Lida - Audit Report / Information 2019

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2019 AND 2018

-----------------------------------------------------------------------------------------------------------------------------------For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Lida Holdings Limited

PWCR19000420

Opinion

We have audited the accompanying consolidated balance sheets of Lida Holdings Limited and its subsidiaries (the “Group”) as of December 31, 2019 and 2018, 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, 2019 and 2018, 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 audit of the consolidated financial statements as of and for the year ended December 31, 2019 in accordance with “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants”, “Rule No. Financial-Supervisory-Securities-Auditing-1090360805 issued by the Financial Supervisory Commission on February 25, 2020” and generally accepted auditing standards in the Republic of China (ROC GAAS); and in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and ROC GAAS for our audit of the consolidated financial statements as of and for the year ended December 31, 2018. 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.

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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, 2019, the balances of cash and financial assets at amortized cost amounted to NT$3,089,604 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 are material to the consolidated financial statements, representing 45% 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:

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.
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.
Selected samples of the Group’s transactions which has critical cash collection and disbursement and confirmed whether the nature of transaction meets operating requirement.
Tested the bank reconciliation report by tracing 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.

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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(25) to the consolidated financial statements for the accounting policies on revenue recognition. For details of revenue recognition, please refer to Note 6(16). For the year ended December 31, 2019, the Group’s sales revenue was NT$5,426,209 thousand.

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

Given that the above mentioned distribution sales constituted 79% of the total Group sales revenue, the distribution sales model and terms of transaction would have a significant impact 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:

Assessed 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.
Conducted interviews with major distributors to verify the existence of purchase from distributors and checked 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.
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’s major distributors.
Assessed and tested the effectiveness of internal controls over sales including the procedures for customer orders, shipping as well as sales and collection.
Conducted substantive test on sales revenue and subsequent collection test.

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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:

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

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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.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our 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.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

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

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From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our 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 30, 2020

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

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, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Assets	December31,	December31,	2018
	Amount 2,285,774 $ 774,900 1,128,511 84 303,608 113 48,332 4,541,322 28,930 1,864,680 179,085 59,732 5,543 113,251 - 1,909 2,253,130 6,794,452 $	Amount 2,619,243 $ 1,788,800 656,437 6,391 310,456 101 6,226 5,387,654 - 774,378 - - 2,521 108 172,941 173 950,121 6,337,775 $	%
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 1535 Financial assets at amortized cost-non-current 1600 Property, plant and equipment 1755 Right-of-use assets 1760 Investment property, net 1840 Deferred income tax assets 1915 Prepayments for business facilities 1985 Long-term prepaid rent 1900 Other non-current assets 15XX Total non-current assets 1XXX Total assets			41 28 11 - 5 - -
			85
			- 12 - - - - 3 -
			15
			100

(Continued)

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LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Liabilities and equity	December31,	December31,	2018
	Amount 159,285 $ 5,759 916,463 118,109 40,824 6,565 11,733 1,258,738 468,539 5,048 473,587 1,732,325 1,160,000 1,548,200 417,946 2,541,663 605,682) ( 5,062,127 5,062,127 6,794,452 $	Amount 93,912 $ 17,114 438,654 134,954 67,189 9,020 - 760,843 470,549 - 470,549 1,231,392 1,000,000 1,548,200 325,677 2,650,452 417,946) ( 5,106,383 5,106,383 6,337,775 $	%
Current liabilities 2100 Short-term borrowings 2130 Contract liabilities-current 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2250 Provisions for liabilities-current 2280 Lease liabilities-current 21XX Total current liabilities Non-current liabilities 2570 Deferred income tax liabilities 2580 Lease liabilities-non-current 25XX Total non-current liabilities 2XXX Total liabilities Equity Equity attributable to owners of parent Share capital 3110 Common stock Capital surplus 3200 Capital surplus Retained earnings 3320 Special reserve 3350 Unappropriated earnings Other equity 3400 Other equity 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			2 - 7 2 1 - -
			12
			7 -
			7
			19
			16 25 5 42 7) (
			81
			81
			100

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

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LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

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

Items	Years endedDecember31	Years endedDecember31
	2019	2018
			%
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 (loss) 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 (loss) that will not be reclassified to profit or loss 8361 Exchange differences on translation of foreign operations 8300 Other comprehensive loss for the year, net of income tax 8500 Total comprehensive income for the year Profit attributable to: 8610 Owners of parent Total comprehensive income attributable to: 8710 Owners of parent 9750 Basic earnings per share (in dollars) 9850 Diluted earnings per share (in dollars)			100 76) (
			24

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

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LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

For the year ended December 31,2018 Balance at January 1, 2018 Net income for the year Other comprehensive loss for the year Total comprehensive income (loss) for the year Appropriation and distribution of 2017 earnings: Special reserve Cash dividends Balance at December 31, 2018 For the year ended December 31,2019 Balance at January 1, 2019 Net income for the year Other comprehensive loss for the year Total comprehensive income (loss) for the year Appropriation and distribution of 2018 earnings: Special reserve Cash dividends Stock dividends Balance at December 31, 2019	Notes			Equityattributable to owners of theparent
		Share capital -common stock 1,000,000 $ - - - - - 1,000,000 $ 1,000,000 $ - - - - - 160,000 1,160,000 $	Capital surplus, additional paid-in capital 1,548,200 $ - - - - - 1,548,200 $ 1,548,200 $ - - - - - - 1,548,200 $	Unappropriated Special reserve retained earnings 266,848 $ 2,439,676 $ - 769,605 - - - 769,605 58,829 58,829) ( - 500,000) ( 325,677 $ 2,650,452 $ 325,677 $ 2,650,452 $ - 373,480 - - - 373,480 92,269 92,269) ( - 230,000) ( - 160,000) ( 417,946 $ 2,541,663 $ Retained earnings	Financial statements translation differences of foreign operations Total equity 325,677) ($ 4,929,047 $ - 769,605 92,269) ( 92,269) ( 92,269) ( 677,336 - - - 500,000) ( 417,946) ($ 5,106,383 $ 417,946) ($ 5,106,383 $ - 373,480 187,736) ( 187,736) ( 187,736) ( 185,744 - - - 230,000) ( - - 605,682) ($ 5,062,127 $
	6(15) 6(15)

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

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LIDA HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Consolidated profit before tax for the year j p p y p g activities Income and expenses having no effect on cash flows Depreciation (including investment property and right-of-use assets) Rent expense Loss (gain) on expected credit impairment loss 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 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 Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in prepayments for business facilities Increase in guarantee deposit paid Acquisition of land access rights Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings Repayment of principal portion of lease liabilities Cash dividends paid Net cash flows used in financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year	Notes	Years ended December 31	Years ended December 31
			2018

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

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LIDA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

(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 30, 2020.

