not have an absolute leading position in the field of high efficiency energy-saving air compressors. From the perspective of industry development, the air compressor with energy-saving and high-efficiency is definitely necessary which is among the development priorities of high-end manufactures domestic or abroad. Therefore, it is the ultimate key to maintaining the competiveness of the industry by expanding its development of product difference and diversifies product categories to handle the needs of various industries and new application market which is the ultimate key to maintaining a high degree of competitiveness of the industry. In the future, after the integration of the existing plant, Lida’s new plant will concentrate to expand the development of highend air compressors, which will enhance the production quality and sales of the overall high-end air compressors, and ultimately lay the foundation for boosting the competitiveness of international mainstream brands. The Company’s sales performance has been growing each year; therefore expanding production capacity is a must for operation. The risk may be limited, and the Company will continue to upgrade the technical level and expand the ability of business order to fully utilize

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the use of the new production capacity.

  • (10) Risks associated with any consolidation of sales or purchasing operations, and mitigation measures being or to be taken.

i. Purchase

The Company’s main products are different kinds of air compressors which need main raw materials such as heads of compressors, steel plates and hosts. The Company has concentrated on the risk of decentralized supply, and purchases raw materials from more than two suppliers who the Company has excellent cooperative relations with. If the Company does not have more than two suppliers to buy raw materials from, it also maintains a long-term stable relationship with them. In case of insufficiency of supply or shortage of materials, there are also alternative trusted suppliers available. There has not been any supply shortage or interruption for 2017 and 2018, and the purchase amount of single major suppliers for 2017 and 2018 accounted for the total net purchase amount of the current period is below 15%, so there has not been any risk of excessive purchase concentration.

ii. Sales

The top ten sales customers of the Company for 2017and 2018 were NT$ 2,900,861 thousand and NT$2,611,047thousand respectively, which accounted for 35.71% and34.62% of the net sales in the year respectively. Due to the characteristics of the industry, the applications of related products of air compressors can be used in a wide range of industries, include machinery, electronics, automobile, textile and garment, food, pharmaceutical, transportation, construction, mining and medical equipment. The Company’s largest sales customers in 2017 and 2018 accounted for no more than 5% of the net revenue during the period, and no sales of goods were concentrated in a single customer. Therefore, there is no risk of excessive concentration of sales.

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  • (11) Effect upon and risk to the Company in the event a major quantity of shares belonging to a director, supervisor, or shareholder holding greater than 10 percent stake in the Company has been transferred or has otherwise changed hands, and mitigation measures being or to be taken: In the most recent fiscal year up to publication of the annual report, the director of the Company, LEO HOLDING INVESTMENT LIMITED, filed shareholding transfer of 3,000 shares on March 29, 2019 due to financial and equity planning needs, and its transfer shares accounted for 3.00% of the Company’s capital. Since the transfer in the term of office exceeds one-half of the amounts of the Company shares held at the time of the election, it was formally dismissed as a director on April 1. The Company has not changed significantly in relation to major business decisions and operation management mechanisms, and the Company has elected three independent directors to strengthen to functions of the board of directors of the Company in implementing major decisions and effectively implement corporate governance. Therefore, the Company as a whole, the Company has not caused operational risks to the Company due to the substantial transfer or replacement of equity.

。

  • (12) Effect upon and risk to Company associated with any change in governance personnel or top management, and mitigation measures being or to be taken.

The Company has an authority chart, except for the day-to-day operations, which are determined by various operating entities. Major decisions must be approved by the chairman or the board of directors, and shareholders’ meetings of Lida Holdings and adjust the director structure of some of the subsidiaries according to necessities in order to implement the profession manager system.

  • (13) Litigious and non-litigious matters: The directors, supervisors, general managers and substantial principals of the Company, the

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majority shareholders and affiliated companies with a shareholding ratio of more than 10% have not been determined or included in the lawsuit.

  • (14) Other important risks and corresponding measures

The overall economic, political and economic environment changes, foreign exchange controls, taxation and related laws and regulations of the country where the foreign issuer is registered and the country of the country of origin, and whether or not the recognition of the effectiveness of the judgment of the civil court in China is recognized.

i. Country of Registration: Cayman

A. Changes in the overall economic and political environment

The Cayman Islands is a British overseas consortium in the West Indies, located in the Caribbean Sean south of Miami, Florida. The Cayman Island has long been politically stable. The capital, George Town, is located on Grand Cayman, an administrative, commercial and financial center with financial services and tourism as its main source of income. The Cayman Island is one of the world’s major financial centers. There are 5 types of companies that can be registered in the Cayman Islands, which are divided into Ordinary Company, Ordinary Non-Resident Company, Exempted Company, Limited Duration Company and The Foreign Company, in which the exempted company is mainly used by companies and individuals in various countries for financial planning. In recent years, the Cayman Islands government has actively strengthened the goodwill of its overseas financial operations and in 1986 the Mutual Legal Assistance Treaty” was passed between the British government and the United States to jointly prevent international criminal organizations from using Cayman. The islands conduct illegal transactions, such as drug trafficking or money laundering.

While preventing crimes, the Cayman Islands Government is also committed to ensuring the confidentiality of legitimate business

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practices. Therefore, the political and economic development of the Cayman Islands has been very stable for a long time, and law and order is also positive.

In summary, the Company is a holding company registered in the British Cayman Islands. The registered form is Exempted Company and there is no actual operational activity in the local area. Moreover, the British Cayman Islands has long been in a politically stable state and is the fifth largest financial center in the world. In its overall economic and political and economic environment, it has no significant impact on the overall operation of the Company.

  • B. Foreign exchange control, taxation, and decrees

The Cayman Islands currently does not levy taxes on profits, income, gains or appreciation of individuals or companies, nor does it have a tax on the nature of inheritance or inheritance taxes. Except for stamp duty applicable to contract in the Cayman Islands or made in the Cayman Islands, there are no other taxes that may be significant for the Company by the Cayman Islands Government. The transfer of shares in the Cayman Islands company is not subject to stamp duty in the Cayman Islands, except where the Company has an interest in the land of the Cayman Islands. Cayman Islands have no foreign exchange control or currency control norms.

  • C. The “non-executive” directors or directors who perform the directors’ business or substantially control the personnel, financial or business operations of the Company and substantially direct the directors to conduct business, and the legal obligations under the laws of the country of registration.

  • The Company has been advised by Cayman Islands lawyers that there is no precise legal definition of “Directors” in the laws of the Cayman Islands. In essence, a director is the person who is

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ultimately responsible for the operation of the Company’s affairs. Sometimes the following terms also refer to “directors”:

  • (a) “Executive” directors and “non-executive” directors There is no substantial difference in the legal liabilities of the executive directors and non-executive directors. The extent to which non-executive directors can rely on executive directors, the current laws does not specify. Such reliance is not without any doubt, and non-executive directors shall have other responsibilities for supervision and control.

  • (b) “Legal” directors or “Actual” directors

    • A person who is a validly appointed director and who exercises a director’s position but has not been effectively appointed may be considered an actual director and is therefore responsible for being a director.

  • (c) Shadow directors

    • For a company, a shadow director is a person whose directors are more likely to act in accordance with their orders or instructions. Unlike a legal director or an actual director, a shadow director does not claim to be a director of the company. On the contrary, many of them do not address themselves directors but perform their duties as one. No one shall act as a show director of the Company simply because the company’s directors act on the basis of their advice based on the profession. Shadow directors shall bear the same responsibilities as company directors.

(d) Nominal director

As stated literally, nominal directors perform duties on behalf of their parties. A nominal director is also used to describe a person who is a director of several companies for the purpose of collecting an annual fee. However, a nominal director shall be responsible for the director in his or her personal capacity and

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shall be independent of whether or not they represent a third party. The director’s liability to the Company under the laws of the Cayman Island may be broadly divided into liability under the common law (i.e. Professional competence, duty and diligence) and fiduciary duty. The directors are legally obligated under the provisions of various laws and, in certain circumstances, also have obligations to third parties (such as creditors). If the Company is unable to pay off or is unable to pay off, the directors shall consider the interests of the creditors when performing their duties.

The Cayman Islands (Amendment) Companies Act has a number of specific legal obligations regarding the administration, registration and filling of the company. Although not the responsibility of the individual director, the Cayman Islands law also prohibits fraudulent trading. Specifically, in the process of dissolution of the company, if the execution of the company’s business is intended to swindle the creditor’s or other person’s creditors’ intentions or to defraud, the court is obliged to know that the execution of the company’s business is for fraud and responsibility for compensation for the assets of the company. In general, the directors will be aware that the execution of the company’s business is for the purpose of fraud, and therefore there is potential liability for the execution of the business as a fraudulent transaction. In the case of a director who violates his statutory responsibilities, certain Cayman Islands laws have penalties (usually fines, imprisonment or joint fines and imprisonment). If improper use of company funds, misconduct or breach of trust in company liquidation, directors may be subject to personal liability in accordance with the law. In addition, in the company liquidation, any person (including directors) may be personally liable for knowing that the execution of the company’s business is for fraudulent

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transactions, and may be liable for compensation for the company’s assets in accordance with the court’s ruling. Responsibility for breach of common law and loyalty obligation includes damages, refusal of company assets or return of benefits arising from breach of obligation.

In the case of a shareholder’s investment, if the statement of the prospectus or other fundraising documents is false or concealed, the director may be liable for damages to the person who has acquired the shares of the company and suffered losses. However, if the director could prove to the court that, in providing the prospectus/recruitment, the directors reasonably believe that the contents of the prospectus/collection file are true and uninformed (or that the damage is concealed as appropriate). (1) The directors are reasonably convinced that the investor continues to obtain the stock, and (2) the potential investor has obtained the stock before the correction of the relevant statement by reasonably practicable means, or (3) Before the potential investor obtains the shares, the directors have taken all necessary measures to ensure that the potential investors pay attention to the corrections of the statement and are exempt from liability. The directors are not responsible for the statement of the professionals contained in the prospectus/collection file, if the professional has obtained the consent of the professional and the directors are reasonably convinced that the professionals are capable of making such statements.

In addition to the directors elected according to law, there are no other non-executive directors who actually perform directors’ duties or substantively control the personnel, financial or business operation of the Company.

D Whether to recognize the effectiveness of civil judgments in Taiwanese courts

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(a) Risk of litigation request

As the Company is a company exempted from the registration of the British Cayman Islands and has not applied for the approval of the Ministry of Economic Affairs in accordance with the provisions of the Taiwan Companies Law, although the contents of the articles of association of the listed company shall not prevent any shareholder from filing a lawsuit in a court of competent jurisdiction, seeking appropriate remedies relating to the improper adoption of the resolution by the shareholders’ meeting. The dispute arising from the foregoing matters shall be the first instance court of the Taipei District Court of Taiwan. The Company shall appoint litigation and non-litigious agents in accordance with the provisions of the Taiwan Stock Exchange Co., Ltd., but the investor shall be in the court of the Republic of China. Or the person in charge may file a law suit. The court may still judge the existence and delivery of jurisdiction according to the nature and circumstances of the case. The court may also require the investor to explain the foreign laws and regulations involved in the case. Therefore, not all types of cases are guaranteed to obtain an entity judgment in the court of the Republic of China.

(b) Risk of recognition and enforcement of judgment

The Company has been abducted by the Cayman Islands legal opinion: although the Cayman Islands has no law to stipulate that the judgments made by our courts are enforced in the Cayman Islands, the courts of the Cayman Islands pay the judgment based on the debtors of the foreign courts with jurisdiction. The principle of the payment of life will recognize and enforce the foreign (including Taiwan) judgment of a court of competent jurisdiction. However, the judgment must be a final judgment, and the payment of non-tariff or other such obligations or fines,

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and the acquisition or execution of the judgment shall not contravene the public policy of the Cayman Islands. In certain circumstances, the Cayman Islands courts will extend the classification of remedies in foreign courts in the Cayman Island to extend beyond the monetary judgment and may extend to mandatory orders, declarations and injunctions.

The articles of association of the Company are expressly set out in the Cayman Island company law. The contents of the Articles of Association do not prevent any shareholder from suing the court of competent jurisdiction for appropriate remedies within 30 days after the resolution is made, in violation of the law or bylaws in convening procedures or resolution of the shareholders’ meeting.

The Articles of Association of the Company expressly disputes arising from the foregoing matters, and the Taipei District Court of Taiwan may be the court of first instance. However, since the Company is an Exempted Company, if a lawsuit is filed in a court in the Cayman Islands, the court shall first determine whether it has jurisdiction to hear the relevant dispute, such as the court finding that it has jurisdiction to hear. The relevant disputes will determine the content of the relief in its sole discretion.

