LU HAI - Annual Report 2019 | FinancialReports.eu

Stock Code : 2115

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LU HAI HOLDING CORP.

2019 Annual Report

Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw Company website: http://www.luhai.com.tw

Printed on May 12, 2020

I. Spokesman: Deputy Spokesman: Name: CHANG, CHI-CHI Name: WU, KO-LI Title: Manager, GM Room Title: Manager, Sales Dept. Tel: (04) 874-8122 Tel: (04) 874-8122 E-mail: [email protected] E-mail: [email protected]

II. Address and telephone number of all operation locations:

Head office: LU HAI HOLDING CORP. Add: The Grand Pavilion Commercial Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Islands, British West Indies Tel: (04) 874-8122 Taiwan Branch :[British Cayman Islands Merchant LU HAI HOLDING CORP.(Branch in ] Taiwan) Add: No.64, Shing-kong 5th Rd, Tien-Chung Industrial District, Tienchung,Chang-hua Taiwan. Tel: (04) 874-8122 Subsidiary: LU HAI INDUSTRIAL CORP. Add: No.64, Shing-kong 5th Rd, Tien-Chung Industrial District, Tienchung,Chang-hua Taiwan. Tel: (04) 874-8122 Subsidiary: Xiamen Xiahui Rubber Metal Ind. Co., Ltd. Add: No.41, Xinyuan Rd, Xing Lin District, Xiamen China. Tel: 0592-6210902-4 Subsidiary: LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. Add: No.1069 HuaAn Road, HuaQiao Town, Kunshan City, Jiangsu Province, P.R.China. Tel: 0512-57601216 Subsidiary: PT. LUHAI INDUSTRIAL Add: d\a. Jl. Raya Cikande Rangkasbitung Km. 4.5. Desa Junti. Jawilan. Serang, Indonesia Tel: 62-254-8488333 Subsidiary: MEGA POWER CO., LTD. Add: #35 Barrack Road, 3rd Floor Belize City, Belize C.A. Tel: (04) 874-8122 Subsidiary: ALLPRO INTERNATIONAL CORP. Add: Corner Hutson & Eyre Street, Blake Building, Suite 302, Belize City, Belize. Tel: (04) 874-8122 Subsidiary: LU HAI (BVI) INDUSTRIAL CORP. Add: P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Tel: (04) 874-8122 Subsidiary: YUANHUI INTERNATIONAL CO., LTD. Add: Level 3, Alexander House, 35 Cybercity, Ebene Mauritius. Tel: (04) 874-8122

III. Stock Transfer Agent ：

Name: Stock Agent Department, Sinopac Securities Address: 3F., No.17, Bo-Ai Road, Zhongzheng Dist, Taipei City Website: http://www. sinotrade.com.tw Tel: (02) 2381-6288

IV. Contact information of the Certified Public Accountants for the Latest Financial Report: Auditors: LIN, MING-SHOU; HUANG, SU-CHUAN

CPA Firm: Crowe (TW) CPAs

Address: 15F., No.285, Sec.2, Taiwan Boulevard, West Dist., Taichung City Website: https://www.crowe.tw Tel: (04) 3600-5588

V. Overseas Trade Places for Listed Negotiable Securities: None.
VI. Company Website: http://www.luhai.com.tw
VII. Litigation representative in R.O.C.

Name: HSU, LIEN-KAI Title: Chairman E-mail: [email protected] Tel: (04) 874-8122

VIII. Board members:

Title	Name	Nationality	Major education background & experience
Chairman	HSU, LIEN- KAI	R.O.C.	General Manager of LU HAI HOLDING CORP. Department of Law, NationalChengchiUniversity
Director	WU, CHIN- LU	R.O.C.	General Manager of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Chairman of LU HAI INDUSTRIAL CORP. Graduated from Dah-Chin Commercial & Industrial Vocation HighSchool
Director	WU, CHING-SHU	R.O.C.	Director of LU HAI INDUSTRIAL CORP. Supervisor of LU HAI INDUSTRIAL CORP. Director of LU HAI HOLDING CORP. National United University
Director	HSU, YA- TING	R.O.C.	Section Manager of YOKE Industrial Corp. Assistant VP of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Department of Finance, National Taichung University of Science and Technology
Director	HSU, HUAI- YUN	R.O.C.	General Manager of Yun-Yi International Ltd. Director of LU HAI INDUSTRIAL CORP. Information Management, Tamkang University
Director	HSU, HAN- YUAN	R.O.C.	Assistant VP of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Business Manager of Yuan-Hong Metal Co., Ltd. Civil Engineering Department, Taoyuan Innovation Institute of Technology
Independent Director	YEN, MEI- YING	R.O.C.	Assistant VP of PONY Leather Corporation Master degree of Accounting, National Taiwan University
Independent Director	CHANG, HORNG- YAN	R.O.C.	Full-time Adjunctive Professor of Department of Communications Management and Department of Business Administration, Shih Hsin University Part-time Professor of Department of Business Administration, Soochow University Enterprise Research Institute and Accounting Institute ofSt. John’sUniversity, NewYork, US
Independent Director	HU, TA- HSIANG	R.O.C.	Associate Professor of Department of Electrical Engineering, Da-Yeh University Doctor of Electrical Engineering, University of Hawaii, US

	Table of Contents
I.	Letter to Shareholders................................................................................................................................1
II.	Company Profile
	2.1 Company and Group Introduction ........................................................................................................ 6
	2.2 Company history ................................................................................................................................... 6
	2.3 Risk Management ................................................................................................................................. 8
III.	Corporate Governance Report
	3.1 Organization system .............................................................................................................................. 9
	3.2 Information of directors, supervisors, General Manager, Vice President, Assistant Vice President,
	and head of each department and branch ............................................................................................ 11
	3.3 Remuneration of Directors, Supervisors, General Manager and Vice Presidents in the Last Year .... 16
	3.4 Corporate governance operation situation .......................................................................................... 20
	3.5 Accountant’s fees information ............................................................................................................ 55
	3.6 Information on change of CPA ........................................................................................................... 56
	3.7 Whether the Chairman, General Manager, and managerial officers responsible for financial or
	accounting affairs of the Company once worked in the affiliated firm or enterprise of the CPA in
	the last year ......................................................................................................................................... 57
	3.8 In the last year and as at the publication date of annual report, stock right transfer and changes in
	pledge of stock right in the directors, supervisors, managerial officers and shareholders with
	shareholding ratio over 10% ............................................................................................................... 57
	3.9 Information that the top ten shareholders in shareholding are of interested party, spouse or relatives
	within second degree relationship mutually ........................................................................................ 58
	3.10 Number of shareholding of the Company, the directors, supervisors, managerial officers of the
	Company, and the enterprise under direct or indirect control of the Company in the same
	reinvestment enterprise, and the consolidated comprehensive shareholding ratio ............................. 61
IV.	Fundraising Situation
	4.1 Capital and stock ................................................................................................................................. 62
	4.2 Status of Corporate bonds ................................................................................................................... 67
	4.3 Status of Preferred Shares ................................................................................................................... 67
	4.4 Issuance of Global Depositary Receipts ............................................................................................. 67
	4.5 Status of Employee Stock Options Plan.............................................................................................. 67
	4.6 Status of New Restricted Employee Shares ........................................................................................ 67
	4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions ................................... 67
	4.8 Financing Plans and Implementation .................................................................................................. 67
V.	Operational Highlights
	5.1 Business content .................................................................................................................................. 68
	5.2 Market, production and marketing overview ...................................................................................... 81
	5.3 Information of service employees in the last 2 years and as at the publication date of annual report .. 90
	5.4 Environmental protection expenditure information ............................................................................ 90
	5.5 Labor relations .................................................................................................................................... 92
	5.6 Important contracts ............................................................................................................................. 95
VI.	Financial Overview
	6.1 Concise financial information in the last five years ............................................................................ 98
	6.2 Financial analysis in the last five years ............................................................................................. 101
	6.3 Audit Committee’s Examination Report of the financial report in the last year ............................... 103
	6.4 Financial statements in the last year.................................................................................................. 104
	6.5 Company’s individual financial statements audited and certified by the accountant in the last year 104
	6.6 In the last year and as at the publication date of annual report, if the company and its affiliated
	enterprise have difficulty in financial turnover, its impact on the financial situation of the Company
	shall be listed ..................................................................................................................................... 104

VII. Review of Financial Conditions, Operating Results, and Risk Management

7.1 Financial situation ............................................................................................................................. 182 7.2 Financial performance ....................................................................................................................... 183 7.3 Cash flow .......................................................................................................................................... 184 7.4 The impact of significant capital expenditure on financial affairs in the last year ........................... 185 7.5 Reinvestment policy in the last year, the main reason for its profit or loss, improvement plan and investment plan in the coming year .................................................................................................. 185
7.6 Risk Management ............................................................................................................................. 186 7.7 Other important matters .................................................................................................................... 190

VIII. Special Recorded Matters

8.1 Relevant information of affiliated enterprise .................................................................................... 191 8.2 In the last year and as at the publication date of annual report, execution situation of private placement of negotiable securities .................................................................................................... 194
8.3 In the last year and as at the publication date of annual report, subsidiaries’ holding or disposal of shares of the Company ...................................................................................................................... 194
8.4 Other necessary supplementary explanations ................................................................................... 194
8.5 In the last year and as at the publication date of annual report, in case of matters having significant impact on the shareholders’ equity or security price as prescribed in Subparagraph 2, Paragraph 3, Article 36 of Securities and Exchange Act, it shall also be specified one by one ............................ 194
8.6 Description on significant difference from the shareholders’ equity protection regulations of our country .............................................................................................................................................. 194

Notes: This Annual Report in English is translation from Chinese version, and it is only for reference by investors. In case of any difference between the Chinese and English version, the Chinese version shall prevail.

I. Letter to Shareholders

In 2019, the automobile industry was depressed, the Sino-US trade friction slowed down economic growth, and the sluggish domestic demand in China slowed down automobile market, and the Company’s shipment volume of valves for automobiles reduced; driven by the market in ASEAN and Brazil, the Company’s shipment volume of valves for bicycles and motorcycles increased steadily, with gradual increasing awareness of environmental protection, energy saving and carbon reduction, as well as continuous growth of demand on electric vehicle in Europe, the Company’s shipment volume of valves for electric vehicles increased; various countries successively legislated to promote the Tire Pressure Monitoring System (TPMS) to become standard configuration for automobiles and the Company had been actively developing customers for TPMS valve, the customer order increased, the shipment volume of TPMS valves grew stably; the overall sales volume of valves of the Company in 2019 increased by 3.57% year-on-year, and the operating revenue slightly increased by 3.35% from NTD2.629 billion to NTD2.717 billion. In 2019, the Company continued to improve process efficiency, and input automation equipment to satisfy customer order and reduce the impact of rising wages in Mainland, under the impact of declining material procurement cost and exchange rate fluctuation etc., the gross profit rate rose from 21.34% to 22.64%. Due to the impact of relocation by policy, the economic compensation increased; the overdue account reduced via active collection of receivables, and expected credit impairment benefits were generated; and by sound management strategy and effective cost control, the operating expenses didn’t increase dramatically, and the operating profit rate rose from 10.25% to 11.51%. Due to the appreciation of IDR and NTD and the depreciation of EUR, the profit on exchange increased, and the non-operating revenue increased in 2019. To sum up, in 2019, the profit ratio of the Company rose from 7.93% to 8.90%, and the earnings per share increased from NTD2.42 to NTD2.81.

The Company will continue to develop new customers and match up with the growth of market demand, improve the market share target and profit making, and continue to input automation equipment and steady financial management for operation, and stick to the operation philosophy of “Quality Oriented, Integrity, Customer First, Continuous Improvement” to face the challenges in the future.

Financial performance

Implementation achievement in the last two years:

			Unit: NTD thousand	Unit: NTD thousand
Year Item	2019	2018	Percent	Change
Operatingrevenue	2,716,889	2,628,778	88,111	3.35%
Grossprofit	615,058	561,055	54,003	9.63%
Operating profit	312,635	269,342	43,293	16.07%
Profit before income tax	345,838	297,169	48,669	16.38%
Profit for the Period	241,910	208,463	33,447	16.04%

Budget implementation

The Company has not disclosed financial forecasting to the public in 2019, hence it is not applicable.

Financial revenue and expenditure and profitability analysis

Item	Year	2019	2018
Financial structure (%)	Debt to asset ratio	44.52	34.17
	Long-term fund to property, plant and equipment	243.85	389.66
Liquidity (%)	Current ratio	203.02	423.90
	Quick ratio	153.18	316.68
	Times interest earned(times)	27.62	25.77
Profitability (%)	Return on assets	6.67	6.51
	Return on equity	10.68	9.42
	Pre-tax income topaid-in capital	40.18	36.26
	Netprofit margin	8.90	7.93
	Earningsper share(NTD)	2.81	2.54

Description: due to the preparation of building a new plant in Xiamen, the Company’s proportion of long-term funds in property, plant and equipment reduced; due to the construction needs of S1 railway transportation project and the relocation according to the policy of Huaqiao municipal government, the compensation for relocation had been received but not listed as deferred income since the relocation had not completed, the current liabilities increased, causing the proportion of liabilities in assets increased, and decreased in current ratio and quick ratio; owing to better profitability in 2019 than that in 2018 (please refer to the description in the first paragraph of Business Report for details), the interest coverage ratio increased.

