LOTES — Audit Report / Information 2020

Nov 13, 2020

Stock Code: 3533

Lotes Co., Ltd.

Parent Company Only Financial Statement and Independent Auditor’s Report

2020 & 2019

Notice to Readers

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

Address: No. 15, Wuxun St., Anle Dist., Keelung City 204 Tel: (02)2433 1110

1

Table of Contents

Item I. Cover Page II. Table of Contents III.Independent Auditor’s Report IV. Statement of Financial Position V. Statement of Comprehensive Income VI. Statement of Change in Equity VII. Statement of Cash Flows VIII. Notes to the Parent Company Only Financial Statements i. Company history ii. The date when the financial reports were authorized for issuance and the process involved iii. Application of new issuing & revised standards and interpretation iv. Summary and explanation of material accounting policies v. Primary sources of uncertainty in major accounting judgments, estimates, and assumptions vi. Descriptions of Material Accounting Items vii. Transactions with related parties viii. Pledged Assets ix. Significant contingent liabilities and unrecognized contractual commitments x. Significant Disaster Loss xi. Significant Events after the End of the Financial Reporting Period xii. Other xiii. Supplementary Disclosures 1. Information on Significant Transactions 2. Information on Investment Business 3. Information of Investment in Mainland China 4. Information of Major Shareholders xiv. Operating Segments IX. Tables of Significant Accounting Items

Page

1 2 3 7 8 9 10 11 11 11 11～12 12～28 28～29 29～51 51～55 55 55 55 55 55～56 56 56～60 61～62 62～63 63 63 64～75

2

Independent Auditor’s Report

To the Board of Directors, Lotes Co., Ltd.:

Audit opinion

We have audited the Statement of Financial Position of Lotes Co., Ltd. (hereinafter referred to as Lotes) as of December 31, 2020 and 2019, the Statement of Comprehensive Income as of January 1 to December 31, 2020 and 2019 as well as the Statement of Changes in Equity, Statement of Cash Flows and the Notes to Individual Financial Statement (including important accounting policies summary).

In our opinions, the compilation of the above individual financial statements present fairly, in all material respects, of the financial status of December 31, 2020 and 2019 in Lotes and the financial performance and consolidated cash flow of January 1 to December 31, 2020 and 2019 prepared according to Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis of the audit opinions

The audit of the parent company only financial statements for fiscal year 2020 was conducted by us in accordance with the Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants and Generally Accepted Auditing Standards (GAAS); The audit of the parent company only financial statements for fiscal year 2019 was conducted by us in accordance with the Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants, CHIN-KUAN-CHENG-SHEN-TZU No. 1090360805 Letter and Generally Accepted Auditing Standards (GAAS). Our responsibilities under these standards will be further explained in the responsibility paragraph of the accountant’s audit on the parent company only financial statements. The personnel regulated by independence at the accounting firm that our accountants work with have been managed according to the code of professional ethics to maintain independence from Lotes as well as perform other responsibilities addressed on the regulation. Based on the audit results of us, we believe we have obtained sufficient and appropriate auditing evidence as the basis to express our audit opinions.

Key audit matters

Key audit matters refer to the most important matters on the audits to Lotes’s parent company only financial statements of fiscal year 2020 based on the professional judgment of our accountants. The matters have been responded on the whole audited parent company only financial statements and during the process of the expression of the audit opinions. There, our accountants will not express opinions separately towards the matters. Based on the judgment of the accountants, the following key audit matters that should be communicated on the audit report are as follows: I. Recognition of income

Please refer to Note 4 (15) to the parent company only financial statements for the accounting policy in terms of income recognition. Please refer to Note 6 (11) to the parent company only financial statements for the refund liability. Please refer to Note 6 (18) to the parent company only financial statements for details about income.

Description of the key audit matters:

The operating income is the most critical factor when determining the operational performance of Lotes Co., Ltd. Users of the statements are cautiously concerned about the performance of the operating income. In response to the market conditions and business needs,

3

discounts were provided for parts of the sales of goods agreed with the customers. Based on the agreements with the customers, the management would estimate the refund liability and include it as a deduction of operating income. Thus, the income recognition evaluation is one of the fundamental evaluation items for accountants in the execution of financial report audit for Lotes Co., Ltd.

The primary audit procedure conducted by the accountants for the aforementioned key audit matters included the understanding and evaluation of the relevant control procedures and methods in the estimation of refund liabilities in terms of the sales procedure and the effectiveness of the design and execution of the control procedure. Regarding the sampling testing for sales close to the balance sheet date, external certification documents were reviewed to assess the adequacy of the income recognition timings. The management’s method to estimate and list refund liabilities were also obtained to assess whether the evaluation is based on the agreed conditions with customers. The adequacy of the refund liability estimate was analyzed with the actual situation afterward.

II. Evaluation of inventory

Please refer to Note 4 (7) for the accounting policy of inventory evaluation. Please refer to Note 5 (1) in the parent company only financial statements for the accounting estimates and assumed uncertainties of the inventory evaluation. Please refer to Note 6 (4) in the parent company only financial statements for the information on the losses from the falling price of inventory.

Description of the key audit matters:

Due to the impacts of rapid changes in the market demand and the development of production technology, the existing products are at risk to become outdated inventory or non-compliant with market demand. Parts of the inventory may become obsolete or have the market prices dropped. Thus, the inventory evaluation is one of the fundamental evaluation items for the accountants in the execution of financial report audit for Lotes Co., Ltd. Corresponding audit procedure:

The primary audit procedure conducted by the accountants for the aforementioned key audit matters included the understanding and evaluation of the basis and methods used by the management to assess the net realizable value of inventory. Review and audit were conducted in terms of the data used by the management as the basis and to estimate the net realizable value, and an evaluation was conducted on the estimated sales price to the latest sales record by sampling. To evaluate the adequacy of the drop in prices, the adequacy of the inventory aging report was checked, and the changes in the inventory aging of each period were analyzed.

Responsibility from management level and governing unit towards the parent company only financial statements

Management level’s responsibility is to prepare the parent company only financial statements present fairly according to Regulations Governing the Preparation of Financial Reports by Securities Issuers and to maintain necessary internal control related to the preparation of the parent company only financial statements in order to ensure there is no major untrue expression on the financial statements due to fraud or error.

When preparing the parent company only financial statements, the responsibility of management level also includes evaluating Lotes’s capability of continuous operation, disclosure of relevant matters and the application of continuous operation accounting model unless the management level intends to liquidate Lotes or suspend its business operation or there is no alternative practical and feasible solution other than liquidation or business suspension.

The governing unit (including supervisors) at Lotes is responsible for supervising the process of financial reports.

4

Responsibility of accountants’ audit on the parent company only financial statements

The purpose of the parent company only financial statements audited by our accountants is to obtain reasonable assurance on whether the significant untrue expression exists on the whole parent company only financial statements due to fraud or error as well as issue the audit report. The reasonable assurance is the high certainty; however, it will not be able to guarantee that the significant untrue expression will definitely be able to be detected by generally accepted auditing standards, and the untrue expression might be caused from fraud or error. It is regarded as with significance if the individual amount or the aggregation number of the untrue expression can reasonably predict that it will affect the economic decisions made by the users of the parent company only financial statements.

When we conduct the audit according to generally accepted auditing standards, we use

professional judgment and maintain our professional suspicion. We also executed the following tasks:

1. Identifying and evaluating the risk of major untrue expression on the parent company only financial statements due to fraud or error; designing and implementing proper responding strategies towards the risk evaluated; and obtaining sufficient and appropriate audit evidence as the basis of audit opinions. Due to fraud might be involving with collusion, counterfeiting, malicious omission untrue declaration, or going out of the internal control, the risk of not detecting the major untrue expression due to fraud will be higher than that due to error.

2. Obtaining necessary understanding of internal control related to audit in order to design proper audit procedure under the situation of the case. However, its purpose is not to express opinion toward the effectiveness of the internal control in Lotes.

3. Evaluating the adequacy of the accounting policies used by the management level and the rationality of the accounting evaluation and relevant disclosure concluded.

4. Based on the audit evidence obtained, conclusion towards the appropriateness of continuous operation accounting basis that the management level adopts and the existence of major uncertainty on events or situations with major concerns affecting Lotes’s capability in continuous operation are made. If we believe major uncertainty existed on the event or situation, we must remind the users of parent company only financial statements on the audit report to pay attention on the relevant disclosure or modify audit opinion when the disclosure is not appropriate. The conclusion that we made is based on the audit evidence obtained up to the audit report day, but future events or situations might cause Lotes not capable in continuous operation.

5. Evaluating the overall expression, structure and content of the parent company only financial statements (including relevant notes) as well as whether the parent company only financial statements present fairly, in all material respects, relevant transaction and events.

6. Obtaining sufficient and appropriated audit evidence of the financial information from the investee companies accounted for using equity method as well as express opinions towards the parent company only financial statements. We are in charge of the directing, supervision and execution on the audit cases as well as concluding audit opinions towards the parent company only financial statements of Lotes.

The communication between us and the governing unit includes the audit scope and time planned and major audit findings (including the significant defects on the internal control identified during the auditing process).

We have also provided information to the governing unit that the personnel of the firm—under which our CPAs are working—who are subject to independence requirements have complied with the statement of independence in the CPA code of professional ethics and communicated to the governing unit all relationships and other matters (including relevant safeguards) that may be considered to affect the independence of CPAs.

5

We determined the key audit matters that we would like to execute on Lotes’s parent company only financial statements for fiscal year 2020 from the communication with the governing unit. We clearly stated the related matters on the audit report unless it is the specific matter that is not allowed to be disclosed to the public according to laws, or under a very rare situation that we decided not to communicate specific matters on the audit report because we can reasonably anticipate the negative influence generated by the communication will be greater than the public interests increased.

KPMG Taiwan

CPAs:

Competent ：[CHIN-KUAN-CHENG-SHEN-] Authority of TZU No. 1000011652 Securities (88) TAI-TSAI-CHENG (VI) Approval No. 18311 Certificate No. March 24, 2021

6

Lotes Co., Ltd.

Statement of Financial Position

Dec. 31, 2020 and 2019

Unit: NT$ thousands

Assets Current assets: 1100 Cash and cash equivalents (Note 6 (1) and (21)) 1110 Financial assets measured at FVTPL – current (Note 6 (2) and (21)) 1150 Net notes receivable (Note 6 (3) and (21)) 1170 Net accounts receivable (Note 6 (3) and (21)) 1181 Accounts receivable－related parties (Note 6 (3), (21) and Note 7) 1200 Other accounts receivable (Note 6 (3) and (21)) 1210 Other accounts receivable－related parties (Note 6 (3), (21) and Note 7) 130X Net inventory (Note 6 (4)) 1410 Advance payment Non-current assets: 1550 Investments accounted for using the equity method (Note 6 (4) and 13) 1600 Property, plant and equipment (Note 6 (6) and 8) 1755 Right-of-use assets (Note 6 (7)) 1760 Net worth of investment property (Note 6 (8)) 1780 Intangible assets (Note 6 (9)) 1840 Deferred tax assets (Note 6 (15)) 1900 Other non-current assets Total of assets	Dec. 31, 2020 Amount % $ 497,302 3 2,080 - 2,485 - 4,304,076 26 13,012 - 19,702 - 90,161 1 710,477 4 4,550 -	Dec. 31, 2019 Amount % 842,522 6 - - 1,675 - 3,896,815 27 15,129 - 35,520 - 89,781 1 591,088 4 3,640 - 5,476,170 38 8,873,276 60 63,428 - 59 - 283,002 2 50,937 - 68,587 - 15,462 - 9,354,751 62 14,830,921 100 Liabilities and equity Current liabilities: 2130 Contract liabilities - current (Note 6 (18)) 2150 Notes payable (Note 6 (21)) 2170 Accounts payable (Note 6 (21)) 2180 Accounts payable - related parties (Note 6 (21) and 7) 2200 Other payables (Note 6 (21)) 2220 Other payables - related parties (Note 6 (21) and 7) 2230 Tax liabilities (Note 6 (15)) 2280 Lease liabilities - current (Note 6 (10), (21) and (24)) 2365 Refund liabilities - current (Note 6 (11)) 2300 Other current liabilities Non-current liabilities: 2550 Provisions - non-current (Note 6 (12)) 2600 Other non-current liabilities Total of liabilities Equity to the owner of parent company: 3110 Share capital for ordinary shares (Note 6 (16)) 3200 Capital reserves (Note 6 (16)) 3300 Retained earnings (Note 6 (16)) 3400 Other equity (Note 6 (16)) Total of equity Total of liabilities and equity	Dec. 31, 2020 Amount % 21,392 - 2,712 - 11,421 - 2,034,411 12 299,122 2 2,092 - 305,058 2 - - 161,767 1 7,866 -	Dec. 31, 2019 Amount % 14,998 - 18,934 - 14,499 - 2,264,397 15 245,547 2 5,838 - 244,220 2 59 - 157,256 1 7,175 -
	5,643,845 34
	10,225,811 63 58,276 - - - 299,927 2 97,583 1 63,572 - 6,027 -
			2,845,841 17	2,972,923 20
			49,258 - 744 -	41,729 - 943 -
			50,002 -	42,672 -
			2,895,843 17	3,015,595 20
			1,034,779 6 3,958,247 24 9,101,144 56 (594,972) (3)	1,034,779 7 3,959,560 27 7,471,519 50 (650,532) (4)
	10,751,196 66
	$ 16,395,041 100
			13,499,198 83	11,815,326 80
			$ 16,395,041 100	14,830,921 100

(Please read the Notes to the Parent Company Only Financial Statements.)

Manager: HO, TE-YU

Chairperson: CHU, TE-HSIANG

Accounting manager: LIU, HSIN-HSIA

7

Lotes Co., Ltd.

Statement of Comprehensive Income

>From Jan. 1 to Dec. 31, 2020 and from Jan. 1 to Dec. 31, 2019

Unit: NT$ thousands

4000 Operating revenue (Note 6 (11), (18)) 5000 Operating cost (Note 6 (4), (14), 7 and 12) Gross profit Operating expense (Note 6 (9), (10), (13), (14), (21), 7 and 12): 6100 Promotion Expenses 6200 Administration Expenses 6300 R&D expenses 6450 Expected credit impairment profit/loss Total operating expense Net operating profit Non-operating income/expenses (Note 6 (19) and 7): 7100 Interest income 7010 Other income 7020 Other gains and/or losses 7050 Financial costs 7055 Profit (loss) from expected credit loss 7070 Share of profit or loss of subsidiaries, associates and joint ventures accounted for using equity method (Note 6 (5) and 13) Total of non-operating income and expenses Net profit before tax from continuing operations 7950 Less: Income tax expenses (Note 6 (15)) Net profit 8300 Other comprehensive gain/loss: 8310 Items which were not reclassified into profit or loss 8311 Remeasurement of defined benefit plans 8330 Share of the other comprehensive income of subsidiaries, associates and joint ventures accounted for using equity method - items which were not reclassified into profit or loss 8349 Less:Income tax related to items which were not reclassified into profit or loss Total of items which were not reclassified into profit or loss 8360 Potential items which might be reclassified into profit or loss 8361 Exchange difference between foreign operating office’s statement 8399 Less:income tax related to items which might be reclassified Total of items which might be reclassified into profit or loss 8300 Other comprehensive income (net value after tax) Total comprehensive income Basic earnings per share (Unit: NT$) (Note 6 (17)) Diluted earnings per share (Unit: NT$) (Note 6 (17))	2020	％ 100 78	2019	％ 100 82
	Amount $ 11,362,435 8,817,635		Amount 9,968,334 8,162,786
	2,544,800	22	1,805,548	18
	312,675 295,923 53,509 (1,310)	3 3 - -	278,034 249,095 48,179 (542)	3 2 - -
	660,797	6	574,766	5
	1,884,003	16	1,230,782	13
	10,165 62,514 (111,250) (1,420) 1,317 1,294,043	- 1 (1) - - 11	14,173 36,925 (72,584) (592) (2,407) 1,151,326	- 1 (1) - - 12
	1,255,369	11	1,126,841	12
	3,139,372 407,011	27 4	2,357,623 281,580	25 3
	2,732,361	23	2,076,043	22
	(7,598) 403 1,520	- - -	(1,148) (16,103) 230	- - -
	(5,675)	-	(17,021)	-
	45,017 -	- -	(317,409) -	(3) -
	45,017	-	(317,409)	(3)
	39,342	-	(334,430)	(3)
	$ 2,771,703	23	1,741,613	19
	$	26.41		20.11
	$	26.34		20.06

(Please read the Notes to the Parent Company Only Financial Statements.)