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 2019 are as follows:

follows:
New Standards, Interpretations and Amendments	Effective date by International Accounting Standards Board
Amendments to IFRS 9, ‘Prepayment features with negative compensation’ IFRS 16, ‘Leases’ Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ Amendments to IAS 28, ‘Long-term interests in associates and joint ventures’	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019

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	Effective date by
	International Accounting
New Standards, Interpretations and Amendments	Standards Board
IFRIC 23, ‘Uncertainty over income tax treatments’	January 1, 2019
Annual improvements to IFRSs 2015-2017 cycle	January 1, 2019
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’

A. IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise 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.
B. The Group has elected to apply IFRS 16 by not restating the comparative information (referred herein as the ‘modified retrospective approach’) when applying “IFRSs” effective in 2019 as endorsed by the FSC. Accordingly, the Group increased ‘right-of-use asset’ by $188,270, increased ‘lease liability’ by $15,329 and decreased long-term prepaid rents (shown as “other non-current assets”) by $172,941 with respect to the lease contracts of lessees on January 1, 2019.
C. The Group has used the following practical expedients permitted by the standard at the date of initial application of IFRS 16:
(a) Reassessment as to whether a contract is, or contains, a lease is not required, instead, the application of IFRS 16 depends on whether or not the contracts were previously identified as leases applying IAS 17 and IFRIC 4.
(b) The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
(c) The accounting for operating leases whose period will end before December 31, 2019 as short-term leases and accordingly, rent expense of $616 was recognised in the year ended December 31, 2019.
(d) The exclusion of initial direct costs for the measurement of ‘right-of-use asset’.
(e) The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
(f) The adjustment of the ‘right-of-use asset’ by the amount of any provision for onerous leases.
D. The Group calculated the present value of lease liabilities by using the weighted average incremental borrowing interest rate of 4.75%.

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E. The Group recognised lease liabilities which had previously been classified as ‘operating leases’ under the principles of IAS 17, ‘Leases’. The reconciliation between operating lease commitments under IAS 17 measured at the present value of the remaining lease payments, discounted using the lessee’s interest rate and lease liabilities recognised as of January 1, 2019 is as follows:

as follows:
Operating lease commitments disclosed by applying IAS 17 as at	$	16,745
December 31, 2018
Less: Short-term leases	(	645)
Total lease contracts amount recognised as lease liabilities by applying
IFRS 16 on January 1, 2019	$	16,100
Incremental borrowing interest rate at the date of initial application		4.75%
Lease liabilities recognised as at January 1, 2019 by applying IFRS 16	$	15,329

(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 2020 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 9, IAS 39 and IFRS7 ,‘Interest rate benchmark reform’	Effective date by International Accounting Standards Board January 1, 2020 January 1, 2020 January 1, 2020

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

(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:
	Effective date by
	International Accounting
New Standards, Interpretations and Amendments	Standards Board
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets	To be determined by
between an investor and its associate or joint venture’	International Accounting
	Standards Board

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New Standards, Interpretations and Amendments IFRS 17, ‘Insurance contracts’ Amendments to IAS 1, ‘Classification of liabilities as current or non-current’	Effective date by International Accounting Standards Board January 1, 2021 January 1, 2022

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.

(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.

(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.

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B. Subsidiaries included in the consolidated financial statements:

Name of investor	Name of subsidiary Wellsoon International Limited (Wellsoon International) Lida(HK) Holdings (Lida(HK)) Lida (China) Machine Equipment Co. Limited (Lida (China)) Lida (Jiangxi) Machine Equipment Co. Limited (Lida (Jiangxi))	Main business activities Investment holding Investment holding Design, manufacture and sales of air compressors Design, manufacture and sales of air compressors	Ownership (%) December 31, 2019 December 31, 2018 100% 100% 100% 100% 100% 100% 100% 100%	Ownership (%) December 31, 2019 December 31, 2018 100% 100% 100% 100% 100% 100% 100% 100%
			December 31, 2019 100% 100% 100% 100%
The Company Wellsoon International Limited Lida(HK) Holdings Lida (China) Machine Equipment Co. Limited				100% 100% 100% 100%

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.

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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 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;

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(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.

(6) 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.

(7) 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.

(8) 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.

(9) Derecognition of financial assets

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

- (10) Leasing arrangements (lessor) operating leases

Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

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(11) 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.

(12) 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:

and equipment are as follows:
Buildings and structures	10`～`50 years
Machinery and equipment	10 years
Transportation equipment	5 years
Office equipment	5 years
Leasehold improvements	3 years
Other assets	5 years

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(13) Leasing arrangements (lessee)-right-of-use assets/lease liabilities

Effective 2019

A. Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. For short-term leases or leases of low-value assets, lease payments are recognised as an expense on a straight-line basis over the lease term.
B. Lease liabilities include the net present value of the remaining lease payments at the commencement date, discounted using the incremental borrowing interest rate. Lease payments are comprised of the following:
(a) Fixed payments, less any lease incentives receivable;
(b) Variable lease payments that depend on an index or a rate;
(c) Amounts expected to be payable by the lessee under residual value guarantees;
(d) The exercise price of a purchase option, if the lessee is reasonably certain to exercise that option; and
(e) Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The Group subsequently measures the lease liability at amortised cost using the interest method and recognises interest expense over the lease term. The lease liability is remeasured and the amount of remeasurement is recognised as an adjustment to the right-of-use asset when there are changes in the lease term or lease payments and such changes do not arise from contract modifications.

C. At the commencement date, the right-of-use asset is stated at cost comprising the following:
(a) The amount of the initial measurement of lease liability;
(b) Any lease payments made at or before the commencement date;
(c) Any initial direct costs incurred by the lessee.

The right-of-use asset is measured subsequently using the cost model and is depreciated from the commencement date to the earlier of the end of the asset’s useful life or the end of the lease term. When the lease liability is remeasured, the amount of remeasurement is recognised as an adjustment to the right-of-use asset.

(14) Operating leases (lessee)

Prior to 2018

Payments made under an operating lease (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the lease term.

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(15) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Investment property is depreciated on a straight-line basis over its estimated useful life of 48 years.

(16) 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.

(17) 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.

(18) 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.

(19) Derecognition of financial liabilities

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

(20) 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.

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(21) 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.

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.

(22) 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.

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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.
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.

(23) 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.

(24) 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.

(25) 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.

(26) 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.

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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, 2019, the Group recognized property, plant and equipment and investment property, net of impairment loss, amounting to $1,924,412.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1)Cash

TAILS OF SIGNIFICANT ACCOUNTS Cash
Cash on hand and revolving funds Checking accounts and demand deposits	December 31,2019 322 $ 2,285,452 2,285,774 $	December 31,2018
		292 $ 2,618,951
		2,619,243 $

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. The Group has no cash pledged to others.