Research and development situation

All key projects of research and development in 2019 had achieved certain progress according to annual plan. Mainly focused on saving materials and development of automation equipment to improve the utilization of materials, production efficiency and economize on manpower.

Main achievements included: the development of disulfide rubber mold, development of butyl environment-friendly rubber formula, development of new materials for reducing costs in R11 gasket, reducing stem costs in specifications such as 87 and TR4 etc., development of smoke-free hot header, development of PVR70 series automatic vulcanized disc inserting machine, development and promotion of TR4, AR and CR202 series full-automatic grinding machine, development of TR4 automatic sand blasting machine, development of grinding connected automatic code-spurting ruling machine, as well as the development of new German machines and put them into use, including the upgrade and development of German-style processor with VFR stem, German processor with CR202 stem and 87 programmed base forming machine, further increasing product quality and production efficiency

The key research and development of the Company in 2020 aims at promoting automation project, reducing the cost of raw materials, improving quality and economizing on manpower. Mainly including the development of PVR64 series new forging, development of high speed valve series vulcanized injection molding process, development of no-clean process for butyl rubber sand blasting, development of EPDM rubber low-cost formula, the project of efficiency improvement in 500T vulcanizing machine mold, development of multispindle German base forming machine, development of PVR70 bending assembly German machine, development of German machine with new TR4 stem, development of finished visual image test equipment, development of automatic oil shedding machine, development of automatic airtight machine, development of automatic bending machine, and development of single-piece flow and automatic logistics line; meanwhile, the Company will further develop and promote AR\TR4\87 automatic grinding machine, automatic grinding machine of VFR oval specification, smoke-free hot header, vulcanized automatic disc inserting machine, and automatic sand blasting machine etc.

Business plan in 2020

Important industry news on valve industry in recent years: Japan Pacific Industrial Co., Ltd. had acquired the business of traditional valve of Sensata Technologies in US and France on August 31, 2018, but Sensata still remained running Tire Pressure Monitoring System business; the ChinaGermany joint venture - BH SENS established by Baolong Automotive Corporation and Huf Group had launched in 2019; China had announced to fully implement Tire Pressure Monitoring System by mandatory standard configuration in 2020, and it will be the first year of standard configuration this year. In view of the above industry information, the market share in global Tire Pressure Monitoring System market has been changing gradually; the Company also has been engaging in TPMS project over the years, and always taking the operating strategy of not competing with customers and joint development with customers, the aforesaid industry change accelerates the cooperation between customers and us, and our company intends to make the new plant of XIAMEN XIAHUI to become the important manufacturing base of valve body and precision machining product of the Group, and the production capacity of TPMS will achieve multiple growth at that time.

Subsidiary KUNSHAN LUHAI had signed the relocation agreement in November 2019 according to local relocation policy, and the immovable property (land included) is expected to be delivered in the second quarter of 2020, before acquiring the new land, our company has leased the transitional plant near the original plant, it is planned to apply automated flow line production to economize on manpower and space, and the scale will be reduced to remove part of production capacity to XIAMEN XIAHUI and PT. LUHAI. The construction of new plant of XIAMEN XIAHUI in Phase Two of Jimei Machinery Industry Concentration Area (at southeast of the intersection of Guankou South Road and Nantang Road) is expected to be put into production in the second quarter of 2020 originally, however, due to the outburst of novel coronavirus epidemic situation at the beginning of 2020, it is expected to postpone to be completed in the second quarter of 2020 and put into production in the third quarter. Due to plant relocation and the shift of production capacity within the Group, our company keeps more inventory originally, hence suffers less impact from the novel coronavirus epidemic situation than the competitors, and our company still has PT. LUHAI available

for flexible production scheduling, and has stronger responding capacity than competitors, hence this novel coronavirus epidemic situation may demonstrate and verify the leadership of LUHAI among global professional valve manufacturers.

Major work items of the Company in 2020: KUNSHAN relocation and land delivery, construction of new plant of XIAHUI, and allocation of Group's production capacity; besides, the strengthening of niche products, optimization of production and marketing, continuous input of automation equipment, and increase of copper material self-use recovery are also the long-term orientation.

i) Strengthening of niche The traditional valve items take products of higher gross profit as products: marketing focus; and non-traditional valve items take TPMS valve as developing focus.
ii) Optimal production and China and Indonesia are the two biggest sales territories of the marketing: Company, the Company has set production base both in China and Indonesia, apart from close to local market and serving customers nearby, the operational risks of the Group’s production base may also be diversified.
iii) Expansion of key Continuously increase capital expenditure according to the demand customers: of China’s auto market in TPMS growth.
iv) Continuous input of Continue to purchase new machines to improve the quality and automation equipment: quantity of output, and simultaneously replace old machines to save labor and production cost, so as to reduce the impact of rising labor cost in Mainland.
v) Recycle copper Continue to expand recycling copper materials for reuse, so as to materials for reuse: reduce the impact of copper price fluctuation.

Future development strategy of the Company

The industrial order of traditional valve has turned into that winners always win, and the market of TPMS valves maintains a growth momentum. Our objective will focus on the improvement of management performance, and introduction of automation not only guarantees stable quality, but also reduces the impact of labor cost, hoping that the management indexes such as gross profit rate and net profit ratio will maintain rising. According to the aforementioned important messages of valve industry in recent years, the Company always adopts the business model of cooperating with customers to move forward, the strategy is correct and good for obtaining more favorable opportunities in current market situation; the local labor in Indonesia is abundant and stable, and we will increase the production capacity of PT. LUHAI in due time. The novel coronavirus epidemic situation helps to demonstrate the two largest production bases of our company in China and Indonesia, apart from spreading operating risks and increasing responding capacity, it also verifies the leadership of LUHAI among global professional valve manufacturers.

Facing the challenges of rapid change in the future, the Company will continue to invest in research and development improvement, improve product quality, expand new customers and develop high gross profit products, so as to increase the profits of the Company, and strengthen the

rubber material formula and research and development of copper scrap regeneration technology to maximize the benefits of shareholders. Finally, the Company will take the fulfillment of corporate social responsibility as the ultimate goal, apart from making LU HAI as the leading brand in valve industry, but also becoming the extremely valuable enterprise brand.

Chairman & General Manager HSU, LIEN-KAI

II. Company Profile

2.1 Company and Group Introduction

2.1.1 Date of incorporation and Group profile:

The Company is originated from the LU HAI INDUSTRIAL CORP. in Chang-hua Taiwan, established in May 1983, the Company has been devoting to the manufacturing, processing and sales of various tire rubber valves and metal bodies of tire valves, with gradual expansion of operation scale, the Company has set manufacturing bases and important operating offices in Xiamen, Kunshan and Indonesia successively, and all reinvestment businesses are engaged in the businesses related to the manufacturing and sales of valves. On October 19, 2009, LU HAI HOLDING CORP. was established in Cayman Islands as the holding parent company of the Group and the application entity to apply for a listing in Taiwan, the Company sticks to the operation philosophy of “Quality Oriented, Integrity, Customer First, Continuous Improvement”, and takes becoming the “Most competitive valve manufacturer of the world” as the target, as the pioneer in global valve industry, the Group has been diligently engaged in valve industry for over 30 years and deeply recognized by customers in terms of product quality, customers are mostly globally well-known tire manufacturers, such as: Bridgestone, Michelin, Goodyear, Cheng Shin Group, Kenda Group, Giti Group etc.

2.1.2 Group structure

2.2 Company history:

Year	Important events
1980	LIUHO VALVE INDUSTRIAL CO., LTD. was established in Chang-hua Taiwan
1983	LU HAI INDUSTRIAL CORP. was established in Taiwan
1990	XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. was established.
1995	XIAMEN XIAHUI hadpassed the ISO9002:1994 certification
1997	LU HAI INDUSTRIAL CORP. had passed the ISO9002:1994 quality management system certification byBureau of Standards,Metrologyand Inspection
	Approved to establish LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD

Year	Important events
2000	Approved to establish XIAMEN LU HAI METAL CO., LTD
2001	KUNSHAN LUHAI had passed the ISO9001: 2000 system certification, and won the “Certificate of Quality Control System Certification ” issued by China Quality Certification Center
	The certificate of quality system certification of XIAMEN XIAHUI was changed into ISO9001:2000 version
2002	LU HAI INDUSTRIAL CORP. had passed the ISO9001:2000 quality management system certification byBureau of Standards,Metrologyand Inspection
	KUNSHAN LUHAI had won the only qualified supplier certified by Michelin Tire in China
	KUNSHAN LUHAI had passed the safety certification of valve products by China Tire Products Certification Committee, and won the “Certificate of Product Quality Certification”.
2003	XIAMEN XIAHUI hadpassed the CQCproduct safety3C certification
	XIAMEN XIAHUI was the member of National Valve Standardization Sub-Technical Committee
2005	XIAMEN XIAHUI had passed the ISO/TS16949:2002 Quality Control System certification
2006	KUNSHAN LUHAI had won the “Certificate of Confirmation for Foreign Invested Advanced TechnologyEnterprise” issued byJiangsu Province
	XIAMEN XIAHUI had won the “AAA Credit Rating” enterprise awarded by the finance consulting& credit ratinginstitution
2007	KUNSHAN LUHAI has been awarded the certificate of “Top 100 Rubber Parts Manufacturers in China” and “Famous Brand for Rubber Parts Manufacturing in China” issued byChina Market MonitoringCenter and China Market Research Center
	XIAMEN XIAHUI had won the title of “Fujian Famous Brand Product”
2009	LU HAI HOLDING CORP. was established in Cayman Islands, the establishment capital was NTD1,200,000 Thousand, and the paid-up capital was NTD420,000 Thousand
	LU HAI HOLDING CORP. carried out cash capital increase of NTD120,000 Thousand, and thepaid-upcapital was NTD540,000 Thousand after capital increase
2010	LU HAI HOLDING CORP. carried out cash capital increase of NTD61,000 Thousand, and thepaid-upcapital was NTD601,000 Thousand after capital increase
	KUNSHAN LUHAI had passed the ISO/TS16949:2009 system certification, and won the “Certificate of Automotive Industry Quality System Certification” issued by China QualityCertification Center
2011	KUNSHAN LUHAI had won the good qualified supplier designated by Japan Bridgestone
	KUNSHAN LUHAI had passed the ISO14001:2004 system certification, and won the “Certificate of Environmental Management System Certification”
	PT. LUHAI INDUSTRIAL was established
	XIAMEN XIAHUI and XIAMEN LU HAI METAL CO.,LTD. were merged.
2012	The hexagonal logo of the Companyhad won the “China Well-known Trademark”
2013	XIAHUI had won the first section of Top10 HappyEnterprises.
	Officiallylisted in the Taiwan Stock Exchange on December 25,2013

Year	Important events
2014	LU HAI HOLDING had won the second section of OutstandingTaiwan Businessmen
2015	Carried out cash capital increase of 3,500 thousand shares and the first unsecured convertible corporate bonds (the total issuing denomination was NTD400 Million Only) in the territoryof Republic of China
2016	XIAMEN XIAHUI had won the certificate of “Xiamen Famous Trademark: Tire Valve”
	XIAMEN XIAHUI had won the certificate of “Xiamen Famous Trademark: Metal Nut”
	XIAMEN XIAHUI had won the “Quality Management Award” issued by China Valve Core Industry
2017	LU HAI HOLDING had won the Outstanding Contribution Award issued by China Valve Core Industry
	KUNSHAN LUHAI had passed the ISO14001:2015 environmental management system certification,and won the Certificate of Management System Certification.
	KUNSHAN LUHAI had won the “TopTen Eco-FriendlyEnterprises”
2018	KUNSHAN LUHAI had passed the IATF16949:2016 system certification, and won the certificate of “Automotive Industry Quality Management System” issued by China QualityCertification Center
2019	XIAMEN XIAHUI had won the certificate of “Work Safety Standardization” KUNSHAN LUHAI had passed the IATF16949:2016 system certification, and won the certificate of “ Manufacturingof inflatingvalves used tire”

2.3 Risk Management : Please refer to Page 186 to 190, Seven. Review of Financial Conditions, Operating Results, and Risk Management

III. Corporate Governance Report

3.1 Organization system

3.1.1 Organization chart

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3.1.2 Operating business of major departments

Department	Management affairs

Board of Directors	Make policy directive and formulate objective and guideline accordingto the business operation of the Group
General Manager	Group strategic planning, execute the resolution of Board of Directors,and lead the team of the Companyto achieve the target
Executive VP	Draw up operational objectives, and supervise and manage operatingactivities
GM Room	1. Annually plan the medium and long term business plan of the Group 2. Manage, control and supervise the work of each subsidiaries of the Group 3. Organization of Board of Directors Meeting and Shareholders’ Meeting,and stock affairs related matters
Audit Room	1. Responsible for governing each company of the Group, formulating internal control system, reviewing and approving management regulations and executing internal audit, and proposingimprovementproposal