Chairperson: CHU, TE-HSIANG

Accounting manager: LIU, HSIN-HSIA

Manager: HO, TE-YU

8

Lotes Co., Ltd. and Its Subsidiaries

Statement of Change in Equity

>From Jan. 1 to Dec. 31, 2020 and from Jan. 1 to Dec. 31, 2019

Unit: NT$ thousands

Balance on Jan. 1, 2019 Net profit Other comprehensive income Total of comprehensive income Appropriation and distribution of earnings: Legal reserve set aside Special reserve set aside Cash dividends for ordinary shares Other changes in capital reserve: Changes in subsidiaries, associates and joint ventures accounted for using equity method Cash capital increase Balance on Dec. 31, 2019 Net profit Other comprehensive income Total of comprehensive income Appropriation and distribution of earnings: Legal reserve set aside Special reserve set aside Cash dividends for ordinary shares Other changes in capital reserve: Changes in subsidiaries, associates and joint ventures accounted for using equity method Disposal of the equity instruments measured at FVTOCI Balance on Dec. 31, 2020	Share capital	Share capital	Capital reserve		Retained earnings		Otherequityitems	Otherequityitems	Total equity 9,506,158 2,076,043 (334,430)
							Exchange difference between foreign operating office’s statement	Unrealized gain or loss on financial assets measured at FVTOCI
	Share capital for ordinary shares	Share capital collected in advance		Legal reserve	Special reserve	Undistributed earnings
	$ 934,779 - -	125,638 - -	2,466,109 - -	931,082 - -	255,202 - -	5,110,368 2,076,043 (918)	(314,561) (2,459) - - (317,409) (16,103)
	-	-	-	-	-	2,075,125	(317,409) (16,103)		1,741,613
	- - - - 100,000	- - - - (125,638)	- - - 193,451 1,300,000	160,857 - - - -	- 61,818 - - -	(160,857) (61,818) (900,258) - -	- - - - - - - - - -		- - (900,258) 193,451 1,274,362
	1,034,779 - -	- - -	3,959,560 - -	1,091,939 - -	317,020 - -	6,062,560 2,732,361 (6,078)	(631,970) (18,562) - - 45,017 403		11,815,326 2,732,361 39,342
	-	-	-	-	-	2,726,283	45,017 403		2,771,703
	- - - - -	- - - - -	- - - (1,313) -	207,604 - - - -	- 333,513 - - -	(207,604) (333,513) (1,086,518) - (10,140)	- - - - - - - - - 10,140		- - (1,086,518) (1,313) -
	$ 1,034,779	-	3,958,247	1,299,543	650,533	7,151,068	(586,953) (8,019)		13,499,198

(Please read the Notes to the Parent Company Only Financial Statements.)

Chairperson: CHU, TE-HSIANG

Accounting manager: LIU, HSIN-HSIA

Manager: HO, TE-YU

9

Lotes Co., Ltd.

Statement of Cash Flows

From Jan. 1 to Dec. 31, 2020 and from Jan. 1 to Dec. 31, 2019

Unit: NT$ thousands

Cash flows from operating activities: Net profit before tax Items of adjustment: Items of income and expenses Depreciation expense Amortization expense Expected credit loss Interest expense Interest income Share of the profit from subsidiaries, associates and joint ventures accounted for using equity method Net loss (gain) on financial assets (liabilities) measured at FVTPL Losses from the price drop and obsolescence of inventory Profit from the disposal and scaping of property, plant and equipment Total of the items of income and expenses Change in assets/liabilities related to operating activities: Net change in the assets related to operating activities: Decrease (increase) in notes receivable Increase in accounts receivable Decrease (increase) in other accounts receivable Increase in inventory Increase in payments in advance Total net change in the assets related to operating activities Net change in the liabilities related to operating activities: Increase in contract liabilities Decrease in notes payable Increase (decrease) in accounts payable Increase in other accounts payable Increase (decrease) in provisions Decrease in other current liabilities Increase in refund liabilities Increase in other non-current liabilities Total net change in the liabilities related to operating activities Total net change in the assets and liabilities related to operating activities Total of the adjustment items Cash inflow generated from operating activities Interests received Dividends received Interests paid Income tax paid Cash flows in investing activities: Acquisition of investment accounted for using equity method Acquisition of property, plant and equipment Disposal of property, plant and equipment Increase in other accounts receivable Increase in intangible assets Acquisition of investment property Decrease in other non-current assets Net cash outflow from investment activities Cash flows in financing activities: Increase in short-term loans Repayment of lease principal Issuance of cash dividends Capital increase by cash Net cash outflow from financing activities Increase (decrease) in cash and cash equivalents Beginning balance of cash and cash equivalents Ending balance of cash and cash equivalents	2020 $ 3,139,372 7,274 11,778 (2,627) 1,420 (10,165) (1,294,043) (2,080) 29,666 (136)	2019 2,357,623 4,102 1,048 1,865 592 (14,173) (1,151,326) - 1,193 (17)
	(1,258,913)	(1,156,716)
	(810) (403,834) 17,123 (149,055) (910)	468 (375,345) (7,399) (77,315) 5,724
	(537,486)	(453,867)
	6,394 (16,222) (233,064) 49,829 (69) 691 4,511 (199)	11,076 (26,337) 321,375 35,535 59 716 70,373 (70)
	(188,129)	412,727
	(725,615)	(41,140)
	(1,984,528)	(1,197,856)
	1,154,844 10,763 (1,420) (339,638)	1,159,767 13,848 (1,125) (211,848)
	824,549	960,642
	(14,385) (1,181) 252 (966) (58,424) (17,923) 9,435	- (15,581) 427 (85,950) (21,357) - (9,435)
	(83,192)	(131,896)
	- (59) (1,086,518) -	(720,000) (59) (900,258) 1,274,362
	(1,086,577)	(345,955)
	(345,220) 842,522	482,791 359,731
	$ 497,302	842,522

(Please read the Notes to the Parent Company Only Financial Statements.) Manager: HO, TE-YU

Chairperson: CHU, TE-HSIANG

Accounting manager: LIU, HSIN-HSIA

10

Lotes Co., Ltd.

Notes to the Parent Company Only Financial Statements For the Years Ended December 31, 2020 and 2019

(Except as otherwise indicated, the unit for all amounts in this document is NT$1,000))

i. Company History

Lotes Co., Ltd. (hereinafter referred to as the "Company") was incorporated on Aug. 23, 1986 in accordance with the provisions of the Company Law and was approved for registration with its registered office at No.15, Wuxun Street, Anle District, Keelung City. The Company (hereinafter referred to as the "Company") are principally engaged in the sale and purchase of various hardware parts and components, the manufacturing and processing of various terminals and their connectors, the import and export business in connection with the preceding item and the agency of the preceding item in connection with the tender quotation and distribution of products of domestic and foreign manufacturers. Please refer to Note 14 for further details.

ii. The date when the financial reports were authorized for issuance and the process involved

The Parent Company Only Financial Statement was approved and released by the Board of Directors on March 24, 2021.

iii. Application of new issuing & revised standards and interpretation

• (i) Influence of the Adoption of New and Revised Standards and Integrations Approved by the Financial Supervisory Commission

Since Jan. 1, 2019, the Company has adopted the amended International Financial Report Standards, and this did not cause material impact on the parent company only financial statements:

‧Amendments to IFRS 3, "Definition of a Business".

‧Amendments to IFRS 9, IAS 39 and IFRS 7, "Changes in Interest Rate Indicators".

‧Amendments to IAS 1 and IAS 8, "Definition of Significant".

‧Amendments to IFRS 16, "Rent Deductions Related to Emerging Coronavirus Pneumonia".

(ii) Effects of new and revised standards and interpretation has been approved by FSC but not yet being adopted

The Company assesses that the application of the following newly amended IFRSs effective January 1, 2021 will not have a significant impact on individual financial statements.

‧Amendments to IFRS 4 "Temporary Exemption from the Extension of IFRS 9

‧Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, "Changes in Interest Rate Indicators - Phase 2

11

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(iii) New and revised standards and interpretations not yet recognized by the FSC

The following table sets out the standards and interpretations that have been issued and revised by the International Accounting Standards Board (hereinafter referred to as the Board) but not yet endorsed by the FSC, and they may be material to the Company.

New Release/Amendment of Guidelines Amendments to IAS 1 "Classification of Liabilities as Current or Noncurrent	Major Amendment The amendments are intended to improve consistency in the application of the standard to assist enterprises in determining whether debt or other liabilities with an indefinite maturity date should be classified as current (due or likely to be due within one year) or non-current on the balance sheet. The amendments also clarify the requirements for classifying debt that an entity may be able to settle by conversion to equity.	Effective date upon promulgation by the IASB
		2023.1.1

The Company is continuously evaluating the impact of the above criteria and explanations on the Company's financial position and results of operations and will disclose the related impact when the evaluation is completed.

The Company does not expect the following other newly issued and amended standards, which have not yet been endorsed, to have a material impact on the parent company only financial statements.

‧Amendments to IFRS 10 and IAS 28, "Disposal of or Contribution to Assets between an Investor and its Affiliate or Joint Venture".

‧Amendments to IFRS 17, "Insurance Contracts" and IFRS 17

‧Amendments to IAS 16, "Property, Plant and Equipment - Price before reaching Intended Use".

‧Amendments to IAS 37, "Loss-making Contracts - Costs of Fulfillment of Contracts".

‧Annual Improvements to IFRSs for the 2018-2020 Cycle

‧Amendments to IFRS 3, "References to Conceptual Framework".

‧Amendments to IAS 1, "Disclosure of Accounting Policies".

‧Amendments to IAS 8, "Definition of Accounting Estimates".

iv. Summary and explanation of material accounting policies

The major accounting policies adopted in this Financial Statement are summarized as follows. Unless otherwise noted, the following accounting policies have been applicable for all presentation period of the Individual Financial Statement.

(i) Compliance statement

The Individual Financial Statement was compiled in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers.

12

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(ii) Compiling Basis

1. Measurement Foundation

Except the major items in the following balance sheet, the Individual Financial Statement was compiled based on the historical costs:

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

• (2) Financial assets measured at fair value through other comprehensive income.

• (3) Liabilities for cash-settled share-based benefit agreements that are measured at fair value.

• (4) Net defined benefit liability (or asset) is measured according to the fair value of the retirement fund assets deducting present value of the defined benefit obligation and the ceiling influence value listed in Footnotes IV (14).

• Functional Currency and Presentation Currency

Each party of the Company takes the currency of major economic environment where its operation is located as its functional currency. The Individual Financial Statement is presented in the functional currency of the Company, TWD. All of the financial information expressed herein in TWD is of one thousand per unit.

• (iii) Foreign Currency

• Foreign Currency Trading

Foreign currency is converted into functional currency according to exchange rate on the date of transaction. At the end of each subsequent reporting period (the "Reporting Date"), foreign currency monetary items are translated into functional currency at the exchange rate prevailing on that date. Non-monetary items measured at fair value in foreign currencies are translated into functional currencies using the exchange rates prevailing at the date of fair value measurement, while non-monetary items measured at historical cost in foreign currencies are translated at the exchange rates prevailing at the dates of the transactions.

The foreign currency exchange difference resulting from the conversion is recognized to be other comprehensive Income excepting for the following situations, otherwise, recognized to be gains and losses.

(1) Equity instruments designated as measured at fair value through other comprehensive income.

(2) Financial liabilities designated as a net investment hedge for a foreign operating entity are within the effective range of the hedge; or

(3) Eligible cash flow hedges are within the effective range of the hedge.

2. Foreign Operating Organizations

The assets and liabilities of foreign operating organizations, including the business reputation and fair value adjustment during the acquisition, are converted to be TWD

13

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

according to exchange rate on the report day; gains and losses are converted into TWD according to exchange rate in the current period, and the resultant conversion difference is recognized to be other comprehensive Income.

In case of the loss of control, joint control or material influences arising from the punishment on foreign operating organizations, the accumulated conversion differences related to the foreign operating organizations shall be fully reclassified as gains and losses. In case of subsidiary company of foreign operating organizations involved in the punishment, the related accumulated conversion differences shall be reclassified as non-controlling interests in proportion. In case of affiliated company or joint ventures of foreign operating organizations involved in some of the punishment, related accumulated conversion differences shall be fully reclassified as gains and losses in proportion.

As to the receivable and payable monetary items of foreign operating organizations, if without the repayment plan or the possibility of repayment in foreseeable future, the resultant gains and losses from foreign currency conversion shall be regarded as a part of net investments to the foreign operating organizations as recognized as other comprehensive income.

• (iv) Standards for Classifying Current and Non-current Assets and Liabilities

Assets meeting one of the following conditions are recognized to be current assets, and

other assets not belonging to current assets are recognized to be non-current assets:

• 1.Those that are expected to be realized during the normal operating period of the Company or intended to be sold or consumed.

• Those held mainly for the purpose of transaction.

• Those expected to be realized within 12 months after the balance sheet.

• Cash or cash equivalents, but not including those used for exchange, liquidation of liabilities or those with other restrictions.

The liabilities meeting any one of the following conditions are current liabilities, and other liabilities not belonging to current liabilities are recognized to be non-current liabilities:

1. Those expected to be paid off during the normal operating period of the Company.

2. Those held mainly for the purpose of transaction.

3. Those expected to be paid off within 12 months after the balance sheet.

4. Those that shall not allow the Company to unconditionally extend the liquidation period to at least 12 months. Liabilities for liquidation arising from the issuing of equity instruments in accordance with the clauses chosen by the other party of transaction will not affect their classification.

5. (v) Cash or Cash Equivalents

Cash includes cash on hand and demand deposits. Cash equivalents are the investments which are allowed to be converted into normed cash with few value change risks and

14

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

short-term high flowability. Certificate of deposit which satisfy the foregoing definition and with the holding purpose of meeting the short-term cash pledges rather than investment or others shall be recognized as cash equivalents.

(vi) Financial Instrument

The accounts receivable are recognized at the time of generation. All other financial assets and financial liabilities were originally recognized when the company became a party to the terms of the financial instrument agreement. Financial assets that are not measured at fair value through profit or loss (except accounts receivable, which do not contain a significant financial component) or financial liabilities are measured at fair value plus the transaction cost directly attributable to the acquisition or issue. Accounts receivable, which do not contain significant financial components, are originally measured at transaction prices.

1. Financial Assets

The purchase or sale of financial assets by a conventional trader, the company shall treat all purchases and sales of financial assets classified in the same manner in accordance with the transaction date or the settlement date.

At the time of the original recognition, financial assets were classified as: financial assets measured at amortized cost, debt instrument investments measured at fair value through other comprehensive income, equity instrument investments measured at fair value through other comprehensive income, or financial assets measured at fair value through gains and losses.

The company will only change its business model for managing financial assets from the first day of the next reporting period to classify all affected financial assets.

(1) Financial assets as measured by their amortized cost

Financial assets are measured at post-amortized cost when they simultaneously meet the following conditions and are not specified to be measured at fair value through profit or loss:

· The financial asset is held under a business model for the purpose of collecting contractual cash flow.

· The cash flow generated by the terms of the contract on the financial asset at the specified date is solely for the payment of the principal and the interest on the outstanding principal amount.

The cumulative amortization of such assets is subsequently calculated by the effective interest method plus or minus the original amount recognized, and the amortized cost of any loss allowance is adjusted. Interest income, foreign exchange gains and losses and impairment losses are recognized as gains and losses. When derecognized, the profit or loss shall be included in the profit or loss.

15

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(2) Financial assets measured at fair value through other comprehensive income

When the debt instrument investment simultaneously meets the following conditions and is not specified to be measured at fair value through profit and loss, it is measured at fair value through other consolidated profit and loss:

· The financial asset is held under a business model for the purpose of collecting contractual cash flow and selling.

· The cash flow generated by the terms of the contract on the financial asset at the specified date is solely for the payment of the principal and the interest on the outstanding principal amount.

The company may, at the time of its original recognition, irrevocably choose to report the subsequent changes in the fair value of its non-tradable equity instrument investments to other consolidated profits and losses. The foregoing selection is made on a item-by-item tool basis.

Debt instrument investors are measured by fair value afterwards. Interest income, foreign exchange gains and losses and impairment losses calculated by the effective interest method are recognized as gains and losses, while the remaining net gains or losses are recognized as other comprehensive income. When discounting, the accumulated amount of other comprehensive income shall be reclassified into comprehensive income.

Equity instrument investors are measured by fair value afterwards. Dividend income (unless it clearly represents the recovery of a portion of the investment cost) is recognized as a profit or loss. The remaining net benefits or losses are recognized as other comprehensive income and are not reclassified into gains and losses.

Dividend income from equity investments is recognized on the date (usually ex-dividend date) when the consolidated company becomes entitled to receive dividends.

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

Financial assets that are not measured at fair value at the above amortized cost or through other comprehensive income are measured at fair value through gains and losses, including derivative financial assets. The company may, at the time of its original recognition, irrevocably designate financial assets that meet the criteria of measuring at fair value according to the amortized cost or through other comprehensive income as financial assets measured at fair value through gains and losses in order to eliminate or substantially reduce improper accounting matching.

Such assets are subsequently measured at fair value and their net gains or losses (including any dividends and interest income) are recognized as gains or losses.

(4) Business model evaluation

16

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

The purpose of the company is to assess the business model of holding financial assets at a portfolio level, which best reflects the way of operation and management and the way of providing information to management. The following information is considered:

· The portfolio policies and objectives described and the operation of such policies. Including whether the management's strategy is to focus on earning contractual cash flow, maintaining a certain portfolio of interest rates, matching the duration of financial assets with the duration of the relevant liabilities or anticipated cash outflows, or achieving cash flow through the sale of financial assets.

· Performance of the business model and how the financial assets held under the business model are evaluated and reported to the principal managers of the business.

· Risks that affect the performance of the business model (and the financial assets held under the business model) and the manner in which such risks are managed.

· The frequency, amount and timeliness of previous sales of financial assets, the reasons for such sales and the expectation of future sales.

The transfer of a financial asset to a third party for the above business purposes that does not meet the exclusion criteria is not a sale as described above, consistent with the purpose for which the merged company continues to recognize the asset.