(2)Financial assets at amortized cost

Financial assets at amortized cost
Items Current items: Time deposits over 3 months Less: Accumulated impairment Non-current items: Time deposits over 1 year Less: Accumulated impairment	December31,2019 774,900 $ - 774,900 $ 28,930 $ - 28,930 $	December31,2018
		1,788,800 $ -
		1,788,800 $
		- $ -
		- $

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A. Amounts recognized in profit or loss in relation to financial assets at amortized cost are listed below:

below:
		Years ended	December 31,
		2019	2018
Interest income	$	26,186	34,840 $

B. As of December 31, 2019 and 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 $803,830 and $1,788,800, respectively.
C. The Group has no financial assets at amortized cost pledged to others.
D. Information relating to credit risk of financial assets at amortized cost is provided in Note 12(2).

(3)Accounts receivable

		December31,2019	December31,2019		December	31, 2018
Accounts receivable		$	1,144,035		$	656,628
Less: Allowance for uncollectible accounts	(		15,524)	(		191)
		$	1,128,511		$	656,437

A. For the ageing analysis of accounts receivable, please refer to Note 12(2).

The Group grants credit terms to customers are 60~90 days after delivery. Ageing analysis is conducted on the basis of days overdue. Please refer to Note 12 for disclosure of credit risk and information on movement of impairment and analysis of accounts receivable.

B. As of December 31, 2019 and 2018, accounts receivable were all from contracts with customers. And as of January 1, 2018, the balance of receivables from contracts with customers amounted to $950,824.
C. The Group has no accounts receivable of the Group pledged to others.
D. As of December 31, 2019 and 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 accounts receivable held by the Group were $1,128,511 and $656,437, respectively.

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(4)Inventories

nventories
Raw materials Work in Progress Finished goods Raw materials Work in Progress Finished goods	Allowance for Cost valuation loss 158,192 $ 15) ($ 58,043 - 87,388 - 303,623 $ 15) ($ December 31,2019 Allowance for Cost valuation loss 123,174 $ 676) ($ 63,077 - 124,881 - 311,132 $ 676) ($ December 31,2018	Book value 158,177 $ 58,043 87,388
		303,608 $
		Book value
		122,498 $ 63,077 124,881
		310,456 $

The cost of inventories recognized as expense for the year:

		Years ended	December 31	December 31
		2019		2018
Cost of goods sold	$	4,324,926	$	5,763,208
(Gain on reversal of) loss on decline in market value	(	659)		396
Revenue from sale of scraps	(	1,776)	(	2,165)
	$	4,322,491	$	5,761,439

The Group reversed from a previous inventory write-down and accounted for as reduction of cost of goods sold because raw materials were used.

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(5)Property, plant and equipment

Unfinished construction and Buildings and Machinery Transportation Office Leasehold equipment under structures equipment equipment equipment improvements Other facilities acceptance Total At January 1 Cost 374,277 $ 594,035 $ 35,269 $ 6,136 $ - $ 6,572 $ 103,104 $ 1,119,393 $ Accumulated depreciation and impairment 83,859) ( 233,553) ( 18,789) ( 4,283) ( - 4,531) ( - 345,015) ( 290,418 $ 360,482 $ 16,480 $ 1,853 $ - $ 2,041 $ 103,104 $ 774,378 $ Opening net book amount as at January 1 290,418 $ 360,482 $ 16,480 $ 1,853 $ - $ 2,041 $ 103,104 $ 774,378 $ Additions - 2,747 - 84 1,641 54 1,271,215 1,275,741 Disposals - 163) ( - 1) ( - - - 164) ( Reclassifications (Note) 63,001) ( 107 - - - - - 62,894) ( Depreciation charge 7,923) ( 36,400) ( 4,642) ( 443) ( 154) ( 432) ( - 49,994) ( Net exchange differences 8,194) ( 12,200) ( 443) ( 55) ( 55) ( 62) ( 51,378) ( 72,387) ( Closing net book amount as at December 31 211,300 $ 314,573 $ 11,395 $ 1,438 $ 1,432 $ 1,601 $ 1,322,941 $ 1,864,680 $ At December 31 Cost 299,654 $ 570,863 $ 33,950 $ 5,987 $ 1,580 $ 6,378 $ 1,322,941 $ 2,241,353 $ Accumulated depreciation and impairment 88,354) ( 256,290) ( 22,555) ( 4,549) ( 148) ( 4,777) ( - 376,673) ( 211,300 $ 314,573 $ 11,395 $ 1,438 $ 1,432 $ 1,601 $ 1,322,941 $ 1,864,680 $ 2019			2019
						Total
						1,864,680 $

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2018

												2018
																		Unfinished
																	construction and
			Buildings and			Machinery			Transportation			Office					equipment under
			structures			equipment			equipment			equipment			Other facilities			acceptance			Total
At January 1
Cost		$	382,060		$	472,618		$	34,306		$	6,220		$	6,145		$	-		$	901,349
Accumulated depreciation	(		38,385)	(		171,886)	(		14,159)	(		3,504)	(		4,079)			-	(		232,013)
		$	343,675		$	300,732		$	20,147		$	2,716		$	2,066		$	-		$	669,336
Opening net book amount as at January 1		$	343,675		$	300,732		$	20,147		$	2,716		$	2,066		$	-		$	669,336
Additions			-			110,921			1,693			43			562			105,136			218,355
Disposals			-	(		421)			-			-			-			-	(		421)
Reclassifications (Note)			-			23,129			-			-			-			-			23,129
Depreciation charge	(		9,905)	(		42,442)	(		5,014)	(		867)	(		545)			-	(		58,773)
Impairment loss	(		37,262)	(		24,011)			-			-			-			-	(		61,273)
Net exchange differences	(		6,090)	(		7,426)	(		346)	(		39)	(		42)	(		2,032)	(		15,975)
Closing net book amount as at December 31		$	290,418		$	360,482		$	16,480		$	1,853		$	2,041		$	103,104		$	774,378
At December 31
Cost		$	374,277		$	594,035		$	35,269		$	6,136		$	6,572		$	103,104		$	1,119,393
Accumulated depreciation and impairment	(		83,859)	(		233,553)	(		18,789)	(		4,283)	(		4,531)			-	(		345,015)
		$	290,418		$	360,482		$	16,480		$	1,853		$	2,041		$	103,104		$	774,378

Note: Transfers from prepayment for business facilities and transfer into investment property.

A. The Group reclassified leased buildings and structures as investment property due to the holding purpose was changed, please refer to Note 6(8). B. No capitalization of interests for the years ended December 31, 2019 and 2018.