The Cayman Islands Companies Act does not allow minority shareholders to file specific rules for derivative proceedings against directors in the Cayman Island courts. In addition, the Company’s articles of association are not a contract between the shareholders and the directors, but the agreement between the shareholders and the Company. Even if the minority shareholders are allowed to file a derivative action against the directors in the charter, according to the Cayman Islands law, these regulations cannot be bound to the directors. However, under the common law of Cayman Islands, all shareholders) including minority

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shareholders) have the right to file derivative actions (including litigation against directors) regardless of their shareholding or shareholding period. Once the shareholder sues, the court of the Cayman Islands will have full discretion to decide whether the shareholder shall continue the lawsuit. In the statement, even if the Company’s articles of association (or shareholders with the required shareholding ratio or shareholding period) have filed a lawsuit against the director on behalf of the Company, whether the lawsuit shall continue, ultimately the decision depends on the Cayman Islands court. According to the relevant judgment of the Grand Court of the Cayman Islands, when the Cayman Islands courts consider whether to approve the continuation of derivative proceedings, the applicable criterion is whether the Cayman Islands courts believe and accept that the plaintiff’s request on behalf of the Company is ostensibly substantive. The wrongdoings claimed by the Company are controlled by the controllable company, and the controllers shall prevent the Company from litigating it. The Cayman Islands courts shall be judged on a case-by-case basis (although the court may refer to the provisions of the Company’s articles of association, this is not a decisive factor).

E. The risk of the law applicable to the Cayman Islands Act and the Republic of China Act

The Company is a company established under the laws of the Cayman Islands. It is listed on the Taiwan Stock Exchange Co., Ltd. and has amended the Company’s articles of association with the requirements of the relevant laws of the Republic of China to protect shareholders’ rights and interests. For matters not covered by the Articles of Association, the Company will proceed in accordance with the relevant Cayman Islands Act and the applicable Republic of China Act. The Cayman Islands Act and the Taiwan Act have many differences in the norms of the company’s operations.

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Investors cannot protect the views of the legal rights of Taiwanese companies. They apply to the Cayman Islands companies they invest in. Investors shall know and understand. Consult with experts if necessary to invest in the Cayman Islands companies whether there is no guarantee of shareholders’ rights. However, the differences between Cayman Islands Act and the Republic of China Act and the securities trading system may still cause conflicts of law application or interpretation of doubts. The resolution of conflicts of law application or interpretation of doubts remains to be determined by the court. Therefore, the investors of the Cayman Islands courts shall recognize the laws and practices of the country (including but not limited to the request of the Cayman Islands Court to enforce our judgment or to file a lawsuit or enforce its rights in the Cayman Islands courts. The method of transfer of shares and the record of holders of shares) may create the risk of exercising rights against foreign companies.

  • F. Shareholder rights in the Cayman Islands may be more restrictive than those in other countries

The Company’s corporate affairs are subject to the company’s articles of association, the Cayman Islands company law (and its amendments) and the common law of the Cayman Islands. The rights of shareholders to request directors, the rights of minority shareholders to sue and the loyalty obligations of directors under the laws of the Cayman Islands are subject to the common law of the Cayman Islands. The Common Law portion of the Cayman Islands is derived in part from the relatively limited Cayman Islands court precedent and the English Common law, which has an influence on the Cayman Islands courts but is unfettered. The shareholder rights and directors’ loyalty obligations as regulated by the Cayman Islands Law may be less clear than the statues or judgment precedents of other countries that are more familiar to investors.

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The Company is a company organized by the laws of the Cayman Islands. Therefore, shareholders may not be able to request execution of judgments by the Company, some or all of the directors or senior managers as counterparts in other countries outside the Cayman Islands. Shareholders may also be unable to serve on the directors or senior managers of the Company in their country of origin, or may not be able to enforce the judgment of the court of the Company in which the position of the shareholders seat is based on the civil liability of the country’s securities laws. For directors or senior managers of the Company who are residents of a country other than the country in which the judgment is made, there is no guarantee that the shareholder will be able to enforce the civil and commercial judgments of the counterpart.

  • ii. The main country of operation: The British Virgin Islands

  • A. Changes in the overall economy and political and economic environment

The British Virgin Islands are British overseas territories which are located in the Caribbean Sea, east of Puerto Rico, and are known as the Virgin Islands with the neighboring US Virgin Islands and the Spanish Virgin Islands. At present, the British Virgin Islands is an autonomously managed, British-speaking bland that is legislated and politically stable through independent legislative meetings, which tourism and financial services as the main sources of economic income. Since 1959, the common currency is US dollars and the local official language is English.

  • B. Foreign exchange control, decree, taxation risk

  • The British Virgin Islands has no foreign exchange control. In addition to the annual payment of government license fees and fees to the local government, the use of registered addresses and registered agent fees, there is no corporate tax, capital gains tax or property tax on registered foreign companies, or other taxes

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applicable to commercial companies. The British Virgin Islands business company is specifically exempt from income tax. The Income Tax Act also exempts commercial companies from complying with the Stamp Duty Act and the Registration and Recording Act in respect of all instruments or deeds involved in the Company’s business, including relevant regulations on commercial companies or the transfer of all property and corporate securities to commercial companies. Individuals living and working in the British Virgin Islands pay only very low payroll tax. In terms of statutory norms, the company is not allow the publish or distribute dividends in accordance with the 2004 British Virgin Islands Business Companies Act, unless the directors believe that the dividend will be paid when the company will be able to pay the debt at maturity and the company’s assets are greater than liabilities.

  • C. Whether to recognize the validity of the civil judgment of the court of the Republic of China

The British Virgin Island law does not expressly stipulate that the judgment of the court of the Republic of China (hereinafter referred to as “the judgment of the Republic of China) is enforced in the British Virgin Islands, but it is related to the completion of the Virgin’s non-reciprocal agreement. In the case of a nonsuspended execution of the judgment of money payment, the judgment may be sued in the Virgin court by the “common law” but the Virgin court did not retrial. These judgments may be executed in the Virgin Court in the following circumstances: The judgment has not been fully implemented, so that the claim of the winning party is fully satisfied; The foreign court has jurisdiction over the disputed case; the winning party does not obtain the winning judgment due to fraud; The recognition or enforcement of such judgments does not violate Virgin’s public policy, or for other similar reasons, the judgment are not upheld

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by the court, and the process of obtaining the judgment does not violate the principles of fairness and justice under the Virgin Act.

  1. Main operating country: Hong Kong

  2. (1) Changes in overall economy and political and economic environment

Hong Kong is located on the coast of the South China Sea, east of the Pearl River, south of Guangdong Shenzhen, south of Wanshan Islands and west of Macau and Zhuhai of Guangdong. Hong Kong consists of Hong Kong Island, Kowloon and the New Territories and 263 islands. In 1984, Hong Kong and the United Kingdom signed the “Sino-British Joint Declaration”, and on July 1, 1997, Hong Kong’s sovereignty was handed over and established a special administrative region. The implementation of the “Hong Kong Basic Law” in Hong Kong stipulates that Hong Kong does not practice socialism and maintains its original capitalism and way of life for fifty years. Hong Kong holds a high degree of autonomy in all matter except for national defense and diplomacy and its right to participate in international events which is called “Hong Kong people ruling Hong Kong with a high degree of autonomy”. Hong Kong is now a modern international metropolis with an important position in the Asia-Pacific region and is dominated by industry and commerce. It is known as one of the “Four Asian Tigers” and “Nylonkong”. Hong Kong is also well known for its international finance, service and shipping hub, and is famous for its clean society, excellent security, economic freedom and a complete legal system. Locally registered companies may establish a private limited company in accordance with the Hong Kong Companies Ordinance as well as being incorporated into a company with unlimited liability and a guarantee company.

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  • (2) Foreign exchange control, taxation and related laws and regulations

There is no foreign exchange restriction in Hong Kong and the Hong tax system is possibly the most favorable tax system in the world with no value-added tax, sales tax or capital gains tax, nor does it impose a dividend or interest withholding tax. Only incomes generated in or derived from Hong Kong is taxable. There is no need to pay tax in Hong Kong if incomes are earned outside of the country. The Hong Kong subsidiary of the Company is the only local holding company established in Hong Kong which has no engagements in local business activities and, therefore does not have to pay the taxes mentioned above.

  • (3) Whether to recognize the validity of the civil determination of the court of the Republic of China

The judgment of the Republic of China court is considered a foreign judgment. Chapter 9 of the Law on the Recognition and Enforcement of Judgments in Hong Kong and Foreign Judgments (Reciprocal Enforcement) Ordinance (Chapter 597 of the Hong Kong Laws 319, the Republic of China is not listed as an applicable area regardless of the regulations themselves and/or their subsidiary regulations. However, the Hong Kong court may recognize and enforce the Republic of China’s judgment in accordance with the existing common law, but the judgment must meet the follow conditions:

  • A. The Judgment is made by a court of competent jurisdiction (determined by the rules of the Hong Kong courts under the

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common law of private international law) ; 

  - B. The debtor owns property in Hong Kong ;

  - C. The judgment ordered the debts to be settled or a fixed amount to be paid (this amount is not to be paid for taxes or other chargers of a similar nature and is not required to be paid for fines or other penalties) ;

  - D. The judgment is final and irrefutable (in the case of the court making the judgment, the judgment is final and cannot be changed or overruled; but the final and irrefutable nature of the judgment will not be entitled to any part to the judgment. / has been affected by an appeal to a court of higher jurisdiction) (Hong Kong courts will draw on Hong Kong law and refer to the relevant laws of the Republic of China for a conclusion) ;

  - E. The judgment is not questioned by Hong Kong courts in accordance with Hong Kong’s conflict of law rules ;

  - F. The judgment is not reached by fraud ;

  - G. The judgment is reached by violating natural justice (such as legal unfairness) ;

  - H. The judgment does not contradict Hong Kong’s public policy. (The conditions above may not represent all the factors that the Hong Kong court will consider)

  1. The main country of operations: Mainland China

  2. (1) Changes in overall economic and political environment

    • China is one of the fastest growing economies in the world.

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China’s economic development is determined by the rapid expansion of domestic labor, capital and resources, as well as the improvement of science and technology and institutions, thereby improve the efficiency of various domestic production activities. At present, the Chinese government actively promotes the popularization of is people’s knowledge, urbanization, infrastructure construction and people’s spending structure upgrade. China has actively participated in international activities and organizations which has made it more and more influential internationally, and the international resources are also increasing. Therefore, under the positive actions of Chinese government, the Chinese economy is expected to continue to grow in the future. In recent years, the policies of the Chinese government have gradually become open to the world, plans such as “Financial Industry Development and Reform 12[th] Five-Year Plan” has led to industrial upgrading and corporate transformation. Therefore, people’s income and purchasing ability have increased, resulting in continued strong domestic demand performance in 2012. Although the current global market is affected by the unresolved recovery of demand in the US market and the European debt issue, China’s is still at growth from its boosting domestic demand, housing market and energy conservation policies. There are many similarities in comparison with the Chinese economy and other developed countries such as economic structure, degree of government intervention, degree of development, growth rate, capital investment, capital investment control, foreign exchange control, resource allocation, etc. The Company’s main production and distribution centers are located in Fujian and Jiangxi, China which means its financial situation, operating results and prospects may be affected to some extent by China’s political, economic conditions as well as legal development

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  • (2) Foreign exchange control, taxation and related laws and regulations

  • i. Foreign exchange control

China implemented reform and opening up after 1978, and the foreign exchange management system gradually moved towards the market mechanism. At present, China’s foreign exchange management framework is: RMB Current Project exchange, but at the same time strict management on capital projects foreign exchange. However, the exchange of RMB and foreign currency depends on the influence of Chinese politics and the changes in the international political and economic environment. Since July 21, 2005, the mainland government adopted a floating exchange rate policy, and the RMB exchange rate was officially decoupled from the US dollar, and the floating exchange rate policy was adopted, allowing a slight fluctuation in the RMB exchange rate. However, to ensure China’s export competiveness, the exchange rate of RMB has been underestimated by the mainland government. Foreign currency exchange and transfers are subject to China’s foreign exchange regulations. According to the foreign exchange regulations, foreign exchange transaction under the current account (including payment of dividends) does not need approval by the State Administration of Foreign Exchange or its local branches. However the Company must submit proof of relevant transactions in the territory to financial institutions that specify licensed operations to settle foreign exchange and sale of foreign exchange. In addition, the exchange of RMB under the capital account, such as direct foreign investment or overseas securities, derivative products issuance and trading require registration in the Chinese foreign exchange administration. Prior approval or filings need to be

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obtained by relevant competent authorities according to the provisions of its laws which need to be done so in advance. If the Company is unable to obtain the approval or filing from the Chinese foreign exchange administration, the Company’s capital expenditure plan will be affected by converting the capital of the Company into RMB or converting the RMB into foreign exchange for capital account payment which may affect the Company’s ability to expand its business.

In addition, if the Chinese government decides to restrict foreign exchange trading under the current account, or requires the trade to be approved in advance by the State Administration of Foreign Exchange or its local branches, the subsidiaries in China may not be able to pay dividends to the Company in foreign exchange without the approval of the State Administration of Foreign Exchange or its local branches. Although foreign exchange controls still exist in Mainland China, foreign exchange controls continue to develop in the direction of opening up due to the global economic development trend.