Financial assets held for trading and managed and evaluated for performance on a fair value basis are measured at fair value through profit and loss.

(5) Evaluate whether the cash flow of the contract is fully the interest on the payment of

the principal and the amount of outstanding principal

For evaluation purposes, the principal is the fair value of the financial asset at the time of its original recognition, and the interest is made up of the following considerations: the time value of money, the credit risk associated with the amount of outstanding principal in circulation during a particular period, and other basic lending risks and costs and profit margins.

To evaluate whether the contract cash flow is fully interest on the principal and the outstanding principal amount, the company considers the terms of the financial instrument contract, including whether the financial asset contains a contract term that can change the point or amount of the cash flow of the contract, causing it to fail to meet this condition. In the evaluation, the consolidated company considers:

· Any contingencies that change the timeliness or amount of the cash flow of the contract;

· The terms of the coupon rate may be adjusted, including the nature of the variable

rate;

· The nature of prepayment and extension; and

17

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

· Claims of the consolidated company are limited to cash flow terms derived from specific assets (e.g. non-recourse nature).

(6) Impairment of financial assets

For the financial assets measured at the amortized cost after (including cash and about when cash, notes receivable, accounts receivable, other receivables, refundable deposit, and other financial assets, etc.), through the other comprehensive income measured at fair value, the debt instruments of investment assets and contract of expected loss, the company recognizes the allowance for credit losses.

The following financial assets are measured against losses according to the expected credit loss amount of 12 months, and the rest are measured according to the expected credit loss amount of the existing period:

‧ Determine that the credit risk of the debt securities at the reporting date is low; and

‧ The credit risk of other debt securities and bank deposits (i.e. the risk of default during the expected life of financial instruments) has not increased significantly since the original recognition.

The loss allowance for accounts receivable and contract assets is measured in terms of the expected credit loss during the period of existence.

In determining whether credit risk has increased significantly since the initial recognition, the consolidated company considers reasonable and verifiable information (available at no excessive cost or investment), including qualitative and quantitative information, as well as analysis based on the company's historical experiences, credit assessment and forward-looking information.

The consolidated company shall be deemed to be in default of the financial asset if the debtor of the contract payment is unlikely to meet his credit obligations to make the full payment to the consolidated company.

Expected credit loss during the life of a financial instrument refers to the expected credit loss arising from all possible defaults during the life of the financial instrument.

Twelve-month expected credit loss refers to the expected credit loss arising from the possible default of the financial instrument within twelve months after the date of the report (or a shorter period, if the expected duration of the financial instrument is shorter than twelve months).

The longest contract period during which the expected credit loss is measured is the longest contract period during which the company is exposed to credit risk.

The expected credit loss is the probabilistic weighted estimate of the credit loss during the expected life of the financial instrument. Credit losses are measured in terms of the present value of all cash shortfalls, the difference between the cash flows that the company can collect under the contract and the cash flows that the company expects to

18

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

collect. The expected credit loss is discounted at the effective interest rate of the financial asset.

On each reporting date, the company evaluates whether there is a credit impairment in the debt securities on which financial assets are measured at after-amortized cost and on which fair value is measured through other comprehensive income. When one or more events have occurred that adversely affect the estimated future cash flow of a financial asset, the financial asset has suffered a credit impairment. Evidence of credit impairment of financial assets includes observable information relating to:

• Major financial difficulties of the borrower or issuer;

• Default, such as delay or delay beyond a specified period;

• For economic or contractual reasons related to the borrower's financial difficulties, the merged company gives the borrower concessions that the borrower would not have considered;

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

· The active market for the financial asset disappears due to financial difficulties. The loss allowance for a financial asset measured at its amortized cost is deducted from the carrying amount of the asset. The allowance for losses on debt instrument investments is measured at fair value through other comprehensive income. It is adjusted and recognized as other comprehensive income (without reducing the carrying amount of the assets).

When the company cannot reasonably expect to recover the financial assets as a whole or in part, it will directly reduce the total book amount of its financial assets. For the company, the company shall analyze the date and amount of the write-off on the basis of whether it is reasonable to expect recovery. The company does not expect a significant reversal of the write-off. However, financial assets that have been written off may still be enforced to comply with the procedures of the consolidated company for recovering overdue amounts.

• (7) Financial assets de-recognition

When the Company terminates the contractual rights from the cash flow of such assets or has transferred the financial assets and almost all risks and returns of the asset ownership have been transferred to other enterprises, the financial assets shall be de-recognized.

Transactions in which the Company enters into transfers of financial assets that retain all or substantially all of the risks and rewards of ownership of the transferred assets continue to be recognized on the balance sheet.

1. Financial liabilities

19

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Financial liabilities are classified as amortized costs or measured at fair value through profit or loss. Financial liabilities which are held for trading, derivatives or specified at the time of their original recognition are classified as being measured at fair value through profit or loss. Financial liabilities, measured at fair value through profit and loss, are measured at fair value, and the associated net benefits and losses, including any interest expense, are recognized as profit and loss.

The effective subsequent interest method for other financial liabilities is measured at the amortized cost. Interest expenses and exchange gains and losses are recognized as gains and losses. Any benefit or loss at the time of discounting is also considered as profit or loss.

• (1) De-recognition of Financial Liabilities

The Company derecognizes financial liabilities when contractual obligations have been fulfilled, cancelled or matured. When the terms of a financial liability are modified and the cash flows of the modified liability differ materially, the original financial liability is derecognized and a new financial liability is recognized at fair value based on the modified terms.

When de-recognizing financial liabilities, the difference between carrying amount and the sum of paid or payable considerations (including any transferred non-cash capital or assumed liabilities) shall be recognized as gains and losses.

• (2) Offset between Financial Assets and Liabilities

Financial assets and financial liabilities can be offset with each other and represented on the balance sheet with net value only when the Company has legal rights to offset and has the intention to deliver with net value as well as realize capital and liquidate the liabilities.

3. Derivative Financial Instruments

The Company holds derivative financial instruments to avoid foreign currency and interest rate risks. Embedded derivatives are separated from the main contract when specific conditions are met and the main contract is not a financial asset.

Derivative instruments are initially recognized at fair value and subsequently measured at fair value, and the resulting gain or loss is recognized directly in profit or loss. (vii) Inventory

Inventory shall be measured with the lower of the costs and net realizable value. The costs include the acquisition, production and processing costs enabling them to arrive at the available places and status and other costs, which are calculated according to the standard cost method, and priced at cost transferring according to weighted mean method. The costs of the inventory of finished products and products in process include the manufacturing costs amortized based on normal production capacity according to proper percentage.

20

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Net realizable value refers to the estimated prices under normal operation deducting estimated costs to be needed for estimated completion and estimated costs to be needed for completing selling.

(viii) Investing subsidiary

In preparing individual financial statements, the Company applies the equity method to investees over which it has control. Under the equity method, the share of current profit or loss and other comprehensive income of the individual financial report is the same as the share of current profit or loss and other comprehensive income attributable to the owners of the parent in the financial statements prepared on a consolidated basis, and the interest of the owners of the individual financial report is the same as the interest attributable to the owners of the parent in the financial statements prepared on a consolidated basis.

Changes in the Company's ownership interest in a subsidiary that do not result in a loss of control are treated as equity transactions with owners.

(ix) Property, Plant and Equipment

1. Recognition and Measurement

Items of property, plant and equipment are measured at cost, including capitalized borrowing costs, less accumulated depreciation and any accumulated impairment.

Significant components of property, plant and equipment are treated as separate items

(major components) when they have different life cycles.

Gain or loss on disposal of property, plant and equipment is recognized in profit or loss.

2. Subsequent Costs

Subsequent expenses are capitalized only when it is probable that future economic benefits will flow into the Company.

1. Depreciation

Depreciation is calculated based on the cost of the asset less its residual value and is recognized in profit or loss using the straight-line method over the estimated useful life of each component.

The land is not subject to depreciation.

The estimated useful lives for the current and comparative periods are as follows:

• (1) Buildings 20-40 years (2) Machinery 2-10 years (3) Other equipment 2-10 years

The Company reviews the method of depreciation, durability and residual value at each reporting date and makes appropriate adjustment as necessary.

4. Reclassification to investment real estate

When real property for own use is reclassified to investment property, the real

21

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

property is reclassified to investment property based on its carrying amount at the time of change of use.

(x) Investment real estate

Investment real estate means real property held for the purpose of earning rent or asset appreciation, or both, rather than for the purpose of production, provision of goods or services, or for administrative purposes. Investment real estate is originally measured by cost, and later measured by cost minus accumulated depreciation and accumulated impairment. The depreciation method, durable life and residual value shall be treated in accordance with the provisions of real estate, plant and equipment.

The disposal interest or loss of the investment real estate (calculated at the difference between the net disposal price and the account amount of the project) shall be recognized as the profit or loss.

The rental income of investment real estate is recognized as other income in the straight-line method during the lease term. The incentive to lease is recognized as part of the rental income during the lease term.

• (xi) Leasing

• Judgment of lease

The company shall assess whether the contract is a lease or includes a lease on the date of formation of the contract. If the contract transfers control over the use of the identified assets for a period of time in exchange for consideration, the contract shall be a lease or includes a lease. To assess whether the contract is a lease, the company evaluates the following items:

• (1) The contract relates to the use of an identified asset whose entity may distinguish or represent all of the actual production capacity if it is explicitly specified in the contract or by implication specified at the time of availability. If the supplier has a material right to replace the asset, the asset is not recognized; and

• (2) the right to obtain almost all the economic benefits derived from the use of the identified assets throughout the use period; and

• (3) acquire the right to dominate the use of the identified assets in one of the following circumstances:

• The consolidated company has the right to dominate the use and purpose of the identified assets throughout the use period; or

• Decisions relating to the manner and purpose of use of the asset are made in advance, and:

• The consolidated company has the right to operate the assets throughout the use period and the supplier has no right to change the instructions for such operations; or

22

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

• the way in which the assets are designed by the consolidated company has determined in advance how and for what purpose they will be used throughout their lifetime.

• 2.The lessee

The company recognize the right-of-use assets and lease liabilities on the beginning date of the lease. Right-of-use assets are originally measured in terms of cost, which includes the original measured amount of lease liabilities, adjusts the lease beginning date or before payment of any rent payment, and the initial direct costs, and applied to removing the asset and restoring its location or the estimated cost of the underlying assets. It minuses the charge of any lease incentives at the same time.

Depreciation of right-of-use assets following the commencement of the lease shall be carried out by the straight-line method at the end of the useful life of right-of-use assets or earlier at the end of the lease term. In addition, the company will periodically evaluate whether there is any loss of right-of-use assets and deal with any loss that has occurred, and adjust the right-of-use assets in the case of lease liabilities.

Lease liabilities are defined as the present value of lease benefits not yet paid at lease commencement date. If the implied lease rate is easy to determine, the discount rate will be that rate, and if not, the incremental borrowing rate of the Company will be used. Generally speaking, the consolidated company adopts its incremental borrowing rate as the discount rate.

Lease benefits measured in Lease liabilities include:

• (1) Fixed payments, including substantive fixed payments;

• (2) Depending on the variation of a certain index or rate of rent payment, the index or rate on the commencement date of the lease shall be used as the original measurement;

• (3) The guaranteed amount of salvage value expected to be paid; and

• (4) The price at which the option to exercise the option to purchase or terminate the lease will be reasonably determined or the penalty to be paid.

Lease liabilities is then calculated using effective interest method, and the amount was measured when:

• (1) Changes in the index or rate used to determine lease payments result in changes in future lease payments;

• (2) The guaranteed amount of the residual value expected to be paid has changed;

• (3) The evaluation of the underlying asset purchase option has changed;

• (4) The estimate of whether to exercise the option of extension or termination has changed, which leads to the change of the assessment of the lease period;

• (5) Modification of the subject matter, scope or other terms of the lease.

23

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Lease liabilities are remeasured due to the aforementioned changes in the index or rate used to determine lease payments, changes in the residual value guarantee amount, and changes in the evaluation of purchases, extensions or termination options, the book value of right-of-use assets should be adjusted accordingly. When the book value of right-of-use assets is reduced to zero, the remaining re-measured amount is recognized in profit or loss.

For the tease modifications about the reduced coverage, the book amount of right-of-use assets will be reduced to reflect partial or total termination of Lease, and the difference between Lease assets and Lease assets will be included in the profit and loss.

The company will express the right-of-use assets and lease liabilities that do not conform to the definition of investment real estate in the form of single line items in the balance sheet.

3. The lessor

The transaction in which the company is a lessor shall be classified as a financial lease or an operating lease on the date of establishment of the lease, depending on whether or not the lease contract is transferred to almost all the risks and rewards attached to the ownership of the underlying asset. In the evaluation, the consolidated company shall consider certain indicators, including whether the lease term covers the principal part of the underlying asset's economic life.

If the company is a sublease lessor, it will handle the master lease and the sublease transaction respectively and evaluate the sublease transaction classification based on the right-of-use assets generated from the master lease. If the principal lease is a short-term lease and a recognition waiver is applicable, the sublease transaction shall be classified as an operating lease.

(xii) Intangible assets

1. Recognition and measurement

Computer software acquired by the Company is measured at cost less accumulated amortization and accumulated impairment.

2. Subsequent expenditure

The subsequent expenditure can be capitalized only when they can increase the future economic benefits of relevant specific assets, and all of other expenditures are recognized as gains and losses when they occur, including the expenses for developing reputation and brand establishing.

3. Amortization

Amortization is calculated based on the cost of the asset less its estimated residual value and is recognized in profit or loss using the straight-line method over the estimated useful lives of the Intangible assets, from one to five years from the time the assets reach a

24

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

ready-for-use condition.

The Company reviews the amortization method, useful life and residual value of Intangible assets at each reporting date and makes appropriate adjustments as necessary. (xiii) Non-financial Asset Impairment

At each reporting date, the Company assesses whether there is any indication that the carrying amount of non-financial assets (other than inventories, deferred income tax assets) may be impaired. If any indication exists, the recoverable amount of the asset is estimated.

For the purpose of impairment testing, cash inflows that are largely independent of other individual assets or groups of assets are treated as the smallest identifiable group of assets.

The recoverable amount is the higher of the fair value less costs to dispose of the individual asset or cash-generating unit or its value in use. If the recoverable amount of an individual asset or cash-generating unit is less than its carrying amount, an impairment loss is recognized. An impairment loss is recognized immediately in profit or loss and is reduced first by the carrying amount of goodwill amortized on the cash-generating unit and then by the carrying amount of each other asset in the unit in proportion to its carrying amount.

Non-financial assets other than goodwill are reversed only to the extent that they do not exceed the carrying amount (net of depreciation or amortization) that would have been determined had no impairment loss been recognized for the asset in prior years. (xiv) Provisions

Provisions are recognized as present obligations due to past events that make it probable that the Company will need to expend economically efficient resources in the future to settle the obligation and the amount of the obligation can be reliably estimated.

The amount recognized in Provisions takes into account the risks and uncertainties of the obligation and is the best estimate of the payments required to settle the obligation at the end of the reporting period. If Provisions is measured at the estimated cash flows to settle this realistic obligation, the carrying amount is the present value of those cash flows.

(xv) Income Recognition

Revenue from customer contracts

Income is measured in consideration for the expected entitlement to transfer goods or services. The company recognizes revenue from the transfer of control of goods or services to the customer in order to meet its performance obligations.

The company manufactures electronic components and sells them to manufacturers in the electronics industry. The company recognizes revenue at the time of the transfer of control over the products. Control transfer of the product means that the product has been delivered to the customer and the customer can fully determine the sales channel and price of the product, and there is no failure to fulfill obligations that would affect the customer's acceptance of the product. Delivery occurs when the product is shipped to a

25

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

specific location, the risk of obsolescence and loss has been transferred to the customer, the customer has accepted the product in accordance with the sales contract, the acceptance terms have expired, or the consolidated company has objective evidence that all acceptance conditions have been met.

The consolidated company recognizes revenue on the basis of the net amount of the estimated discount deducted from the contract price, the amount of which is estimated based on past experiences, and only to the extent that there is a high probability that no significant turnaround will occur. As of the date of the report, the sales will expect to pay the customer for the discount, which is refunded as refund liabilities. The average credit period of sales is one hundred twenty days to one hundred fifty days, which is consistent with the practice of the same trade, so no financing elements are included.

The company shall recognize accounts receivable at the time of delivery of the goods, as the consolidated company shall have the right to receive unconditional consideration at that time.

The time between the transfer of goods or services from all customer contracts to the customer and the time between the customer's payment for the goods or services is expected to be no more than one year, so the company does not adjust the time currency value of the transaction price.

(xvi) Employee Benefits

1. Defined Contribution Plan

The contribution obligation of the defined contribution pension plan is recognized as an expense in the period in which the employees render service to the Company.

2. Defined benefit plans

The Company's net obligation to a defined benefit plan is measured by discounting the present value of future benefits earned by the employee's current or prior period of service, less the fair value of the plan assets.

The defined benefit obligation is actuated annually by a qualified actuary using the projected unit benefit method. When the results of the calculation are probable to be favorable to the Company, an asset is recognized to the extent of the present value of any economic benefits that may be obtained by returning a contribution from the plan or reducing future contributions to the plan. Any minimum funding requirement is taken into account in calculating the present value of economic benefits.