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

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(6)Leasing arrangements-lessee

Effective 2019

A. The Group leases various assets including land and building. The lease term of land are between 44 and 50 years, and the lease term of building are typically made for periods of 2 to 4 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose covenants but land. Information about the land were pledged to others as collaterals is provided in Note 8.
B. Short-term leases with a lease term of 12 months or less, period from August 1, 2018 to July 30, 2019, comprise offices located in Xinyi District, Taipei City. For the years ended December 31, 2019 and 2018, payments of lease commitments for short-term leases amounted to $616 and $1,056, respectively.
C. “Long-term prepaid rents-land access right” was reclassified as “right-of-use assets” on initial application of IFRS 16, details are as follows:
(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.
D. The carrying amount of right-of-use assets and the depreciation charge are as follows:

Land Buildings	December 31,2019 Carryingamount 162,948 $ 8,759 171,707 $	Year ended December 31,2019
		Depreciation charge
		3,676 $ 3,203
		6,879 $

E. For the year ended December 31, 2019, the additions to right-of-use assets was $12,289.

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F. The information on profit and loss accounts relating to lease contracts is as follows:

Items affecting profit or loss Interest expense on lease liabilities Expense on short-term lease contracts	Year ended December 31,2019 365 $ 616

G. For the year ended December 31, 2019, the Group’s total cash outflow for leases amounted to $12,069.
H. Information regarding operating leases with related parties is provided in Note 7(3).

(7)Leasing arrangements-lessor

Effective 2019

A. The Group leases various assets including plants. The lease periods are from January 2018 to March 2023. All the lease agreements are not renewable at the end of the lease period. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
B. For the year ended December 31, 2019, the Group recognised rent income in the amount of $342 based on the operating lease agreement, which does not include variable lease payments.
C. The maturity analysis of the lease payments (including related parties) under the operating leases is as follows:

is as follows:
2020 2021 After 2022	December31,2019
	2,730 $ 2,730 3,312
	8,772 $

D. Information regarding operating leases with related parties is provided in Note 7(3).

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(8)Investment property (For the year ended December 31, 2018: None)

		2019
		Buildings
		and structures
At January 1
Cost	$	-
Accumulated depreciation and impairment		-
Opening net book amount as at January 1	$ $	- -
Reclassifications		63,001
Depreciation charge	(	949)
Net exchange differences	(	2,320)
Closing net book amount as at December 31	$	59,732
At December 31
Cost	$	80,507
Accumulated depreciation and impairment	(	20,775)
	$	59,732

A. Rental income from investment property and direct operating expenses arising from investment property are shown below:

Rental income from investment property Direct operating expenses arising from the investment property that generated rental income during the year	Year ended December 31, 2019 2,154 $ 949 $

B. The fair value of the investment property held by the Group was $64,885, as of December 31, 2019, which was based on the transaction price of similar real estate properties in the neighborhood. The amount was assessed by comparing related market prices and found no major changes as at the balance sheet date.
C. The Group has no investment property pledged to others as collateral.

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- (9)Impairment of non financial assets (For the year ended December 31, 2019: 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:
		Year ended
	December 31, 2018
		Recognised in
		profit or loss
Impairment loss-buildings and structures	$	37,262
Impairment loss-machinery		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 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.

(10) Short-term borrowings

Type of borrowings Short-term borrowings Secured borrowings (Note)	December 31,2019 159,285 $	Interest rate range Collateral 4.4%~4.7% Right-of-use asset-land, buildings and structures

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

Note : The Group signed certain secured borrowing contracts with banks which were guaranteed by Lida Machinery Industry Co., Ltd. through pledging its land and building located in Jinfen Village, Dongyuan Town, Quanzhou and Taiwanese Investment Zone. Information regarding guarantees and endorsements with related parties is provided in Note 7(3).

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(11) Other payables

Other payables
Salaries payable Social insurance payable Professional fees payable Employees' compensation payable Others	December 31,2019 61,836 $ 47,542 5,376 2,874 481 118,109 $	December 31,2018
		59,795 $ 59,599 7,125 5,976 2,459
		134,954 $

(12) 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, 2019 and 2018, was 16% 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 December 31, 2019 and 2018 were $56,316 and $70,862, respectively.

(13) Share capital

A. As of December 31, 2019 and 2018, Company’s authorized capital was $1,500,000, consisting of 150,000 thousands shares and the paid-in capital was $1,000,000 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.
B. On June 13, 2019, the shareholders at their meeting resolved to increase capital of $160,000. The amount of capital raised through the issuance of shares was $1,160,000 which had been registered.

(14) 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

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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.

(15) 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.
(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 2018 and 2017 had been resolved at the shareholders’ meeting on June 13, 2019 and June 13, 2018. Details are summarized below:

Years ended December 31	Years ended December 31	Years ended December 31
Dividends per share Amount (in dollars) 92,269 $ 230,000 2.30 $ 160,000 1.60 2018	2017
Amount 92,269 $ 230,000 160,000	Amount 58,829 $ 500,000 -	Dividends per share (in dollars)
		5.00 $ -

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E. The details about the appropriation of 2019 earnings which was proposed at the Board of Directors’ meeting on March 30, 2020 are as follows:

Directors’ meeting on March 30, 2020 are as follows:
Legal reserve Cash dividends	YearendedDecember31,2019
	Amount 187,736 $ 197,200	Dividends per share (indollars)
		1.70 $

As of March 30, 2020, the appropriation proposal of 2019 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(21).

(16) Operating revenue

Operating revenue
Revenue from contracts with customers	Years endedDecember31
	2019 5,426,209 $	2018
		7,542,981 $

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:

	Within Mainland China	Within Mainland China	Within Mainland China		Outside Mainland China	Outside Mainland China	Outside Mainland China	Outside Mainland China
	Air				Air
2019	compressors		Others		compressors		Others			Total
Revenue from external
customer contracts	4,181,311 $	$	108,677	1,102,455 $		$		33,766	$	5,426,209
	Within Mainland China				Outside Mainland China
	Air				Air
2018	compressors		Others		compressors		Others			Total
Revenue from external
customer contracts	6,391,431 $	$	156,497	951,620 $		$		43,433	$	7,542,981
Contract liabilities
The Group has recognized	the following	revenue-related contract liabilities:
	December		31,2019	December31,2018				January		1,2018
Receipts in advance	$		5,759	$		17,114		$		9,174

B. Contract liabilities

The Group has recognized the following revenue-related contract liabilities:

Revenue recognized that was included in the contract liability balance at the beginning of the year.