Department	Management affairs

	2. Promote policies and order of each company of the Group and execute each regulations
Finance Department	1. Manage fund procurement among each company of the Group and contacts with financial institutions 2. Manage accounting transaction and cost analysis of each company of the Group 3. Promote the strategy, integration and budget systems related to financial aspects of the Group
Administration Department	1. In charge of the management of general administrative affairs, as well as patent and certification related matters of the company 2. Human resources management and organization development matters in the Group 3. Application, report and approval of foreign investment
Sales Department	1. Responsible for product marketing, market development and sales business of the company 2. Manage and integrate business promotion of each company of the Group 3. Draw up business policy and set target for the Group
IT Department	1. Planning, establishment, implementation and management of Group computerization 2. Safety control of computer software and hardware, and planning and execution of information security policy 3. Design, maintenance, control, correction and management etc. of each operating management system 4. Planning and assessment etc. on the specifications of industrial 4.0 equipment automation system of the Group

3.2 Information of directors, supervisors, General Manager, Vice President, Assistant Vice President, and head of each department and branch:

3.2.1 Directors and supervisors’ information

3.2.1.1 Directors and supervisor’s information:

							April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%
Title	Nationality or place of registration	Name	Gender	Date Elected	Term (Years)	Date first Elected	Shareholding when Elected		Current shareholding		Spouse & Minor children Shareholding		Shareholding in the name of other person		Major experience (education background)	Concurrent title in the Company or other companies currently	Other managers, directors or supervisors of relationship of spouse or within second-degree relatives			Notes
							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relation
Chairman	R.O.C.	HSU, LIEN- KAI	Male	2018.6.25	3	2018.6.25	2,307,387	2.82%	2,822,402	3.28%	66,365	0.08%	-	-	General Manager of LU HAI HOLDING CORP. Department of Law, National Chengchi University	Director of XIAMEN XIAHUI Director of KUNSHAN LUHAI Supervisor of PT. LUHAI Chairmanof LUHAI INDUSTRIAL	-	-	-
Director	R.O.C.	WU, CHIN- LU	Male	2018.6.25	3	2012.7.6	675,300	0.82%	363,614	0.42%	232,049	0.27%	2,796,833	3.25%	Chairman of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Chairman of LU HAI INDUSTRIAL CORP. Dah-Chin Commercial & Industrial Vocation HighSchool	Director of GET JOINT BUSINESS CORP. Director of DAY LIGHT BUSINESS CO., LTD.	Director Sales Manager	WU, CHING- SHU WU, KO-LI	Brother Parent- child
Director	R.O.C.	WU, CHING- SHU	Male	2018.6.25	3	2012.7.6	469,798	0.57%	764,887	0.89%	105,646	0.12%	3,401,519	3.95%	Director of LU HAI INDUSTRIAL CORP. Supervisor of LU HAI INDUSTRIAL CORP. Director of LU HAI HOLDING CORP. National United University	Supervisor of XIAMEN XIAHUI Director of KUNSHAN LUHAI Supervisor of PT. LUHAI Supervisor of LU HAI INDUSTRIAL Director of GET JOINT BUSINESS CORP. Director of DAY LIGHT BUSINESS CO., LTD.	Director	WU, CHIN- LU	Brother
Director	R.O.C.	HSU, YA- TING	Female	2018.6.25	3	2018.6.25	565,812	0.69%	594,102	0.69%	-	-	463,200	0.54%	Section Manager of YOKE Industrial Corp. Assistant VP of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Department of Finance, National Taichung University ofScience andTechnology	Director of XIAMEN XIAHUI VP of XIAMEN XIAHUI Director of KUNSHAN LUHAI Supervisor of PT. LUHAI Directorof LUHAI INDUSTRIAL	-	-	-
Director	R.O.C.	HSU, HUAI- YUN	Female	2018.6.25	3	2018.6.25	-	-	23,000	0.03%	-	-	-	-	General Manager of Yun-Yi International Ltd. Director of LU HAI INDUSTRIAL CORP. Information Management, Tamkang University	Director of XIAMEN XIAHUI Director of KUNSHAN LUHAI Supervisor of PT. LUHAI Directorof LUHAI INDUSTRIAL	Executive VP	HSU, HSIU- HUA	Sister
Director	R.O.C.	HSU, HAN- YUAN	Male	2018.6.25	3	2018.6.25	1,906,533	2.33%	2,001,859	2.33%	992,761	1.15%	-	-	Assistant VP of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Business Manager of Yuan-Hong Metal Co., Ltd. Civil Engineering Department, Taoyuan Innovation Institute of Technology	Director of XIAMEN XIAHUI General Manager of XIAMEN XIAHUI Supervisor of KUNSHAN LUHAI Supervisor of PT. LUHAI Director of LU HAI INDUSTRIAL	-	-	-
Independent Director	R.O.C.	YEN, MEI- YING	Female	2018.6.25	3	2012.1.13	-	-	-	-	-	-	-	-	Assistant VP of PONY Leather Corporation Master degree of Accounting, National Taiwan University	Director of PONY Leather Corporation Assistant VP of GM Room and Head of Administration Department, PONY Leather Corporation	-	-	-
Independent Director	R.O.C.	CHANG, HORNG-YAN	Male	2018.6.25	3	2018.6.25	-	-	-	-	-	-	-	-	Full-time Adjunctive Professor of Department of Communications Management and Department of Business Administration, Shih Hsin University Part-time Professor of Department of Business Administration, Soochow University Enterprise Research Institute and Accounting Institute of St. John’s University, New York, US	Independent Director of TPK Holding Co., Ltd. Independent Director of Ability Opto- Electronics Technology Co.,Ltd. Supervisor of Soft-World International Corporation Professor of Department of Communications Management, Shih Hsin University Professor of Department of Business Administration, Soochow University	-	-	-
Independent Director	R.O.C.	HU, TA- HSIANG	Male	2018.6.25	3	2018.6.25	-	-	-	-	-	-	-	-	Associate Professor of Department of Electrical Engineering, Da-Yeh University Doctor of Electrical Engineering, University of Hawaii,US	Associate Professor of Department of Electrical Engineering, Da-Yeh University	-	-	-

3.2.1.2 Major shareholders of the institutional shareholders: Not applicable.
3.2.1.3 Major shareholders of the company’s major institutional shareholders: Not applicable
3.2.1.4 Professional knowledge possessed by directors or supervisors and their independence

April 30, 2020

Criteria Name	Meet the Following Professional Qualification Requirements, TogetherwithatLeastFiveYears Work Experience	Meet the Following Professional Qualification Requirements, TogetherwithatLeastFiveYears Work Experience	Meet the Following Professional Qualification Requirements, TogetherwithatLeastFiveYears Work Experience	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Independence Criteria (Notes 1)	Number of other public companies in which concurrently act as independent director
	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, CPA, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10	11	12
HSU, LIEN-KAI																-
WU, CHIN-LU																-
WU, CHING-SHU																-
HSU, YA-TING																-
HSU, HUAI-YUN																-
HSU, HAN-YUAN																-
YEN, MEI-YING																-
CHANG, HORNG- YAN																2
HU, TA-HSIANG																-

Notes1: If each director or supervisor is conforming to the following conditions two years before appointment and during the term of office, please tick “  ” in the blank below the code of each condition.
(1) Not an employee of the company or any of its affiliates.
(2) Not the director or supervisor of the company or any of its affiliated (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent)
(3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
(4) Not the spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of the managerial officer listed in Paragraph (1) or any of the persons listed in Paragraph (2) and (3).
(5) Not the director, supervisor or employee of the corporate shareholder that directly holds 5% or more of the total number of issued shares of the company, or that ranks among the top five in shareholdings, or that designates its representative to serve as a director or supervisor of the company under Paragraph 1 or 2, Article 27, of the Company Act (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent).
(6) Not the company’s director seats or voting shares and those of any other company are controlled by the same person: a director, supervisor, or employee of that other company. (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company

and its parent or subsidiary or a subsidiary of the same parent).

(7) Not the person holding an equivalent position of the company and a person in any of those positions at another company or institution are the same person or are spouses: a director (member of a council), supervisor, or employee of that other company or institution (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent).
(8) Not the director (member of a council), supervisor, manager or shareholder holding 5% or more of the shares, of a specified company or institution that has a financial or business relationship with the company (except that such specific company or institution holds 20% or more and no more than 50% of the total number of issued shares of the company, and independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent).
(9) Not the professional individual who, or an owner, partner, director (member of a council), supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides auditing services to the company or any affiliate of the company, or that provides commercial, legal, financial, accounting or related services to the company or any affiliate of the company for which the provider in the past 2 years has received cumulative compensation exceeding NT$500,000, or a spouse thereof; provided, this restriction does not apply to a member of the remuneration committee, public tender offer review committee, or special committee for merger/consolidation and acquisition, who exercises powers pursuant to the Act or to the Business Mergers and Acquisitions Act or related laws or regulations.
(10) Not having a marital relationship, or a relative within the second degree of kinship to any other director of the company.
(11) Not been a person of any conditions defined in Article 30 of the Company Act.
(12) Not a governmental, juridical person or its representative as defined in Article 27 of Company Act.

3.2.2 Management Team Information

													April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%	April 30,2020 Unit: share;%
Title	Nationality	Name	Gender	Inauguratio n date	Shareholding		Spo us e & Min or chi ldr en Sha reh ol ding		Shareholding in the name of other person		Major experience (education background)	Concurrent title in other companies currently	Managers who are spouse or within second-degree of kinship			Notes
					Shares	%	Shares	%	Shares	%			Title	Name	Relation
General Manager	R.O.C.	HSU, LIEN- KAI	Male	2018.05.09	2,822,402	3.28%	66,365	0.08%	-	-	General Manager of LU HAI HOLDING CORP. Bachelor degree in Law, National Chengchi University	Director of XIAMEN XIAHUI Director of KUNSHAN LUHAI Supervisor of PT. LUHAI Chairman of LU HAI INDUSTRIAL CORP.	None	None	None	The Chairman and General Manager are the same person
Executive VP	R.O.C.	HSU, HSIU- HUA	Female	2010.01.01	454,050	0.53%	-	-	-	-	Salesman of E.C.I. Elastic Co., Ltd. Sales Director of LU HAI INDUSTRIAL CORP. General Manager of LU HAI HOLDING CORP. Department of Computer Science & Information Management, Junior College Division, Hung KuangInstitute of Technology	Director of XIAMEN XIAHUI Director of KUNSHAN LUHAI Chairman of PT. LUHAI General Manager of KUNSHAN LUHAI General Manager of PT. LUHAI	None	None	None
General Manager of XIAMEN XIAHUI	R.O.C.	HSU, HAN- YUAN	Male	2014.06.01	2,001,859	2.33%	992,761	1.15%	-	-	Assistant VP of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Business Manager of Yuan-Hong Metal Co., Ltd. Civil Engineering Department, Taoyuan Innovation Institute of Technology	Director of XIAMEN XIAHUI General Manager of XIAMEN XIAHUI Supervisor of KUNSHAN LUHAI Supervisor of PT. LUHAI Director of LU HAI INDUSTRIAL CORP.	None	None	None
VP of XIAMEN XIAHUI	R.O.C.	HSU, YA- TING	Female	2012.07.01	594,102	0.69%	-	-	463,200	0.54%	Section Manager of YOKE Industrial Corp. Assistant VP of LU HAI HOLDING CORP. Director of LU HAI INDUSTRIAL CORP. Department of Finance, National Taichung University of Science and Technology	Director of XIAMEN XIAHUI VP of XIAMEN XIAHUI Director of KUNSHAN LUHAI Supervisor of PT. LUHAI Director of LU HAI INDUSTRIAL CORP.	None	None	None
VP of KUNSHAN LUHAI	P.R.C.	HSU, KUANG- WU	Male	2018.03.14	-	-	-	-	-	-	Manager of Manufacturing Department, XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. Manager of Manufacturing Department, LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. General Manager of Ningbo Powermetal Industrial Co., Ltd. Plant Manager of Manufacturing Department, LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. EMBA,Shanghai Jiao TongUniversity	None	None	None	None
VP of PT. LUHAI	R.O.C.	QIU ZHONG- LIE	Male	2015.08.01	8,297	0.01%	-	-	-	-	Assistant VP of LU HAI HOLDING CORP. Senior Engineer of LU HAI HOLDING CORP. Yuanlin Senior High School	General Manager of PT.DENIKIN INDUSTRI NUSANTARA	None	None	None