The remeasurement of the net defined benefit obligation, including actuarial gains and losses, compensation for plan assets (excluding interest), and any change in the impact of asset limits (excluding interest) is recognized immediately in other comprehensive income and accumulated in retained earnings. The Company determines net interest expense (income) for net defined benefit liabilities (assets) using the net defined benefit liabilities (assets) and discount rate determined at the beginning of the annual reporting

26

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

period. Net interest expense and other costs for defined benefit plans are recognized in profit or loss.

When a plan is revised or curtailed, changes in benefits related to prior period service costs or curtailment gains or losses are recognized immediately in profit or loss. The Company recognizes gain or loss on the settlement of defined benefit plans when settlement occurs.

1. Short-term employee benefits

Short-term employee benefit obligations are recognized as an expense when services are provided. If the Company has a present legal or constructive obligation to pay for services rendered by employees in the past and the obligation can be estimated reliably, the amount is recognized as a liability.

• (xvii) Income Tax

Income taxes include current and deferred income tax asset. Except those related to enterprise consolidation and items directly recognized as equities or other comprehensive income, Current tax and deferred income tax asset shall be recognized as gains and losses.

Current taxes include expected payable income taxes or receivable tax rebates of the annual taxation (losses) calculated according to the legal tax rate or substantial legal tax rate on the report day, and any unappropriated retained earnings plus 10% income tax recognized as tax expense in the shareholders meeting resolution year calculated according to the adjustments to the payable income taxes in the previous year and the provisions of income tax laws.

Deferred income tax assets are measured and recognized according to the temporary difference between the carrying amount and taxation basis of assets and liabilities with financial report objectives. In case of any of the following situations, the temporary differences will not be recognized as deferred income tax assets:

1. Those do not belong to the assets or liabilities originally recognized in the transaction of enterprise consolidation, and not influencing accounting profits and taxation incomes (losses) during the transaction.

2. Those generated due to investment subsidiary company and joint equities and likely to not to be returned in the foreseeable future.

3. Original recognition of business reputation

4. Deferred income tax assets are recognized for unused tax losses and unused income

5. tax credits in subsequent periods to the extent that it is probable that future taxable income will be available against which the temporary differences can be deducted. Deferred income tax assets are reassessed at each reporting date and reduced to the extent that it is not probable that the related income tax benefit will be realized, or to the extent that it becomes probable that sufficient taxable income will be available to allow the reversal of

27

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

the original reduction.

Deferred income tax assets are measured according to the tax rate in the current period when the expected capital is realized or liabilities are liquidated and based on the legal tax rate or substantial legal tax rate on the report day.

Only when the Company shall meet the following conditions at the same time, can the deferred income tax assets and deferred tax liabilities offset with each other:

1. Having the legal execution right to make the current income tax assets and the current tax liabilities offset with each other: and

2. Deferred income tax assets and deferred tax liabilities are related to one of the subjects of tax payment from which the same tax authority levies income tax;

3. (1) Same subject of tax payment; or

4. (2) Different subjects of tax payment, but all subjects intend to liquidate the current tax liabilities and assets based on net amount or at the same time realize assets and liquidate liabilities in each of the future periods when deferred income tax assets of major amounts are expected to be recovered and deferred tax liabilities expected to be liquidated.

(xviii) Earnings per share

The Company lists the basic and diluted earnings per share of holders of common stock equity of the Company. The basic earnings per share of the Company shall be calculated with the gains and losses of the holders of common stock equity of the Company divided by the weighted mean of current outstanding common shares. Diluted earnings per share shall be calculated after adjusting the influence of all potential diluted common shares of the gains and losses of the holders of common stock equity of the Company and the weighted mean of current outstanding common shares. The potential diluted common shares of the Company include convertible corporate bonds and stock options for employees.

(xix) Segments

The Company has disclosed Operating Segmentsin the Consolidated Financial Statements and therefore individual financial statements do not disclose Operating Segments. v. Primary sources of uncertainty in major accounting judgments, estimates, and assumptions Management is required to make judgments, estimates and assumptions in preparing this entity's financial statements in accordance with "Guidelines Governing the Preparation of Financial Reports by Securities Issuers" that will affect the adoption of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from estimates.

v. Primary sources of uncertainty in major accounting judgments, estimates, and assumptions

The management authority continuously inspects the estimate and basic assumption, and accounting changes are recognized during the period of changes and the period of future to be influenced.

28

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Accounting policies that involve significant judgment and that have a material effect on the amounts recognized in the financial statements of the Company are as follows: Inventory evaluation

Since inventory must be measured at the lower of cost or net realizable value, the company estimates the reported amount of inventory due to normal wear and tear, obsolescence, or no market sale value daily and reduces the cost of inventory to net realizable value. The net realizable value of inventories may change significantly due to rapid changes in the industry and the introduction of new products. Please refer to Note VI (IV) for the inventory assessment.

vi. Descriptions of Material Accounting Items

(i) Cash and cash equivalents

iptions of Material Accounting Items Cash and cash equivalents
Petty cash Checks and demand deposits Time deposits Cash and cash equivalents listed on the Statement	Dec. 31, 2020 $ 99 497,153 50		Dec. 31, 2019 240 490,112 352,170
	$ 497,302		842,522

Disclosures of interest rate risks and sensitivity analysis on financial assets and liabilities of the Company are seen in Note VI (XXI).

(ii) Financial assets measured at fair value through profit or loss (FVTPL)

Dec. 31, 2020 Dec. 31, 2019

Financial assets mandatorily measured at fair value through profit or loss:

Non-hedging derivatives Forward exchange contracts $ 2,080 -

Please refer to Note VI (XXI) for the amount recognized in profit or loss based on fair value remeasurement.

The Company engages in derivative financial instruments to hedge its exposure to exchange rate risk arising from operating activities. The breakdown of derivative instruments reported as financial assets at fair value through profit or loss for non-applicable hedge accounting is as follows:

instruments reported as financial assets at non-applicable hedge accounting is as follows:		fair value through profit or loss for	fair value through profit or loss for
Financial Assets		Dec. 31, 2020
	Contract Principal (NT$ thousand) USD 4,000		Maturity Jan. 11, 2021 Jan. 12, 2021 Jan. 22, 2021 Feb. 9, 2021 Feb. 18, 2021 Feb. 19, 2021 Feb. 23, 2021 March 10, 2021 March 23, 2021
Forward exchange contracts " " " " " " " "
	USD 2,000
	USD 2,000
	USD 2,000
	USD 2,000
	USD 2,000
	USD 2,000
	USD 6,000
	USD 2,000

29

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

As of December 31, 2020 and 2019, none of the Company's financial assets at fair value through profit or loss were pledged as collateral.

(iii) Notes, accounts receivable and other receivables

Notes receivable Accounts receivable (including related parties) Other accounts receivable (including related parties) Less: Provisions	Dec. 31, 2020 $ 2,485 4,320,998 111,377 (5,424) $ 4,429,436	Dec. 31, 2019 1,675 3,917,180 128,132 (8,067) 4,038,920

For the changes in the provisions for notes and accounts receivable for the years ended December 31, 2020 and 2019, please refer to Note VI (XXI) 1. (3) Statement of Impairment Losses.

(iv) Inventory

Merchandise Finished goods Work in progress Raw materials Goods in transit	Dec. 31, 2020 $ 710,364 108 - 5 - $ 710,477	Dec. 31, 2019 550,887 1,165 18 - 39,018 591,088

The Company's inventory as of December 31, 2020 and 2019 including allowance for inventory losses are NT$45,507 thousand dollars and NT$19,600 thousand dollars respectively.

The Company recognized inventory-related expenses (gain) as follows:

Cost of goods sold Losses on the price fall and scraping of inventory Total	2020 $ 8,787,969 29,666 $ 8,817,635	2019 8,161,593 1,193 8,162,786

As of December 31, 2020 and 2019, the Company's inventories were not pledged as security.

(v) Investments accounted for using the equity method

The investments of the Company accounted for using the equity method are as follows:

Subsidiaries	Dec. 31, 2020 $ 10,225,811	Dec. 31, 2019 8,873,276

1. Subsidiaries

Please refer to the consolidated financial statements for the year ended on December 31, 2020.

30

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

2. Guarantee

As of December 31, 2020 and 2019, the Company's investments accounted for using the equity method did not provide security for the pledge.

(vi) Property, plant and equipment

The changes in the cost, depreciation and impairment losses of the property, plant and equipment of the Company are as follows:

Cost or deemed cost: Balance as of Jan. 1, 2020 Addition Disposal Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Addition Disposal Balance as of Dec. 31, 2019 Losses on depreciation and impairment: Balance as of Jan. 1, 2020 Depreciation in the year Disposal Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Depreciation in the year Disposal Balance as of Dec. 31, 2019 Book value: Dec. 31, 2020 Dec. 31, 2019	Land $ 28,250 - -	Buildings 32,438 - -		Machinery equipment 14,300 - (1,820)		Other 48,319 1,181 (202)		Total 123,307 1,181 (2,022)
	$ 28,250	32,438		12,480		49,298		122,466
	$ 28,250 - -	31,568 870 -		14,886 28 (614)		35,709 14,683 (2,073)		110,413 15,581 (2,687)
	$ 28,250	32,438		14,300		48,319		123,307
	$ - - -	16,070 903 -		13,615 377 (1,704)		30,194 4,937 (202)		59,879 6,217 (1,906)
	$ -	16,973		12,288		34,929		64,190
	$ - - -	15,268 802 -		13,567 252 (204)		30,236 2,031 (2,073)		59,071 3,085 (2,277)
	$ -	16,070		13,615		30,194		59,879
	$ 28,250	15,465		192		14,369		58,276
	$ 28,250	16,368		685		18,125		63,428

As of December 31, 2020, and December 31, 2019, property, plant and equipment

were used as collateral for short-term loans and financing lines. Please refer to Note VIII for details.

(vii) Right-of-use assets

The changes in the costs of the lease of lands, buildings, machinery and other equipment, losses on depreciation and impairment of the consolidated company are as follows:

Cost of the right-of-use assets: Balance as of Jan. 1, 2020 Decrease Balance as of Dec. 31, 2020 Balance on Jan. 1, 2019 Addition Balance on Dec. 31, 2019	Buildings $ 118 (118) $ - $ - 118 $ 118

31

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Depreciation and impairment losses of right-of-use assets: Balance as of Jan. 1, 2020 Depreciation Decrease Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Depreciation Balance as of Dec. 31, 2019 Book value: Dec. 31, 2020 Dec. 31, 2019	Buildings $ 59 59 (118) $ - $ - 59 $ 59 $ - $ 59

(viii) Investment property

The changes in the investment property of the Company are as follows:

Cost or deemed cost: Balance as of Jan. 1, 2020 Addition Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Balance as of Dec. 31, 2019 Losses on depreciation and impairment: Balance as of Jan. 1, 2020 Depreciation Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Depreciation Balance as of Dec. 31, 2019 Book value: Dec. 31, 2020 Jan. 1, 2019 Dec. 31, 2019 Fair value: Dec. 31, 2020 Dec. 31, 2019	Land $ 248,200 12,376	Buildings 39,285 5,547
	$ 260,576	44,832
	$ 248,200	39,285
	$ 248,200	39,285
	$ - -	4,483 998
	$ -	5,481
	$ - -	3,525 958
	$ -	4,483
	$ 260,576	39,351
	$ 248,200	35,760
	$ 248,200	34,802

32

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

As of December 31, 2020 and 2019, none of the Company's investment properties had been pledged as security.

(ix) Intangible assets

The changes in the cost and amortization of the intangible assets of the Company are as follows:

Cost: Balance as of Jan. 1, 2020 Separate acquisition Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Separate acquisition Balance as of Dec. 31, 2019 Losses on amortization and impairment: Balance as of Jan. 1, 2020 Amortization in the year Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Amortization in the year Balance as of Dec. 31, 2019 Book value: Balance as of Dec. 31, 2020 Balance as of Dec. 31, 2019	$	Computer software 84,795 58,424	Computer software 84,795 58,424		Other 600 -		Total 85,395 58,424
	$		143,219		600		143,819
	$		63,438 21,357		600 -		64,038 21,357
	$		84,795		600		85,395
	$		34,458 11,778		- -		34,458 11,778
	$		46,236		-		46,236
	$		33,410 1,048		- -		33,410 1,048
	$		34,458		-		34,458
	$		96,983		600		97,583
	$		50,337		600		50,937

The amortization expense of the intangible assets of the Company respectively recognized in the Statement of Comprehensive Income:

2020 Operating expense $ 11,778 Lease liabilities The carrying amounts of the Company's lease liabilities are as follows: Dec. 31, 2020 Current $ -	2019 1,048 Dec. 31, 2019 59

(x) Lease liabilities

Please refer to Note VI (XXI) for the maturity analysis. The amounts recognized in the profit and loss are as follows:

Interest expense for lease liabilities	2020	2019 1
	$ 1

33

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

The amounts recognized in the Statement of Cash Flows are as follows:

Total cash outflow for leases	2020 $ 60	2019 60

• (xi) Refund liabilities - current

Refund liabilities - current	Dec. 31, 2020 $ 161,767	Dec. 31, 2019 157,256

The refund liabilities are mainly the prepayments to customers for the sales discount and defects of electronic components.

(xii) Provisions

Provisions - non-current Employee benefits	Dec. 31, 2020 $ 49,258	Dec. 31, 2019 41,729

Employee benefits are estimated under the Company's defined benefit plan, please refer to Note VI (XIV) for details.

(xiii) Lease for business operating

The company leases its investment real estate, which is classified as an operating lease because almost all risks and rewards belonging to the ownership of the underlying asset have not been transferred. Please refer to Note VI (VIII) for details of the investment real estate.

Due date analysis of lease benefits to report the total amount of undiscounted lease benefits received in the future is shown in the following table:

received in the future is shown in the following table:
Not more than 1 year 1-2 years Total undiscounted lease payment	Dec. 31, 2020 $ 4,544 523	Dec. 31, 2019 6,037 629
	$ 5,067	6,666

Rental income generated from investment properties was NT$4,896,000 dollars and NT$5,577,000 dollars for 2020 and 2019 respectively. The direct operating expenses (including maintenance) incurred by the investment properties that generated rental income during the period were NT$1,028,000 dollars and NT$1,089,000 dollars respectively.

(xiv) Employee benefits

1. Defined benefit plans

The reconciliation between the present value of defined benefit obligations and the fair value of plan assets of the Company is as follows:

Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities	Dec. 31, 2020 $ 83,499 (34,241)	Dec. 31, 2019 73,681 (31,952)
	$ 49,258	41,729

Details of the employee benefit liabilities of the Company are as follows:

Liabilities from paid leaves	Dec. 31, 2020 $ 3,394	Dec. 31, 2019 3,577

34

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

The defined benefit plan of the Company is contributed to special account of contribution for retirement of Bank of Taiwan. The retirement payment of each employee applicable to Labor Standards Law is calculated in accordance with the base obtained based on the length of service and the average salaries within six months before retirement.

• (1) Composition of Plan Assets

The retirement fund contributed by the Consolidated under the Labor Standards Law shall be controlled by the Labor Funds Operation Bureau of the Ministry of Labor (hereinafter referred to as the Labor Funds Bureau), and under the provisions of Measures on the Management and Application of Labor Retirement Funds, the annual minimum return settled and distributed from the funds operation shall not be lower than the incomes calculated in accordance with the 2-year time certificate of deposit rate of the local banks.

As of the reporting date, the balance of the Company in the special account of contribution for retirement of Bank of Taiwan amounts to NT$ 34,241,000 dollars. The data of the application of the labor retirement funds include funds yield and funds asset allocation, with details to be seen in the information released on the website of the Labor Funds Bureau.

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

Changes in the present values of defined obligations of the Company in 2020 and in 2019 are as follows:

in 2019 are as follows:
Defined benefit obligation on January 1 Service cost and interest in the year Remeasurement of net defined benefit liabilities (assets) Benefit paid by the plan Defined benefit obligation on December 31	2020 $ 73,681 1,168 8,650 -	2019 72,724 1,310 2,262 (2,615)
	$ 83,499	73,681

(3) Changes in the fair value of plan assets

The changes in the fair value of defined benefit plan assets of the Company in 2020 and in 2019 are as follows:

2020 and in 2019 are as follows:
Fair value of plan assets on January 1 Interest income Remeasurement of net defined benefit liabilities (assets) Amount contributed to the plan Benefit paid by the plan Fair value of plan assets on December 31	2020 $ 31,952 238 1,052 999 -	2019 32,202 319 1,114 932 (2,615)
	$ 34,241	31,952

35

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(4) Expenses recognized in profit or loss

The expenses of the Company recognized in profit or loss in 2020 and in 2019 are as follows:

Service cost in the year Net interest of net defined benefit liabilities Operating cost Promotion Expenses Administration Expenses R&D expenses	2020 $ 621 309	2019 590 401
	$ 930	991
	$ 115 290 337 188	117 277 356 241
	$ 930	991

• (5) Remeasurement of the net defined benefit liabilities (assets) recognized in other comprehensive income

Remeasurement of the accumulated net defined benefit liabilities (assets) of the Company recognized in other comprehensive income in 2020 and in 2019 are as follows:

Accumulated balance on January 1 Amount recognized in the year Accumulated balance on December 31	2020 $ 1,895 (7,598)	2019 3,043 (1,148)
	$ (5,703)	1,895

(6) Actuarial assumptions

The material actuarial assumptions used by the Company to determine the present value if defined benefit obligations at the end of the reporting period are as follows:

Discount rate Increase in future salary	Dec. 31, 2020 0.35% 2.00%	Dec. 31, 2019
		0.75% 2.00%

The amount of appropriation for defined benefit plans within 1 year after the reporting date for the year ended on Dec. 31, 2020 is NT$1,038,000.