The Company’s main sales and purchase are in Mainland China, which are denominated in RMB. The proportion of amount of export sales and purchase to the total sales and total purchase amount is not high, therefore the profit and loss generated by the exchange accounted for a low proportion of profit, so the exchange control has no significant impact on the operation of the Company.

ii. Dividends distribution

The Company is a holding company established in the Cayman Islands and has no business operation and revenue source on the island. The subsidiaries in China are one of

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the important operational profit sources of the Company. Therefore, the issuance of cash dividends of the Company will be affected by the distribution of cash dividends or earned surplus reserve of subsidiaries in China. According to the relevant Chinese laws and regulations, the establishment of a company registered in mainland China shall set a reserve fund with 10% of the net profit after tax calculated in accordance with Chinese account standards (the accumulated statutory reserve fund shall be more than 50% of the registered capital of each subsidiary in China), and tax shall be paid in accordance with China’s relevant tax regulations prior to the distribution of dividends. As a result, the amount of the Company’s distributable surplus may be reduced. The restriction on the distribution of dividends may affect the ability of the Company to distribute dividends to shareholders.

iii. Corporate income tax and value add tax

On March 16, 2007, China passed “Enterprise Income Tax Law of the People Republic of China” through New Enterprise Income Tax Law, which imposed a single income tax rate of 25% on Chinese and foreign-funded enterprises ending 20 years of tax incentives for foreign-funded enterprises. The new law became effective on January 1, 2008, and will implement various transitional periods and measures for foreign-invested enterprises before March 16, 2007, including enterprises that have received lower income tax rates and could receive up to five years of grace period which suggests the enterprises could continue to enjoy income tax preference within a fixed period, up until the date of expiration. In terms of value-added tax, China revised and adopted “Provisional Regulations of the People’s Republic of China on Value-Added Tax” (hereinafter

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referred to as “the VAT Provisional Regulations”) on November 5, 2008, which was implemented on January 1, 2009. All units and individuals engaged in the sale of goods, provisions of processing, repair and replacement services, and the importation of goods within the territory of the People’s Republic of China are taxpayers of Value-added Tax, and the tax rate is between 0% and 17%, as for exportation the tax is zero. At the moment, the Company’s subsidiaries in Mainland China do not have income tax preference but any change on tax rate will affect the Company’s after-tax profit.

iv. Labor contract law

On January, 2008, China implanted the new labor contract law, the contract law stipulates that both the employer and employee must sign a labor contract in written form within a month of the employment (including trail), (or implementation date). If there is no written labor contract for one year from the date of hiring, it is deemed that both parties have entered into a non-fixed term written labor contract with no fixed termination time. Therefore, if the employer fails to conclude a written labor contract with the employee after a month of the employment within a year, the employer shall pay the monthly salary of two months to the completion. When the employment relationship ends, the employer is required to pay economic compensation in certain circumstances that are consistent with the provisions of the Labor Contract Law. However, the employer shall be exempted from paying the economic compensation if the same or better renewal contract is offered to the employee but turned down. The compensation shall be calculated based on the employee’s seniority, but does not include the specific period determined by the local government before the year of 2008.

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In general, employees are entitled to one month’s salary as compensation if he/she works for more than one year for their employer. Employees who work for less than a year but more than six months shall be considered a year, and those who work for less than six months are entitled to half a month’s salary as compensation. If there is no written form of employment contract, but the arbitration judgment or verdict determines that the employment relationship has indeed existed for more than a month, the employer shall pay the employee double monthly salary, and compensation according to the calculation mentioned above without the exemption period. However, the labor contract does not specify the application of the obligation to pay compensation for the occasional employment contract. The Company has signed the labor contract and social insurance with all the employees according to the law. The Chinese government is paying more attention to the welfare of laborers, the labor cost of the Company in the future may increase due to the revision or new enactment of the “Labor Contract Law”, which may have adverse effect on business, operation results and financial status and the future of the Company and its subsidiaries.

v. Social insurance and housing provident fund

Mainland China has provisions on social insurance such as the “Regulations on Unemployment Insurance”, “Workrelated Injury Insurance “and the “Trial Measures for Industrial-work Injury Insurance” etc. The Company follows the implementation of the local government and provides pension, medical, work injury, unemployment and maternity insurance to the employees in its main operation bases, Lida China and Lida Jiangxi, but due to the different approaches or inconsistence of the local government on social insurance system for employees in Mainland China, the

152

Company may not be consistent with the regulations promulgated by the State Council. In the situations mentioned above, the Company may need to pay the unpaid insurance or the penalty imposed or an employee’s request for a makeup payment, it may adversely affect the Company’s reputation, cash flow and operating results.

At the same time, the Company follows the implementation of the local government and provides housing provident funds to the employees in its main operation bases, Lida China and Lida Jiangxi, but due to the different approaches or inconsistence of the local government on housing provident funds for employees in Mainland China, the Company may not be consistent with the regulations promulgated by the State Council. In the situations mentioned above, the Company may need to pay the unpaid housing provident funds or the penalty imposed or an employee’s request for a makeup payment, it may adversely affect the Company’s reputation, cash flow and operating results.

However, to date, the Company’s mainland subsidiaries have yet been subject to administrative penalties by the relevant authorities, and have obtained relevant compliance certificates. The rate of payment and the amount of the payment are in accordance with the relevant laws and regulations. In addition, the Company’s major shareholder Yiyuan Enterprise Co., Ltd. and its representative, Takfu Development Co., Ltd. and its representative have committed that if its subsidiary Lida (China) Machine Equipment Company Limited, Lida (Jiangxi) Machine Equipment Company Limited fail to pay urban social insurance (endowment insurance, medical insurance, unemployment insurance, work injury insurance, maternity insurance) and

153

housing provident funds in the future in accordance with the provisions of the Chinese mainland Law, and have been asked to pay the unpaid social insurance and housing provident funds, the payment, administrative penalties and attorney fees shall all be borne by the major shareholders to ensure that the interests of Lida (China) Machine Equipment Company Limited, Lida (Jiangxi) Machine Equipment Company Limited are not damaged. Therefore, changes in the future in social insurance and housing provident funds provision in the mainland shall not have a significant impact on the financial operations of the Company’s subsidiaries and affiliated companies in the mainland.

vi. Environmental protection law

The existing laws and regulations on environmental protection in Mainland China mainly include “Environmental Protection Law of the People’s Republic of China”, “Water Pollution Prevention and Control Law of the People’s Republic of China”, “Atmospheric Pollution Prevention and Control Law of the People’s Republic of China”, “Law of the People’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Wastes”. Units that produce environmental pollution and other public hazards must incorporate environmental protection work into their plans and establish an environmental protection responsibility system; and take effective measures to prevent environmental pollution generated during production or other operations, such as waste gas, waste water, waste residue, dust, odorous gasses, radioactive emissions, noises, vibration, and electromagnetic waves. If there is an act that is against the environmental protection laws and regulations in production and operation in an industrial enterprise, the Administrative Department of Environmental Protection or

154

other departments of environmental supervision and management in accordance with the provisions of the law may, according to different scenarios, give warnings, strongly order to terminate the production or using, reinstall or give fines. Before the construction project is put into production or in use, its environmental pollution prevention and control facilities must pass the inspection from the Environment Protection Administrative Department, if the construction project fails to meet the regulations of the National Environmental Protection Management, the construction project shall not be put into production or in use.

The production activities of the Company’s subsidiaries in Mainland China are subject to the laws and regulations of Mainland China related to environmental protection, health and safety. The compliance certificates issued by the relevant environmental protection, health and safety authorities of the subsidiaries of the Company prove that they have not been polluting the environment since the establishment.

(3) Whether China recognizes the risk of the civil judgment of the court of the Republic of China

According to the legal opinion issued by the law firm regarding the civil judgment of the Taiwan Court, the mainland has conditions to recognize its effectiveness: According to the provisions of the Supreme People’s Court of the Mainland on the approval of the civil judgment of the relevant courts in Taiwan by the People’s Court and its supplementary provisions, within two years after the validity of the civil judgment of the Taiwan Court, the applicant may apply to The Intermediate People’s Court at the location of the applicant’s domicile, regular

155

residence or where the executed property is located , which is recognized by the Intermediate People’s Court at the civil judgment level, and has the same effect as the effective judgment of the People’s Court. If the applicant applies to the People’s Court for enforcement, the People’s Court shall accept the application; the above provisions shall also apply to the application for recognizing Taiwan Court’s civil ruling, mediation, payment order, and arbitral awards in Taiwan. The conditions before the mainland courts recognize the validity of the civil judgment in Taiwan are (1) Civil judgment does not violate the principle of one country; (2) The validity of the civil judgment is determined; (3) There is no such situation: the procedure is improper (the judgment of the defendant is absent and has not been legally summoned, or the defendant has no litigation capacity and has not been properly represented); The courts of the mainland have exclusive jurisdiction; both parties sign an arbitration agreement; The judgment of the case is made in mainland or the judgment of the case is made in overseas, or an overseas arbitration institution made an arbitration award which is recognized by the mainland court; Civil judgment violates the basic principles of national law or harms the public interest.

In summary, according to the Chinese Law, if the civil judgment of the court of the Republic of China meets the above requirements and there is no reason for disapproval, it should be recognized and enforced in China. Whereas it is still impossible to completely rule out the risk that the civil judgments made by the court of the Republic of China and not being recognized and enforced by the Chinese People’s Court.

  1. Other Important Matters

None.

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VIII. Special Disclosure

  1. Information Related to the Company’s Affiliates

  2. (1) Company Chart: Please see II, Company Profile

  3. (2) Basic information of affiliate companies

Unit: NT$ thousand

Unit: NT$ thousand
Name of Company Relationship Date of
Incorporation		 Address Paid-in
Capital		 Type of Business
Wellsoon International
Limited
(Wellsoon International)		 Subsidiary of the
Company		 September 3,
2009		 The Office of CCS
Trustees Limited, 263
Main Street, Road Town,
Tortola, British Virgin
Islands.		 1,038,589 Investment holding
Lida (HK) Holdings Co.,
Limited (Lida (HK))
Subsidiary of
Wellson
International		 June 26, 2009 Room 311, 3/F, Camel
Paint Centre, 1 Hing Yip
Street, Kwun Tong,
Kowloon, Hong Kong.		 42 Investment holding
Lida (China) Machine
Equipment Company
Limited (Lida (China))		 Subsidiary of Lida
(HK)		 March 7, 2001 Dongyuan Town
Industrial Zone,
Quanzhou Taiwanese
Investment Zone		 304,928 Air compressor design,
manufacture and sales

157

Lida (Jiangxi) Machine
Equipment Company
Limited (Lida (Jiangxi))		 Subsidiary of Lida
(China)		 February 14, 2012
East of Gangxing Road,
Chengxi Port Area,
Jiujiang Economic and
Technological
Development Zone,
Jiangxi Province, east of
Changhang Public
Security and Boarder
Inspection Station		 535,924 Air compressor design,
manufacture and sales

  • (3) Relational Business Consolidated Financial Statements: Relational Business Consolidated Financial Statements are the same as those required to be disclosed in the Consolidated Financial Statements of the Company, therefore the Company does not prepare a separate set of Consolidated Financial Statements. Please see Page 169 to 215 for the Consolidated Statements of the Company.

  • (4) Relational Report: Not applicable.

  • Transaction about the Company’s Private Placement of Securities During the most Recent Fiscal Year or during the Current Fiscal Year up to the Date of Publication of the Annual Report:

None.

  • 3.Holding or Disposal of Shares in the Company by the Company’s Subsidiaries during the most Recent Fiscal Year or During the Current Fiscal Year up to the Date of Publication of the Annual Report:

None

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  1. Other Matters that Require Additional Description:

None.

  1. Significant Issues in the Most Recent Fiscal Year and up to the Date of Publication of the Annual Report which might Affect Shareholders’ Equity or Price of Shares Pursuant to Item 2, Paragraph 3, Article 36 Of The Securities Exchange Law:

  2. None.

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Attachment 1

REPORT OF INDEPENDENT ACCOUNTANTS

PWCR18000478

To the Board of Directors and Shareholders of Lida Holdings Limited

Opinion

We have audited the accompanying consolidated balance sheets of Lida Holdings Limited and its subsidiaries (the “ Group ” ) as of December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended, in accordance with the “ Regulations Governing the Preparation of Financial Reports by Securities Issuers ” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

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

160

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Group’s consolidated financial statements of the current period are stated as follows:

Cash and financial assets at amortized cost

Description

Please refer to Notes 6(1) and 6(2) to the consolidated financial statements for the accounting policies on cash and financial assets at amortized cost. As of December 31, 2018, the balances of cash and financial assets at amortized cost amounted to NT$4,408,043 thousand.

The Group designs, manufactures and sells mechanical and electrical products such as air compressors, electric welding machines and electric tools. Because of stable collection, cash and financial assets at amortized cost is material, representing 69% of the consolidated total assets. Thus, we consider cash and financial assets at amortized cost as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures on the above key audit matter:

  1. Evaluated and tested the effectiveness of the internal control over cash management, including segregation of duties for cash receipts and recording, authorization of receipts and payments in cash and book general entry.

  2. Verified the existence, accuracy as well as rights and obligations of cash and financial assets at amortized cost by sending out confirmation letters for all bank accounts.

  3. Selected samples of the Group ’ s transactions which has critical cash collection and disbursement and confirmed whether the nature of transaction meets operating requirement.

  4. Tested the bank reconciliation report by confirming the account balance to the general ledger, checking the balance of the bank account to bank statements or bank confirmations and verifying the reconciling items to the bank statements after the balance sheet date or other supporting documents to ensure the completeness, accuracy as well as rights and obligations of bank deposit.