Title	Title	Nationality	Name	Gender	Inauguratio n date	Shareholding	Shareholding	Spo us e & Min or chi ldr en Sha reh ol ding	Spo us e & Min or chi ldr en Sha reh ol ding	Shareholding in the name of other person	Shareholding in the name of other person	Major experience (education background)	Concurrent title in other companies currently	Concurrent title in other companies currently	Managers who are spouse or within second-degree of kinship	Managers who are spouse or within second-degree of kinship	Managers who are spouse or within second-degree of kinship
						Shares	%	Shares	%	Shares	%				Title	Name	Relation
C.F.O.		R.O.C.	CHANG, SHENG- HUNG	Male	2012.04.01	9,364	0.01%	-	-	-	-	Finance Supervisor and Director of Audit Room, CUB ELECPARTS INC. Manager of Finance Department, LU HAI INDUSTRIAL CORP. Bachelor degree in Accounting, Chung Yuan Christian University	None		None	None	None
Audit Supervisor		R.O.C.	CHEN, YING- HUEI	Female	2010.05.01	33,493	0.04%	-	-	-	-	Finance Specialist of YEU TYAN MACHINERY MFG. CO., LTD. Finance Manager of TUNG LIH PAPER CO., LTD. Director of Audit Room, LU HAI INDUSTRIAL CORP. Department of Business, National Open University	None		None	None	None
Manager of Administration Department		R.O.C.	CAI XIN- XING	Male	2012.01.01	-	-	-	-	-	-	Manager of Administration Department, LU HAI INDUSTRIAL CORP. National Chung Hsing University	None		None	None	None
Manager of General Manager Room		R.O.C.	CHANG, CHI- CHI	Female	2012.07.16	76,124	0.09%	-	-	-	-	Manager of Capital Market Div., Taishin Securities Co., Ltd. Master degree in Finance, National Chung Cheng University	None		None	None	None
Manager of Sales Department		R.O.C.	WU, KO-LI	Male	2015.04.01	1,661,838	1.93%	-	-	-	-	ARM of Institutional Banking, CTBC Bank Co., Ltd. Bachelor degree in Statistical Science, University College London	None		None	None	None
	3.2.3.If the Chairman and General Manager or equivalent (top managerial officer) are the same person, or are spouse or first reasons thereof,rationality,necessityand solutions shall be described.
	Reason			Rationality							Necessity			Solutions
	1. Complete industry qualifications 2. Understanding the market 3. Family inheritance 4. Leadership skills 5. Communicationskills			1. Start from basic training, understand the industry and economic environment 2. Fully master the market trend and fluctuation 3. Capable of leading the team to face and solve problems together.							1. The bridge for inheritance of family business 2. Understand laws and decrees on transnational enterprises 3. With ability for overall planning for the future of enterprise 4. Cultivate the successionteam

3.3 Remuneration of Directors, Supervisors, General Manager and Vice Presidents in the Last Year

3.3.1 Remuneration paid to the Director and Independent Director in 2019

Unit: NTD thousand

Title	Name	Director remuneration	Director remuneration	Director remuneration	Director remuneration	Director remuneration	Director remuneration	Director remuneration	Director remuneration	Proportion of total amount of A, B, C and D in net profit after tax	Proportion of total amount of A, B, C and D in net profit after tax	Relevant remuneration received by part-time employee	Relevant remuneration received by part-time employee	Relevant remuneration received by part-time employee	Relevant remuneration received by part-time employee	Relevant remuneration received by part-time employee	Relevant remuneration received by part-time employee	Relevant remuneration received by part-time employee	Relevant remuneration received by part-time employee	Proportion of total amount of A, B, C, D, E, F and G in net profit after tax	Proportion of total amount of A, B, C, D, E, F and G in net profit after tax	Receiving remuneration from reinvestment enterprise other than the subsidiaries or from the parent company
		Remuneration (A)		Retirement pension (B)		Directors compensation (C)		Business execution expenses (D)				Salary, bonus and special disbursement etc.(E)		Retirement pension (F)		Employee’s compensation (G)
		The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report	The Company		All companies in financial report		The Company	All companies in financial report
																Cash amount	Stock amount	Cash amount	Stock amount
Chairman	HSU,LIEN-KAI	0	0	0	0	2,317	2,317	400	400	1.12%	1.12%	5,440	9,340	81	81	710	0	710	0	3.70%	5.31%	None
Director	WU,CHIN-LU
Director	WU,CHING-SHU
Director	HSU,YA-TING
Director	HSU,HUAI-YUN
Director	HSU,HAN-YUAN
Independent Director	YEN, MEI-YING	0	0	0	0	1,453	1,453	420	420	0.77%	0.77%	0	0	0	0	0	0	0	0	0.77%	0.77%
Independent Director	CHANG, HORNG-YAN
Independent Director	HU, TA-HSIANG
1. Please describe the payment policy, system, standard and structure of independent director’s remuneration, and describe the relevance of payment amount according to factors such as the borne responsibility, risk and devotion time etc. The payment of remuneration by the Company to independent director is based on the operating conditions of the company and the Board of Directors’ opinion on director's degree of participation and contribution value to the company operation, and implemented by considering the “Measures for Remuneration Payment to Director and Functional Committee” passed by the industry standard, among them, the professional suggestion and risk control etc. input by the functional member acting as independent director have been considered for remuneration payment, after the Remuneration Committee has reviewed and assessed the independent director's degree of participation in company operation and contribution, the suggestion on remuneration is proposed based on fairness and submitted to the Board of Directors for resolution. 2. Apart from those disclosed in the above table, the remuneration received by company directors (general directors, not independent directors) for providing service to all companies in financial report in the lastyear(such as takingapost as an adviser other than an employee etc.): None.

The payment of remuneration by the Company to independent director is based on the operating conditions of the company and the Board of Directors’ opinion on director's degree of participation and contribution value to the company operation, and implemented by considering the “Measures for Remuneration Payment to Director and Functional Committee” passed by the industry standard, among them, the professional suggestion and risk control etc. input by the functional member acting as independent director have been considered for remuneration payment, after the Remuneration Committee has reviewed and assessed the independent director's degree of participation in company operation and contribution, the suggestion on remuneration is proposed based on fairness and submitted to the Board of Directors for resolution.

2.Apart from those disclosed in the above table, the remuneration received by company directors (general directors, not independent directors) for providing service to all companies in financial report in the last year (such as taking a post as an adviser other than an employee etc.): None.

Range of Remuneration

	Range of Remuneration	Range of Remuneration	Range of Remuneration	Range of Remuneration
Range of remuneration paid to directors	Name of directors
	Total of Remuneration (A+B+C+D)		Total of Remuneration (A+B+C+D+E+F+G)
	The Company	All companies in financial report (H)	The Company	All companies in financial report (I)
Below NTD1,000,000	HSU, LIEN-KAI; WU, CHIN-LU; WU, CHING-SHU; HSU, YA-TING; HSU, HUAI-YUN; HSU, HAN-YUAN; YEN, MEI-YING; CHANG, HORNG-YAN; HU, TA-HSIANG	HSU, LIEN-KAI; WU, CHIN-LU; WU, CHING-SHU; HSU, YA-TING; HSU, HUAI-YUN; HSU, HAN-YUAN; YEN, MEI-YING; CHANG, HORNG-YAN; HU, TA-HSIANG	WU, CHIN-LU; WU, CHING-SHU; HSU, HUAI-YUN; YEN, MEI-YING; CHANG, HORNG-YAN; HU, TA-HSIANG	WU, CHIN-LU; HSU, HUAI-YUN; YEN, MEI-YING; CHANG, HORNG-YAN; HU, TA-HSIANG
NTD1,000,000(inclusive) ~ NTD2,000,000(exclusive)	-	-	HSU, YA-TING; HSU, HAN-YUAN	-
NTD2,000,000(inclusive) ~ NTD3,500,000(exclusive)	-	-	-	HSU, YA-TING; HSU, HAN-YUAN ; WU, CHING-SHU
NTD3,500,000(inclusive) ~ NTD5,000,000(exclusive)	-	-	HSU, LIEN-KAI	HSU, LIEN-KAI
NTD5,000,000 (inclusive) ~ NTD10,000,000(exclusive)	-	-	-	-
NTD10,000,000 (inclusive) ~ NTD15,000,000(exclusive)	-	-	-	-
NTD15,000,000 (inclusive) ~ NTD30,000,000(exclusive)	-	-	-	-
NTD30,000,000 (inclusive) ~ NTD50,000,000(exclusive)	-	-	-	-
NTD50,000,000 (inclusive) ~ NTD100,000,000(exclusive)	-	-	-	-
Over NTD100,000,000	-	-	-	-
Total	9	9	9	9

The contents of remuneration disclosed in this table is different from the concept of income stipulated in Income Tax Ac, hence the purpose of this table is for information disclosure and not for taxation.

Notes 1. All contents of director’s remuneration disclosed are the director’s compensation in 2019 passed by resolution of the Board of Directors on March 12, 2020, and they had not been actually distributed yet.

3.3.2 Remuneration paid to the Supervisors in 2019: The Company sets Audit Committee, hence it is not applicable.

3.3.3 Remuneration paid to General Manager and Vice President in 2019:

								Unit: NTD thousand	Unit: NTD thousand	Unit: NTD thousand	Unit: NTD thousand	Unit: NTD thousand	Unit: NTD thousand	Unit: NTD thousand
Title	Name	Salary (A)		Retirement pension (B)		Bonuses and Allowances (C)		Employees’ compensation (D) (Notes)				Proportion of total amount of A, B, C and D in net profit after tax		Receiving remuneration from reinvestment enterprise other than the subsidiaries or from the parent company
		The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report	The Company		All companies in financial report		The Company	All companies in financial report
								Cash	Stock	Cash	Stock
General Manager	HSU, LIEN-KAI	4,232	4,232	108	108	994	994	626	0	626	0	2.46%	2.46%	None
Executive VP	HSU, HSIU- HUA

Range of Remuneration

Numerical range of remuneration paid to each General Manager and Vice President of the Company	Name of General Manager and Vice President	Name of General Manager and Vice President
	The Company	All companies in financial report (E)
Below NTD1,000,000	-	-
NTD1,000,000 (inclusive) ~NTD2,000,000(exclusive)	-	-
NTD2,000,000 (inclusive) ~NTD3,500,000(exclusive)	HSU, LIEN-KAI; HSU,HSIU-HUA	HSU, LIEN-KAI; HSU,HSIU-HUA
NTD3,500,000 (inclusive) ~NTD5,000,000(exclusive)	-	-
NTD5,000,000 (inclusive) ~ NTD10,000,000(exclusive)	-	-
NTD10,000,000 (inclusive) ~ NTD15,000,000(exclusive)	-	-
NTD15,000,000 (inclusive) ~ NTD30,000,000(exclusive)	-	-
NTD30,000,000 (inclusive) ~ NTD50,000,000(exclusive)	-	-
NTD50,000,000 (inclusive) ~ NTD100,000,000(exclusive)	-	-
Over NTD100,000,000	-	-
Total	2	2

The contents of remuneration disclosed in this table is different from the concept of income stipulated in Income Tax Ac, hence the purpose of this table is for information disclosure and not for taxation.
Notes 1. All contents disclosed are the employee’s compensation in 2019 passed by resolution of the Board of Directors on March 12, 2020, and they had not been actually distributed yet.
3.3.4 Name of managerial officer distributed with employee’s compensation and distribution circumstance:

Unit: NTD thousand

						Unit: NTD thousand
	Title	Name	Stock amount	Cash amount	Total	Proportion of total amount in net profit after tax (%)
Managerial officer	General Manager	HSU, LIEN-KAI	0	1,614	1,614	0.67%
	Executive VP	HSU, HSIU-HUA
	General Manager of XIAMEN XIAHUI	HSU, HAN-YUAN
	VP of XIAMEN XIAHUI	HSU, YA-TING
	VP of PT. LUHAI	QIU, ZHONG-LIE
	VP of KUNSHAN LUHAI	HSU, KUANG-WU
	CFO of Finance Department	CHANG, SHENG-HUNG
	Director of Audit Room	CHEN, YING-HUEI

3.3.5 If the listed company has the circumstances as stated in 1 or 5 of Item 2, Subparagraph 3, Paragraph 1, Article 10 of “Regulations Governing Information to be Published in Annual Reports of Public Companies”, the remuneration of the top 5 supervisors shall be disclosed respectively: Not applicable.
3.3.6 Make respective and comparative description and analysis on the proportion of total remuneration paid to the directors, supervisors, general managers, and vice presidents of the Company in the last two years by the Company and all companies in financial reports in the net profit after tax, and describe the policy, standard and combination of compensation payment, procedures of determining remuneration and relevance between operation performance and future risk

3.3.6.1 Proportion of total remuneration of Directors, Supervisors, General Manager and Vice Presidents in the last two years in the net profit after tax:

NTD: thousand

					NTD: thousand	NTD: thousand	NTD: thousand	NTD: thousand
Item	2018				2019
	Total remuneration		Proportion in the net profit after tax (%)		Total remuneration		Proportion in the net profit after tax (%)
	The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report	The Company	All companies in financial report
Directors	8,307	11,218	3.98%	5.38%	10,821	14,721	4.47%	6.08%
General Manager and VP	3,292	3,292	1.58%	1.58%	2,665	2,665	1.10%	1.10%

3.3.6.2 Policy, standard and combination of remuneration payment; remuneration determination procedure; and relevance between operation performance and future risk are described as follows:

 Directors, Supervisors

The Company has set the Remuneration Committee, in which all independent directors act as committee members; the Remuneration Committee is responsible for formulating and regularly reviewing the policies, systems, standards and structures of the performance assessment and remuneration of directors and managerial officers, meanwhile, regularly assessing and referring to the payment standards of counterparts before determining the remuneration of directors and managerial officers.

General Manager and Vice Presidents

The remuneration of General Manager and Vice Presidents include salary, bonus and employee’s compensation; it is determined according to the undertaking responsibilities and contributions to the Company as well as by referring to the standards of counterparts.