The weighted average duration of defined benefit plans is 11 years.

(7) Sensitivity analysis

The effects of changes in the main actuarial assumptions adopted on Dec. 31, 2020 and 2019 on the present value of defined benefit obligations are as follows:

Dec. 31, 2020 Discount rate Increase in future salary	Effects on defined benefit obligations Increased by 0.25% Decreased by 0.25% (2,278) 2,367 2,322 (2,247)
	Increased by 0.25% (2,278) 2,322

36

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Dec. 31, 2019 Discount rate Increase in future salary	Effects on defined benefit obligations Increased by 0.25% Decreased by 0.25% (2,069) 2,151 2,119 (2,049)
	Increased by 0.25% (2,069) 2,119

The above sensitivity analysis refers to the analysis on the influence of single assumption change based on the situation that other assumptions keep unchanged. In practice, many changes to the assumptions may be linked. The calculation method of sensitivity analysis shall be consistent with that of net defined benefit liabilities of the balance sheet.

The method and assumption applied in current sensitivity analysis is consistent with those adopted in early stage.

2. Defined Contribution Plan

As to the defined contribution plan, the Company shall contribute the retirement funds of employees to the individual accounts for labor retirement funds of the Bureau of Labor Insurance according to 6% of the monthly salaries of labors under the provisions of Labor Pension Act. Under this plan, after contributing fixed amount to the Bureau of Labor Insurance, the Company will not assume the legal or constructive obligations of paying extra amount.

The pension expense under the defined contribution retirement funds of the Company in the year of 2020 and 2019 are NT$6,664,000 and NT$6,411,000 respectively, which have been contributed to the Bureau of Labor Insurance.

(xv) Income tax

1. The details of the income tax expenses of the Company are as follows:

Income tax expense in the year Income tax generated in the year Surtax on undistributed retained earnings Adjustment of the income tax in the previous year Deferred income tax expense Occurrence and reversal of temporary difference Income tax expense	2020 $ 380,186 22,374 (2,084)	2019 281,975 23,819 (338)
	400,476	305,456
	6,535	(23,876)
	$ 407,011	281,580

The income tax expenses (profit) of the Company recognized in other comprehensive income in 2020 and in 2019 are as follows:

Items that will not be reclassified to profit or loss: Remeasurement of defined benefit plan	2020 $ (1,520)	2019 (230)

37

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

The reconciliation of the relationship between the income tax expense (profit) and the net profit before tax of the Company in 2020 and in 2019 is as follows:

Net profit before tax Income tax calculated based on the tax rate of the place where the Company located Adjustments in accordance with tax laws Underestimate (overestimate) in the previous year Surtax on undistributed retained earnings Total	2020 $ 3,139,372	2019 2,357,623
	627,875 (241,154) (2,084) 22,374	471,525 (213,426) (338) 23,819
	$ 407,011	281,580

2. Deferred income tax assets

(1) Recognized deferred income tax assets

eferred income tax assets ) Recognized deferred income tax assets
Losses from inventory price drop and obsolescence Unappropriated pension expenses Losses from the price drop of fixed assets and idle assets Refund liabilities and accounts payable Unrealized foreign exchange losses Remeasurement of defined benefit plan Deferred income tax assets	Dec. 31, 2020	Dec. 31, 2019 3,920 492 44 43,772 12,121 8,238
	$ 9,101 478 44 43,368 823 9,758
	$ 63,572	68,587

3. Income Tax Approval

The approval on the filing of final income tax return of the Company has lasted till the year 2018 as required by the taxing authority.

(xvi) Capital and Other Equity

As of December 31, 2020 and 2019, the total authorized share capital of the Company was $1,550,000,000 dollars with a par value of $10 per share, and the actual amount issued was $1,034,779,000 dollars.

On August 9,2018 and November 19, 2018, the Company's Board of Directors resolved to issue 10,000,000 new shares with a par value of $10 per share and an issue price of $140 per share by cash capital increase, with January 10, 2019 as the base date for the capital increase. This capital increase has been approved by the Financial Supervisory Commission and the statutory registration process was completed on January 23, 2019.

1. Capital reserve

The components of the Company's capital reserve are as follows:

Premium of issued shares Change in the net value of the stock of subsidiaries and associates accounted for using the equity method Employee stock options	$ $	Dec. 31, 2020 3,577,768 365,080 15,399		Dec. 31, 2019 3,577,768 366,393 15,399 3,959,560
		3,958,247

38

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

In accordance with the Companies Act, capital surplus is required to cover losses first before new shares or cash can be issued in proportion to the shareholders' original shares. Realized capital surplus referred to in the preceding paragraph includes premiums from the issuance of shares in excess of par value and proceeds from gifts received. In accordance with the Regulations Governing the Issuer's Offerings and Issuance of Marketable Securities, the aggregate amount of capital surplus that may be capitalized each year shall not exceed 10% of the paid-in capital.

1. Retained earnings

In accordance with the Company's Articles of Incorporation, the Company shall, after the final settlement of each year's earnings, first complete tax contributions, make up for prior years' deficits and set aside 10% as legal reserve, except when the legal reserve has reached the level of total capital; the Company is required by law to set aside or reverse special reserve. In the case of unappropriated earnings for the same period, the Board of Directors shall propose a proposal for the distribution of earnings to the shareholders for resolution, and the dividend to be distributed shall not be less than 20% of the net profit for the year after taxation, after deducting the net income provided for by law.

The Company will take into account the environment and growth of the Company and the distribution of earnings should take into account the Company's future capital expenditure budget and capital requirements and pay cash dividends of not less than 10% of the dividends distributed in the current year.

• (1) Legal reserve

If the Company has no deficit, it may, by resolution of the shareholders in general meeting, issue new shares or cash out of the legal reserve to the extent that such reserve exceeds 25% of the paid-in capital.

• (2) Special reserve

When the Company distributes distributable earnings, the Company accounts for other shareholders' equity in the current year and provides a special reserve of the same amount from current period's profit or loss as the prior period's undistributed earnings, and a special reserve of the same amount from prior period's undistributed earnings is not distributed. If there is a subsequent reversal in the number of other decreases in shareholders' equity, the reversal may be distributed in the form of a surplus.

• (3) Earnings distribution

The appropriation of the 2019 and 2018 earnings was approved by the shareholders' meetings held on June 19, 2020 and June 14, 2019, respectively:

Distributed to the holders of ordinary shares: Cash		2019	2019	Amount 1,086,518	2018	2018	Amount 900,258
	Payout ratio (TWD) $ 10.50				Payout ratio (TWD) 8.70

On March 24, 2021, the Company's board of directors proposed the following 2020 earnings distribution:

earnings distribution:
Distributed to the holders of ordinary shares: Cash		2020		Amount 1,376,256
	Payout ratio (TWD) $ 13.30

39

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Information on the distribution of earnings as proposed by the Board of Directors and resolved by the Shareholders' Meeting is available on the "Public Information Observation Post System".

1. Other equity

Balance as of Jan. 1, 2020 Exchange differences arising from the translation of the net assets of foreign operations Unrealized losses from financial assets measured at FVTOCI Disposal of equity instruments measured at FVTOCI Balance as of Dec. 31, 2020 Balance as of Jan. 1, 2019 Exchange differences arising from the translation of the net assets of foreign operations Unrealized losses from financial assets measured at FVTOCI Balance as of Dec. 31, 2019	Exchange differences on translation of foreign operations $ (631,970) 45,017 - -	Unrealized gain or loss on financial assets measured at FVTOCI (18,562) - 403 10,140	Total (650,532) 45,017 403 10,140 (594,972) (317,020) (317,409) (16,103) (650,532)
	$ (586,953)	(8,019)
	$ (314,561) (317,409) -	(2,459) - (16,103)
	$ (631,970)	(18,562)

(xvii) Earnings per share

The calculation of basic earnings per share and diluted earnings per share of the Company is as follows:

Net profit attributable to the Company in the year Weighted average shares outstanding (1,000 shares) Dilutive potential ordinary shares Bonuses for employees Basic earnings per share Diluted earnings per share	2020 $ 2,732,361	2019 2,076,043
	103,478 272	103,231 278
	103,750	103,509
	$ 26.41	20.11
	$ 26.34	20.06

40

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(xviii) Revenue from contracts with customers

1. Disaggregation of revenue

Major regional markets: Taiwan Mainland China Other countries Main products/Line of service: DT Server NB Automotive Other	2020 $ 1,044,006 8,481,405 1,837,024	2019 669,848 7,236,980 2,061,506
	$ 11,362,435	9,968,334
	$ 4,019,735 3,039,814 2,529,275 80,338 1,693,273	3,823,353 2,489,216 1,976,577 116,870 1,562,318
	$ 11,362,435	9,968,334

2. Balance of Contract

Contract liabilities	Dec. 31, 2020	Dec. 31, 2019 14,998	108.1.1 3,922
	$ 21,392

The beginning balances of contract liabilities as of Jan. 1, 2020 and 2019 were recognized as income of NT$13,710,000 dollars and NT$3,793,000 dollars respectively.

• (xix) Non-operating income and expenses

• Interest income

Interest income	2020 $ 10,165	2019 14,173

2. Other income

The details of other income of the Company are as follows:

Income from molding Income from samples Income from rentals Income from compensation Others	2020 $ 34,952 5,844 4,956 8,630 8,132 $ 62,514	2019 17,206 3,471 5,415 3,297 7,536 36,925

41

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

3. Other income and loss

The details of other income and loss of the Company are as follows:

Foreign exchange gain loss Net profit or loss from financial assets (liabilities) measured at FVTPL: Derivatives: Forward exchange contracts Metal Product Swap Contracts Profit from the disposal of property, plant and equipment Other Total . Financial cost The details of the financial cost of the Company are as Interest expense	2020	2019 (67,449) (1,921) - 17 (3,231)
	$ (114,795) 7,620 4,346 136 (8,557)
	$ (111,250)	(72,584)
	follows: 2020	2019 592
	$ 1,420

4. Financial cost

(xx) Remuneration for employees, directors, and supervisors

In accordance with the Company's Articles of Incorporation, no less than 3% of the Company's annual profits shall be appropriated to the Compensation of Employees and no more than 3% to the Compensation of Directors and Supervisors; however, if the Company has accumulated losses, it shall retain the amount of compensation in advance and appropriate the Compensation of Employees and Supervisors in proportion to the aforementioned. The former Compensation of employees to whom stock or cash is issued may include employees of a subordinate company who meet certain criteria.

The estimated amount of compensation of employees for the years ended December 31, 2020 and 2019 was $97,235,000 dollars and $73,054,000 dollars respectively, and the estimated amount of compensation to directors and supervisors was $4,480,000 dollars. The Company's Net profit before tax for the period is estimated by multiplying the amount of the Company's Net profit before issuing the compensation of employees and directors and supervisors by the proportion of the Company's compensation distribution to employees and directors and supervisors as provided in the Company's Articles of Incorporation and is reported as operating costs or expenses for that period. If there is a difference between the actual distribution amount and the estimated amount for the following year, the change in accounting estimate is adjusted and the difference is recognized in profit or loss for the following year. In the event that the Board of Directors resolves to grant a compensation of employees by way of stock, the number of shares of stock-based compensation is calculated based on the closing price of the common stock on the day before the Board of Directors' resolution.

The difference of $46 thousand between the actual allotment of employees', directors' and supervisors' remuneration in 2019 and the estimated amount in the financial statements for the year ended December 31, 2019 has been accounted for as a change in accounting estimate and recognized as profit or loss for the year ended December 31, 2020. There was no difference between the amount resolved by the board of directors for employees' and directors' and supervisors' remuneration in 2020 and the amount estimated in the individual financial statements for the year ended December 31, 2020. The related information is available on the Market Observation Post System (MOPS).

42

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(xxi) Financial instruments and fair value information

1. Credit risk

• (1) Credit risk exposure

The carrying amount of a financial asset represents the maximum amount of credit risk. The maximum amount of credit risk exposure was $4,894,002,000 dollars and $4,881,202,000 dollars as of December 31, 2020 and 2019 respectively.

• (2) Credit risk concentration risk

In order to reduce the credit risk of accounts receivable, the Company continually evaluates the financial position of its customers and adjusts the terms of transactions between them if necessary. As of December 31, 2020 and 2019, the Company had 4 and 3 different customers with accounts receivable balances exceeding 5% of total accounts receivable for a single customer respectively. The Company periodically evaluates the probability of recovery of accounts receivable and presents Provisions, and the total loss is always within management's expectations.

(3) Impairment loss

The Company uses a simplified method of estimating expected credit losses for all of its notes and accounts receivable, which is to measure expected credit losses over the life of the notes and accounts receivable, and for this purpose, the notes and accounts receivable are grouped by common credit risk characteristics that represent the ability of customers to pay all amounts due under contractual terms and are included in forward-looking information. The expected credit losses on the Company's notes and accounts receivable are analyzed as follows:

Not past due 1-30 days past due 31-60 days past due 61-120 days past due 121-180 days past due 181-270 days past due More than 271 days past due		Dec. 31, 2020		Expected credit loss in the duration of provision 524 19 1,287 385 318 1 1,376
	Book value of Notes and accounts receivable $ 4,275,318 7,353 35,232 3,363 839 2 1,376	Weighted average expected credit loss rate
		0.01% 0.26% 3.65% 12.53% 37.90% 50.00% 100.00%
	$ 4,323,483			3,910

43

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Dec. 31, 2019 Book value of Notes and accounts receivable Weighted average expected credit loss rate Not past due $ 3,815,591 0.01% 1-30 days past due 86,241 0.18% 31-60 days past due 12,098 1.81% 61-120 days past due 344 6.10% 121-180 days past due 190 17.37% 181-270 days past due - 43.85% 271-365 days past due 16 81.25% More than 365 days past due 4,375 100.00% $ 3,918,855 The changes in the provisions for the notes and accounts receivable of the Company a 2020 Beginning balance $ 5,236 Reversal of impairment loss (1,310) Charge off (16) Ending balance $ 3,910			Dec. 31, 2019		Expected credit loss in the duration of provision 416 159 219 21 33 - 13 4,375
	Book value of Notes and accounts receivable $ 3,815,591 86,241 12,098 344 190 - 16 4,375		Weighted average expected credit loss rate
	$ 3,918,855				5,236
				a	re as follows: 2019 5,778 (542) -
		$ 5,236 (1,310) (16)
		$ 3,910			5,236

2. Liquidity risk

The contracts of financial liabilities are sorted by their maturity dates as follows. The

estimated interests are included, but the effect of net value agreement is excluded.

Dec. 31, 2020 Non-derivative financial liabilities: Notes payable Accounts payable Accounts payable - related parties Other payables Other payables - related parties Dec. 31, 2019 Non-derivative financial liabilities: Notes payable Accounts payable Accounts payable - related parties Other payables Other payables - related parties Lease liabilities	Book Value $ 2,712 11,421 2,034,411 299,122 2,092	Cash flow from the contract 2,712 11,421 2,034,411 299,122 2,092	Within 6 months 2,712 11,421 2,034,411 299,122 2,092	6-12 months - - - - -	1-2years - - - - -	2-5years - - - - -	More than 5 years - - - - -
	$ 2,349,758	2,349,758	2,349,758	-	-	-	-
	$ 18,934 14,499 2,264,397 245,547 5,838 59	18,934 14,499 2,264,397 245,547 5,838 60	18,934 14,499 2,264,397 245,547 5,838 30	- - - - - 30	- - - - - -	- - - - - -	- - - - - -
	$ 2,549,274	2,549,275	2,549,245	30	-	-	-

The Company does not anticipate that the cash flows analyzed at maturity date will alter significantly or that the actual amounts will vary significantly.

44

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

3. Market risk - exchange rate risk

• (1) Exposure to exchange rate risk

The Company's financial assets and liabilities exposed to significant foreign currency exchange rate risk are as follows:

	Financial assets Currency USD RMB HKD JPY EURO INR VND Long-term equity investment accounted for using the equity method USD EURO Financial liabilities Currency USD RMB HKD EURO			Dec.	31, 2020	TWD 4,423,109 397,051 16,187 2 37,367 2 4,394 9,169,934 4,059 2,200,090 312 7,033 105
		$ $	Foreign Currency 155,306 90,966 4,407 8 1,067 4 3,662,009 321,978 116 77,250 71 1,915 3		Rate 28.4800 4.3648 3.6730 0.2763 35.0200 0.4791 0.0012 28.4800 35.0200 28.4800 4.3648 3.6730 35.0200

45

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

	Financial assets Currency USD RMB HKD EURO INR VND Long-term equity investment accounted for using the equity method USD EURO Financial liabilities Currency USD RMB HKD JPY EURO MOP VND			Dec.	31, 2019	TWD 4,310,086 325,809 23,078 80,284 2 22 7,992,737 3,711 2,336,285 160 7,402 49 1,531 3 17
		$ $	Foreign Currency 143,765 75,814 5,996 2,390 4 17,980 266,602 110 77,928 37 1,923 178 46 1 14,361		Rate 29.9800 4.2975 3.8490 33.5900 0.4791 0.0012 29.9800 33.5900 29.9800 4.2975 3.8490 0.2760 33.5900 3.8490 0.0012

Because the Company has a wide range of functional currencies, it has adopted a consolidated approach to disclose exchange gain or loss on monetary items, with foreign currency exchange gains (realized and unrealized) of $114,795,000 dollars and $67,449,000 dollars for the years ended 2020 and 2019 respectively.