161

  1. Checked the existence of cash on hand, revolving funds and time deposit receipts as of the balance sheet date by performing physical count.

Sales revenue from distribution selling

Description

Please refer to Note 4(23) to the consolidated financial statements for the accounting policies on revenue recognition. For details of revenue recognition, please refer to Note 6(15). For the year ended December 31, 2018, the Group ’ s sales revenue was NT$7,542,981 thousand.

  • The Group adopts distribution selling as the main sales model and signs agreements with distributors every year in which stating the rights and obligations of distributors such as the terms, sales quotas, delivery method, maintenance and warranty as well as refund method.

Given the above mentioned distribution selling constituted 87% of the total Group sales revenue and the distribution selling model and terms of transaction would have impacts on the sales revenue recognition. Thus, we consider sales revenue from distribution selling as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures on the above key audit matter:

  1. Assess on the main or new distributors by checking the owner, major shareholders, registered address, business address, capital, main business items and other relevant information of the distribution company.

  2. Conducted interviews with major distributors to verify the existence of purchase from distributors and check the occurrence of sales pertaining to distributors. Also, confirmed whether the financial information of transactions between the distributors and the Group was consistent with the information in the report.

  3. Verified the accuracy of the ending balance of accounts receivable and total sales revenue during the year by sending out the confirmation letters to Group major distributors.

  4. Assessed and tested the effectiveness of internal controls over sales including the procedures for customer order, shipping as well as sales and collection.

  5. Conducted substantive test on sales revenue and subsequent collection test.

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Valuation of property, plant and equipment impairment

Description

Please refer to Note 4(14) to the consolidated financial statements for the accounting policies on property, plant and equipment impairment, Note 5 for the uncertainty of accounting estimates and assumptions applied to property, plant and equipment, and Notes 6(6) and 6(7) for details of property, plant and equipment.

The Group ’ s subsidiaries, manufacturing low-end products, continued to generate losses year by year as the energy-efficient and environment-friendly products become the mainstream in the market in recent years. The management assessed the impairment of property, plant and equipment on the subsidiary. The impairment valuation mainly relied on an external appraiser who was commissioned by the Group. As the valuation involved multiple assumptions, involved subjective judgment and high degree of uncertainty, and may have significant effects on the valuation results. We consider the valuation of property, plant and equipment as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures on the above key audit matter:

  1. Obtained the assessment table the cash generating unit with assets that had any indication that it may be impaired, and reviewed relevant policies and processes on impairment valuation, including collection of internal and external data, long-term and short-term forecasts and industry changes.

  2. Obtained the external appraisal report and performed the following procedures:

  3. (1) Examined the appraiser ’ s qualification and assessed the independence, objectiveness and competence.

  4. (2) Assessed whether the valuation method in the appraisal report was common industry practice and appropriate.

  5. (3) Assessed the reasonableness of significant assumptions applied in the appraisal report.

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Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “ Regulations Governing the Preparation of Financial Reports by Securities Issuers ” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal controls as management determines are necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

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

Auditor ’ s responsibilities for the audit of the consolidated financial

statements

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

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

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

164

collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

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

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

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

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

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

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe

165

these matters in our auditor ’ s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Chen, Hsien-Cheng Hsiao, Chin-Mu

For and on behalf of PricewaterhouseCoopers, Taiwan March 22, 2019

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.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

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LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets D e c e m b e r 3 1 , 2 0 1 8
D e c e m b e r 3 1 , 2 0 1 7
Notes
Amount

%
Amount
%
6(1)
$ 2,619,243
41
$ 2,331,573
37
6(2) and 12(4)
1,788,800
28
-
-
6(3) and 12(4)
656,437
11
950,824
15
6,391
-
6,541
-
6(4)
310,456
5
284,466
4
101
-
205
-
6(5) and 12(4)
6,226
-
1,989,759
32
5,387,654
85
5,563,368
88
6(6)(7) and 8
774,378
12
669,336
11
6(21)
2,521
-
4,523
-
6(8) and 8
173,222
3
59,984
1
950,121
15
733,843
12
$ 6,337,775
100
$ 6,297,211
100
6(9) and 8
$ 93,912
2
$ 50,215
1
6(15) and
12(5)
17,114
-
-
-
438,654
7
626,238
10
6(10)
134,954
2
167,965
3
6(21)
67,189
1
89,448
1
9,020
-
17,211
-
12(5)
-
-
9,174
-
760,843
12
960,251
15
6(21)
470,549
7
407,913
7
1,231,392
19
1,368,164
22
6(11)
1,000,000
16
1,000,000
16
6(12)
1,548,200
25
1,548,200
24
6(13)
325,677
5
266,848
4
2,650,452
42
2,439,676
39
(
417,946) (
7) (
325,677) (
5 )
5,106,383
81
4,929,047
78
5,106,383
81
4,929,047
78
9
11
$ 6,337,775
100
$ 6,297,211
100
Current assets
1100
Cash and cash equivalents
1136
Financial assets at amortized cost -
current
1170
Accounts receivable, net
1200
Other receivables
130X
Inventories, net
1410
Prepayments
1470
Other current assets
11XX
Total current assets
Non-current assets
1600
Property, plant and equipment
1840
Deferred income tax assets
1900
Other non - current assets
15XX
Total non-current assets
1XXX
Total assets
Liabilities and equity
Current liabilities
2100
Short-term borrowings
2130
Current contract liabilities
2170
Accounts payable
2200
Other payables
2230
Current income tax liabilities
2250
Provisions for liabilities - current
2300
Other current liabilities
21XX
Total current liabilities
Non-current liabilities
2570
Deferred income tax liabilities
2XXX
Total liabilities
Equity
Equity attributable to owners of
parent
Share capital
3110
Share capital
Capital surplus
3200
Capital surplus
Retained earnings
3320
Special reserve
3350
Unappropriated retained earnings
Other equity interest
3400
Other equity interest
31XX
Total equity attributable to
owners of parent
3XXX
Total equity
Significant contingent liabilities and
unrecognised
contract commitments
Significant events after the reporting
period
3X2X
Total liabilities and equity

Chairman: Chien-Leng Wu CEO: Yi-Ping Chen CFO: Rea Huang

167

LIDA HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except earnings per share)

Years ended December 31

Assets 2018
2017
Notes
Amount
%
Amount
6(15) and12(5)
$ 7,542,981
100 $ 8,123,832
6(4)(11)(19)(20)
and 7
(
5,761,439) (
76)(
6,213,563)
1,781,542
24
1,910,269
6(6)(8)(11)(19)
(20) and 7
(
209,172) (
3) (
232,593 )
(
138,348) (
2) (
127,322 )
(
192,853) (
2) (
164,431 )
188
-
-
(
540,185) (
7)(
524,346)
1,241,357
17
1,385,923
6(16)
44,009
-
38,533
6(17)
(
92,389) (
1) (
31,377 )
6(18)
(
3,747)
- (
2,668)
(
52,127) (
1)
4,488
1,189,230
16
1,390,411
6(21)
(
419,625) (
6)(
466,528)
$ 769,605
10 $ 923,883
($ 92,269) (
1)($ 58,829)
($ 92,269) (
1)($ 58,829)
$ 677,336
9 $ 865,054
$ 769,605
10 $ 923,883
$ 677,336
9 $ 865,054
6(22)
$ 7.70 $ 6(22)
$ 7.69 $ n integral part of these consolidated financial
CEO: Yi-Ping Chen CFO: Rea Huang		 2017
Amount
$ 8,123,832
(
6,213,563)

1,910,269
(
232,593 )
(
127,322 )
(
164,431 )

-
(
524,346)

1,385,923

38,533
(
31,377 )
(
2,668)

4,488

1,390,411
(
466,528)
$ 923,883
($ 58,829)
($ 58,829)
$ 865,054
$ 923,883
$ 865,054
$ $		 2017 %

(
4000
Operating revenue
5000
Operating costs
5900
Gross profit
Operating expenses
6100
Sales and marketing expenses
6200
General and administrative expenses
6300
Research and development expenses
6450
Expected credit impairment gain
6000
Total operating expenses
6900
Operating profit
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the year
Other comprehensive income
Components of other comprehensive
income that will not be reclassified to
profit or loss
8361
Exchange differences on translation of
foreign operations
8300
Other comprehensive loss, net of income
tax
8500
Total comprehensive income for the year
Profit attributable to:
8610
Owners of parent
Comprehensive income attributable to:
8710
Owners of parent
9750
Basic earnings per share (in dollars)
9850
Diluted earnings per share (in dollars)
The accompanying notes are a
Chairman: Chien-Leng Wu		 100
77)
23
3 )
1 )
2 )
-
6)
17
-
-
-
-
17
5)
12
1)
1)
11
12
11
9.24
9.23
(
(
(
(


(
(
(

168

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED DECEMBER DECEMBER DECEMBER DECEMBER 31, 2018 AND 31, 2018 AND 31, 2018 AND 31, 2018 AND 2017(Expressed in thousands of New Taiwan 2017(Expressed in thousands of New Taiwan 2017(Expressed in thousands of New Taiwan 2017(Expressed in thousands of New Taiwan 2017(Expressed in thousands of New Taiwan 2017(Expressed in thousands of New Taiwan 2017(Expressed in thousands of New Taiwan 2017(Expressed in thousands of New Taiwan dollars)
E q u i t y
a		 t t r i b u t a b l e t o o w n e r
s		 o f
t
h
e		 p a r e n
t
Retained Earnings Financial statements
Share capital Unappropriated translation differences
Notes -common stock Capital surplus Special reserve retained earnings of foreign operations Total equity
For the year ended December 31,2017
Balance at January 1, 2017 $ 1,000,000 $ 1,548,200 $ - $ 2,582,641 ($ 266,848 ) $ 4,863,993
Profit for the year - - - 923,883 - 923,883
Other comprehensive income (loss) for the year - - - - ( 58,829 ) ( 58,829 )
Total comprehensive income (loss) for the year - - - 923,883 ( 58,829 ) 865,054
Distribution of 2016 earnings: 6(14)
Special reserve - - 266,848 ( 266,848 ) - -
Cash dividends - - - ( 800,000 ) - ( 800,000 )
Balance at December 31, 2017 $ 1,000,000 $ 1,548,200 $ 266,848 $ 2,439,676 ($ 325,677 ) $ 4,929,047
For the year ended December 31,2018
Balance at January 1, 2018 $ 1,000,000 $ 1,548,200 $ 266,848 $ 2,439,676 ($ 325,677 ) $ 4,929,047
Profit for the year - - - 769,605 - 769,605
Other comprehensive income (loss) for the year - - - - ( 92,269 ) ( 92,269 )
Total comprehensive income (loss) for the year - - - 769,605 ( 92,269 ) 677,336
Distribution of 2017 earnings: 6(14)
Special reserve - - 58,829 ( 58,829 ) - -
Cash dividends - - - ( 500,000 ) - ( 500,000 )
Balance at December 31, 2018 $ 1,000,000 $ 1,548,200 $ 325,677 $ 2,650,452 ($ 417,946 ) $ 5,106,383

u Chairman: Chien-Leng Wu CEO: Yi-Ping Chen CFO: Rea Huang

169

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CACH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017



CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated profit before tax for the period
Adjustment to reconcile profit before income tax to net cash provided
by operating activities
Income and expenses having no effect on cash flows
Depreciation expenses

Rent expense

Expected credit impairment gain

Gains on doubtful debt recoveries

Losses on disposal of property, plant and equipment

Impairment loss on non-financial assets

Interest income

Interest expense

Changes in operating assets and liabilities
Changes in operating assets
Accounts receivable
Other receivables
Inventories
Prepayments
Other current assets
Changes in operating liabilities
Contract liabilities - current
Accounts payable
Other payables
Provisions for liabilities - current
Other current liabilities
Cash generated from operations
Interest received
Interest paid
Income taxes paid
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES

Decrease in financial assets at amortized cost
Increase in other current assets
Acquisition of property, plant and equipment

Proceeds from disposal of property, plant and equipment

Increase in prepayments for equipment
Acquisition of land access rights
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in short-term borrowings
Cash dividends paid
Net cash flows used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 (Expressed in thousands of New Taiwan dollars)
N o t e s 2 0 1 8 2 0 1 7

$ 1,189,230 $ 1,390,411
6(6)(19)
58,773
32,596
6(8)
3,018
820
12(2)
(
188 )
-
6(2)
- (
480 )
6(17)
282
158
6(17)
61,273
-
6(16)
(
43,604 ) (
37,250 )
6(18)
3,747
2,668
280,624 (
35,173 )
150
3,043
(
32,804 ) (
33,334 )
104 (
43 )
8,897 (
11,772 )
7,940
-
(
187,584 )
56,478
(
6,558 ) (
11,249 )
(
8,191 )
640
-
2,345
1,335,109
1,359,858
43,604
35,837
(
3,747 ) (
2,668 )
(
383,700 ) (
365,988 )
991,266
1,027,039

148,478
-
- (
372,080 )
6(24)
(
235,834 ) (
240,104 )
6(17)
139
2,232
(
107 ) (
21,808 )
(
142,364 )
-
(
229,688 ) (
631,760 )

45,601 (
45,650 )
(
500,000 ) (
800,000 )
(
454,399 ) (
845,650 )
(
19,509 ) (
71,341 )
287,670 (
521,712 )
2,331,573
2,853,285
$ 2,619,243$ 2,331,573

Chairman: Chien-Leng Wu CEO: Yi-Ping Chen CFO: Rea Huang

170

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,

EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

Lida Holdings Limited (the “Company”) was incorporated in the British Cayman Islands on May 11, 2012, for the purpose of the restructuring undertaken prior to listing on the Taiwan Stock Exchange. On August 12, 2013, the Company provided its own shares to exchange 100% equity of Wellsoon International Limited (Wellsoon International) at the share exchange ratio of 1,551:1. The Company’s stock has been listed on the Taiwan Stock Exchange since July 20, 2016. The Company and its subsidiaries (collectively referred herein as the “Group”) are primarily engaged in the design, manufacture and sales of mechanical and electrical products such as air compressors, electric welding machines and electrical tools.