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Year ended December 31
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Receipts in advance

2019 17,114 $	2018 8,773 $

(17) Other income

Other income
Interest income: Interest income bank deposits Interest income financial assets measured at amortised cost Total interest income Rent income Others	2019 2018 7,803 $ 8,764 $ 26,186 34,840 33,989 43,604 2,154 393 1,508 12 37,651 $ 44,009 $ Years endedDecember31
			43,604
			393 12
	$	$	44,009

(18) Other gains and losses

Other gains and losses
		Years ended	December 31
		2019		2018
Foreign exchange losses	($	7,617)	($	24,735)
Donation expense	(	3,578)	(	5,233)
Depreciation on investment property	(	949)		-
Losses on disposals of property, plant and equipment	(	65)	(	282)
Impairment loss recognized on property, plant and		-	(	61,273)
Others	(	616)	(	866)
	($	12,825)	($	92,389)

(19) Finance costs

Finance costs
Interest expense from bank borrowings Interest expense on lease liabilities	Years ended December 31
	2019 2,803 $ 932 3,735 $	2018
		3,747 $ -
		3,747 $

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(20) Expenses by nature

Expenses by nature
Change in inventory of finished goods and work in progress Raw materials and supplies used Employee benefit expense Contracted research expense Transportation expenses Depreciation on property, plant and equipment Electricity expense Low-value consumption goods Entertainment expense Traveling expense Loss (gain) on expected credit impairment loss Depreciation on right-of-use assets Maintenance expense Operating lease payments Other costs and expenses Operating costs and expenses	Years ended December 31
	2019 2018 36,958 16,001) ($ 3,787,429 5,156,788 466,000 549,541 218,969 187,711 110,392 153,877 49,994 58,773 36,803 50,347 18,106 14,912 17,744 18,740 17,729 20,208 15,937 188) ( 14,544 - 11,879 11,856 616 12,282 72,310 82,778 4,875,410 $ 6,301,624 $
		6,301,624 $

(21) Employee benefit expense

Employee benefit expense
Wayges and salaries Labor and health insurance fees Pension costs Directors’ remuneration Other personnel expenses	2019 2018 373,414 $ 433,763 $ 11,420 19,263 56,316 70,862 1,773 2,196 23,077 23,457 466,000 $ 549,541 $ Years ended December 31
		433,763 $ 19,263 70,862 2,196 23,457
		549,541 $

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 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 meeting. The above ‘profit’ refers to pre-tax profit before deduction of employees’ compensation and directors’ remuneration.
B. For the years ended December 31, 2019 and 2018, employees’ compensation were accrued at $2,874 and $5,976, respectively; whlie directors’ remuneration were both accrued at $0. The

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aforementioned amounts were recognized in salary expenses.

The employees’ compensation and directors’ remuneration were estimated and accrued based on 0.5% and 0% of distributable profit of current year for the year ended December 31, 2019. The employees’ compensation and directors’ remuneration resolved by the Board of Directors were $2,874 and $0, and the employees’ compensation will be distributed in the form of cash.

Employees’ compensation and directors’ remuneration of 2018 as resolved by the Board of Directors were in agreement with those amounts recognized in the 2018 financial statements. Information about employees’ compensation and directors’ 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.

(22) 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 ended December 31
	2019 184,441 $ 1,751 186,192 12,218 198,410 $	2018
		326,704 $ 1,728
		328,432
		91,193
		419,625 $

(b) Reconciliation between income tax expense and accounting profit

Tax calculated based on profit before tax and statutory tax rate Income tax on overseas earnings Tax effect disallowed by tax regulation Prior year income tax underestimation Income tax expense	Years ended December 31	Years ended December 31
	2019 150,201 $ 43,922 2,536 1,751 198,410 $	2018
		325,154 $ 89,246 3,497 1,728
		419,625 $

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B. Amounts of deferred tax assets and liabilities as a result of temporary differences and tax are as follows:

					2019	2019
				Recognized in			Translation
		January1			profit or loss		differences		December 31
Deferred tax assets:
-Temporary differences:
Warranty expenses	$	2,255	($		550)	($	64)	$		1,641
Expected credit loss		107			3,952	(	153)			3,906
Unrealized inventory loss		159	(		164)		1	(		4)
	$	2,521			3,238	($	216)	$		5,543
-Deferred tax liabilities:
Income tax on overseas earnings	($	470,549)			8,980	($	6,970)	($		468,539)
	($	468,028)			12,218	($	7,186)	($		462,996)
					2018
				Recognized in			Translation
		January1		profit or loss			differences		December 31
Deferred tax assets:
-Temporary differences:
Warranty expenses	$	4,303	($		1,998)	($	50)	$		2,255
Expected credit loss		157	(		48)	(	2)			107
Unrealized inventory loss		63			99	(	3)			159
	$	4,523	($		1,947)	($	55)	$		2,521
-Deferred tax liabilities:
Income tax on overseas earnings	($	407,913)	($		89,246)	$	26,610	($		470,549)
	($	403,390)	($		91,193)	$	26,555	($		468,028)

C. The Company is domiciled in the British Cayman Islands and is exempt from corporate income tax pursuant to local laws.
D. Wellsoon International is domiciled in the British Virgin Islands and is exempt from corporate income tax pursuant to local law.
E. Lida (HK) is domiciled in the Hong Kong Special Administrative Region of the People’s Republic of China. In accordance with the Hong Kong’s Tax Act, only the income sourced in Hong Kong is taxable. Lida (HK) did not generate taxable income for the years ended December 31, 2019 and 2018.
F. According to Regulation on the Implementation of the Enterprise Income Tax Act of People’s Republic of China, the applicable income tax rate of Lida (China) and Lida (Jiangxi) is 25%.

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(23) Earnings per share

Year ended December 31, 2019

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	Amount after tax 373,480 $ 373,480 - 373,480 $	Weighted average number of ordinary shares outstanding (shares in thousands) 116,000 116,000 71 116,071	Earnings per share (in dollars)
			3.22 $
			3.22 $

Year ended December31,2018	Year ended December31,2018	Year ended December31,2018
Amount after tax 769,605 $ 769,605 - 769,605 $	Weighted average number of ordinary shares outstanding (shares in thousands) 116,000 116,000 120 116,120	Earnings per share (in dollars)
		6.63 $
		6.63 $

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(24) Operating leases

Prior to 2018

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:

	December 31, 2018	December 31, 2018
Not later than one year	$	337
Later than one year but not later than five years		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 year ended December 31, 2018, the Group recognized rental income in the amount of $1,056. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

Not later than one year

	December	31,	2018
	$		645

C. Information regarding operating leases with related parties is provided in Note 7(3).

(25) Supplemental cash flow information

Investing activities with partial cash payments

Purchase of property, plant and equipment Add: Opening balance of payable Less: Ending balance of payable on equipment Cash paid during the year	2019 2018 1,275,741 $ 218,355 $ 60 17,539 - 60) ( 1,275,801 $ 235,834 $ Years ended December 31