(2) Sensitivity analysis

The Company’s exchange rate risk primarily comes from foreign currency-denominated cash and cash equivalents, accounts receivable and other receivables, loans, accounts payable and other payables, resulting into gains and losses of conversion of foreign currency when exchanging. As of December 31, 2020 and 2019, if TWD had depreciated or appreciated by 1% relative to foreign currencies held by the Company and all other factors remained constant, net income would have increased or decreased by $21,365,000 dollars and $19,151,000 dollars respectively for 2020 and 2019. The same basis is used for both phases of analysis.

46

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

4. Market risk - changes in interest rates

The Company's interest rate risk arises primarily from variable rate bank deposits, and changes in interest rates will cause future cash flows to fluctuate as the effective interest rates on bank deposits.

The following Sensitivity analysis was determined based on the interest rate risk of the financial instruments on the reporting date. For floating-rate liabilities, the analysis is based on the assumption that the amount of the liability outstanding at the reporting date is outstanding for the entire year. The rate of change used in the Company's internal reporting of interest rates to key management is a 1% increase or decrease in interest rates, which also represents management's assessment of the range of reasonably possible changes in interest rates.

The Company's financial assets with variable interest rates as of December 31, 2020 and 2019 were $496,950,000 dollars and $488,521,000 dollars respectively, and its financial liabilities were $0 and $720,000,000 dollars respectively. If interest rates had increased or decreased by 1%, the Company's net income would have increased or decreased by $3,976,000 dollars and decreased or increased by $3,908,000 dollars for 2020 and 2019, respectively, with all other variables held constant.

5. Market risk - fair value

• (1) Fair value and carrying amount

The Company's management believes that the fair value of non-derivative short-term financial instruments shall be estimated using their book value on the balance sheet because of the near maturity of such instruments and their book value should be a reasonable basis for estimating fair value. This method is applied to cash and cash equivalents, notes receivable, accounts payable, other receivables and other payables, deposit margin and short-term borrowings.

In addition to the above financial instruments, the fair value and book value information of the remaining financial instruments and investment real estate of the company on the financial reporting date are as follows:

reporting date are as follows:
Measured at fair value: Financial assets: Financial assets measured at FVTPL Not measured at fair value: Non-financial assets: Investment property	Dec. 31, 2020 Book Value Fair value $ 2,080 2,080 299,927 372,159	Dec. 31, 2019 Book Value Fair value - - 283,002 322,604
	Book Value $ 2,080 299,927	Book Value - 283,002

• (2) The evaluation techniques used to determine fair value are as follows:

• A. If there is an active market for a financial asset, the fair value is based on the market price. If market prices are not available, quoted prices from counterparties or estimates using valuation techniques are used. The estimates and assumptions used are consistent with those used by market participants in pricing financial instruments.

• B. The fair value of investment properties is based on independent evaluators with recognized professional qualifications and recent experience in the area and type of investment properties evaluated.

47

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(3) Fair value hierarchy:

The following table analyzes the fair value hierarchy of financial instruments and investment property by valuation. Each fair value hierarchy is defined as follows:

• A. Level 1: Publicly quoted prices (unadjusted) in an active market for identical assets or liabilities.

• B. Level 2: Input parameters for an asset or liability are observable either directly (i.e., prices) or indirectly (i.e., derived from prices), except for publicly quoted prices included in Level 1.

• C. Level 3: Input parameters for an asset or liability are not based on observable market information

(non-observable parameters).

Dec. 31, 2020 Measured at fair value: Financial assets measured at FVTPL Not measured at fair value: Investment property Dec. 31, 2019 Not measured at fair value: Investment property	Level 1 $ -		Level 2 -		Level 3 2,080		Total 2,080
	$ -		-		372,159		372,159
	$ -		-		322,604		322,604

• (4) Changes in the financial assets (liabilities) measured at fair value and classified into Level 3

Unit: NT$ thousands

Name							2020						Ending balance 2,080
	Beginning $ -		Profit an	d	Losses Recognized in other comprehensi ve income -		Increase in	th	e period Turned into Level 3 -		Decrease in the period Sale, disposal or settlement -
			Recognized in profit or losses 2,080				Purchase -
Financial assets measured at FVTPL

The above included gains and losses are reported in "Other gains and losses", which relate to assets still held as of December 31, 2020 and 2019 as follows:

Recognized in profit (losses)	2020 $ 2,080	2019 -

• (5) Quantitative information on fair value measurements of significant unobservable inputs (Level 3)

The Company's financial assets at fair value through profit or loss, which are classified as Level 3, amounted to $2,080 thousand and $0 thousand as of December 31, 2020 and 2019, respectively. The Company does not disclose quantitative information because there is no active market for publicly quoted prices with reference to counter-party quotes and because it is not practicable to fully grasp the relationship between significant unobservable inputs and fair values.

48

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(xxii) Financial Risk Management

1. The Company is exposed to the following risks from the engagement of financial instruments:

2. (1) Credit risk

3. (2) Liquidity risk

4. (3) Market risk

This note presents the Company's risk information for each of these risks and the Company's objectives, policies and procedures for measuring and managing risk. For further quantitative disclosures, please refer to the respective notes to the parent company only financial statements.

1. Risk Management Structure

The Chairman has the sole responsibility for establishing and overseeing the Company's risk management structure and reports regularly to the Board on its operations.

The Company's risk management policy is designed to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor compliance with the risks and risk limits. The Company develops a disciplined and constructive control environment through training, management guidelines and operating procedures to enable all employees to understand their roles and responsibilities.

The Board of Directors of the Company oversees how management monitors compliance with the Company's risk management policies and procedures and reviews the appropriateness of the Company's risk management framework in relation to the risks it is exposed to. Internal auditors assist the Company's Board of Directors in its oversight role. These personnel conduct regular and exceptional reviews of risk management controls and procedures and report the results of these reviews to the Board of Directors. 3. Credit risk

Credit risk is the risk of financial loss arising from the failure of the Company's customers or counterparties to fulfill their contractual obligations, mainly from the Company's accounts receivable from customers and investments in securities.

(1) Accounts receivable and other receivables

The Company's credit risk exposures are primarily depended on each customer's individual circumstances. However, management also considers statistical information about the Company's customer base, including the risk of default in the customer's industry and country, as these factors may affect credit risk. Approximately 75% and 73% of the Company's revenue for 2020 and 2019, respectively, were derived from sales to customers in Mainland China, which resulted in a significant concentration of regional credit risk.

The Company has established a credit policy whereby the Company is required to analyze the credit rating of each new customer individually before granting standard payment and delivery terms. Credit sales limits are established on an individual customer basis and are reviewed periodically; customers who do not meet the Group's benchmark credit rating may only transact business with the Company on a pre-collection basis.

In monitoring customers' credit risk, customers are grouped according to their credit characteristics, including whether they are individuals or legal entities, age of accounts, maturity dates and pre-existing financial difficulties. The Company maintains a Provisions account to reflect estimates of losses on accounts receivable and other receivables.

49

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

• (2) Use of funds

The Company's investments in equity securities are placed through a centralized trading market and therefore have no significant credit transaction risk.

The credit risk of bank deposits, fixed income investments and other financial instruments is measured and reported to the Chairman of the Board of Directors by the Company's finance department. Since the Company's counterparties are creditworthy banks and financial institutions with investment grade or above, there are no significant performance concerns and therefore no significant credit risk.

1. Liquidity risk

Liquidity risk is the risk that the Company will not be able to deliver cash or other financial assets to settle its financial liabilities and will not be able to meet its related obligations. The Company's approach to manage liquidity risk is to ensure that the Company has sufficient liquidity to meet its liabilities as they fall due under normal and stressful circumstances and that there is no risk of unacceptable loss or damage to the Company's reputation. In addition, the Company has entered into unused borrowing lines totaling $1,456,320,000 as of Dec. 31, 2020 to cover unanticipated payments.

1. Market risk

Market risk is the risk that changes in market prices, such as changes in exchange rates, interest rates, and prices of equity instruments, will affect the Company's revenue or the value of financial instruments held by the Company. The objective of market risk management is to manage the exposure to market risk to an acceptable level and to optimize investment returns.

The Company engages in derivative transactions in order to manage market risk. All transactions are executed in accordance with the guidelines of the Board of Directors. (1) Exchange rate risk

The Company uses derivative transactions to hedge exchange rate risk due to its exposure to exchange rate risk arising from sales and purchase transactions that are not denominated in the Company's functional currency. Gains or losses on foreign currency assets and liabilities arising from changes in exchange rates are largely offset against natural hedges. Derivative transactions can help the Company reduce, but still not completely eliminate, the impact of changes in foreign currency exchange rates.

The Company periodically reviews individual foreign currency assets and liabilities for exposures and hedges against such exposures.

• (2) Interest rate risk

The Company's interest rate risk arises primarily from variable rate bank deposits and short-term borrowings, and changes in interest rates will cause future cash flows to fluctuate as the effective interest rates on bank deposits and short-term borrowings change.

(xxiii) Capital management

It is the Board's policy to maintain a sound capital base to maintain the confidence of investors, creditors and the market and to support the development of future operations. Capital consists of the Company's share capital, capital surplus and retained earnings. The Board of Directors controls the rate of return on capital and also controls the level of dividends on ordinary shares.

In order to maintain or adjust its capital structure, the Company may adjust dividends paid to shareholders, reduce capital to refund shareholders, issue new shares or sell assets to settle liabilities.

50

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

The Company controls its capital on a debt-to-capital ratio basis. The ratio is calculated by dividing net debt by total capital. Net debt is total liabilities less cash and cash equivalents as shown on the balance sheet. Total capital represents all components of equity (i.e., equity, capital surplus, retained earnings and other equity) plus net debt. The debt-to-capital ratio at the reporting date is as follows:

Total liabilities Less: Cash and cash equivalents Net liabilities Total equity Debt-to-capital ratio	Dec. 31, 2020 $ 2,895,843 (497,302)	Dec. 31, 2020 $ 2,895,843 (497,302)		Dec. 31, 2019 3,015,595 (842,522)
	$ 2,398,541			2,173,073
	$ 13,499,198			11,815,326
		15.09%		15.53%

(xxiv) Investment and fund-raising activities for non-cash transactions

Please refer to Notes VI (VII) and VI (X) for information on the Company's non-cash trading investments and fundraising activities for Right-of-use assets acquired under leases in 2020 and 2019.

The reconciliation of the Company's liabilities from fundraising activities for the years ended December 31, 2020 and 2019 was as follows:

Lease liabilities Total liabilities from financing activities	Jan. 1, 2020 Cash flow $ 59 (60)	Non-cash change Other Change in exchange rate Change in fair value Dec. 31, 2020 1 - - -
	$ 59 (60)	1 - - -

Short-term loan Lease liabilities Total liabilities from financing activities	108.1.1 Cash flow $ 720,000 (720,000) - (59)	Non-cash change Other Change in exchange rate Change in fair value Dec. 31, 2019 - - - - 118 - - 59
	$ 720,000 (720,059)	118 - - 59

vii. Transactions with related parties

• (i) Parent company and ultimate controller: The Company is the ultimate controller of the Company and the Company's subsidiaries.

• (ii) Names and relationships of related parties

The Company's subsidiaries and other related parties that had transactions with the Company during the period covered by these individual financial statements are as follows:

Name of Related Party Relationship with the Company Lotes Investments Limited A subsidiary of the Company Good Hope Investments Limited A subsidiary of the Company Guansi Development Co., Ltd. A subsidiary of the Company Zhaxi Investment Co., Ltd. A subsidiary of the Company Jiayu Investment Co., Ltd. A subsidiary of the Company Lotes USA, Inc. A subsidiary of the Company

51

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Name of Related Party Relationship with the Company LOTES EU GmbH A subsidiary of the Company Lerain Technology Co., Ltd. A subsidiary of the Company Mikronpoint Co., Ltd. A subsidiary of the Company Loteson International Investments A subsidiary of the Company Limited Lotes Guanghou Co., Ltd A subsidiary of the Company Lotes Hengnan Co., Ltd. A subsidiary of the Company Shenzhen Deyi Automation A subsidiary of the Company Technology Co., Ltd. Lotes Zhongshan Co., Ltd A subsidiary of the Company Zhongshan Dezhi Metal Surface A subsidiary of the Company Treatment Co., Ltd. Guangzhou Leside Technology Co., A subsidiary of the Company Ltd. Hengnan Deyi Property Development A subsidiary of the Company Co., Ltd. Chongqing Fuxinrui Electronic A subsidiary of the Company Technology Co., Ltd. Xincheng Development Co., Ltd. A subsidiary of the Company REKA Technology Co., Ltd. A subsidiary of the Company Jae You Co., Ltd. A subsidiary of the Company Lotes Suzhou Co., Ltd A subsidiary of the Company Wangden Investments Limited (HK) A subsidiary of the Company Zongka Technology (Shenzhen) Co., A subsidiary of the Company Ltd. Ememe Robot Co., Ltd A subsidiary of the Company Compertum Microsystems Inc. A subsidiary of the Company Good News Medical Co., Ltd. A subsidiary of the Company Lintes Technology Co., Ltd. A subsidiary of the Company Jilong Co., Ltd. A subsidiary of the Company Rihui Co., Ltd. A subsidiary of the Company Lintes Technology (Suzhou) Co., Ltd. A subsidiary of the Company Chia-Chun Investment Co., Ltd. A subsidiary of the Company Genie Precision Machine Co., Ltd. A subsidiary of the Company Key management personnel Including the directors, supervisors, managers and their families and spouses

(iii) Material transactions with the related parties

1. Operating revenue

The amounts of material sales from the Company to the related parties are as follows:

2020 2019 Subsidiaries $ 26,270 27,085

The terms of sale of the Company to a subsidiary of the Company are not significantly different from the normal sales price. Their collection periods are all three months. Receivables from related parties are not covered by collateral.

52

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

2. Purchase

The amounts of goods purchased by the Company from the related parties are as follows:

Xincheng Development Co., Ltd. REKA Technology Co., Ltd. Lintes Technology Co., Ltd.	2020 $ 1,257,559 7,574,556 42,463	2019 1,268,540 6,889,368 13,798 8,171,706
	$ 8,874,578

The Company's purchasing prices offered by the above companies are not significantly different from those of the Company's purchasing prices offered by general merchants. Its payment term is three months, which is not significantly different from the average manufacturer.

3. Accounts receivable - related parties

The details of the accounts receivable - related parties are as follows:

Accounting Item	Type of Related Party	Dec. 31, 2020 $ - 12,077 935 - 2,272 87,623 266	Dec. 31, 2019 2,982 12,129 18 652 2,272 86,308 549 104,910
Accounts receivable Accounts receivable Accounts receivable Other accounts receivable Other accounts receivable Other accounts receivable Other accounts receivable	Ememe Robot Co., Ltd. REKA Technology Co., Ltd. Other subsidiaries REKA Technology Co., Ltd. Ememe Robot Co., Ltd. Lotes Guanghou Co., Ltd (Note) Other subsidiaries
		$ 103,173

Note: Other receivables include the Company's loan of $87,296,000 and $85,950,000 dollars to Lotes Guanghou Co., Ltd. The Company's funds lent to subsidiaries bear interest at 4.5% and 5%, respectively, based on the interest rates of the subsidiaries' loans from financial institutions in the year of appropriation. Interest income was recognized as $4,122,000 dollars and $1,444,000 dollars for the years ended December 31, 2020 and 2019, respectively.

4. Accounts payable - related parties

The details of the accounts payable - related parties are as follows:

Accounting Item	Type of Related Party	Dec. 31, 2020 $ 288,985 1,728,149 17,277 - - 2,092 -	Dec. 31, 2019 211,482 2,045,852 7,063 2,756 3,017 - 65 2,270,235
Accounts payable Accounts payable Accounts payable Other payables Other payables Other payables Other payables	Xincheng Development Co., Ltd. REKA Technology Co., Ltd. Lintes Technology Co., Ltd. REKA Technology Co., Ltd. LOTES EU GmbH LOTES USA Other subsidiaries
		$ 2,036,503

53

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

5. Sales of Property, plant and equipment

In February 2019, the Company sold testing equipment to its subsidiary, REKA Technology Co, Ltd. for a total sale price of $427,000 dollars and a disposal gain of $17,000 dollars.

6. Endorsement

The balance and details of the endorsement and guarantee provided by the Company to the related parties are as follows:

Lotes Guanghou Co., Ltd Lintes Technology Co., Ltd. Lotes Guanghou Co., Ltd and Lotes Suzhou Co., Ltd Lotes Suzhou Co., Ltd REKA Technology Co., Ltd. . Selling expenses Subsidiaries Mainly the sundry purchases. . Management expenses Subsidiaries Mainly the service fees. . Non-operating income Subsidiaries	Dec. 31, 2020 $ 227,840 - - - 35,000 $ 262,840 Dec. 31, 2020		Dec. 31, 2019 899,400 - 449,700 149,900 35,000 1,534,000 Dec. 31, 2019 185 Dec. 31, 2019 28,280 Dec. 31, 2019 2,606
	$ 237
	Dec. 31, 2020 $ 59,674 Dec. 31, 2020 $ 4,567

7. Selling expenses

8. Management expenses

1. Non-operating income

Mainly the income from the rentals of offices leased and the interest income from the loans to subsidiaries.