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were authorized for issuance by the Board of Directors on March 22, 2019.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

New standards, interpretations and amendments endorsed by the FSC effective from 2018 are as follows:

follows:
New Standards, Interpretations and Amendments
Effective date by
International Accounting
Standards Board

Amendments to IFRS 2, ‘Classification and measurement of
share-based payment transactions’
Amendments to IFRS 4, ‘Applying IFRS 9, Financial instruments with
IFRS 4, Insurance contracts’
IFRS 9, ‘Financial instruments’
IFRS 15, ‘Revenue from contracts with customers’
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018

171

New Standards, Interpretations and Amendments
Effective date by
International Accounting
Standards Board

Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from
contracts with customers’
Amendments to IAS 7, ‘Disclosure initiative’
Amendments to IAS 12, ‘Recognition of deferred tax assets for
unrealized losses’
Amendments to IAS 40, ‘Transfers of investment property’
IFRIC 22, ‘Foreign currency transactions and advance consideration’
Annual improvements to IFRSs 2014-2016 cycle - Amendments to
IFRS 1, ‘First-time adoption of International Financial Reporting
Standards’
Annual improvements to IFRSs 2014-2016 cycle - Amendments to
IFRS 12, ‘Disclosure of interests in other entities’
Annual improvements to IFRSs 2014-2016 cycle - Amendments to
IAS 28, ‘Investments in associates and joint ventures’
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2018

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

  • A. IFRS 9, ‘Financial instruments’

  • (a) Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset at amortized cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present subsequent changes in the fair value of an investment in an equity instrument that is not held for trading in other comprehensive income.

172

  • (b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognize 12-month expected credit losses or lifetime expected credit losses (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Group shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.

  • (c) The Group has elected not to restate prior period financial statements using the modified retrospective approach under IFRS 9. For details of the significant effect as at January 1, 2018, please refer to Notes 12(4) B and C.

  • B. IFRS 15, ‘Revenue from contracts with customers’ and amendments

  • (a) IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction contracts’, IAS 18, ‘Revenue’ and relevant interpretations. According to IFRS 15, revenue is recognized when a customer obtains control of promised goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

    • The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:

    • Step 1: Identify contracts with customer.

    • Step 2: Identify separate performance obligations in the contract(s).

    • Step 3: Determine the transaction price.

Step 4: Allocate the transaction price.

Step 5: Recognize revenue when the performance obligation is satisfied.

Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

173

  • (b) The Group applied retrospectively IFRS 15 only to incomplete contracts as of January 1, 2018, by adopting an optional transition expedient. The significant effects of adopting the modified transition as of January 1, 2018 are summarized below:

Consolidated balance sheet

Consolidated balance sheet
Affected items
January1,2018
Contract liabilities
Other current liabilities		 Book value
under previous
revenue standard
-
$ 9,174

9,174
$		 Adjustment for
initial application
of IFRS15
9,174
$ 9,174)
(
-
$		 Adjusted amount
after IFRS 15
adoption
9,174
$ -
9,174
$

Under IFRS 15, liabilities in relation to contracts are recognized as contract liabilities, but were previously presented as receipts in advance (shown as ‘other current liabilities’) in the balance sheet. The balances amounted to $9,174 on January 1, 2018.

C. Amendments to IAS 7, ‘Disclosure initiative’

This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

The Group expects to provide additional disclosure to explain the changes in liabilities arising from financing activities.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group

New standards, interpretations and amendments endorsed by the FSC effective from 2019 are as follows:

New standards, interpretations and amendments endorsed by the FSC
follows:		 effective from 2019 are as
Effective date by
International Accounting
New Standards, Interpretations and Amendments
Standards Board
Amendments to IFRS 9, ‘Prepayment features with negative January 1, 2019
compensation’
IFRS 16, ‘Leases’ January 1, 2019
Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019
Amendments to IAS 28, ‘Long-term interests in associates and joint January 1, 2019
ventures’
IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019
Annual improvements to IFRSs 2015-2017 cycle January 1, 2019

174

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognize a ‘right-of-use asset’ and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

The Group expects to recognize the lease contract of lessees in line with IFRS 16. However, the Group does not intend to restate the financial statements of prior period (collectively referred herein as the “modified retrospective approach”). On January 1, 2019, it is expected that ‘right-of-use asset’ and lease liability will be increased by $189,000 and $16,000, respectively, and long-term prepaid rents (shown as other non-current assets) will be decreased by $173,000.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRS as endorsed by the FSC are as follows:

endorsed by the FSC are as follows:
New Standards, Interpretations and Amendments
Amendments to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition of
Material’
Amendments to IFRS 3, ‘Definition of a business’
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets
between an investor and its associate or joint venture’
IFRS 17, ‘Insurance contracts’		 Effective date by
International Accounting
Standards Board
January 1, 2020
January 1, 2020
To be determined by
International Accounting
Standards Board
January 1, 2021

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

175

(1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

(2) Basis of preparation

  • A. The consolidated financial statements have been prepared under the historical cost convention.

  • B. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

  • C. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Group has elected to apply modified retrospective approach whereby the cumulative impact of the adoption was recognized as retained earnings or other equity as of January 1, 2018 and the financial statements for the year ended December 31, 2017 were not restated. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’), International Accounting Standard 11 (‘IAS 11’), International Accounting Standard 18 (‘IAS 18’) and related financial reporting interpretations. Please refer to Notes 12(4) and (5) for details of significant accounting policies and details of significant accounts.

(3) Basis of consolidation

  • A. Basis for preparation of consolidated financial statements

  • (a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.

  • (b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

  • B. Subsidiaries included in the consolidated financial statements:

Name of investor
The Company		 Name of subsidiary Main business activities Ownership (%) Ownership (%) Description

December
31, 2018
100%
December
31, 2017
100%

Wellsoon International Limited
(Wellsoon International)		 Investment holding

176

Ownership (%)

Ownership (%)
Name of investor
Name of subsidiary
Wellsoon International
Limited
Lida(HK) Holdings (Lida(HK))
Lida(HK) Holdings
Lida (China) Machine Equipment
Co. Limited (Lida (China))
Lida (China) Machine
Equipment Co.
Limited
Lida (Jiangxi) Machine
Equipment Co. Limited (Lida
(Jiangxi))		 Main business activities December
31, 2018
December
31, 2017
100%
100%
100%
100%
100%
100%		 Description
Investment holding
Design, manufacture and sales of
air compressors
Design, manufacture and sales of
air compressors

  • C. Subsidiaries not included in the consolidated financial statements: None.

  • D. Adjustments for subsidiaries with different balance sheet dates: None.

  • E. Significant restrictions: None.

  • F. Subsidiaries that have non-controlling interests that are material to the Group: None.

(4) Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Company’s functional currency is China Yuan (CNY); however, the consolidated financial statements are presented in New Taiwan dollars (NTD) under the regulations of the country where the consolidated financial statements are reported to the regulatory authorities.

  • A. Translation of foreign operations

The operating results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

  • (a) Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

  • (b) Except for the beginning retained earnings balance are brought forward from last year, other items within equity are translated at the historical rate.

  • (c) Except for dividends are translated at exchange rate on the declaration date, income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and

  • (d) All resulting exchange differences are recognized in other comprehensive income.

  • B. Foreign currency transactions and balances

  • (a) Foreign currency transactions are translated into the functional currency using the exchange rates on the trade dates or measurement date. Therefore, foreign exchange differences resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise.

  • (b) Monetary assets and liabilities denominated in foreign currencies at the period end are

177

re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss. 

  - (c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

  - (d) All foreign exchange differences are presented in the statement of comprehensive income under “Other gains and losses” by the nature of transactions.

  • (5) Classification of current and non-current items

  • A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

    • (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;

    • (b) Assets held mainly for trading purposes;

    • (c) Assets that are expected to be realized within twelve months from the balance sheet date;

    • (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

  • B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

    • (a) Liabilities that are expected to be paid off within the normal operating cycle;

    • (b) Liabilities arising mainly from trading activities;

    • (c) Liabilities that are to be paid off within twelve months from the balance sheet date;

    • (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

178

(6) Cash equivalents

Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

(7) Financial assets at amortized cost

  • A. Financial assets at amortized cost are those that meet all of the following criteria:

  • (a) The objective of the Group’s business model is achieved by collecting contractual cash flows.

  • (b) The assets’ contractual cash flows represent solely payments of principal and interest.

  • B. On a regular way purchase or sale basis, financial assets at amortized cost are recognized and derecognized using trade date accounting.

  • C. The Group’s time deposits which do not fall under cash equivalents are those with a short maturity period and are measured at initial investment amount as the effect of discounting is immaterial.

(8) Accounts receivable

  • A. Accounts receivable entitle the Group a legal right to receive consideration in exchange for transferred goods.

  • B. The short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(9) Impairment of financial assets

For financial assets at amortized cost including accounts receivable that have a significant financing component, at each reporting date, the Group recognizes the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognizes the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable that do not contain a significant financing component, the Group recognizes the impairment provision for lifetime ECLs.

(10) Derecognition of financial assets

The Group derecognizes a financial asset when the contractual rights to receive the cash flows from the financial asset have expired.

(11) Operating leases

Lease income and payments made under an operating leases (net of any incentives given to the lessee and received from the lessor) are recognized in profit or loss on a straight-line basis over the lease term.

179

(12) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production overheads. It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(13) Property, plant and equipment

  • A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.

  • B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

  • C. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.

  • D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings and structures 10 ～ 50 years Machinery and equipment 10 years Transportation equipment 5 years Office equipment 5 years Other assets 5 years

180

(14) Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortized historical cost would have been if the impairment had not been recognized.

(15) Borrowings

Borrowings comprise short-term bank borrowings. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

(16) Accounts payable

Accounts payable are liabilities for purchases of raw materials, goods or services. The short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(17) Derecognition of financial liabilities

A financial liability is derecognized when the obligation specified in the contract is either discharged or cancelled or expires.

(18) Provisions

Provisions (including warranties) are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.

(19) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expenses in that period when the employees render service.

181

B. Pensions

  • For defined contribution plans, the contributions are recognized as pension expenses when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.

  • C. Employees’ compensation and directors’ and supervisors’ remuneration

  • Employees’ compensation and directors’ and supervisors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal obligation or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates.

(20) Income tax

  • A. The income tax expense for the period comprises current and deferred tax. Income tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the income tax is recognized in other comprehensive income or equity.

  • B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities.

  • C. Deferred tax is recognized, using the balance sheet method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

  • D. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognized and recognized deferred tax assets are reassessed.

182

  • E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.

  • (21) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

  • (22) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are resolved by the Company’s shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance.

(23) Revenue recognition

  • A. The Group designs, manufactures and sells air compressor products. Sales are recognized when control of the products has transferred, when the products are delivered to the customer, the customer has channel and price discretion over the products, and there is no unfulfilled obligation which could affect to the customer receiving the products. When the products have been shipped to the assigned destination, the risks of obsolescence and loss would transfer to the customer, and either the customer has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria have been satisfied. Since the period of transferring committed goods to customer payment is within one year, the Group does not adjust the transaction price to reflect the time value of money.

  • B. The Group’s obligation to provide the standard warranty terms is recognized as a provision.

  • C. A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

(24) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker. The Group’s Chief Operating Decision-Maker is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the Board of Directors that makes strategic decisions.

183

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of the consolidated financial statements requires management to make critical judgements in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below:

Critical accounting estimates and assumptions

Impairment assessment of tangible assets

The Group assesses impairment based on its subjective judgement and determines the recoverable amounts of a specific group of assets arising from the assets depending on how assets are utilized and industrial characteristics. Any changes of economic circumstances or estimates due to the change of Group strategy might cause material impairment on assets in the future.

As of December 31, 2018, the Group recognized property, plant and equipment, net of impairment loss, amounting to $774,378.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

Cash on hand and revolving funds
Checking accounts and demand deposits
Time deposits		 December31,2018
December31,2017
292
$ 154
$ 2,618,951
2,301,692
-
29,727
2,619,243
$ 2,331,573
$

  • A. The Group transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

  • B. No cash and cash equivalents of the Group were pledged to others.