3.4 Corporate governance operation situation:

3.4.1 Information of Board of Directors’ operation situation

The Company has convened 10 (A) Board of Directors Meetings from 2019 till the date of annual report publication, attending situations of directors are as follows:

Title	Name	Attendance in Person(B)	By Proxy	Attendance rate(%) [B/A]
Chairman	HSU,LIEN-KAI	10	-	100.00%
Director	WU,CHIN-LU	10	-	100.00%
Director	WU,CHING-SHU	10	-	100.00%
Director	HSU,YA-TING	10	-	100.00%
Director	HSU,HUAI-YUN	10	-	100.00%
Director	HSU,HAN-YUAN	10	-	100.00%
Independent Director	YEN, MEI-YING	10	-	100.00%
Independent Director	CHANG, HORNG- YAN	10	-	100.00%
Independent Director	HU, TA-HSIANG	10	-	100.00%
Other matters should be recorded: 1. If the operation of Board of Directors Meeting has any one of the following circumstances, the date of Board of Directors Meeting, session, proposal content, opinions of all independent directors, and the Company’s handling of independent directors’ opinions shall be specified: (1) Matters listed in Article 14-3 of Securities and Exchange Act: The Company has set the Audit Committee, please refer to the operation situation of Audit Committee in the next page for details, no such circumstances are available. (2) Apart from the matters mentioned above, other board resolution matters on which independent director has objections or modified opinions and with record or written statements: No such circumstances are available. 2. For the directors’ avoidance of proposal with conflict of interest, the name of directors, proposal contents, reasons for conflict of interest and participation in voting shall be specified: (1) The Fifth Session of the 4th Board of Directors Meeting, January 18, 2019 Proposal content and execution situation: a. Discuss the distribution of year-end bonus in 2018 to managerial officers of the Company, Director HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, this case had been passed by the rest attending directors unanimously and as proposed. b. Discuss the distribution of annual performance bonus in 2018 to managerial officers of the Company, Director HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, this case had been passed by the rest attending directors unanimously and as proposed. (2) The Fifth Session of the 5th Board of Directors Meeting, March 13, 2019 Proposal content and execution situation: a. Discussed the transfer of managerial officer of the Company from Taiwan Office to Taiwan Branch and the settlement of retirement pension in the old system, director HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, this case had been passed by the rest attending directors unanimously as proposed. (3) The Fifth Session of the 8th Board of Directors Meeting, August 8, 2019 Proposal content and execution situation:

  - a. Discuss the distribution of remuneration in 2018 to managerial officers of the Company, Director HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, this case had been passed by the rest attending directors unanimously as proposed.

  - b. Discuss the salary adjustment of managerial officers of the Company, Chairman HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, this case had been passed by the rest attending directors unanimously and as proposed.

(4) The Fifth Session of the 11th Board of Directors Meeting, January 15, 2020 a. Discuss the distribution of year-end bonus in 2019 to managerial officers of the Company, Director HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, this case had been passed by the rest attending directors unanimously and as proposed.
- b. Discuss the distribution of annual performance bonus in 2019 to managerial officers of the Company, Director HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, this case had been passed by the rest attending directors unanimously and as proposed.
Listed company shall disclose the evaluation cycle and period, evaluation scope, method and content etc. evaluated by Board of Directors itself (or by peer), and the implementation of Board of Directors’ evaluation is as follows:

Evaluation cycle	Evaluation period	Evaluation scope	Evaluation method	Evaluation content
Once a year	2019/1/1~ 2019/12/31	Board of Directors performance evaluation	Internal self- evaluation	1. Participation in the operation of the company 2. Improvement of the quality of the Board of Directors' decision making 3. Composition and structure of the Board of Directors 4. Election and continuing education of the Directors 5. Internal control
		Individual director’s performance evaluation		1. Alignment of the goals and missions of the company 2. Awareness of the duties of a director 3. Participation in the operation of the company 4. Management of internal relationship and communication 5. The Director's professionalism and continuing education 6. Internal control

The objective of strengthening the functions of Board of Directors (such as setting Audit Committee, improving information transparency etc.) in the current and last year and assessment on execution situation: The Company had elected three independent directors and formed the Audit Committee, and convene the meeting at least once a quarter; besides, Remuneration Committee was established on January 21, 2013 in accordance with the regulations, and meetings were convened at least twice a year. The Company has formulated the “Regulations Governing

Procedure for Board of Directors Meetings”, “Audit Committee Charter” and “Remuneration Committee Charter” to comply with, and input the attendance situations of Board of Directors Meeting and each committee meeting in company website and MOPS, and disclosed relevant information according to the requirement of laws and decrees to improve information transparency.

3.4.2 Operation situation of Audit Committee or supervisor’s participation in Board of Directors Audit Committee of the Company comprises of all independent directors, responsible for
reviewing fair presentation of company financial statement, appointment and independence and performance (dismissal) of certified public accountant, effective implementation of company internal control, company’s compliance with relevant laws and decrees and rules, and control of existing or potential risks of the company etc., its major powers and authorities are as follows:
(1) Adoption or amendment of an internal control system pursuant to Article 14-1 of Securities and Exchange Act.
(2) Assessment of the effectiveness of the internal control system.
(3) Adoption or amendment, pursuant to Article 36-1 of Securities and Exchange Act, of handling procedures for financial or operational actions of material significance, such as acquisition or disposal of assets, derivatives trading, extension of monetary loans to others, or endorsements or guarantees for others.
(4) A matters bearing on the personal interest of the director.
(5) A material assets or derivatives transaction.
(6) A material monetary loan, endorsement or provision of guarantee.
(7) The offering, issuance, or private placement of any equity-type securities.
(8) The hiring or dismissal of an attesting CPA, or the compensation given thereto.
(9) The appointment or discharge of a financial, accounting, or internal auditing officer.
(10) The annual financial report and the financial report of the first, second and third quarter that must be audited and attested by a CPA, which are signed or sealed by the Chairman, managerial officer, and accounting officer.
(11) Any other material matters so required by the company or competent authority. Audit Committee has convened 10 (A) meetings from 2019 till the date of annual report publication, attending situations of independent directors are as follows:

Title	Name	Attendance in Person (B)	By Proxy	Attendance rate (%) [B/A]
Convenor	YEN, MEI-YING	10	-	100.00%
Independent Director	CHANG, HORNG- YAN	10	-	100.00%
Independent Director	HU, TA-HSIANG	10	-	100.00%

Board of Directors Meeting	Proposal contents and subsequent handling	Matters stipulated in Article 14-5 of Securities and Exchange Act	Resolution item not passed by Audit Committee but agreed by more than two third (2/3) of all directors.
The Fifth Session of the 4th meeting 2019.1.18	1. Expansion of new production line of sub- subsidiaries LUHAI RUBBER METAL INDUSTRIAL(KUNSHAN)CO.,LTD		-
	2. Bladder investment bysubsidiaries PT. LUHAI		-
	3. Endorsement and guarantee of LU HAI HOLDING CORP. (hereinafter referred to as the Company)		-
	4. Amendments to the “Regulations Governing the Acquisition and Disposal of Assets”		-
	5. The Company’s acquisition of right-of-use assets		-
	Resolution of Audit Committee: discussion on the second motion was postponed, and the remaining motions were agreed and passed by all attending members. Resolution of Board of Directors: same as the resolution of Audit committee; discussion on the second motion was postponed, and the remaining motions were agreed andpassed byall attendingdirectors.
The Fifth Session of the 5th meeting 2019.3.13	1. 2018 business report and financial statements of the Company		-
	2. The Company’s planning to transfer surplus to capital increase byissuingnew shares		-
	3. Appointment of certified public accountants of the Company in 2019, review of 2019 financial statements, and examination of certified remuneration		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.
The Fifth Session of the 6th meeting 2019.5.8	1. Equipment update of new production lines for production expansion in sub-subsidiaries LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI)		-
	2. New addition of equipment for truck valve production line in sub-subsidiaries XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI)		-

	3. Planning and assessment on the site of truck valve production line of sub-subsidiaries XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD.(hereinafter referred to as XIAMEN XIAHUI)		-
	4. Amendments to the “Internal Control Systems” of the Company		-
	5. Amendments to the “Internal Audit Procedures” of the Company		-
	6. Amendments to the “Measures for Self- Assessment on Internal Control Systems” of the Company		-
	7. Amendments to the “Regulations Governing Making of Endorsements/Guarantees” of the Company		-
	8. Amendments to the “Regulations Governing Loaningof Funds” of the Company		-
	9. The Company’s acquisition of right-of-use assets		-
	10. Sub-subsidiaries XIAMEN XIAHUI plans to purchase 2 multiple processing machines made in Germany(for TR4)		-
	Resolution of Audit Committee: the third lease/construction motion was submitted to Board of Directors for discussion, and the remaining motions were agreed and passed by all attending members. Resolution of Board of Directors: the third motion failed to reach majority consensus, and the remaining motions were agreed and passed by all attending directors.
The Fifth Session of the 7th meeting 2019.6.25	1. Relocation of current plant of the sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. according to the policyof Kunshan municipalgovernment		-
	2. Sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. plans to authorize the Chairman to look for the site and acquire the land.		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.
The Fifth Session of the 8th meeting 2019.8.8	1. New appointment of certified public accountant for LU HAI HOLDING CORP. Taiwan Branch (hereinafter referred to as the Branch) and approval and certification of remuneration in 2019 financial statements of branch companies; and reduction of approved and certified remuneration in 2019 financial statement of LU HAI INDUSTRIAL CORP. (hereinafter referred to as LU HAI INDUSTRIAL)		-
	2. Consolidated financial statements for the second quarter of 2019 of LU HAI HOLDING CORP. (hereinafter referred to as the Company)		-

	3. Subsidiary of the Company LU HAI INDUSTRIAL CORP. (hereinafter referred to as LU HAI INDUSTRIAL) conducts cash capital reduction and determines the base date for capital reduction		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.
The Fifth Session of the 9th meeting 2019.11.6	1. Consolidated financial statements for the third quarter of 2019 of LU HAI HOLDING CORP. (hereinafter referred to as the Company)		-
	2. Additional quota for money lending by LU HAI HOLDING CORP. (hereinafter referred to as the Company) to subsidiary PT. LUHAI INDUSTRIAL (hereinafter referred to as PT. LUHAI), sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter referred to as XIAMEN XIAHUI) and LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI)		-
	3. LU HAI HOLDING CORP. (hereinafter referred to as the Company) plans to change the amount of endorsement guarantee of sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) for the financing limit in Mega International Commercial Bank		-
	4. New endorsement guarantee of LU HAI HOLDING CORP. (hereinafter referred to as the Company)		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.
The Fifth Session of the 10th meeting 2019.12.13	1. Acquisition of right-of-use assets by the sub- subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) of the Company		-
	2. Amendments to the procedures for handling acquisition or disposal of negotiable securities investment by the sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI)of the Company		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.
The Fifth Session of the 11th meeting 2020.1.15	1. Supplementary budget for the construction of new plant of sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. of the Company		-

	2. Application for purchasing new equipment of the sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (plant GUANKOU)of the Company		-
	3. Costs of equipment disassembly and assembly for the sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) of the Companyto relocate to the leasedplant		-
	4. Sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) of the Company plans to indirectly lend RMB22 million to the sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter referred to as XIAMEN XIAHUI) by entrusted loan		-
	5. Endorsement guarantee of LU HAI HOLDING CORP.(hereinafter referred to as the Company)		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.
The Fifth Session of the 12th meeting 2020.3.12	1. 2019 business report and financial statements of the Company		-
	2. The Company’s planning to transfer surplus to capital increase byissuingnew shares		-
	3. Replacement of certified public accountants of the Company, and approval and certification of remuneration in 2020 financial statements		-
	4. Application for purchase of new equipment of the sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (plant GUANKOU) in respond to the demand planning for mass production of new products in the second and thirdquarter of 2020		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.
The Fifth Session of the 13th meeting 2020.5.8	1. Endorsement guarantee of LU HAI HOLDING CORP.(hereinafter referred to as the Company)		-
	2. Transfer of equipment for business use between and amongsubsidiaries of the Company		-
	Resolution of Audit Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed andpassed byall attendingdirectors.

For the independent directors’ avoidance of proposal with conflict of interest, the name of independent directors, proposal contents, reasons for conflict of interest and participation in voting shall be specified: None.

Communication circumstances (shall include the major matters, method and result etc. of communication regarding financial and business situations of the company) between and among independent directors and internal audit supervisors and accountants.
(1) The audit unit of the Company would regularly provide internal examination audit report to independent directors, and attend the Board of Directors Meeting to report the latest audit situation.
(2) Independent directors may review the financial and business conditions of the Company at any time, in case of any doubt or suggestion on relevant operating contents of the Company, the independent director may immediately communicate with the head of relevant unit for review and improvement.
(3) Independent directors and accountants shall convene a regular meeting quarterly, in which the accountants shall report the financial conditions, overall operation and examination situation of the Company to independent directors; apart from regular review of financial statements, independent directors may convene a meeting to communicate with the accountants at any time when necessary.