(26) Changes in liabilities from financing activities

					2019
							Liabilities from
		Short-term						financing
		borrowings		Lease liabilities			activities-gross
At January 1	$	93,912	$		15,329	$		109,241
Changes in cash flow from financing		71,555	(		10,521)			61,034
activities
Changes in other non-cash items		-			12,289			12,289
Impact of changes in foreign
exchange rate	(	6,182)	(		316)	(		6,498)
At December 31	$	159,285	$		16,781	$		176,066

~41~

2018

Liabilities from Short-term financing borrowings Lease liabilities activities-gross - At January 1 $ 50,215 $ $ 50,215 - Changes in cash flow from financing 45,601 45,601 activities Impact of changes in foreign - exchange rate ( 1,904) ( 1,904) At December 31 $ 93,912 $ - $ 93,912

7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party

The Company was incorporated in the British Cayman Islands, and owns 100% of Wellsoon International (incorporated in the British Virgin Islands) in a share exchange transaction on August 12, 2013, becoming 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 Midakang (Jiangxi) Electric Co., Ltd. The General Manager of the company is the (Midakang) legal agent of the company

(3) Significant related party transactions

A. Lease transactions-lessee (Effective 2019)

(a) The Group leased plants from Lida Machinery. Rental contracts are typically made for periods from January 1, 2015 to December 31, 2020. The lease contracts are based on the market price in the neighborhood. Payments are made in accordance with the lease agreement.

(b) Acquisition of right-of-use assets:

Lida Machinery

December 31, 2019 $ 7,378

The Group increased right-of-use assets by $15,329 on January 1, 2019, at the date of initial application of IFRS 16. For the year ended December 31, 2019, the Group recognized depreciation on right-of-use assets amounting to $7,665.

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(c) Lease liabilities

(i) Outstanding balance:

Lida Machinery

December 31, 2019 $ 7,553

(ii) Interest expense:

Lida Machinery

Year ended December 31, 2019 $ 567

B. Rental expense

(Prior to 2018)

Lida (China) leases plants from Lida Machinery. The lease contracts are based on the market price in the neighborhood. Payments are made in accordance with the lease agreement. The Group recognized rental expenses of $8,208 for the year ended December 31, 2018. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

aggregate minimum lease payments under non-cancellable operating leases	are as follows:
Not later than one year Later than one year	December31,2018
	8,050 $ 8,050
	16,100 $

C. Lease transactions-lessor (For the year ended December 31, 2018: None)

Lida (Jiangxi) leased plants to Midakang. The Rental contracts are typically made for periods from Aril 1, 2019 to March 31, 2024. The lease contracts are based on the market price and monthly payments are made in accordance with the lease agreement.

Midakang

	Year ended
December31,2019
$	1,812

D. Endorsement and guarantees provided to related parties (December 31, 2018: None)

As at December 31, 2019, Lida Machinery guaranteed the Group’s short-term borrowings through pledging its land and building in Jinfen Village, Dongyuan Town, Quanzhou and Taiwanese Investment Zone. The Group has borrowing facilities of RMB 16 million.

(4) Key management compensation

Key management compensation
Salaries and other short-term employee benefits Post-employment benefits	Years ended December 31
	2019 2,910 $ 244 3,154 $	2018
		3,029 $ 237
		3,266 $

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8. PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

Pledged asset Land (shown as right-of-use assets) Land access right (shown as long-term prepaid rent) Buildings and structures	December 31,2019 December 31,2018 Purpose 10,760 $ - $ Short-term borrowings - 11,517 `〃` 75,792 83,449 `〃` 86,552 $ 94,966 $ Book value

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(6)(24) and 7(3).
B. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

December 31, 2019 December 31, 2018 Property, plant and equipment $ 465,555 $ 250

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

A. The appropriations of the 2019 earnings were reported to the Board of Directors on March 30, 2020. Details are provided in Note 6(15).
B. Due to the impact of the spread of COVID-19, in January 2020, the Chinese government made a comprehensive deployment for epidemic prevention and control. The extent to which the Group’s manufacturing and operating revenue is affected by the delay of production is uncertain. As the coronavirus epidemic continues to evolve, the measures implemented by the Group included maintaining close liaison with customers and suppliers and improving the health management of employees to mitigate the impact on its operation. The Mainland China subsidiaries postponed the plans to resume the production of its plants in China after February 2020. The degree of the impact depends on the subsequent coronavirus epidemic situation.

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

~44~

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 Financial assets at amortised cost Accounts receivable Other receivables Guarantee deposits paid Financial liabilities Financial liabilities at amortised cost Short-term borrowings Accounts payable Other payables Lease liability	December 31,2019 2,285,774 $ 803,830 1,128,511 84 1,274 4,219,473 $ 159,285 $ 916,463 118,109 1,193,857 $ 16,781 $	December 31,2018 2,619,243 $ 1,788,800 656,437 6,391 174
		5,071,045 $
		93,912 $ 438,654 134,954
		667,520 $
		- $

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.
C. Significant financial risks and degrees of financial risks
(a) Market risk

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. Foreign 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

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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:

December 31, 2019

(Foreign currency: functional currency) Financial assets Monetary items USD:CNY Financial liabilities Monetary items USD:CNY (Foreign currency: functional currency) Financial assets Monetary items USD:CNY Financial liabilities Monetary items USD:CNY	Foreign currency amount (In thousands)	Exchange rate
	Foreign currency amount (In thousands)	Exchange rate
	$ 1,105 $ 558	6.866 6.866

v. Total total exchange loss arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2019 and 2018, amounted to $7,617 and $24,735, respectively.

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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 (Foreign currency: functional currency) Financial assets Monetary items USD:CNY Financial liabilities Monetary items USD:CNY	Year ended December 31, 2019 Sensitivity analysis Degree of Effect on variation Profit or loss 1% $ 594 1% $ 58 Year ended December 31, 2018 Sensitivity analysis Degree of Effect on variation Profit or loss 1% $ 339 1% $ 111
	Degree of variation 1% 1%

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.

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 2019 and 2018, the Group’s borrowings at fixed rate were mainly denominated in CNY Dollars.

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(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 debt instruments stated 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 optimal credit 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.
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 modified approach using provision matrix to estimate expected credit loss under the provision matrix basis.