(2) Financial assets at amortized cost - current

Financial assets at amortized cost-current
Items
Time deposit over 3 months
Less: Accumulated impairment		 December31,2018
1,788,800
$ -
1,788,800
$
  • A. Amounts recognized in profit or loss in relation to financial assets at amortized cost are listed below:
Interest income Year ended
December31,2018
34,840
$

184

  • B. As of December 31, 2018, without taking into account any collateral held or other credit enhancements, the maximum exposure to credit risk in respect of the amount that best represents the financial assets at amortized cost held by the Group was $1,788,800.

  • C. No financial assets at amortized cost of the Group were pledged to others.

  • D. Information relating to credit risk of financial assets at amortized cost is provided in Note 12(2).

(3) Accounts receivable

Accounts receivable
Less: Loss allowance		 December 31,2018
656,628
$ 191)
(
656,437
$		 December 31,2017
951,207
$ 383)
(
950,824
$
  • A. The ageing analysis of accounts receivable that were past due but not impaired is as follows:
Not past due
Up to 30 days
31 to 60 days
61 to 120 days		 December31,2018
514,603
$ 141,240
-
785
656,628
$		 December31,2017
788,256
$ 156,505
5,236
1,210
951,207
$

The above ageing analysis was based on past due date.

  • B. No accounts receivable of the Group were pledged to others.

  • C. As of December 31, 2018 and 2017, without taking into account any collateral held or other credit enhancements, the maximum exposure to credit risk in respect of the amount that best represents the accounts receivable held by the Group were $656,437 and $950,824, respectively.

  • D. Information relating to credit risk of accounts receivable is provided in Note 12(2).

(4) Inventories

Inventories
Raw materials
Work in progress
Finished goods		 December31,2018
Allowance for
Cost
valuation loss
123,174
$ 676)
($ 63,077
-
124,881
-
311,132
$ 676)
($		 Bookvalue
122,498
$ 63,077
124,881
310,456
$

185

Raw materials
Work in progress
Finished goods		 December31,2017
Allowance for
Cost
valuation loss
114,122
$ 297)
($ 72,655
-
97,986
-
284,763
$ 297)
($		 Bookvalue
113,825
$ 72,655
97,986
284,466
$

The cost of inventories recognized as expense for the year:

Cost of goods sold
Loss on decline in market value
Revenue from sale of scraps
 2018
2017
5,763,208
$ 6,214,949
$ 396
198
2,165)
(
1,584)
(
5,761,439
$ 6,213,563
$ Years ended December 31,

(5) Other current assets

Other current assets
Time deposits-over 3 months
Excess business tax paid		 December31,2018
-
$ 6,226
6,226
$		 December31,2017
1,974,636
$ 15,123
1,989,759
$

Time deposits-over 3 months were reclassified as ‘Financial assets at amortized cost - current’ on initial application of IFRS 9. Please refer to Notes 6(2) and 12(4) for details.

186

(6) Property, plant and equipment

Property, plant and equipment
At January 1, 2018
Cost
Accumulated depreciation
2018
Opening net book amount as at January 1
Additions
Disposals
Reclassifications (Note)
Depreciation charge
Impairment loss
Net exchange differences
Closing net book amount as at December 31
December 31, 2018
Cost
Accumulated depreciation and impairment		 Buildings and
structures
382,060
$ 38,385)
(
343,675
$ 343,675
$ -
-
-
9,905)
(
37,262)
(
6,090)
(
290,418
$ 374,277
$ 83,859)
(
290,418
$		 Machinery
and equipment
472,618
$ 171,886)
(
300,732
$ 300,732
$ 110,921
421)
(
23,129
42,442)
(
24,011)
(
7,426)
(
360,482
$ 594,035
$ 233,553)
(
360,482
$		 Transportation
equipment
34,306
$ 14,159)
(
20,147
$ 20,147
$ 1,693
-
-
5,014)
(
-
346)
(
16,480
$ 35,269
$ 18,789)
(
16,480
$		 Office
equipment
6,220
$ 3,504)
(
2,716
$ 2,716
$ 43
-
-
867)
(
-
39)
(
1,853
$ 6,136
$ 4,283)
(
1,853
$		 Other facilities
6,145
$ 4,079)
(
2,066
$ 2,066
$ 562
-
-
545)
(
-
42)
(

2,041
$ 6,572
$ 4,531)
(
2,041
$		 Unfinished
construction and
equipment under
acceptance
-
$ -

-
$ -
$ 105,136
-

-
-

-

2,032)
(

103,104
$ 103,104
$ -

103,104
$		 Total
901,349
$ 232,013)
(
669,336
$
669,336
$ 218,355
421)
(
23,129
58,773)
(
61,273)
(
15,975)
(
774,378
$
1,119,393
$ 345,015)
(
774,378
$

187

At January 1, 2017
Cost
Accumulated depreciation
2017
Opening net book amount as at January 1
Additions
Disposals
Reclassifications (Note)
Depreciation charge
Net exchange differences
Closing net book amount as at December 31
December 31, 2017
Cost
Accumulated depreciation		 Buildings and
structures
346,838
$ 29,685)
(
317,153
$ 317,153
$ 38,630
-
-
8,920)
(
3,188)
(
343,675
$ 382,060
$ 38,385)
(
343,675
$		 Machinery
and equipment
272,121
$ 155,079)
(
117,042
$ 117,042
$ 199,810
2,205)
(
3,360
18,317)
(
1,042
300,732
$ 472,618
$ 171,886)
(
300,732
$		 Transportation
Office
equipment
equipment
Other facilities
Total
17,848
$ 4,618
$ 5,256
$ 646,681
$ 10,003)
(
2,830)
(
3,667)
(
201,264)
(
7,845
$ 1,788
$ 1,589
$ 445,417
$ 7,845
$ 1,788
$ 1,589
$ 445,417
$ 16,447
1,788
968
257,643
-
154)
(
31)
(
2,390)
(
-
-
-
3,360
4,215)
(
696)
(
448)
(
32,596)
(
70
10)
(
12)
(
2,098)
(
20,147
$ 2,716
$ 2,066
$ 669,336
$ 34,306
$ 6,220
$ 6,145
$ 901,349
$ 14,159)
(
3,504)
(
4,079)
(
232,013)
(
20,147
$ 2,716
$ 2,066
$ 669,336
$

Note: Transfers from prepayments for business facilities.

A. No capitalization of interests for the years ended December 31, 2018 and 2017.

B. Information about the property, plant and equipment that were pledged to others as collaterals is provided in Note 8.

C. Impairment information about the property, plant and equipment is provided in Note 6(7).

188

(7) Impairment of non-financial assets (For the year ended December 31, 2017: None)

  • A. The Group recognized impairment loss (shown as ‘other gains and losses’) for the year ended December 31, 2018. Details of such loss are as follows:
December 31, 2018. Details of such loss are as follows:
Impairment loss - buildings and structures
Impairment loss - machinery		 Year ended
December31,2018
Recognised in
profitor loss
37,262
$ 24,011
61,273
$
  • B. In 2018, due to the impact of the US-China trade war, slowing demand from the ultimate customers and the energy-efficient and environment-friendly products becoming the mainstream in the market, the Group’s subsidiaries, manufacturing low-end products incurred losses year by year that resulted in an impairment in the Group’s property, plant and equipment. The Group wrote down the carrying amount of the asset based on the recoverable amount and recognized an impairment loss of $61,273 accordingly. The recoverable amount is the property’s fair value less costs of disposal estimated by multiplying the replacement cost method and depreciation rate.

(8) Other non-current assets

Other non-current assets
Long-term prepaid rent - land access right
Prepayments for business facilities
Guarantee deposits paid		 December 31,2018
172,941
$ 107
174
173,222
$		 December 31,2017
33,490
$ 26,325
169
59,984
$

  • A. Lida (China) entered into land access right agreements with Fujian Quanzhou People’s Government for the land located on Gu se Wei, Jinfeng Village, Dongyuan Town, Quanzhou, Fujian and Hui Nan Industrial Zone, Dongyuan town on April 2, 2004, May 17, 2004 and March 20, 2004, respectively. Lida (Jiangxi) entered into land access right agreements with Jiujiang people’s Government of Jiangxi Province for the land located southern Gang Cheng Avenue, northern Gang Xing Road, eastern of public rental housing project and western Tong Kong West Road, Chengxi port area, Jiujiang economic and Technological Development Zone on July 9, 2012. The lease terms were 44 ~ 50 years and made all payments upon signing of the agreements.

  • B. Lida (China) entered into a land access right agreement with Quanzhou Municipal Bureau of land and resources for the land located on Jincuo Village and Dongtou Village, Luoyang Town, Dongyuan Town, Quanzhou, Fujian on March 30, 2018. The lease term was 50 years and made all payments before June 5, 2018 in accordance with the agreement.

189

  • C. The Group recognized rental expenses of $3,018 and $820 for the years ended December 31, 2018 and 2017, respectively.

  • D. Information about the abovementioned land access right that were pledged to others as collaterals is provided in Note 8.

(9) Short-term borrowings

Type of borrowings December 31, 2018 Interest rate Collateral Short-term borrowings Land access right, buildings Secured borrowings $ 93,912 4.7% and structures Type of borrowings December 31, 2017 Interest rate Collateral Short-term borrowings Land access right, buildings Secured borrowings $ 50,215 4.4% and structures

(10) Other payables

Other payables
Salaries payable
Social insurance payable
Professional fees payable
Employees' compensation payable
Value increment tax payable
Payable to equipment suppliers
Others		 December 31,2018
59,795
$ 59,599
7,125
5,976
647
60
1,752
134,954
$		 December 31,2017
65,923
$ 66,053
6,762
6,987
611
17,539
4,090
167,965
$

(11) Pensions

  • A. The Company’s mainland China subsidiaries have a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentage of employees’ monthly salaries and wages. The contribution percentage for the years ended December 31, 2018 and 2017, was 18% to 19%, respectively. Other than the monthly contributions, the Group has no further obligations.

  • B. The Company and subsidiary-Wellsoon International as well as indirect subsidiary-Lida (HK) have no related pension plan.

  • C. The pension costs under defined contribution pension plans of the Group for the years ended

190

December 31, 2018 and 2017, were $70,862 and $70,458, respectively.

(12) Share capital

As of December 31, 2018 and 2017, Company’s authorized capital was $1,500,000, consisting of 150 million shares and the paid-in capital was $1 million with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

(13) Capital surplus

Under the Company’s Articles of Incorporation:

  • A. During the listing period, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Act requires that the amount of capital surplus to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. However, capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

  • B. Except as required by law, the Board of Directors shall capitalize all or partial share premium account, the balance of other reserves account, earnings account or other distributable earnings and issue new stocks or cash to shareholders in proportion to their share ownership out of the listing period.

(14) Retained earnings

  • A. Under the Company’s Articles of Incorporation, the current year’s earnings (including prior years’ unappropriated retained earnings), if any, shall first be used to pay all taxes and offset prior years’ operating losses and then 10% of the remaining amount shall be set aside as special reserve (if needed, retained earnings to support). The remainder (“distributable earnings”), if any, to be appropriated shall be resolved by the stockholders at the stockholders’ meeting.

  • B. Except as required by law or regulations, the Group’s dividend policy is summarized below:

  • (a) Before distributing dividends and bonuses, the Board of Directors shall at its discretion retain a certain amount of reserve fund for business operation, investment or others out of the listing period. When distributing dividends and bonuses, the Board of Directors shall issue new stocks and/or cash dividends or others in proportion to their share ownership and authorize the Company to pay out of available fund in accordance with the regulations.

191

  • (b) At least 10% of the distributable earnings, if any, (including reversal of special reserve) plus previous years undistributed earnings in full or in part shall be appropriated as dividends or bonus to the shareholders in proportion to its ownership during the listing period. Cash dividends shall account for at least 10% of the total dividends distributed. Dividends, bonus or other interest to shareholders are calculated in NTD unless otherwise resolved at the shareholders’ meeting.

  • C. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

  • D. The appropriations of earnings for 2017 and 2016 had been resolved at the shareholders’ meeting on June 13, 2018 and June 13, 2017. Details are summarized below:

Legal reserve
Cash dividends		 Years endedDecember31, Years endedDecember31, Years endedDecember31,
Dividends
per share
Amount
(indollars)
58,829
$ 500,000
5.00
$ 2017		 2016
Amount
58,829
$ 500,000		 Amount
266,848
$ 800,000		 Dividends
per share
(indollars)
8.00
$
  • E. The details about the appropriation of 2018 earnings which was proposed at the Board of Directors’ meeting on March 22, 2019 are as follows:
Legal reserve
Cash dividends
Stock dividends		 Years endedDecember31, Years endedDecember31,
2016
Amount
92,269
$ 230,000
160,000		 Dividends
per share
(indollars)
2.30
$ 1.60

As of March 22, 2019, the appropriation proposal of 2018 earnings has not yet approved at the meeting of shareholders.

  • F. For the information relating to employees’ compensation and directors’ and supervisors’ remuneration, is provided in Note 6(20).