3.4.3 Corporate governance implementation status and its difference from the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies and reasons

			Implementation Status	Difference from
		No		Corporate
				Governance Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
1. Whether the Company has formulated and disclosed the Corporate Governance Best Practice Principles according to the “Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies”?			The Company has formulated “Corporate Governance Best Practice Principles” pursuant to “Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies” to comply with, and it was disclosed at company’s website and MOPS.	None
2. Shareholding structure and shareholders’ rights (1) Whether the Company has formulated internal operation procedures to handle shareholders’ suggestions, doubts, disputes and litigation matters, and implement it according to such procedures? (2) Whether the Company has mastered the major shareholders actually controlling the company and the ultimate controller list of major shareholders? (3) Whether the Company has established and executed the risk control and firewall mechanism with affiliated enterprises? (4) Whether the Company has formulated internal regulation to prohibit insider of the Company from utilizing undisclosed information for the securities transaction?	   		(1) The Company has appointed dedicated stock affairs agency to handle stock affairs, and set spokesman and deputy spokesman to handle suggestions from shareholders. (2) The Company has set the stock affairs unit and mastered the major shareholders actually controlling the company and the ultimate controller list of major shareholders, and has regularly tracked and understood the changes in shareholding and disclose them on monthly basis pursuant to law. (3) The assets and financial rights and responsibilities between and among each affiliated enterprise are independent respectively, and they are handled according to the internal control system of the Company. (4) The Company has formulated the “Administrative Measures for Insider Trading Prevention”, strictly prohibiting insiders from trading negotiable securities by utilizing undisclosed information.	None
3. Board of Directors’ composition and responsibility (1) Whether the Board of Directors has formulated diversified policy for the member composition and implemented it?			(1) The Company has explicitly stipulated in Article 20 of “Corporate Governance Best Practice Principles” that the composition of director members shall be diversified, and implemented it accordingly. Board of Directors of the Company is comprised of 9 directors	None

	Implementation Status	Implementation Status	Implementation Status	Difference from
		No		Corporate
				Governance Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
(2) Apart from setting Remuneration Committee and Audit Committee pursuant to law, whether the Company is willing to set other functional committees? (3) Whether the Company has formulated Board of Directors Performance Assessment Measures and its assessment method, regularly carries out performance assessment every year, hands in the results of performance assessment to Board of Directors, and applies them as the reference for the remuneration, nomination and reappointment of individual directors? (4) Whether the Company has regularly evaluate the independence of CPA?	 		(including 3 independent directors), independent directors are accounting for 33%, and female directors are accounting for 33%. 5 of them are good at leading, operation judgment and with years of industry knowledge; 6 of them are good at operating management; and 3 independent directors are good at financing, business management and electrical machinery respectively, among them, 1 of them possesses accountant qualification. Relevant information of members of Board of Directors and the diversification policy have been disclosed on company website. (2) The Company has set the Remuneration Committee pursuant to law, and voluntarily set the Audit Committee, in the future, the Company will set other functional committees according to business demand. (3) Board of Directors of the Company has passed the “Board of Directors Performance Assessment Measures” on August 8, 2019, and carries out internal performance assessment every year according to the assessment procedures stipulated in such Measures since 2020. The results of aforesaid performance assessment will be the reference for selection or nomination of directors, as well as for determining the remuneration of individual directors. The Company has completed the Board of Directors performance assessment in January 2020, and handed in the evaluation results to the Board of Directors meeting convened on March 12, 2020, the overall Board of Directors performance is perfect and conforming to corporate governance; and the overall performance of director members is good.	None None
			(4) On March 12, 2020, Board of Directors of the Company has passed the assessment on the independence and competency of the appointed certified public accountant. Certified public accountants and theirgrouphavenot

	Implementation Status	Implementation Status	Implementation Status	Difference from
		No		Corporate
				Governance Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
			been appointed by the Company or the affiliated enterprise, nor have close commercial relationship with the Company or directors and managerial officers of the Company, nor have any financial interests with the Company or the affiliated enterprise, nor have accepted any gift of great value or improper entertainment or received any payment other than the audit work; besides, certified public accountants and their group have not engaged in the trading of stocks of the Company, and maintain the accountant’s independence, and their job rotations are following relevant regulations.
4. Whether or not the listed company sets eligible corporate governance personnel of appropriate number, and designates the corporate governance supervisor to be responsible for corporate governance related affairs (including but not limited to provide directors and supervisors necessary materials for business execution, assist directors and supervisors in legal compliance, handle matters related to Board of Directors Meeting and Shareholders' Meeting pursuant to law, and prepare meeting minutes for Board of Directors Meeting and Shareholders' Meeting etc.)?			The Company’s Finance Department, Audit Room and affiliated departments of each relevant case provide necessary materials for business execution by director/audit members, the General Manager Room is responsible for relevant deliberation of Board of Directors Meeting and Shareholders’ Meeting, and Administration Department handles the operations related to the company amendment registration. The management team communicates with the accountants and Audit Committee regularly.	None

			Implementation Status	Difference from
		No		Corporate
				Governance Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
5. Whether the Company has established communication channels with Stakeholders (including but not limited to shareholders, employees, customers and suppliers etc.), and set up a Stakeholders’ section on the company website, and appropriately respond to the important corporate social responsibilities concerned by Stakeholders?			The website of the Company has set the Stakeholders’ section to provide investors service, customers and suppliers and employees sections respectively, and has left contact information at MOPS and company website, and the Company can respond to the important issues concerned by Stakeholders by the dedicated person, fax and email etc.	None
6. Whether the Company has appointed a professional stock affairs agency to handle the affairs of Shareholders’ Meeting?			The Company has appointed a professional stock affairs agency, the “Stock Agent Department, Sinopac Securities” to handle matters related to stock affairs in Taiwan, and has formulated the “Regulations Governing the Administration of Shareholder Services” toregulaterelevant affairs.	None
7. Information disclosure (1) Whether the Company has set website to disclose financial business and corporate governance information? (2) Whether the Company has adopted other information disclosure methods (such as setting English website, designating dedicated person to be responsible for the collection and disclosure of company information, implementing spokesman system, and webcasting investors conference etc.)?			(1) The Company has set the website: http://www.luhai.com.tw/, and disclose information related to financial business and corporate governance of the Company at MOPS regularly or irregularly as required.
			(2) The Company has set the English website, spokesman or deputy spokesman makes a statement on the issues related to the Company, and each relevant business department is responsible for the collection and disclosure of company information. Besides, relevant information on the investor conference presentation already convened or being invited to attend over the years have been disclosed at	None

	Implementation Status	Implementation Status	Implementation Status	Difference from
		No		Corporate
				Governance Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
(3) Whether or not the company announces and declares annual financial report within two months after the end of accounting year, and announces and declares the financial report of the first, second and third quarter and monthly operating situation before the prescribed time limit?			company website and MOPS. (3) The Company declares annual financial report within the prescribed time limit, and announces and declares the financial report of the first, second and third quarter and monthly operating situation before the prescribed time limit.
8. Whether the Company has other important information contributing to the understanding of operation situation of corporate governance (including but not limited to rights and interests of employee, employee caring, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, execution situation of risk management policy and risk measurement standards, execution situation of customer policy, the situation in which the Company buys liability insurance for the directors and supervisors etc.)? (1) Rights and interests of employee: The Company and each local subsidiary have formulated the system related to employee welfare, according to the laws and decrees of various countries to safeguard the rights and interests of employee. (2) Employee caring: The Company and its reinvested subsidiaries have set the Employees Union as the communication channel between employees and management of the company, consensus is reached between the Employees Union and employees for all important matters involving in employees to condense centripetal force; besides, internal periodical of the Group “LUHAI’s Windows” has been set to encourage employees to contribute to share their spirits and actively give feedbacks. (3) Investor relations: the website of the Company sets the investor relations section to irregularly update relevant information to provide to the investor for reference. (4) Stakeholder: The Company has set the Stakeholder section on the company website to maintain a smooth communication channel of stakeholders (shareholders, investors, corresponding banks, suppliers, customers, medias and employees etc.), and respect and safeguard their due legal rights and interests. (5) Directors’ training records in 2019: please refer to “Directors’ training records in 2019” (Page 34) in this annual report for details. (6) The Company has formulated the “Administrative Measures for Insider Trading Prevention” and “Administrative Measures for Material Information Announcement” as the basis for handling major information and disclosure mechanism, and irregularly reviews those Measures to conform to current laws and decrees and meet the requirement of practical management, upon amendment, the Company will inform employees by E-mail internally and put the latest measures at internal website of the Company for reference by managerial officers and employees at any time. (7) Situation of the company's buying liability insurance for the director: the Company has bought director liability insurance and announced it at mops.twse.com.tw, the period of liability insurance is from June 20, 2019 to June 20, 2020, and the insuring amount is USD1 million.

		Implementation Status	Implementation Status	Implementation Status	Implementation Status	Difference from
			No			Corporate
						Governance Best
	Assessment item					Practice Principles
		Yes		Description abstract
						for TWSE/TPEx

						Listed Companies
						and reasons
9.	Please describe the improvement of corporate governance evaluation result released by corporate governance center of Taiwan Stock Exchange Corporation in the last year, and propose the prioritized strengthening matters and measures for the unimproved matters. Items already improved by the Company in corporate governance in 2019 are as follows: Evaluation indicators Improved circumstances Whether the Company has been invited to (voluntarily) convene at least two investor conference presentations, and the interval between the first and last investor conference presentations is over three months in the year of evaluation? The Company has been invited to convene two investor conference presentations with the interval over three months in 2019. Whether the Company will convene a General Shareholders’ Meetingbefore the end of May? The Company will convene the 2019 General Meetingbefore the end of May. Whether the Company will upload the English meeting handbook and supplementary meeting materials 21 days before convening the General Meeting? The Company will upload the 2019 English meeting handbook 21 days before the General Meeting. Whether the Company will upload the English annual report 7 days before convening the General Meeting? The Company will upload the 2019 English annual report 7 days before the General Meeting. Whether the Company will buy director and supervisor’s liability insurances for all its directors and supervisors, and report to the Board of Directors? The Company has bought director liability insurance for all directors, and reported to the Board of Directors. Whether the Company will disclose the annual financial report (including financial statements and notes) in English at company website or MOPS? The English annual financial report of the Company has been disclosed at company website and mops.twse.com.tw. Unimproved matters to be prior strengthened are as follows: Evaluation indicators Improvement circumstances Whether or not the company formulates the policy for diversity of board members, and discloses the implementation situation of diversity policy at company website and annual report? The Company will specifically disclose the management target and current achievement situation of the policy for diversity of board members. Whether or not the company discloses the communication circumstances between and among independent director and internal audit supervisor and accountant (e.g. communication method, matter and result etc. regarding financial report and financial business situation of the company) at the company website? The Company will specifically disclose the communication frequency between and among the independent director and internal audit supervisor and accountant. Whether or not the company declares significant English information synchronously? The Company is expected to declare significant English information synchronously starting from the fourth quarter of 2020.
	Evaluation indicators				Improved circumstances
	Whether the Company has been invited to (voluntarily) convene at least two investor conference presentations, and the interval between the first and last investor conference presentations is over three months in the year of evaluation?				The Company has been invited to convene two investor conference presentations with the interval over three months in 2019.
	Whether the Company will convene a General Shareholders’ Meetingbefore the end of May?				The Company will convene the 2019 General Meetingbefore the end of May.
	Whether the Company will upload the English meeting handbook and supplementary meeting materials 21 days before convening the General Meeting?				The Company will upload the 2019 English meeting handbook 21 days before the General Meeting.
	Whether the Company will upload the English annual report 7 days before convening the General Meeting?				The Company will upload the 2019 English annual report 7 days before the General Meeting.
	Whether the Company will buy director and supervisor’s liability insurances for all its directors and supervisors, and report to the Board of Directors?				The Company has bought director liability insurance for all directors, and reported to the Board of Directors.
	Whether the Company will disclose the annual financial report (including financial statements and notes) in English at company website or MOPS?				The English annual financial report of the Company has been disclosed at company website and mops.twse.com.tw.
	Unimproved matters to be prior strengthened are
	Evaluation indicators				Improvement circumstances
	Whether or not the company formulates the policy for diversity of board members, and discloses the implementation situation of diversity policy at company website and annual report?				The Company will specifically disclose the management target and current achievement situation of the policy for diversity of board members.
	Whether or not the company discloses the communication circumstances between and among independent director and internal audit supervisor and accountant (e.g. communication method, matter and result etc. regarding financial report and financial business situation of the company) at the company website?				The Company will specifically disclose the communication frequency between and among the independent director and internal audit supervisor and accountant.
	Whether or not the company declares significant English information synchronously?				The Company is expected to declare significant English information synchronously starting from the fourth quarter of 2020.