10. Lease

The Company leases warehouses from major management personnel and enters into one-year lease contracts with a total value of $60,000,000 with reference to the neighboring warehouse rental quotes. The interest expenses of $1,000 and $1,000 were respectively recognized in 2020 and 2019, and the balance of Lease liabilities as of December 31, 2020 and December 31, 2019 were respectively $0 and $59,000.

(iv) Major management personnel transactions

Related compensation includes:

Major management personnel transactions Related compensation includes:
Short-term employee benefits Post-employment benefits	2020 $ 48,136 1,082	2019 40,372 757
	$ 49,218	41,129

54

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

viii. Pledged assets

As of December 31, 2020 and December 31, 2019, property, plant and equipment to provide financial institutions of financing guarantee loan contracts have expired without a renewal, and they have receive a liquidation proof of the bank. However, the pledged note cancellation procedures have not yet been completed. The book value of the relevant land is $28,250 thousand, and the book value of the housing construction is $15,465 thousand and $16,368 thousand respectively.

• ix. Significant contingent liabilities and unrecognized contractual commitments

• (i) Significant unrecognized contractual commitments:

The amount of information system related contracts executed and outstanding as of December 31, 2020 was approximately $31,566,000 dollars.

• (ii) The issuance of guarantee notes for bank loans, financing lines and derivative financial commodity transactions:

Guaranteed notes	Dec. 31, 2020 $ 1,570,240		Dec. 31, 2019 2,358,960

x. Significant Disaster Loss: None.

xi. Significant Events after the End of the Financial Reporting Period: None. xii. Other

• (i) Employee benefits, depreciation, depletion, and amortization functions are summarized below:

below:
Function Nature	2020			2019
	Operation cost	Operation expense	Total	Operation cost	Operation expense	Total
Employee benefit expense Salaries expense Labor insurance and health insurance expenses Pension expense Compensation of directors Other employee benefit expenses Depreciation expense Amortization expense	9,700 447 378 - 745 41 -	238,773 10,020 7,216 3,940 10,069 7,233 11,778	248,473 10,467 7,594 3,940 10,814 7,274 11,778	8,427 758 312 - 1,073 867 -	217,661 10,176 7,090 3,734 9,120 3,235 1,048	226,088 10,934 7,402 3,734 10,193 4,102 1,048

Additional information on the number of employees and employee benefit costs for 2020 and 2019 is as follows:

and 2019 is as follows:
Number of employees Number of directors who were not employees of the Company Average employee benefit expenses Average employee salary expenses Adjustment of average employee salary expenses Remuneration for supervisors	2020 135		2019 135
	5		5
	$ 2,133		1,959
	$ 1,911		1,739
	9.89% $ 657	9.89%	645

55

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Information on the Company's remuneration policy (including the policy for the remuneration of directors, supervisors, managers and employees) is as follows.

1. Remuneration for directors and supervisors is paid in accordance with the Company's remuneration policy for directors and supervisors.

2. The bonuses and dividends for managers and employees are based on the Company's operating conditions, personal duties and performance.

3. The salaries of the directors and supervisors are adjusted in a timely manner to meet their responsibilities.

xiii. Supplementary Disclosures

(i) Information on Significant Transactions

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the Company should disclose the following information about significant transactions in 2020:

1. Capital Lending to Others:

ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:	ormation on Significant Transactions In accordance with the Guidelines Governing the Preparation of Financial Reports by ecurities Issuers, the Company should disclose the following information about significant ansactions in 2020: . Capital Lending to Others:
Unit: 1,000 TWD／1,000 in foreign currency
No.	Lender	Borrower	Item	Related Party	Max Amount for the term	Balance at the end	Actual Lending Amount	Interest rate	Nature of the lending (Note 1)	Business Amount	Purpose f or the lending	Allowance for bad debt	Collateral		Individual Limit (Note 2)	Overall limit (Note 2)
													Name	Value
0 0	The Company 〞	Lotes Guanghou Co., Ltd 〞	intracom pany transacti on 〞	Yes Yes	131,496 (RMB30,000) 218,980 (RMB50,000)	- 218,240 (RMB50,000)	- 87,296	5.0% 4.5%	2 2	- -	Working Capital 〞	- -	None "	- -	2,699,840 2,699,840	5,399,679 5,399,679

Note 1: The following are the descriptions of the funds lending.

• (1) Those who have business dealings.

• (2) When there is a need for short-term financing.

• Note 2: The amount of the Company's financing to a single party shall not exceed 20% of the Company's net worth.

The total amount of funds lent by the Company to others shall not exceed 40% of the Company's net worth.

2. Endorsement:

Unit: 1,000 TWD /1,000 in foreign currency

No.	Name of the Company that provides the endorsement	Endorsee	Endorsee	Ceiling on amount of endorsement for an enterprise (Note 2)	Balance of the ceiling endorsement fee in the period	Ending balance of the endorsement fee	Amount actually used	Amount of endorsement backed by assets	Percentage of the accumulated amount of endorsement in the net value of current financial statement (%)	Ceiling on amount of endorsement (Note 2)	Endorsement made by parent company to subsidiary	Endorsement made by subsidiary to parent company	Endorsement made to any party in Mainland China
		Company Name	Relations hip (Note 1)
0 0 0 0 1 2 2	The Company " " " Lotes Guanghou Co., Ltd. Lintes Technology Co., Ltd. "	REKA Technology Co., Ltd. Lotes Suzhou Co., Ltd Lotes Guanghou Co., Ltd and Lotes Suzhou Co., Ltd Lotes Guanghou Co., Ltd REKA Technology Co., Ltd. Lintes Technology (Suzhou) Co., Ltd. Genie Precision Machine Co., Ltd.	2 2 2 2 1 2 2	2,699,840 2,699,840 2,699,840 2,699,840 1,073,480 831,350 831,350	35,000 151,250 (USD5,000) 453,750 (USD15,000) 907,500 (USD30,000) 90,750 (USD3,000) 181,500 (USD6,000) 125,280	35,000 - - 227,840 (USD8,000) 85,440 (USD3,000) 113,920 (USD4,000) 101,260	- - - - - - 19,125	- - - - - - -	0.26% - % - % 1.69% 1.59% 6.85% 6.09%	6,749,599 6,749,599 6,749,599 6,749,599 2,683,700 1,662,701 1,662,701	Yes " " " No " "	No " " " " " "	No Yes " " No Yes No

56

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

• Note 1: There are seven types of relationship between the Endorser and Endorsee, which can be marked:

  • (1) Companies with business dealings.

  • (2) Companies in which the company directly and indirectly holds more than 50% of the voting rights.

  • (3) Companies that hold more than 50% of the voting rights in the company, both directly and indirectly.

  • (4) The Company owns, directly and indirectly, more than 90 percent of the voting shares.

  • (5) Company that is mutually insured under a contract between its peers or co-manufacturers based on the need to perform the work.

  • (6) Company in which all of the contributory shareholders have given their endorsement in proportion to their shareholding in the joint venture.

  • (7) Intercompany performance guarantees and guarantees for pre-sale contracts in accordance with the Consumer Protection Act.

• Note 2: (1) The amount of the Company's guarantee for a single corporate endorsement shall not exceed 20% of the net worth of the Company 。 The aggregate amount of the Company's guarantees under external endorsement shall not exceed 50% of the net worth of the Company.

  • (2) The amount of Lotes Guanghou Co., Ltd's guarantee for a single corporate endorsement is limited to not more than 20% of the net worth of the company. The aggregate amount of Lotes Guanghou Co., Ltd's external endorsement guarantees is limited to

    • an amount not exceeding 50% of the Company's net worth.

  • (3) The amount of Lintes Technology Co., Ltd.'s guarantee for a single corporate endorsement is limited to not more than 50% of the net worth of the company.

  • The aggregate amount of Lintes Technology Co., Ltd.'s external endorsement guarantees is limited to an amount not exceeding 100% of the Company's net worth.

• Securities Held at the End of Fiscal Period (excluding the equity of controlled by subsidiaries, affiliated companies, or joint company):

Unit: 1,000 TWD

Company which holds securities	Category and name of security	Relationship with the issuer of the security	Listed as	End of the fiscalperiod	End of the fiscalperiod	End of the fiscalperiod	End of the fiscalperiod	Note
				Shares	Book Value	Shareholdin g proportion	Fair value
Chia-Yu Investment Co., Ltd. " " " " " " Lintes Technology Co., Ltd.	Grand-Tek Technology Co., Ltd. Lian Hong Art Company Limited Sitronix Technology Corporation Lucemitek Co., Ltd Radinet Communications Inc. Kuang Ying Computer Equipment Co., Ltd. AICP Technology Corporation Chailease Holding Company Limited Class A preferred shares	None " " " " " " "	Financial assets measured at FVTPL - current " " " " " Financial assets measured at FVTOCI - current Financial assets measured at FVTOCI - non-cur rent	163,980 1,017,000 170,000 1,368,800 1,169,977 600,000 400,000 202,000	5,608 83,547 27,625 - - - 2,016 20,120	0.67 % 2.98 % 0.14 % 4.57 % 17.33 % 26.25 % 5.33 % 0.13 %	5,608 83,547 27,625 - - - 2,016 20,120	Note Note Note

Note: All of them were recognized in losses.

1. The cumulative purchase or sale of the same securities amounted to at least NT$300 million or 20% of the paid-in capital: None.

57

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

1. Acquisition of real property amounting to NT$300 million or 20% or more of the paid-in capital:

==> picture [446 x 127] intentionally omitted <==

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

Unit: 1,000 TWD
If the counterparty is a related party, the
information of its previous transfer shall be
provided
The company Amount of Payment Counterpart Relations Owner Relationship Date of Reference Purpose of Other
which acquired Name of Date of Transaction condition y of hip with the transfer Amount for pricing the agreed
the property Asset occurrence (Note 2) (Note 2) transaction Issuer acquisition matters
and the
condition
of use
[Lotes Zhongshan ] Plant (Note Oct. 2017 ~ 890,255 787,873 [Chongqing ] None - - - - [Bidding ] For the None
Co., Ltd. 1) Dec. 2020 Chuangyou constructio
Construction n of a plant
Group, etc
Lotes Hengnan " Oct. 2019 340,428 192,369 " " - - - - " " "
Co., Ltd. ~ Dec.
2020
----- End of picture text -----

Note 1: Build the factory by own contracting committee.

Note 2: The conversions were made at the exchange rates prevailing on the balance sheet date.

1. Disposal of real property amounting to NT$300 million or 20% or more of paid-in capital: None.

2. The amount of sales to or from related parties is at least $100 million or 20% of the paid-in capital:

Unit: 1,000 TWD

The company which purchases (sells) products	Name of Transaction Counterparty	Relationship	Condition of Transaction	Condition of Transaction	Condition of Transaction	Condition of Transaction	Situation and reason for the conditions of transaction to be different from the ordinary ones	Situation and reason for the conditions of transaction to be different from the ordinary ones	Notes and accounts receivable (payable)	Notes and accounts receivable (payable)	Remarks
			Purchase (sales)	Amount	Percentage in total goods purchased (sold)	Credit period	Unit Price	Credit period	Balance	Percentage in the notes and accounts receivable (payable)
Xincheng Development Co., Ltd. " REKA Technology Co., Ltd. " " " " " "	The Company Lotes Suzhou Co., Ltd The Company Lotes Guanghou Co., Ltd Lotes Automation (Shenzhen) Co., Ltd. Zongka Technology (Shenzhen) Co., Ltd. Lotes Hengnan Co., Ltd. " Lotes Zhongshan Co., Ltd.	Subsidiary The surrogate parent company are the same parent company Subsidiary The surrogate parent company are the same parent company " " " " "	Net revenue from the goods sold Net expense from the goods purchased Net revenue from the goods sold Net expense from the goods purchased Net revenue from the goods sold Net revenue from the goods sold Net expense from the goods purchased Net revenue from the goods sold Net expense from the goods purchased	1,257,599 1,308,932 7,574,556 8,386,061 412,265 469,248 555,838 276,160 930,071	95.98 % 99.90 % 75.69 % 85.57 % 4.12 % 4.69 % 5.67 % 2.76 % 9.49 %	Settled in 90 days " " " " " " " "	- - - - - - - - -	No significant difference " " " " " " " "	288,985 307,166 1,728,149 1,150,187 211,505 108,222 78,557 80,149 178,176	94.04% 99.61% 55.31% 39.21% 6.77% 3.46% 2.68% 2.57% 6.07%

58

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Lotes Guangzhou Co., Ltd " Lintes Technology (Suzhou) Co., Ltd. Lotes Hengnan Co., Ltd. "	REKA Technology Co., Ltd. Lotes Hengnan Co., Ltd. Lintes Technology Co., Ltd. Zongka Technology (Shenzhen) Co., Ltd. Lotes Automation (Shenzhen) Co.,Ltd.	" " Subsidiary The surrogate parent company are the same parent company "	Net expense from the goods purchased Net expense from the goods purchased Net revenue from the goods sold Net revenue from the goods sold Net revenue from the goods sold	2,042,032 303,826 1,634,841 107,468 177,683	30.62 % 4.56 % 94.81 % 12.33 % 20.38 %	" " " "	- - - - -	" " " "	302,436 35,480 372,386 41,634 105,954	21.31% 2.50% 93.32% 14.54% 37.00%

59

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

1. Amounts due from related parties amounting to at least NT$100 million or 20% of paid-in capital:

Unit: 1,000 TWD

Related party with accounts receivable by the Company	Name of transaction counterpart y	Relationshi p	Balance of receivables from the related party	Turnover Ratio	Past due receivables from the related party	Past due receivables from the related party	Receivables from the related party Amount received after the period ended	Appropriat ed Allowance Amount of loss
					Amount	Solution
Xincheng Development Co., Ltd. REKA Technology Co., Ltd " " " " Lotes Suzhou Co., Ltd Good Hope Investments Limited Lotes Guanghou Co., Ltd " Lotes Zhongshan Co., Ltd. Lotes Hengnan Co., Ltd. Lintes Technology (Suzhou) Co., Ltd.	The Company The Company Lotes Guanghou Co., Ltd Zongka Technology (Shenzhen) Co., Ltd. Lotes Hengnan Co., Ltd. Lotes Zhongshan Co., Ltd. Lotes Automation (Shenzhen) Co., Ltd. Xincheng Developmen t Co., Ltd. REKA Technology Co., Ltd. " Lotes Zhongshan Co., Ltd. " REKA Technology Co., Ltd. Lotes Automation (Shenzhen) Co., Ltd. Lintes Technology Co.,Ltd.	Subsidiary Subsidiary The surrogate parent company are the same parent company " " " " The surrogate parent company are the same parent company Parent company The surrogate parent company are the same parent company " " " " Subsidiary	288,985 1,728,149 302,436 108,222 80,149 140,452 211,505 307,166 880,631 1,150,187 13,574 339,073 178,176 105,954 372,386	5.03 4.01 5.95 2.42 3.69 - 3.06 4.82 - 6.26 3.52 - 10.44 3.15 4.88	- - - - - - - - - - - - - - -		73,102 1,728,149 298,134 74,564 - 72,684 115,422 82,137 - 1,150,187 - - 178,072 - -	- - - - - - - - - - - - - - -

1. Engagement in derivative transactions: Please refer to Note VI (II) and (XIX).

60

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

(ii) Information on Investment Business:

Information on the Company's investees in 2020 was as follows (excluding investees in China):

Unit: 1,000 TWD

Name of the company investing	Name of investee company	Location	Main business	Initial investment amount (Note 1)	Initial investment amount (Note 1)	Shares held at the end of the fiscal period	Shares held at the end of the fiscal period	Shares held at the end of the fiscal period	Gain/loss of investee company in the fiscal period	Gain/loss in the investment recognized in the fiscal period	Remar ks
				End of this period	End of the previous year	Shares	Percentag e	Book Value
The Company " " " " " " " " Lotes Investment Ltd. Good Hope Investments Limited " Guansi Development Co., Ltd. Zhaxi Investment Co., Ltd. Chia-Yu Investment Co., Ltd.	Lotes Investment Ltd. Good Hope Investments Limited Guansi Development Co., Ltd. Zhaxi Investment Co., Ltd. Jiayu Investment Co., Ltd. Lotes USA, Inc. LOTES EU GmbH Lerain Technology Co., Ltd. Mikronpoint Co., Ltd. Loteson International Investments Limited Xincheng Development Co., Ltd. REKA Technology Co., Ltd. Jae You Co., Ltd. Wangden Investments Limited (HK) Ememe Robot Co., Ltd	Samoa " " Anguilla Taiwan USA Germany Taiwan " Hong Kong Samoa Hong Kong " " Taiwan	Holding and investment businesses " " " General investment Market development Market development Design, test and sale of chips Manufacturing and trading of mechanical equipment and electronic parts Holding and investment businesses Telecommunic ation services and sales of connectors for consumer electronics industry Telecommunic ation services and sales of connectors for consumer electronics industry Holding and investment businesses Holding and investment businesses Electric Appliance and Audiovisual Electric Products Manufacturing	741,904 11,428 570,068 14,240 690,000 71,200 3,502 9,385 5,000 741,904 2,848 2,884 570,077 14,240 69,600	780,979 12,030 600,092 14,990 690,000 74,950 3,359 - - 780,979 2,998 3,036 600,102 14,990 69,600	26,050,000 401,281 20,016,426 500,000 69,000,000 2,500,000 100,000 938,525 500,000 26,050,000 100,000 101,281 20,016,756 500,000 6,960,000	100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 33.92% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 94.37%	5,201,468 1,531,999 2,239,442 121,209 1,044,195 75,816 4,059 2,687 4,936 5,367,416 1,619 649,725 2,259,208 121,209 (7,776)	753,814 73,651 303,052 7,595 164,471 30,917 183 (6,698) (64) 753,814 (32) 73,682 303,052 7,595 89	724,108 73,651 299,979 7,595 164,372 30,917 183 (6,698) (64) 753,814 (32) 73,682 303,052 7,595 (2,691)	Note 2 Note 2
Chia-Yu Investment Co., Ltd. " "	Compertum Microsystems Inc. Good News Medical Co., Ltd. Lintes Technology Co., Ltd.	Taiwan " "	Electronic Parts and Components Manufacturing Manufacturing and trading of mechanical equipment, electronic parts and components, and optical instruments. Sales of connectors for telecommunicatio	26,328 250 486,926	13,164 - 486,926	2,632,800 25,000 29,712,788	35.34% 5.00% 52.13%	31,152 191 866,728	(29,260) (1,179) 271,870	(11,434) (59) 138,170	Note 2

61

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

Lintes Technology Co., Ltd. " " " Chi-Lung Co., Ltd.	Chia-Chun Investment Co., Ltd. Genie Precision Machine Co., Ltd. Compertum Microsystems Inc. Chi-Lung Co., Ltd. Ru-Hui Co., Ltd.	" " " Samoa "	n industry and for consumer electronics industry General investment Manufacturing and trading of the molds optical products Manufacturing of electronic parts and components Holding and reinvestment business Holding and reinvestment business	15,000 164,833 14,620 140,976 140,976	- - - 148,401 148,401	1,500,000 14,671,000 877,200 4,950,000 4,950,000	100.00% 60.00% 11.77% 100.00% 100.00%	15,001 193,404 10,379 260,223 260,223	1 31,205 (29,260) 64,085 64,085	1 13,121 (1,394) 84,902 84,902	Note 2 Note 2

Note 1: The original investment amount was converted into New Taiwan dollars using the exchange rate at the balance sheet date.