(15) Operating revenue

Revenue from contracts with customers

Year ended December 31, 2018 $ 7,542,981

192

A. Disaggregation of revenue from contracts with customers

The Group derives revenue from the transfer of goods at a point in time in the following major product lines and geographical regions:

2018
Revenue from external
customer contracts
Timing of revenue
recognition
At a point in time		 Air
compressors
Others
6,391,431
$ 156,497
$ 6,391,431
$ 156,497
$ Within Mainland China		 Air
compressors
Others
951,620
$ 43,433
$ 951,620
$ 43,433
$ Outside Mainland China		 Total
Air
compressors
6,391,431
$ 6,391,431
$		 Air
compressors
951,620
$ 951,620
$
7,542,981
$
7,542,981
$

B. Contract liabilities

The Group has recognized the following revenue-related contract liabilities:

Receipts in advance December 31,2018
17,114
$

Revenue recognized that was included in the contract liability balance at the beginning of the period

Revenue recognized that was included in the contract liability balance at
period		 the beginning of the
Receipts in advance Year ended
December 31,2018
8,773
$

C. Related disclosures for 2017 operating revenue are provided in Note 12(5) B.

(16) Other income

Other income
Interest income:
Bank deposits
Financial assets at amortised cost
Total interest income
Rental income
Others		 Years endedDecember31,
2018
8,764
$ 34,840
43,604
393
12
44,009
$		 2017
37,250
$ -
37,250
-
1,283
38,533
$

193

(17) Other gains and losses

Other gains and losses
Years ended December31,
2018 2017
Impairment loss ($ 61,273)
 $ -
Foreign exchange losses ( 24,735)
 ( 11,609)
Donation expense ( 5,233)
 ( 18,862)
Losses on disposals of property, plant and equipment ( 282)
 ( 158)
Others ( 866) ( 748)
($ 92,389) ($ 31,377)

(18) Finance costs

Finance costs
Interest expense from bank borrowings Years ended December 31,
2018
3,747
$		 2017
2,668
$

(19) Expenses by nature

Expenses by nature
Years endedDecember31,
2018 2017
Change in inventory of finished goods and work in progress ($ 16,001)
 ($ 33,757)
Raw materials and supplies used 5,156,788 5,599,213
Employee benefit expense 549,541 566,297
Contracted research expense 187,711 159,438
Transportation expenses 153,877 180,834
Depreciation expenses 58,773 32,596
Electricity expense 50,347 52,585
Traveling expense 20,208 18,239
Entertainment expense 18,740 11,006
Low-value consumption goods 14,912 12,708
Rental expenses 12,282 9,988
Maintenance expense 11,856 17,351
Expected credit impairment gain ( 188)
 -
Other costs and expenses 82,778 111,411
Operating costs and expenses $ 6,301,624 $ 6,737,909

194

(20) Employee benefit expense

Employee benefit expense
Salaries
Labor and health insurance
Pension
Directors’ remuneration
Other personnel expenses		 Years ended December 31,
2018
433,763
$ 19,263
70,862
2,196
23,457
549,541
$		 2017
446,310
$ 23,364
70,458
1,808
24,357
566,297
$

  • A. In accordance with the Articles of Incorporation of the Company, during the listing period, a ratio of distributable profit of the current year, after covering accumulated losses, shall be distributed as employees’ compensation and directors’ remuneration. The ratio shall not be 0.5% ～ 3% for employees’ compensation and shall not be higher than 2% for directors’ remuneration. The employees’ compensation will be distributed in the form of cash and/or shares and the directors’ remuneration shall not be distributed in the form of shares. The employees’ compensation and directors’ remuneration are calculated based on NTD unless otherwise resolved by the shareholders at their shareholders’ meeting. The above ‘profit’ refers to pre-tax profit before deduction of employees’ compensation and directors’ remuneration.

  • B. For the years ended December 31, 2018 and 2017, employees’ compensation were accrued at $5,976 and $6,987, respectively; directors’ remuneration were both accrued $0. The aforementioned amounts were recognized in salary expenses.

  • The employees’ compensation and directors’ remuneration were estimated and accrued based on 0.5% and 0%, respectively, of distributable profit of current year for the year ended December 31, 2018. The employees’ compensation and directors’ and supervisors’ remuneration resolved by the Board of Directors were $5,976 and $0, respectively, and the employees’ compensation will be distributed in the form of cash.

  • Employees’ compensation and directors’ remuneration of 2017 as resolved by the Board of Directors were in agreement with those amounts recognized in the 2017 financial statements. Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

195

(21) Income tax

A. Income tax expense

(a) Components of income tax expense:

Components of income tax expense:
Current tax:
Current tax on profits for the year
Prior year income tax underestimation
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Income tax expense		 Years endedDecember31,
2018
326,704
$ 1,728
328,432
91,193
419,625
$		 2017
359,158
$ 1,834
360,992
105,536
466,528
$

(b) Reconciliation between income tax expense and accounting profit

Tax calculated based on profit before tax and
statutory tax rate
Effects from foreign earnings income tax
Effects from items disallowed by tax regulation
Prior year income tax underestimation
Income tax expense		 Years endedDecember31, Years endedDecember31,
2018
325,154
$ 89,246
3,497
1,728
419,625
$		 2017
354,509
$ 105,723
4,462
1,834
466,528
$
  • B. Amounts of deferred tax assets and liabilities as a result of temporary differences are as follows:
Deferred tax assets
-Temporary differences:
Warranty expenses
Bad debts expense
Loss on inventory
-Deferred tax liabilities:
Effects from foreign earnings income tax

 2018 December 31
2,255
$ 107
159
2,521
$ 470,549)
($ 468,028)
($
Recognised in
Exchange
January1
profit or loss
difference
4,303
$ 1,999)
($ 49)
($ 157
48)
(
2)
(
63
99
3)
(
4,523
$ 1,948)
($ 54)
($ 407,913)
($ 89,246)
($ 26,610
$
403,390)
($ 91,194)
($ 26,556
$

196

Deferred tax assets
-Temporary differences:
Warranty expenses
Bad debts expense
Loss on inventory
-Deferred tax liabilities:
Effects from foreign earnings income tax

 2017 December 31
4,303
$ 157
63
4,523
407,913)
($ 403,390)
($
Recognised in
Exchange
January1
profit or loss
difference
4,143
$ 204
$ 44)
($ 219
59)
(
3)
(
21
42
-
4,383
187
47)
($ 336,599)
($ 105,723)
($ 34,409

332,216)
($ 105,536)
($ 34,362

  • C. The Company is a registered company in the British Cayman Islands and is exempt from business income tax under local laws and regulations.

  • D. Wellsoon International is a registered company in the British Virgin Islands and is exempt from business income tax under local laws and regulations.

  • E. Lida (HK) is a registered company in the Hong Kong Special Administrative Region of the People’s Republic of China. Under the rules of Hong Kong’s Inland Revenue Ordinance, only income sourced in Hong Kong is taxable. Lida (HK) did not generate taxable income for the years ended December 31, 2018 and 2017.

  • F. Lida (China) and Lida (Jiangxi) are registered companies in the People’s Republic of China and are subject to an income tax rate of 25%.

(22) Earnings per share

Earnings per share
Basic earnings per share
Profit attributable to ordinary shareholders
of the parent
Diluted earnings per share
Profit attributable to ordinary shareholders
of the parent
Assumed conversion of all dilutive potential
ordinary shares
Employees’ compensation
Profit attributable to ordinary shareholders
of the parent plus assumed conversion of all
dilutive potential ordinary shares		 Amountafter tax
(
769,605
$ 769,605
-
769,605
$		 Weighted average
number of ordinary
shares outstanding
sharesin thousands)
100,000
100,000
120
100,120		 Earnings per
share (indollars)
7.70
$
7.69
$

197

Basic earnings per share
Profit attributable to ordinary shareholders
of the parent
Diluted earnings per share
Profit attributable to ordinary shareholders
of the parent
Assumed conversion of all dilutive potential
ordinary shares
Employees’ compensation
Profit attributable to ordinary shareholders
of the parent plus assumed conversion of all
dilutive potential ordinary shares		 YearendedDecember31,2017 YearendedDecember31,2017
Amount aftertax
(
923,883
$ 923,883
-
923,883
$		 Weighted average
number of ordinary
shares outstanding
Earnings per
sharesinthousands)
share (indollars)
100,000
9.24
$ 100,000
70
100,070
9.23
$

(23) Operating leases

  • A. The Group leases plant assets to others under non-cancellable agreements. These leases have terms between January 2018 and December 2022, and all these lease agreements are not renewable at the end of the lease period. For the year ended December 31, 2018, the Group recognized rental income in the amount of $393. The future aggregate minimum lease payments receivable under non-cancellable operating leases are as follows:
Not later than one year
Later than one year but not later than five years		 December31,2018
337
$ 1,091
1,428
$
  • B. The Group leases office located in Taipei City Xinyi District under non-cancellable operating lease agreements. The lease terms are between 2016 and 2019 years. For the years ended December 31, 2018 and 2017, the Group recognized rental income both in the amount of $1,056. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
are as follows:
Up to 12 months December31,2018
645
$		 December31,2017
616
$
  • C. Information regarding operating leases with related parties is provided in Note 7(3).

198

(24) Supplemental cash flow information

Investing activities with partial cash payments

Investing activities with partial cash payments
Purchase of property, plant and equipment
Add: Opening balance of payable on equipment
Less: Ending balance of payable on equipment
(
Cash paid during the year		 2018
2017
218,355
$ 257,643
$ 17,539
-
60)

17,539)
(
235,834
$ 240,104
$ Years endedDecember31,
2018
218,355
$ 17,539
60)

(
235,834
$

(25) Changes in liabilities from financing activities

At January 1, 2018
Changes in cash flow from financing activities
Impact of changes in foreign exchange rate
(
At December 31, 2018		 Short-term
borrowings
50,215
$ 45,601
1,904)

93,912
$

7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party

The Company was incorporated in the British Cayman Islands and acquired 100% equity of Wellsoon International (incorporated in the British Virgin Islands) in a share exchange transaction. The Company becomes the ultimate controlling party of the Group.

(2) Names of related parties and relationship

Names of related parties Relationship with the Group Lida Machinery Industry Co., Ltd Chairman of the related party is the Company’s (Lida Machinery) Vice Chairman

(3) Significant related party transactions

Rental expense

Lida (China) leases plants from Lida Machinery. The rent was set and calculated at the discretion of both parties by reference to the transaction price of a property in similar location. Payments are made in installments in accordance with the lease agreement. The Group recognized rental expenses of $8,208 and $8,112 for the years ended December 31, 2018 and 2017, respectively. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

199

Not later than one year
Later than one year		 December31,2018
8,050
$ 8,050
16,100
$		 December31,2017
8,217
$ 16,434
24,651
$

(4) Key management personnel compensation

Key management personnel compensation
Salaries and other short-term employee benefits
Post-employment compensation		 Years ended December 31,
2018
3,029
$ 237
3,266
$		 2017
3,140
$ 159
3,299
$

8. PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

The Group’s assets pledged as collateral are as follows:
Pledged asset
Land access right (shown as
other non-current assets)
Buildings and structures		 December 31,2018
December 31,2017
11,517
$ 12,106
$ 83,449
89,999
94,966
$ 102,105
$ Book value		 Purpose
December 31,2018
11,517
$ 83,449
94,966
$
Short-term borrowings
〃

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT

COMMITMENTS

(1) Contingencies

None.

(2) Commitments

  • A. Information of the Group’s operating lease agreements is provided in Notes 6(23) and 7(3).

  • B. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

December 31, 2018 December 31, 2017 Property, plant and equipment $ 250 $ 103,306

10. SIGNIFICANT DISASTER LOSS

None.

200

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

The appropriations of earnings for 2018 had been resolved by the Board of Directors at its meeting on March 22, 2019. Details are provided in Note 6(14).

12. OTHERS

(1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

(2) Financial instruments

A. Financial instruments by category

Financial instruments by category
Financial assets
Financial assets at amortised cost
Cash and cash equivalents
Financial assets at amortised cost - current
Accounts receivable
Other receivables
Other current assets
Guarantee deposits paid
Financial liabilities
Financial liabilities at amortised cost
Short-term borrowings
Accounts payable
Other payables		 December31,2018
2,619,243
$ 1,788,800
656,437
6,391
-
174
5,071,045
$ 93,912
$ 438,654
134,954
667,520
$		 December31,2017
2,331,573
$ -
950,824
6,541
1,974,636
169
5,263,743
$
50,215
$ 626,238
167,965
844,418
$

  • B. Financial risk management policies

  • (a) The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk, foreign exchange risk and price risk), credit risk and liquidity risk.

  • (b) Risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board of Directors. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as interest rate risk, foreign exchange risk, credit risk and non-derivative financial instruments, and investment of excess liquidity.

201

  • C. Significant financial risks and degrees of financial risks

  • (a) Market risk

i. Cash flow and fair value interest rate risk

The Group’s main interest rate risk arises from short-term borrowings with fixed rates, which expose the Group to fair value interest rate risk. During 2018 and 2017, the Group’s borrowings at fix rate were mainly denominated in CNY Dollars.

ii. Foreign exchange risk

  • (i) The Group operates internationally and is exposed to exchange rate risk arising from the transactions of the Company and its subsidiaries used in various functional currency, primarily with respect to the USD. Exchange rate risk arises from future commercial transactions and recognized assets and liabilities.

  • (ii) Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The companies are required to hedge their entire foreign exchange risk exposure with the Group treasury.