Directors’ training records in 2019

Title	Name	Date	Host unit	Course name	Hours
Chairman	HSU, LIEN- KAI	3/29/2019	Taiwan Institute of Directors	Great migration of global supply chain, response of corporate governance	3
		5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3
Director	WU, CHIN- LU	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		6/26/2019	Taiwan Academy of Bankingand Finance	Corporate governance and enterprise business continuityseminar	3
Director	WU, CHING- SHU	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3
Director	HSU, YA- TING	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3
Director	HSU, HUAI- YUN	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3
Director	HSU, HAN- YUAN	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3
Independent Director	YEN, MEI- YING	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3
Independent Director	CHANG, HORNG-YAN	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		5/13/2019	Securities and Futures Institute	Important legal issues of FinTech	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3
Independent Director	HU, TA- HSIANG	5/8/2019	Taiwan Corporate Governance Association	Application of corporate governance mechanism to strengthen company operation	3
		11/6/2019	Taiwan Corporate Governance Association	Industry 4.0 and how enterprise leads innovation transformation	3

3.4.4. Composition, responsibility and operation situation of the Remuneration Committee

3.4.4.1 Composition of Remuneration Committee

The Company has set the Remuneration Committee by resolution on January 21, 2013, and all independent directors are members of Remuneration Committee.

Title (Notes 1)	Criteria Name	Whether or not with over five years of work experience and the following professional qualifications	Whether or not with over five years of work experience and the following professional qualifications	Whether or not with over five years of work experience and the following professional qualifications	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Independence Criteria (notes 2)	Number of other public companies in which concurrently act as Remuneratio n Committee member	Notes (Notes 3)
		An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, CPA, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10
Convenor	CHANG, HORNG-YAN														0	Yes
Independent Director	YEN, MEI- YING														0	Yes
Independent Director	HU, TA- HSIANG														0	Yes

Notes 1. Please fill in director, independent director or other in the column of identity type.

Notes 2. If each member is conforming to the following conditions two years before appointment and during the term of office, please tick "  " in the blank below the code of each condition.

(1) Not an employee of the company or any of its affiliates.
(2) Not the director or supervisor of the company or any of its affiliated (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent)
(3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
(4) Not the spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of the managerial officer listed in Paragraph (1) or any of the persons listed in Paragraph (2) and (3).
(5) Not the director, supervisor or employee of the corporate shareholder that directly holds 5% or more of the total number of issued shares of the company, or that ranks among the top five in shareholdings, or that designates its representative to serve as a director or supervisor of the company under Paragraph 1 or 2, Article 27, of the Company Act (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent).
(6) Not the company’s director seats or voting shares and those of any other company are controlled by the same person: a director, supervisor, or employee of that other company. (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent).
(7) Not the Chairman, General Manager, or person holding an equivalent position of the company and a person in any of those positions at another company or institution are the same person or are spouses: a director (member of a council), supervisor, or employee of that other company or institution (except for independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary

or a subsidiary of the same parent)

(8) Not the director (member of a council), supervisor, manager or shareholder holding 5% or more of the shares, of a specified company or institution that has a financial or business relationship with the company (except that such specific company or institution holds 20% or more and no more than 50% of the total number of issued shares of the company, and independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent).
(9) Not the professional individual who, or an owner, partner, director (member of a council), supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides auditing services to the company or any affiliate of the company, or that provides commercial, legal, financial, accounting or related services to the company or any affiliate of the company for which the provider in the past 2 years has received cumulative compensation exceeding NT$500,000, or a spouse thereof; provided, this restriction does not apply to a member of the remuneration committee, public tender offer review committee, or special committee for merger/consolidation and acquisition, who exercises powers pursuant to the Act or to the Business Mergers and Acquisitions Act or related laws or regulations.
(10) Not been a person of any conditions defined in Article 30 of the Company Act.
Notes 3. If the identity type of the member is director, please describe whether it is conforming to the provisions of Paragraph 5, Article 6 of “Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter”

3.4.4.2 Responsibilities of Remuneration Committee

Remuneration Committee shall faithfully perform the following powers and authorities with the attention as a bona fide manager, and submit the recommendations to the Board of Directors for discussion:

(1) Prescribe and periodically review the performance review and remuneration policy, system, standards and structure of directors and managerial officers.
(2) Make sure that the company’s remuneration arrangement is conforming to relevant laws and decrees and sufficient to attract outstanding talents.
(3) With respect to the performance assessment and remuneration of directors, members of Audit Committee and managerial officers of the company, it shall refer to the typical pay levels adopted by peer companies, and take into consideration the reasonableness of the correlation between remuneration and individual performance, the company’s business performance, and future risk exposure.
(4) It shall not produce an incentive for the directors or managerial officers to engage in activity to pursue remuneration exceeding the risk that the company may tolerate.
(5) Periodically evaluate and prescribe the remuneration of directors and managerial officers. The Remuneration Committee Meeting shall be convened by the convener at least twice a year, and meeting may be convened at any time as necessary.

3.4.4.3 Operation situation of Remuneration Committee
(1) There are 3 members in the Remuneration Committee of the Company.
(2) Term of office of members in this session: from June 25, 2018 to June 24, 2021, as at the publication date of 2019 annual report, Remuneration Committee has convened 6(A) meetings, and members’ qualification and attending situation are as follows:

Title	Name	Attendance in Person(B)	By Proxy	Attendance rate (%) (B/A)
Convenor	CHANG, HORNG- YAN	6	-	100.00%
Committee member	YEN, MEI-YING	6	-	100.00%
Committee member	HU, TA-HSIANG	6	-	100.00%
Other matters should be recorded: 1. If Board of Directors refuses to adopt or revises the suggestion of Remuneration Committee, the date of board meeting, session, proposal contents, result of board resolution and handling of Remuneration Committee’s opinion (if the remuneration passed by Board of Directors is superior to the suggestion of Remuneration Committee, the Differences and reason therefor shall be specified) shall be specified: None. 2. For the resolution of Remuneration Committee, if a member opposes or has a qualified opinion and with record or written statement, the date of Remuneration Committee meeting, session, proposal contents, and opinions of all members and handling of members’ opinion shall be specified: None. 3. In 2019,as at thepublication date of annual report,subjects of discussion are as follows: Remuneration Committee Proposal contents and subsequent handling The Third Session of the 3rd meeting 2019.1.18 1. The Company’s distribution of year-end bonus to managerial officers in 2018 2. The Company’s distribution of annual performance bonus to managerial officers in 2018 3. Amendments to the Company’s allocation proportion of performance bonus Resolution result of Remuneration Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: For Case 1 and 2, Director HSU, LIEN- KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, and the rest proposals had been agreed andpassed byall attendingdirectors. The Third Session of the 4th meeting 2019.3.13 1. The Company’s distribution of director and employee’s remuneration in 2018 Resolution result of Remuneration Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed and passed by all attendingdirectors.

	The Third Session of the 5th meeting 2019.8.8	1. The Company’s distribution of director’s individual remuneration in 2018 2. The Company’s distribution of managerial officer’s remuneration in 2018 3. The Company’s salary adjustment for managerial officers 4. Amendments to the “Salary Management Measures” of the Company 5. Amendments to the “Measures for Remuneration Payment to Director and Functional Committee” of the Company
		Resolution result of Remuneration Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: For Case 2 and 3, Director HSU, LIEN- KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, and the rest proposals had been agreed andpassed byall attendingdirectors.
	The Third Session of the 6th meeting 2020.1.15	1. The Company’s distribution of year-end bonus to managerial officers in 2019 2. The Company’s distribution of annual performance bonus to managerial officers in 2019 3. Amendments to the Company’s annual allocation proportion of performance bonus 4. Amendments to the "Dispatched Personnel Management Measures” of the Company
		Resolution result of Remuneration Committee: Case 1, 2 and 3 had been agreed and passed by all attending members, but for Case 3, the undertaking unit needed to be more rigorous to make the definition of “non-recurring” and the item scope more clear; discussion of Case 4 was postponed and would be otherwise discussed and resolved after overall assessment on other personnel related regulations and matters. Resolution of Board of Directors: For Case 1 and 2, Director HSU, LIEN- KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in voting due to the principle of conflict of interests, Case 3 had been agreed and passed by all attending directors; the Chairman instructed the Management Department to make the definition of “non-recurring” more clear according to the suggestion of remuneration member, and conduct assessment on the performance measurement item and report to Board of Directors;and the discussion of Case 4 waspostponed.
	The Third Session of the 7th meeting 2020.3.12	1. The Company’s distribution of director and employee’s remuneration in 2019
		Resolution result of Remuneration Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed and passed by all attending directors.
	The Third Session of the 8th meeting 2020.5.8	1. The Company’s salary adjustment (subsequent recognition) for managerial officers
		Resolution result of Remuneration Committee: it is agreed and passed by all attending members. Resolution of Board of Directors: it is agreed and passed by all attending directors.

3.4.5 Performance of corporate social responsibility and its difference from the Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies and reasons

			Implementation Status	Discrepancy with the
		No		Corporate Social
				Responsibility Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
1. Whether or not the company conducts risk assessment on the environment, society and corporate governance issues related to company operation according to materiality principle, and formulates relevant risk management policy or strategy?			Under the materiality principle, the Company conducts risk assessment on the environment, society and corporate governance according to the situation of company operation and relevant regulations, and adjusts various risk management policies or strategies.	None
2. Whether the Company has set dedicated (part-time) unit to promote corporate social responsibility, and whether the Board of Directors has authorized senior management to handle and report the handling situation to Board of Directors?			The Company is willing to actively participate in community services and public benefit activities, the Administration Department is responsible for looking for and screening appropriate projects and report for approval before input, so as to fulfill the corporate social responsibility.	None
3. Issues of Environment (1) Whether the Company has established appropriate environmental management system according to its industrial characteristics? (2)Whether the Company has been devoting to improve the utilization efficiency of all kinds of resources, and use renewable materials having lower impact on environmental? (3)Whether or not the company assesses potential current and future risk and opportunity brought by climate change to the company, and adopts	  		(1) The Company has passed various ISO certifications, and has complete regulation on quality management, safety, health and environmental protection etc. (2) The Company has been continuously improving the utilization efficiency of all kinds of resources and recycling and reusing raw materials. For example, the Company actively uses the reusable pallets formed by the recycled packaging materials (such as pallet, clapboard etc.) and repair wooden pallets to mitigate the environmental load. The Company and subsidiaries will set dedicated unit or personnel for environmental management as the case may be. (3) The Company continuously pays attention to the information related to potential risk and opportunity brought by climate change, and irregularly discusses relevant	None

			Implementation Status	Discrepancy with the
		No		Corporate Social
				Responsibility Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
solutions to relevant climate issues? (4)Whether or not the company conducts statistics on greenhouse gas emissions, water consumption and total waste weight in the last two years, and formulates policies for energy saving, carbon reduction, reduction of greenhouse gas emissions and water consumption, or management of other waste?			solutions on how to reduce and improve the generation of harmful gas to lower the damage to atmosphere. (4) The Company pays attention to energy saving and carbon reduction at ordinary times, so as to save the power consumption in offices and production units; for general industrial waste and hazardous waste, the company reports to local environmental protection department every year, and implements the control policy as required by environmental protection department; for industrial water consumption and power consumption, Engineering Department will formulate relevant targets every year, and conduct statistics on and examine the completion of targets every month. Each department of the company emphasizes the process of water consumption, and formulates corresponding water saving targets, environmental safety department conducts statistics every month and convene a meeting every quarter to ask the department that fails to meet the target to make improvement. For example, subsidiaries have changed the original heating by the steam generated from heavy oil burning boiler into the current heating by electric energy, so as to gradually implement energy saving and carbon reduction and reduction of greenhouse gas.
4. Issues of Social (1) Whether the Company has formulated relevant management policies and procedures according to relevant laws and regulations and International Covenants on Human Rights?			(1) The Company has formulated personnel management regulations according to Labor Act and relevant personnel laws and the spirit of International Covenants on Human Rights, so as to safeguard legal rights and interests of employees.	None

			Implementation Status	Discrepancy with the
		No		Corporate Social
				Responsibility Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
(2) Whether or not the company formulates and implements rational employee welfare measures (including remuneration, leave and other welfares etc.), and appropriately reflects the operation performance or achievement to employee remuneration? (3) Whether the Company has provided employees a safe and healthy working environment, and has implemented safety and health education to the employees regularly? (4) Whether the Company has set effective occupational ability development training plan for the employees? (5) For the customer health and safety, customer privacy, marketing and marking of product and service, whether or not the Companycomplies	   		(2) Apart from formulating the “Personnel Management Measures” pursuant to Labor Standards Act and setting Employee Welfare Committee to implement various welfare measures, in accordance with “Measures for Employee’s Performance Bonus Assessment and Remuneration Distribution”, the Company also reflects its operation results to thee employee remuneration according to operation performance of the company. (3) The Company has provided employees a safe and healthy working environment according to relevant laws and regulations, and regularly provides health examination and irregularly carries out educational training, and provides appropriate and sufficient protective devices for work. Production bases of the Company carry out safety and health education to employees regularly and irregularly. For example, reduce noise, high temperature and pollution etc. in production workshop environment to provide employees a safer and healthier working environment, and regularly carry out propaganda and educational training on occupational injury prevention, fire safety practical drilling, and regularly provide employees the physical examination. (4) Apart from sparing no efforts to train employees all kinds of professional skills at operating post, the Company has not yet established development training plan for employees’ career competence. (5) The Company takes responsibility for the produced products, and in principle, relevant marking and marketing method of its products will not violate laws and regulations	None