Note 2: Investment income recognized in the current period includes adjustments for unrealized gains or losses on intercompany transactions.

• (iii) Information of Investment in Mainland China

• Names of investee companies in Mainland China, major business activities, and other related information:

information:	information:	information:	information:	information:
					Unit: 1,000 TWD
Name of investee company in Mainland China	Main business	Paid-in capital (Note 3)	Method of investme nt (Note 1)	Accumulated investment amount remitted from Taiwan at the beginning of the fiscal period (Note 3)	Amount remitted or retrieved		Accumulated investment amount remitted from Taiwan at the end of the fiscal period (Note 3)	Gain/loss of investee company in the fiscal period	Shareholding Ratio	Gain/loss in investment recognized in the fiscal period (Note 2)	Carrying amount of investment at the end of the fiscal period	Investment income remitted back to Taiwan by the end of the fiscal period
					Remittance	Retrieved
Lotes Guanghou Co., Ltd Lotes Suzhou Co., Ltd Zongka Technology (Shenzhen) Co., Ltd. Lotes Hengnan Co., Ltd. Lintes Technology (Suzhou) Co., Ltd. Shenzhen Deyi Automation Technology Co., Ltd. Lotes Zhongshan Co., Ltd Zhongshan Dezhi Metal Surface Treatment Co., Ltd. Hengnan Deyi Property Development Co., Ltd. Guangzhou Leside Technology Co., Ltd. Chongqing Fuxinrui Electronic Technology Co., Ltd.	Manufacturing connectors for telecommunication industry and for consumer electronics industry Manufacturing connectors for telecommunication industry and for consumer electronics industry R&D of electronics, import and export of raw materials of plastic products and plastic products Manufacturing connectors for telecommunication industry and for consumer electronics industry Development and production of the measurement instruments for optical communication, optical transceivers of 10GB/s or above and relevant technical support Manufacturing of robotic arms, automation equipment and relevant components Manufacturing connectors for telecommunication industry and for consumer electronics industry, and Manufacturing of robotic arms, automation equipment and relevant components Surface treatment of metal products and plastic products Development of real estate, lease of premises, landscape design and interior decorating Research, testing and development R&D and sales of electronic components, automobile components and accessories, computers and accessories, development of molds and the import and export of goods and technologies	760,416 569,293 14,240 517,229 140,976 109,120 1,440,384 130,944 100,390 3,055 4,365	(2) (2) (2) (3) (2) (3) (3) (3) (3) (3) (3)	726,240 569,293 14,240 - 140,976 - - - - - -	- - - - - - - - - - -	- - - - - - - - - - -	726,240 569,293 14,240 - 140,976 - - - - - -	753,81 303,05 7,59 113,68 75,09 32,67 72,15 (15,116 (88 (1,255 (1,484	100.00% 100.00% 100.00% 100.00% 52.13% 100.00% 100.00% 100.00% 100.00% 100.00% 51.00%	724,083 299,978 7,595 99,195 49,997 32,670 72,157 (15,116) (1,137) (1,255) (757)	5,201,424 2,239,989 121,209 752,131 165,997 111,062 1,489,027 115,540 99,227 80 916	- - - - - - - - - - -

Note 1: There are six types of investments:

• (1) Investment in Chinese Corporation via Third Region Remittance.

• (2) Establishment of a company to reinvest in a continental company through a third regional investment.

• (3) Reinvest in Chinese companies by re-investing in existing companies in third regions.

62

Notes to the Parent Company Only Financial Statements of Lotes Co., Ltd.

• (4) Direct Investment

• (5) Others.

• (6) NA.

• Note 2: The investment gain or loss recognized in the current period has been reconciled with the unrealized gain or loss from intercompany transactions.

• Note 3: The balance sheet date exchange rates are used to translate the paid-in capital and remittance of cumulative investment amounts into New Taiwan dollars.

• Investment ceiling in Mainland China :

Company name	Accumulated amount remitted from Taiwan at the end of the fiscal period for investment in Mainland China (Note 1)	Investment amount approved by Investment Commission, MoEA (Note 1)	Investment ceiling in Mainland China according to the regulations made by Investment Commission, MoEA
LotesCo.,Ltd.	1,309,773,000	1,453,750,000	8,099,519 ,000
Lintes Technology Co.,Ltd.	140,976,000	140,976,000	997,621 ,000

Note 1: The conversions to NTD were made at the exchange rates prevailing on the balance sheet date.

1. Significant transactions with the investee companies in China:

Please refer to the "Significant Transactions" for details of the significant transactions between the Company and its investee companies in Mainland China, directly or indirectly, in 2020.

• (iv) Information of Major Shareholders

2020. mation of Major Shareholders
Share **Name of Major Shareholder **	Number of Shares Held	Shareholding Ratio
Chin-Ling Investment Co., Ltd.	10,956,237	10.58%
Chia-Ming Investment Co., Ltd.	9,797,037	9.46%

• Note: (1) The information of major shareholders in this table is based on the last business day of each quarter and is calculated based on the total number of common shares and preferred shares held by shareholders who have completed the delivery of unregistered shares (including treasury shares) of the Company of at least 5%. The number of shares recorded in the Company's financial statements and the actual number of shares delivered without physical registration may differ depending on the basis of computation.

• (2) The above information is revealed by the trustee's opening of a trust account with individual subaccounts of the principal if the shareholder has delivered his or her shares to the trust. As for any shareholder holding more than 10% of the shares of the Company in accordance with the Securities and Exchange Act, the shareholdings include its own shares plus the shares it has delivered to the trust and has the right to decide on the use of the trust property, etc. Please refer to the Market Observation Post System for information on insider shareholdings.

xiv. Operating Segments

Please refer to the consolidated financial statements for 2020.

63

Lotes Co., Ltd.

Details of Cash and Cash Equivalents

Dec. 31, 2020 Unit: NT$ thousands

Item	Summary	Amount $ 99 21,304 475,849 497,153 50 $ 497,302
Cash and cash equivalents: Petty Cash Checks and demand deposits: Time deposit: Total	TWD Foreign currencies (USD12,740,701.97, HKD4,405,601.17, JPY8,251、 EUR318,706.63, RMB18,615,871.22, THB1.67 and VND3,662,008,793) TWD Due date: Feb. 19, 2021 Interest rate collar: 1.045%

Details of Notes Receivables

Item	Summary	Amount $ 970 612 420 187 296 $ 2,485
Non-related parties: A company B company C company D company Other (Note)

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

64

Lotes Co., Ltd.

Details of Accounts Receivable Dec. 31, 2020

Unit: NT$ thousands

Item	Summary	Amount $ 13,012
Accounts receivable – related parties Non-related parties: E company F company G company H company Other (Note) Less: Allowance for losses
		$ 408,175 388,256 267,902 244,599 2,999,054
		4,307,986 (3,910)
		$ 4,304,076

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

Details of Other Receivables

Item	Summary	Amount $ 90,161 $ 20,416 800 21,216 (1,514) $ 19,702
Other receivables – related parties Non-related parties: Business tax credit and tax refund Other Subtotal Less: Allowance for losses	Mainly service income and capital loans to subsidiaries Mainly receivables from mold development revenue

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

65

Lotes Co., Ltd.

Details of Inventory

Dec. 31, 2020

Unit: NT$ thousands

Item Products Finished Products In-process products Raw materials Subtotal Less: Allowance for decline in value of inventories and doubtful losses	Amount $ 755,770 191 - 23	Market Price 710,364 108 - 5
	755,984 (45,507)	710,477
	$ 710,477

Note: Allowance for decline in value of inventories and allowance for doubtful accounts is based on the lower of cost or net realizable value and the ageing of inventories, respectively.

Details of Prepayments

Item	Summary	Amount $ 1,268 1,250 712 1,320 $ 4,550
Prepayment of member fee Prepayment Prepayment of import fees Other (Note) Total	Mainly prepayment of annual association fee Mainly prepayment of product certification fee Prepayment of sales tax Mainly prepayment of miscellaneous expenses, etc.

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

66

Lotes Co., Ltd.

Details of the Changes in Investments Accounted for Using Equity Method

Jan. 1 to Dec. 31, 2020

Unit: NT$ thousands

Name	Beginning Balance	Beginning Balance	Increase in the Period (Note)	Increase in the Period (Note)	Decrease in the Period (Note)	Decrease in the Period (Note)	Ending Balance	Ending Balance	Ending Balance	Net Market Value or Equity	Net Market Value or Equity	Provision for collateral or pledge	Remark
	Shares Amount						Shares	Shareholding ratio	Amount 5,201,468 1,531,999 2,239,442 121,209 1,044,195 75,816 4,059 2,687 4,936
			Shares	Amount 809,364 - 336,933 9,489 167,367 27,375 348 2,687 4,936	Shares	Amount - 5,964 - - - - - - -				Unit Price	Total Price 5,201,468 1,531,999 2,239,442 121,209 1,044,195 75,816 4,059 2,687 4,936
Lotes Investment Limited Chia-Wan Investment Co., Ltd. Topmind Technology Development Co., Ltd. Zaxi Investment Co., Ltd. Jiayu Investment Co., Ltd. Lotes USA. Inc. LOTES EU Gmbh Lerain Technology Co., Ltd. Mikronpoint Co., Ltd.	2,605,000 $ 4,392,104 401,281 1,537,963 20,016,426 1,902,509 500,000 111,720 69,000,000 876,828 2,500,000 48,441 100,000 3,711 - - - - $ 8,873,276		- - - - - - - 938,525 500,000		- - - - - - - - -		2,605,000 401,281 20,016,426 500,000 69,000,000 2,500,000 100,000 938,525 500,000			- - - - - - - - -		No " " " " " " " "
								100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 33.92% 100.00%
		$ 8,873,276		1,358,499		5,964			10,225,811		10,225,811

Note: The amount includes the increase in investment amount of $14,385 thousand, the recognition of investment income of $1,294,043 thousand, the recognition of cumulative translation adjustment increase of $45,017 thousand, the decrease in capital surplus of $1,313 thousand recognized under the equity method and the recognition of unrealized gain on financial assets of $403 thousand accounted for using the equity method.

67

Lotes Co., Ltd.

Details of Deferred Tax Assets

Item Deferred tax assets	Dec. 31, 2020 Unit: NT$ thousands Summary Amount $ 63,572

Details of Other Non-current Assets

Item Refundable deposit	Summary	Amount $ 6,027

Details of Notes Payable

Item Non-related parties: I company J company K company L company M company Other (Note)	Summary	Amount $ 1,012 233 201 190 143 933 $ 2,712

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

68

Lotes Co., Ltd.

Details of Accounts Payable

Dec. 31, 2020

Unit: NT$ thousands

Item	Summary	Amount $ 288,985 1,728,149 17,277 $ 2,034,411 $ 6,278 4,856 287 $ 11,421
Related parties: Hsincheng Development Co., Ltd. Reka Technology Co., Ltd. Lintes Technology Co., Ltd. Non-related parties: N company O company Other (Note)

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

Details of Other Payables

Item	Summary	Amount $ 2,092
Other payables – related parties Non-related parties: Salary payable Royalties payable Compensation payable to employees and directors and supervisors Marketing expenses payable Freight and import/export expenses payable Consulting fees payable Commissions payable Other Total Tax liabilities	Salaries and year-end bonuses are mainly payable. The main component is royalties payable. The main component is the estimated compensation to employees and directors and supervisors for 2020. Mainly marketing expenses payable Shipping and customs fees for import and export of goods Mainly attributable to system consulting fees Mainly commissions payable
		$ 26,209 50,817 101,715 19,938 21,449 35,325 17,649 26,020
		$ 299,122
		$ 305,058

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

69

Lotes Co., Ltd.

Details of Refund liabilities - Current

Dec. 31, 2020

Unit: NT$ thousands

Item	Summary	Amount $ 161,767
		Amount $ 7,866
		Amount $ 49,258
Provision for liabilities - non-current	Provision for employee benefit liabilities

70

Lotes Co., Ltd.

Details of Other Non-current Liabilities

Dec. 31, 2020 Unit: NT$ thousands Item Summary Amount Deposit received $ 744 Details of Operating Revenue Jan. 1 to Dec. 31, 2020

Item Sales Revenue: Common Triangular Trade Less: Return of sales Discount on sales Net operating income	Number 660,893KPCS 713,298KPCS	Amount $ 6,963,259 4,585,643 (21,764) (164,703) $ 11,362,435

71

Lotes Co., Ltd.

Details of Operating Cost

Jan. 1 to Dec. 31, 2020

Unit: NT$ thousands

Item Direct raw materials Opening Inventory Add: Incoming materials for the period Other Less: Raw materials at the end of the period Transfer to merchandise inventory sales Other Raw material consumption Manufacturing Costs Processing Costs Transfer of finished goods and merchandise Products in process at the beginning of the period Total manufacturing costs Add: Opening finished goods Goods imported during the period Transferred to work-in-progress Finished goods at the end of the period Other Cost of finished goods Add: Opening goods Current period imports Transfer of raw materials to sales Other Less: Ending goods Transferred to production Other Cost of goods sold Loss on decline in value of inventories, slump and obsolescence Operating Costs

Amount $ 150 462 301 (23) (26) (176) 688 6,474 1,952 (706) 37 8,445 2,228 18,191 1,020 (191) (1,732) 27,961 608,273 8,895,134 26 16,258 (755,770) (314) (3,599) 8,760,008 29,666 $ 8,817,635

72

Lotes Co., Ltd.

Details of Marketing Fee

Jan. 1 to Dec. 31, 2020

Unit: NT$ thousands

Item	Summary	Amount $ 58,959 57,444 58,364 51,437 15,798 70,673 $ 312,675
Import and export expenses Payroll Freight fee Royalties Commission Other (Note) Total

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

Details of Management Fees

Item	Summary	Amount $ 148,938 17,848 15,127 114,010 $ 295,923
Salary Expenses Labor Costs Patent expenses Other (Note) Total

Note: The balance of each account does not exceed 5% of the amount in this accounting item and is not shown separately.

73

Lotes Co., Ltd.

Details of Other Net Gains and Losses

Jan. 1 to Dec. 31, 2020

Unit: NT$ thousands

Item	Summary	Amount $ 10,165 1,294,043 136 5,844 34,952 167,054 4,956 8,630 12,205 1,317 8,132 $ 1,547,434 $ (1,420) (281,849) (239) (8,557) $ (292,065)
Non-operating income and benefits. Interest income Investment income recognized under the equity method Gain on disposal of property, plant and equipment Sample revenue Mold revenue Exchange gain Rental income Compensation income Gain on financial assets (liabilities) at fair value through profit or loss Gain on reversal of expected credit impairment Other Total Non-operating expenses and losses. Interest expense Exchange loss Losses on financial assets (liabilities) at fair value through profit or loss Other Total

74

Lotes Co., Ltd.

Dec. 31, 2020

Please refer to the following notes for the remaining information on the schedule of significant accounting items:

(1) Details of property, plant and equipment and changes in accumulated depreciation, Note VI (VI).

(2) Details of right-of-use assets and changes in accumulated depreciation, Note VI (VII).

(3) Details of investment property and accumulated depreciation, Note VI (VIII).

(4) Details of changes in intangible assets, Note VI (IX).

75