  • (iii) The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

  • (iv) The Group’s businesses involve some non-functional currency operations (the Company’s functional currency: CNY). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

(Foreign currency:
functional currency)
Financial assets
Monetary items
USD:CNY
Financial liabilities
Monetary items
USD:CNY		 December 31, 2018 December 31, 2018

Foreign currency
amount

(In thousands)
Exchange rate
$ 1,105
6.866
$ 558
6.866
Book value
(NTD)

$ 33,928
$ 11,148

202

December 31, 2017

(Foreign currency:
functional currency)
Financial assets
Monetary items
USD:CNY
Financial liabilities
Monetary items
USD:CNY		 Foreign currency
amount
(In thousands)
Book value
Exchange rate
(NTD)
6.512 $ 250,542
6.512 $ 9,037

$ 8,428
$ 304

  • (v) Total net exchange loss arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2018 and 2017, amounted to $24,735 and $11,609, respectively.

  • (vi) Analysis of foreign currency market risk arising from significant foreign exchange variation:

(Foreign currency: functional currency)
Financial assets
Monetary items
USD:CNY
Financial liabilities
Monetary items
USD:CNY		 Year ended
December 31, 2018		 Year ended
December 31, 2018

Sensitivity analysis

Degree of
variation
1%
1%
Effect on other
comprehensive
income (loss)

$ 339
$ 111

203

(Foreign currency: functional currency)
Financial assets
Monetary items
USD:CNY
Financial liabilities
Monetary items
USD:CNY		 Year ended
December 31, 2017		 Year ended
December 31, 2017

Sensitivity analysis

Degree of
variation
1%
1%
Effect on other
comprehensive
income (loss)

$ 2,505
$ 90

iii. Price risk

The Group is not exposed to significant price risk as the Group does not hold equity securities financial assets at the consolidated balance sheet.

(b) Credit risk

  • i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms, and the contract cash flows of financial assets at amortized cost.

  • ii. The Group manages their credit risk taking into consideration the entire group’s concern. For banks, only independently rated parties with a good rating are accepted. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilization of credit limits is regularly monitored.

  • iii. The Group adopts the assumptions under IFRS 9, the default occurs when the contract payments are past due over 90 days.

204

  • iv. The Group adopts the assumptions under IFRS 9, if the contract payments were past due over 30 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition.

  • v. The following indicators are used to determine whether the credit impairment of debt instruments has occurred:

  • (i) It becomes probable that the issuer will enter bankruptcy or other financial reorganization due to their financial difficulties;

  • (ii) The disappearance of an active market for that financial asset because of financial difficulties;

  • (iii) Default or delinquency in interest or principal repayments;

  • (iv) Adverse changes in national or regional economic conditions that are expected to cause a default.

  • vi. The Group classifies customers’ accounts receivable in accordance with customer types. The Group applies the simplified approach using provision matrix to estimate expected credit loss under the provision matrix basis.

  • vii. The Group wrote-off the financial assets, which cannot be reasonably expected to be recovered, after initiating recourse procedures. However, the Group will continue executing the recourse procedures to secure their rights.

  • viii. The Group used the forecastability of China Manufacturing Purchasing Managers Index to adjust historical and timely information to assess the default possibility of accounts receivable. On December 31, 2018, the provision matrix is as follows:

Expected loss rate
Total book value
Loss allowance		 Not past due Past due
1 to 30 days		 Past due
31 to 60 days		 Past due
61 to 120 days		 Past due
120 to 360 days
0.30%
$ 97		 Past due
Over 360 days		 Total

0.03%
$ 514,602
0.03%
$ 141,241
0.05%
$ -
0.10%
$ 688
100.00%
$ -		 $ 656,628
$ 155 $ 35 $ - $ 1 $ - $ - $ 191
  • ix. Movements in relation to the Group applying the simplified approach to provide loss allowance for accounts receivable are as follows:

2018

2018
Accounts
receivable
At January 1_IAS 39 $ 383
Adjustments under new standards -
At January 1_IFRS 9 383
Reversal of impairment loss ( 188)
Effect of exchange rate changes ( 4)
At December 31 $ 191

205

  • x. Credit risk information of 2017 is provided in Note 12(4).

  • (c) Liquidity risk

  • i. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable external regulatory or legal requirements, for example, currency restrictions.

  • ii. Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group treasury. Group treasury invests surplus cash in interest bearing current accounts and time deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. As at December 31, 2018 and 2017 the Group held money market position of $2,619,243 and $2,331,573, respectively, financial assets at amortized cost of $1,788,800 and $0, respectively, and other liquid assets of $0 and $1,974,636, respectively, that are expected to readily generate cash inflows for managing liquidity risk.

  • iii. The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Non-derivative financial

Non-derivative financial
December 31, 2018
Short-term borrowings
Accounts payable
Other payables		 Less than
3 months
45,582
$ 438,654
128,978
613,214
$		 3 months
and 1year
49,268
$ -
5,976
55,244
$		 Over 1year
-
$ -
-
-
$

206

Non-derivative financial

Non-derivative financial
December 31, 2017
Short-term borrowings
Accounts payable
Other payables		 Less than
3 months
552
$ 626,238
160,978
787,768
$		 3 months
and 1year
50,583
$ -
6,987
57,570
$		 Over 1year
-
$ -
-
-
$

(3) Fair value information

None.

(4) Effects on initial application of IFRS 9 and information on application of IAS 39 in 2017

  • A. Summary of significant accounting policies adopted in 2017:

  • (a) Loans and receivables

    • i. Accounts receivable

They are created by the entity by selling goods or providing services to customers in the ordinary course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

  • ii. Investments in debt instruments without active market

    • Investments in debt instrument without active market held by the Group are those time deposits with a short maturity period but do not qualify as cash equivalents, and they are measured at initial investment amount as the effect of discounting is immaterial.

  • (b) Impairment of financial assets

  • i. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

  • ii. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:

    • (i) Significant financial difficulty of the issuer or debtor;

    • (ii) A breach of contract, such as a default or delinquency in interest or principal payments;

207

  • (iii) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granted the borrower a concession that a lender would not otherwise consider;

  • (iv) It becomes probable that the borrower will enter bankruptcy or other financial reorganization;

  • (vi) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

  • iii. When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

Financial assets at amortized cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortized cost that would have been at the date of reversal had the impairment loss not been recognized previously. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

  • B. The reconciliations of carrying amount of financial assets transferred from December 31, 2017, IAS 39, to January 1, IFRS 9, were as follows:
IAS 39
Transferred into and measured at
amortised cost
IFRS 9		 Measured at
amortised cost
-
$ 1,974,636

1,974,636
$		 Other current
assets
1,974,636
$ 1,974,636)
(
-
$		 Effects Effects
Retained
earnings
-
$ -
-
$		 Other equity
interest
-
$ -
-
$

Under IAS 39, because the cash flows of debt instruments, which were classified as: other current assets, amounting to $1,974,636 met the condition that it is intended to settle the principal and interest on the outstanding principal balance, they were reclassified as “financial assets at amortized cost” on initial application of IFRS 9.

208

  • C. Credit risk information for the year ended December 2017 are as follows:

  • (a) Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilization of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to distributors, including outstanding receivables. For banks and financial institutions, only independently rated parties with good rating are accepted.

  • (b) For the year ended December 31, 2017, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.

  • (c) In accordance with the Group’s credit standards, the credit quality information of the Group’s accounts receivable that are neither past due nor impaired is as follows:

Group A
Group B		 December31,2017
773,447
$ 14,809
788,256
$

Note: Group A: Customers within Mainland China.

Group B: Customers outside Mainland China.

  • (d) The ageing analysis of financial assets that were past due but not impaired is as follows:
Up to 30 days
31 to 60 days
61 to 120 days		 2017
156,505
$ 4,974
1,089
162,568
$

The above ageing analysis was based on past due date.

  • (e) Movements in impaired financial assets are as follows:

  • i. As of December 31, 2017, the total amount of impaired accounts receivable was $383.

209

  • ii. Movements in the provision for impairment of accounts receivable for the year ended December 2017 are as follows:
Movements in the provision for impairment of accounts receivable
December 2017 are as follows:		 for the year ende
At January 1
Reversal of impairment loss
Effect of exchange rate changes
At December 31		 2017
Group
provision
879)
($ 480
16
383)
($

(5) Effects on initial application of IFRS 15

  • A. The significant accounting policies applied on revenue recognition for the year ended December 31, 2017 are set out below.

Sales of goods

The Group designs, manufactures and sells air compressor products. Revenue is measured at the fair value of the consideration received or receivable taking into account of business tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities. Revenue arising from the sales of goods is recognized when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

  • B. The revenue recognized by using above accounting policies for the year ended December 31, 2017 are as follows:
2017 are as follows:
Sales revenue within Mainland China
Sales revenue outside Mainland China		 Year ended
December31,2017
7,250,205
$ 873,627
8,123,832
$

210

  • C. The effects and description of current balance sheet items if the Group continues adopting above accounting policies for the year ended 2018 are as follows:
December31,2018 December31,2018
Balance by Effects from
using previous changes in
Balance by accounting accounting
Balance sheet items usingIFRS15 policies policy
Contract liabilities ($ 17,114)
 $ -
 ($ 17,114)
Other current liabilities - ( 17,114)
 17,114

The contract with customers were previously presented as advance sales receipts (shown as other current liabilities). Under IFRS 15, the advance sales receipts are recognized as contract liabilities. It has no impact to comprehensive income for the year.

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

  • A. Loans to others: Please refer to table 1.

  • B. Provision of endorsements and guarantees to others: None.

  • C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): None.

  • D. Acquisition or sale of the same security with the accumulated cost exceeding NT$300 million or 20% of the Company’s paid-in capital: None.

  • E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

  • F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

  • G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more: None.

  • H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 2.

  • I. Trading in derivative instruments undertaken during the reporting periods: None.

  • J. Significant inter-company transactions during the reporting periods: Please refer to table 3.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 4.

(3) Information on investments in Mainland China

  • A. Basic information: Please refer to table 5.

211

  • B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to table 5.

14. SEGMENT INFORMATION

(1) General information

The Group operates business only in a single industry. The Board of Directors, who allocates resources and assesses performance of the Group as a whole, has identified that the Company has only one reportable operating segment.

(2) Measurement of segment information

The Board of Directors evaluates the performance of the operating segments based on a measure of pretax income or loss.

(3) Information about segment

The segment information provided to the chief operating decision-maker for the reportable segments is as follows:

egments is as follows:
Total segment revenue
Net revenue from external customers
Inter-segment revenue
Segment income before tax
Depreciation expense
Interest revenue
Interest expense
Income tax expense		 Years endedDecember31,
2018
7,542,981
$ -
7,542,981
$ 1,189,230
$ 58,773
$ 43,604
$ 3,747
$ 419,625
$		 2017
8,123,832
$ -
8,123,832
$
1,390,411
$
32,596
$
37,250
$
2,668
$
466,528
$
Segment assets and liabilities
Total segment assets
Total segment liabilities		 December31,2018
6,337,775
$ 1,231,392
$		 December31,2017
6,297,211
$
1,368,164
$

(4) Reconciliation for segment income (loss)

  • A. Sales between segments are carried out at arm’s length. The revenue from external customers reported to the chief operating decision-maker is measured in a manner consistent with that in the statement of comprehensive income.

  • B. The amounts provided to the chief operating decision-maker with respect to total assets and liabilities are measured in a manner consistent with that of the financial statements.

212

  • C. The Group operates business only in a single industry. The Group allocates resources and assesses performance of the Group as a whole, has identified that the Group has only one reportable operating segment. Thus, reconciliation is not required.

(5) Information on products

Revenue from external customers arising mainly from design, manufacture and sales of mechanical and electrical products such as air compressors and electric welding machines. Manufacture and sales of air compressors and electric welding machines are mainly for the Group’s owned brand such as “Luowei”, “Lida” and “Eagleland”. Details of revenue is as follows:

Type of products
Air compressors
Others		 Years endedDecember31, Years endedDecember31,
2018
7,343,051
$ 199,930
7,542,981
$		 2017
7,955,574
$ 168,258
8,123,832
$

(6) Geographical information

Geographical information for the years ended December 31, 2018 and 2017 is as follows:

Years ended December 31,

Geographical information
China
Australia
France
Indonesia
Korea
Malaysia
South Africa
Turkey
UK
Others		 Non-current
Revenue
assets
6,547,928
$ 947,600
$ 209,608
-
179,343
-
115,223
-
76,154
-
70,181
-
62,927
-
38,533
-
37,599
-
205,485
-
7,542,981
$ 947,600
$ 2018		 2017 2017
Revenue
6,547,928
$ 209,608
179,343
115,223
76,154
70,181
62,927
38,533
37,599
205,485
7,542,981
$		 Revenue
7,250,205
$ 198,119
43,150
135,589
39,679
94,260
28,446
34,250
64,742
235,392
8,123,832
$		 Non-current
assets
729,320
$ -
-
-
-
-
-
-
-
-
729,320
$

(7) Major customer information

The Group did not have customers with which the revenues from a single customer accounts for more than 10% of the consolidated operating revenue in the statement of comprehensive income for the years ended December 31, 2018 and 2017.

213

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