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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. As of December 31, 2019 and 2018, the provision matrix is as follows:

Not past due 0.03% $ 830,022	Up to 30 days past due 2.94% $ 189,648	31~90 days past due 7.79% $ 124,365	Over 90 days past due 27.73%~100% $ -
$ 249	$ 5,583	$ 9,692	$ -
Not past due 0.03% $ 514,603	Up to 30 days past due 0.03% $ 141,240	31~90 days past due 0.05% $ -	Over 90 days past due 0.1%~100% $ 785
$ 155	$ 35	$ -	$ 1

ix. Movements in relation to the Group applying the simplified approach to provide loss allowance for accounts receivable are as follows:

		2019		2018
		Accounts		Accounts
		receivable		receivable
At January 1	($	191)	($	383)
Transfer and measurement stages		-		-
(Provision for) gain on reversal of impairment	(	15,937)		188
Effect of foreign exchange		604		4
At December 31	($	15,524)	($	191)

The Group’s unrecognized (loss) gain allowance amounted to ($15,937) and $188 for the years ended December 31, 2019 and 2018, respectively.

(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

~49~

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, 2019 and 2018, the Group held money market position of $2,285,774 and $2,619,243, respectively, and financial assets at amortized cost of $803,830 and $1,788,800, respectively, that are expected to readily generate cash inflows for managing liquidity risk.
iii. The Group’s non-derivative financial liabilities are analysed based on the remaining period at the balance sheet date to the contractual maturity date.
Except that the contractual undiscounted cash flows of accounts payable and other payables, are approximately equal to its book value and matured within one year. The amounts disclosed in the table are the contractual undiscounted cash flows of financial liabilities as follows:

Non-derivative financial liabilities:

Non-derivative financial liabilities:
Less than December 31, 2019 3 months Short-term borrowings 49,046 $ Lease liabilities 3,244 52,290 $	Between 3 months and 1 year 114,385 $ 9,526 123,911 $	Between 1and 2years
		- $ 5,368
		5,368 $

Non-derivative financial liabilities:

December 31, 2018 Short-term borrowings	Less than 3months 45,582 $	Between 3 months and1year 49,268 $	Between 1and2years
			- $

(3) Fair value information

None.

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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: Please refer to table 2.
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 3.
I. Trading in derivative instruments undertaken during the reporting periods: None.
J. Significant inter-company transactions during the reporting periods: Please refer to table 4.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 5.

(3) Information on investments in Mainland China

A. Basic information: Please refer to table 6.
B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to table 6.

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:

~51~

Total segment revenue Net revenue from external customers Inter-segment revenue Segment profit before tax Depreciation income Interest income Interest expense Income tax expense Segment assets and liabilities Total segment assets Total segment liabilities	2019 2018 5,426,209 $ 7,542,981 $ - - 5,426,209 $ 7,542,981 $ 571,890 $ 1,189,230 $ 65,487 $ 58,773 $ 33,989 $ 43,604 $ 3,735 $ 3,747 $ 198,410 $ 419,625 $ Years ended December31 December31,2019 December31,2018 6,794,452 $ 6,337,775 $ 1,732,325 $ 1,231,392 $	2019 2018 5,426,209 $ 7,542,981 $ - - 5,426,209 $ 7,542,981 $ 571,890 $ 1,189,230 $ 65,487 $ 58,773 $ 33,989 $ 43,604 $ 3,735 $ 3,747 $ 198,410 $ 419,625 $ Years ended December31 December31,2019 December31,2018 6,794,452 $ 6,337,775 $ 1,732,325 $ 1,231,392 $
		1,189,230 $
		58,773 $
		43,604 $
		3,747 $
		419,625 $
		December31,2018
		6,337,775 $
		1,231,392 $

(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.
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 ended December31	Years ended December31
	2019 5,283,766 $ 142,443 5,426,209 $	2018
		7,343,051 $ 199,930
		7,542,981 $

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(6) Geographical information

Geographical information for the years ended December 31, 2019 and 2018 is as follows:

Years ended December 31

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2019 2018
Non-current Non-current
Geographical information Revenue assets Revenue assets
China $ 4,289,988 $ 2,103,497 $ 6,547,928 $ 947,600
Australia 181,322 - 209,608 -
Korea 148,445 - 76,154 -
- -
Turkey 134,187 38,533
- -
Malaysia 118,248 70,181
South Africa 69,284 - 62,927 -
France 51,640 - 179,343 -
UK 51,363 - 37,599 -
- -
Belgium 46,844 9,734
Indonesia 41,974 - 115,223 -
Others 292,914 - 195,751 -
$ 5,426,209 $ 2,103,497 $ 7,542,981 $ 947,600
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(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, 2019 and 2018.

~53~

Expressed in thousands of NTD (Except as otherwise indicated)

Lida Holdings Limited Loans to others Year ended December 31, 2019

Table 1

No.	Creditor	Borrower	General ledger account	Is a related party	Maximum outstanding balance during the year ended December 31, 2019	Balance at December 31, 2019	Actual amount drawn down	Interest rate	Nature of loan	Amount of transactions with the borrower	Reason for short- term financing	Allowance for doubtful accounts	Coll	ateral	Limit on loans granted to a singleparty	Ceiling on total loansgranted	Footnote
													Item	Value
1	Lida (HK) Holdings	Lida (China) Machine Equipment Co. Limited	Long-term accounts receivables due from related parties	Y	435,100 $	408,975 $	408,975 $	2.00%	Note 1	-	Business operation	- $	-	- $	5,062,127 $	5,062,127 $

Note 1: For long-term financing.

Note 2: Limit on the accumulated balance of loans to others provided by the foreign companies whose voting rights are 100% owned directly and indirectly by the Company is 100% of the Company's net assets.

Table 1, Page 1

Expressed in thousands of NTD (Except as otherwise indicated)

Lida Holdings Limited

Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more

Year ended December 31, 2019

Table 2

Real estate acquired by	Real estate acquired	Date of the event	Transaction amount	Status of payment	Counterparty	Relationship with the counterparty	If the counterparty	is a related party, info the real estate is dis	rmation as to the la closed below:	st transaction of	Basis or reference used in setting the price	Reason for acquisition of real estate and status of the real estate	Other commitments
							Original owner who sold the real estate to the counterparty	Relationship between the original owner and the acquirer	Date of the original transaction	Amount
Lida (China)	Construction for new plants	April 1, 2019	$ 1,729,072	$ 1,288,279	`Fujian Minyu` `Construction` `Co., Ltd.`	Non related party	-	-	-	- $	Mutual agreeement under the Company's Bargaining process	Construction for self use	None

Table 2, Page 1

Lida Holdings Limited

Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more

December 31, 2019

Table 3

Expressed in thousands of NTD (Except as otherwise indicated)

Creditor	Counterparty	Relationshipwith the counterparty	Balance as at December 31,2019	Turnover rate	Overdue receivables	Overdue receivables	Amount collected subsequent to the balance sheet date	Allowance for doubtful accounts
					Amount	Action taken
Lida (HK) Holdings	Lida (China) Machine Equipment Co. Limited	Indirect subsidiary of the Company	408,975 $	Note	- $	-	- $	- $

Note: It was other receivables arising from loans to others and hence not applicable.

Table 3,Page 1

Table 4

Expressed in thousands of NTD (Except as otherwise indicated)

Lida Holdings Limited

Significant inter-company transactions during the reporting periods

Year ended December 31, 2019

Transaction

Number (Note 1)	Companyname	Counterparty	Relationship (Note 2)	General ledger account	Amount	Transaction terms(Note3)	Percentage of consolidated total operating revenues or total assets (Note 4)
1 2 2	Lida (HK) Holdings Lida (China) Machine Equipment Co. Limited Lida (China) Machine Equipment Co. Limited	Lida (China) Machine Equipment Co. Limited Lida (JiangSi) Machine Equipment Co. Limited Lida (JiangSi) Machine Equipment Co. Limited	(3) (3) (3)	Long-term accounts receivables due from related parties Accounts receivable Sales revenue	408,975 $ 965 10,845	(1) (2) (2)	6.02% 0.01% 0.20%

Note 1: The numbers filled in for the transaction company in respect of inter-company transactions are as follows:

(1)Parent company is ‘0’.

(2)The subsidiaries are numbered in order starting from ‘1’.

Note 2: Relationship between transaction company and counterparty is classified into the following three categories; fill in the number of category each case belongs to (If transactions between parent company and subsidiaries or between

subsidiaries refer to the same transaction, it is not required to disclose twice. For example, if the parent company has already disclosed its transaction with a subsidiary, then the subsidiary is not required to disclose the transaction; for transactions between two subsidiaries, if one of the subsidiaries has disclosed the transaction, then the other is not required to disclose the transaction.):

(1)Parent company to subsidiary.
(2)Subsidiary to parent company.
(3)Subsidiary to subsidiary.
Note 3: Transaction terms are classified into the following three categories; fill in the number of category each case belongs to:
(1) The term of borrowings is 2 years with interest at 2% per annum and interest is paid annually. Principal and remaining interests shall be paid in full within 30 days after the term expired.
(2) 30 days end of the month.
Note 4: Regarding percentage of transaction amount to consolidated total operating revenues or total assets, it is computed based on period-end balance of transaction to consolidated total assets for balance sheet accounts and based on accumulated transaction amount for the period to consolidated total operating revenues for income statement accounts.

Table 4, Page 1

Lida Holdings Limited Information on investees Year ended December 31, 2019

Table 5

Expressed in thousands of NTD (Except as otherwise indicated)

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held as at December	Shares held as at December	31,2019	Net profit (loss) of the investee for the year ended December 31, 2019	Investment income (loss) recognised by the Company for the year ended December 31,2019	Footnote
				Balance as at December 31, 2019	Balance as at December 31, 2018	Number of shares	Ownership (%)	Book value
The Company Wellsoon International Limited	Wellsoon International Limited Lida (HK) Holdings	British Virgin IS. HONG KONG	Investment holding Investment holding	1,038,589 $ 42	1,038,589 $ 42	10,000 201,669,137	100% 100%	5,057,330 $ 5,055,366	414,795 $ 414,835	414,795 $ 414,835	Subsidiary Indirect subsidiary

Table 5, Page 1

Lida Holdings Limited

Information on investments in Mainland China

Year ended December 31, 2019

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Table 6
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Expressed in thousands of NTD (Except as otherwise indicated)

Investee in Mainland China	Main business activities	Paid-in capital	Investment method	Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2019	Amount remitte Mainland China/ back to Taiwan f Decembe	d from Taiwan to Amount remitted or the year ended r 31, 2019	Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2019	Net income of investee as of December 31, 2019	Ownership held by the Company (direct or indirect)	Investment income (loss) recognised by the Company for the year ended December 31, 2019(Note 3)	Book value of investments in Mainland China as of December 31, 2019	Accumulated amount of investment income remitted back to Taiwan as of December 31, 2019	Footnote
					Remitted to MainlandChina	Remitted back to Taiwan
Lida (China) Machine Equipment Co. Limited Lida (JiangSi) Machine Equipment Co. Limited	Design, manufacture and sales of air compressors Design, manufacture and sales of air compressors	304,928 $ 535,924	Note 1 Note 2	- $ -	- $ -	- $ -	- $ -	446,317 $ 24,105) (	100% 100%	446,317 $ 24,105) (	5,106,654 $ 295,807	- $ -

Note 1: Through investing in Lida(HK) Holdings.

Note 1: Through investing in Lida (China) Machine Equipment Co. Limited.

Note 3: Abovementioned investment income (loss) was recognised based on the financial reports reviewed by the parent company’s CPA.

Accumulated amount of remittance from Investment amount approved Ceiling on investments in Taiwan to Mainland by the Investment Commission Mainland China imposed by China as of December of the Ministry of Economic the Investment Commission Company name 31, 2019 Affairs (MOEA) of MOEA - $ - $ - $ -

The Company does not have significant transactions conducted with investees in Mainland China directly or indirectly through other companies in the third areas.

Table 6, Page 1

AI assistant

Lida — Audit Report / Information 2019

52404_rns_2019-11-12_4d867b90-cfe9-4dce-a0ff-caa4a1007e80.pdf

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2019 AND 2018

REPORT OF INDEPENDENT ACCOUNTANTS

PWCR19000420

Opinion

Basis for opinion

Key audit matters

Cash and financial assets at amortized cost

Description

How our audit addressed the matter

Sales revenue from distribution selling

Description

How our audit addressed the matter

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

Auditor’s responsibilities for the audit of the consolidated financial statements

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

LIDA HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

LIDA HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

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

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

the Group

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Compliance statement

(2) Basis of preparation

(3) Basis of consolidation

B. Subsidiaries included in the consolidated financial statements:

(4) Foreign currency translation

(6) Financial assets at amortized cost

(7) Accounts receivable

(8) Impairment of financial assets

(9) Derecognition of financial assets

- (10) Leasing arrangements (lessor) operating leases

(11) Inventories

(12) Property, plant and equipment

(13) Leasing arrangements (lessee)-right-of-use assets/lease liabilities

Effective 2019

(14) Operating leases (lessee)

Prior to 2018

(15) Investment property

(16) Impairment of non-financial assets

(17) Borrowings

(18) Accounts payable

(19) Derecognition of financial liabilities

(20) Provisions

(21) Employee benefits

A. Short-term employee benefits

(22) Income tax

(23) Share capital

(25) Revenue recognition

(26) Operating segments

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

Critical accounting estimates and assumptions

Impairment assessment of tangible assets

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1)Cash

(2)Financial assets at amortized cost

(3)Accounts receivable

(4)Inventories

(5)Property, plant and equipment

(6)Leasing arrangements-lessee

Lida Audit Report / Information 2019