	Implementation Status	Implementation Status	Implementation Status	Discrepancy with the
		No		Corporate Social
				Responsibility Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
with relevant laws and regulations and international standards, and formulates relevant policies and complaint procedures for protecting consumer rights and interests? (6) Whether or not the company formulates supplier management policy, and asks the supplier to comply with relevant regulations on environmental protection, occupational safety and health, or labor rights etc.? And the implementation situation thereof?			and international norms. (6) The Company conducts sampling to ask suppliers whether their products cause significant pollution to the environment, in the future, it will carry out in writing as the case may be, and take it as the key consideration in whether or not listing as the qualified supplier.	None
5. Whether or not the company refers to international report preparation criterion or guidelines to prepare corporate social responsibility report and other reports disclosing non- financial information of the company? Whether or not the aforesaid report has acquired the assurance or guarantee opinion from the third party verification unit?			The Company has prepared basic disclosure report according to the corporate social responsibility report (basic edition) promoted by Industrial Department Bureau, Ministry of Economic Affairs, despite the Company has not officially prepared complete report and acquired the certification from the third party, the Company has been devoting to implement relevant matters prescribed in international (GRI) report preparation criterion or guidelines.	None
6.If the Company has formulated its own Corporate Social Responsibility Best Practice Principles according to the “Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies”, please describe its operation and the difference circumstances therebetween: The Company has formulated the “Corporate Social Responsibility Best Practice Principles” according to the “Corporate Social Responsibility Best Practice Principles for TWSE/ TPEx Listed Companies”, and thereisno significant difference.
7.Other important information good for understanding the operation situation of corporate social responsibility: Environmental aspect: (1) All important operating offices are complying with relevant local environmental protection laws and regulations and have acquired the Pollutant Discharge Permit and paid the pollutant discharge fee; besides, they have also acquired the ISO14001 certification. (2) The Company has been continuously improving the utilization efficiency of all kinds of resources and recycling reusing raw materials; carrying out energy saving and carbon reduction campaign to save the power consumption in offices and production units. (3) Important subsidiaries of the Company actively invest funds to introduce air pollution control equipment to fume emission in the plant to meet standards. (4) Important subsidiaries of the Company actively invest funds to introduce water pollution control equipment to dischargequalityof electroplatingwater to meet standards.

6.If the Company has formulated its own Corporate Social Responsibility Best Practice Principles according to the “Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies”, please describe its operation and the difference circumstances therebetween:

The Company has formulated the “Corporate Social Responsibility Best Practice Principles” according to the “Corporate Social Responsibility Best Practice Principles for TWSE/ TPEx Listed Companies”, and there is no significant difference.

	Implementation Status	Implementation Status	Implementation Status	Discrepancy with the
		No		Corporate Social
				Responsibility Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
(5) Important subsidiaries of the Company actively invest funds to rectify and improve oil-burning equipment, and change the original heavy oil burning into electric heat energy to improve the issues of safety and air pollution, so as to meet standards. Social aspect: (1) Subsidiaries of the Company has sponsored NTD110 thousand to the “Tianzhong Marathon” activity, about one hundred colleagues including their spouses enthusiastically participated and assisted in the proceeding of the entire activity; besides, regular donation to Changhua Spinal Cord Injury Reconstruction Association and irregular donation of second-hand computers and clothing and other articles of daily use etc. to the preschool, enthusiastic participation in public benefit activities, and serving fellow villagers or townsmen are the consistency principles of the Company in giving back to the society. (2) For the control of novel coronavirus epidemic situation, subsidiary of the Company gives caring donation of RMB200 thousand and 2 thermal imaging barrel cameras (equivalent to RMB40 thousand) to the government. Employee aspect: (1) The Company provides a channel for employee’s opinion reflection, and sets internal publication of the Group, namely “LUHAI’s Windows”, and refers to the spirit of International Covenants on Human Rights to amend relevant measures of the Company, and irregularly convene meetings to keep a smooth communication channel.

3.4.6 Performance of integrity operation and its difference from the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies and reasons

			Implementation Status	Difference from
		No		Ethical Corporate
				Management Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
1. Formulate ethical corporate management policy and scheme (1) Whether or not the Company formulates integrity operation policy passed by Board of Directors, and explicitly formulates the policy and practice of integrity operation in the regulations and external documents, and the commitment of Board of Directors and senior management echelon to actively implement the operation policy? (2) Whether or not the company establishes assessment mechanism for the risk of dishonest behavior, regularly analyzes and assesses the operating activities of higher dishonest behavior risks within the scope of business, and formulates the scheme for preventing dishonest behavior accordingly, and at least covers the prevention measures for various behaviors prescribed in Paragraph 2, Article 7 of “Listed Company Integrity Operation Rules”? (3) Whether or not the company explicitly formulates the operation procedure, behavioral guideline, violation punishment and complaints system in the scheme of preventing dishonest behavior, and regularly review and amend the aforesaid scheme?	  		(1) The Company formulates prevention regulations on dishonest behaviors in the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct”, and the corporate culture of the Company also emphasizes integrity and ethics. (2) The Company has formulated the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct”, by adhering to honest, transparent and responsible operation philosophy, the Company has formulated operation policy based on integrity, and established favorable corporate governance and risk control mechanism to create an operation environment of sustainable development. The Company has also set internal control and internal audit systems to be executed by the audit unit, important business activities are the key points in auditing, if fraudulent practices or inappropriate behaviors are found, it will be handled according to relevant regulations immediately. (3) The Company has formulated the “Procedures for Ethical Management and Guidelines for Conduct” to comply with and implement it accordingly.	None

			Implementation Status	Difference from
		No		Ethical Corporate
				Management Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
2. Implementation of ethical corporate management (1) Whether the Company has assessed the ethical records of contacting objects, and explicitly stipulated ethical clauses in the contract signed by and between the Company and trading objects? (2) Whether the company has set dedicated unit subordinated to Board of Directors, and regularly (at least once a year) reports to Board of Directors on the integrity operation policy and scheme of dishonest behavior prevention, and supervises the execution situation? (3) Whether the Company has formulated policy to prevent conflict of interest and provided proper statement channel, and implements them? (4) Whether the company has established effective accounting system, internal control system for implementing integrity operation, and has the internal audit unit to draft relevant audit plan according to the assessment results of dishonest behavior risks, and checks the compliance of the scheme for dishonest behavior prevention accordingly, or appoints accountants to execute the auditing? (5) Whether the Company holds internal and external educational training on ethical corporate management regularly?	   		(1) Before trading with important customers, the Company will conduct credit investigation to avoid trading with customers with the record of dishonest behaviors. (2) The Company designates Administration Department as the dedicated unit for this business matter, contents of such business are subordinated to Board of Directors, and the Administration Department regularly reports the execution situation to Board of Directors. (3) The “Procedures for Ethical Management and Guidelines for Conduct” formulated by the Company is available for providing complete good-practice guidelines to employees. (4) The Company has set accounting system for accounting personnel to comply with upon operation, and internal audit personnel will also carry out all kinds of audit operations regularly and irregularly, and report the results to the Board of Directors.	None
			(5) The Company irregularly propagandizes relevant stipulations of Ethical Corporate Management Best Practice Principles to directors, managerial officers, employees and appointees etc. In the future, the Company will regularly convene internal or external educational training after the date of Board of Directors Meeting as the case may be.	None

	Implementation Status	Implementation Status	Implementation Status	Difference from
		No		Ethical Corporate
				Management Best
Assessment item				Practice Principles
	Yes		Description abstract
				for TWSE/TPEx

				Listed Companies
				and reasons
3. Operation situation of company reporting system (1) Whether the Company has formulated specific reporting and rewarding system and established convenient reporting channel, and assigned appropriate dedicated handling personnel for the object being reported? (2) Whether the company has formulated standard investigation procedure for accepting reporting matters, and subsequent measures and relevant confidentiality mechanism should be adopted after investigation? (3) Whether the Company has taken measures to protect whistleblower from improper treatment due to the reporting?	  		(1) Reporting system of the Company includes employee complaints, customer and supplier exposure, the reporting method is disclosed at the stakeholder section of company website, and dedicated personnel is assigned to be responsible for handling. (2) The Company has stipulated proper reporting and rewarding systems in the “Procedures for Ethical Management and Guidelines for Conduct”. Meanwhile, the Company will establish relevant operation procedures and confidentiality mechanism to ensure proper protection and guarantee of whistleblower. (3) In the future, the Company will establish relevant operation procedures and confidentiality mechanism to ensure proper protection and guarantee of whistleblower. In 2019, colleagues of the Company and subsidiaries have not been reported due to the violation of enterprise integrity management.	None.
4. Enhanced information disclosure (1) Whether the Company has disclosed the contents of Ethical Corporate Management Best Practice Principles formulated and the promotion effect thereof at the company website and MOPS?			(1) The Company has established the website, in the future, the Company will gradually establish and disclose relevant information on ethical corporate management as necessary. (2) The Company has assigned dedicated personnel to be responsible for information collection, and information will be disclosed at MOPS in the future, striving to disclose complete and instant information to the public.	None
5. If the Company has formulated its own Ethical Corporate Management Best Practice Principles according to the “Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies”, please describe its operation and the difference circumstance therebetween: None.
6. Other important information good for understanding the operation situation of ethical corporate management of the Company (such as the Company reviews and amends the Ethical Corporate Management Best Practice Principles formulated etc.): Upon contacting with manufacturers, the Company always adheres to the principle of ethical and propagandizes the ethical operation philosophy of the Company to contacting manufacturers, and also strengthens education to employees.

3.4.7 If the company has formulated the Corporate Governance Best Practice Principles and relevant regulations, the inquiry method thereof shall be disclosed: The Company has formulated the Corporate Governance Best Practice Principles and disclosed it at the website of the Company in the Corporate Governance under Investors Section http://www.luhai.com.tw.

3.4.8 Other important information sufficient enough to enhance the operation situation of corporate governance shall be disclosed all together: None.

3.4.9 Execution situation of internal control system:

3.4.9.1 Internal Control Statement:

LU HAI HOLDING CORP.

Internal Control System Statement

Date: March 12, 2020

For the internal control system of the Company in 2019, based on the result of self-assessment, it is hereby made the statement as follows:

I. The Company and subsidiaries acknowledge that the establishment, implementation and maintenance of internal control system are the responsibilities of Board of Directors and managerial officers of the Company and subsidiaries, and the Company and subsidiaries have established such system. Its purpose aims at providing a reasonable guarantee for achieving the objectives such as operation effectiveness and efficiency (including profitability, performance and safeguarding of assets etc.), report reliability, timeliness, transparency and the compliance of relevant regulations and relevant laws and decrees etc.
II. The internal control system has its own inherent limitation, no matter how perfect its design is, an effective internal control system can only provide reasonable guarantee for achieving three objectives mentioned above. Moreover, the change of environment and circumstance, the effectiveness of internal control system might be changed accordingly. Nevertheless, the internal control systems of the Company and subsidiaries have set self-monitoring mechanism, once the deficiency has been identified and confirmed, the Company and subsidiaries will take correction action immediately.
III. The Company and subsidiaries stipulate the determination items of internal control system effectiveness according to the “Regulations Governing Establishment of Internal Control Systems by Public Companies” (hereinafter referred to as “Regulations”), so as to determine whether the design and execution of internal control system are effective. The determination items of internal control system adopted in such “Regulations” are the processes of management control, dividing internal control system into five elements: 1. Control environment; 2. Risk assessment; 3. Control activities; 4. Information and communication, and 5. Monitoring activities. Each element further includes several items. Please refer to the provisions of “Regulations” for the preceding items.
IV. The Company and subsidiaries have adopted the determination items of internal control system mentioned above to assess the effectiveness of the design and execution of internal control system.
V. Based on the assessment result in preceding paragraph, the Company and subsidiaries believe that the internal control system of the Company and subsidiaries on December 31, 2019 (including supervision and management of subsidiaries), including that the design and execution of internal control system related to understanding the operation effect and achievement degree of efficiency objective; reliable, timeliness and transparent report; and compliance of relevant regulations and relevant laws and decrees etc. are effective, and it can reasonably guarantee the achievement of above objectives.
VI. This Statement will become major contents of the annual report and public prospectus of the Company, and will be disclosed externally. If the preceding disclosed contents have any false, concealing or illegal circumstance, it will involve in the legal responsibilities as prescribed in Article 20, Article 32, Article 171 and Article 174 etc. of Securities and Exchange Act.
VII. This Statement has been passed by Board of Directors of the Company on March 12, 2020, among 9 attending directors, no one holds opposing opinion and all agree upon the contents of this Statement, it is hereby declared as well.

LU HAI HOLDING CORP.

Chairman/General Manager: HSU, LIEN-KAI

3.4.9.2 If the accountant is appointed to specifically examine the internal control system, the accountant’s examination report shall be disclosed: None.
3.4.10 In the last year and as at the publication date of annual report, the company and its internal personnel are punished according to law, or the company punishes its internal personnel for violating the provisions of internal control system, and the punishment results thereof might cause significant impact on shareholders’ equity or security price, the punishment contents, major deficiencies and improvement situation shall be listed: None.
3.4.11 In the last year and as at the publication date of annual report, important resolutions of General Shareholders’ Meeting and Board of Directors Meeting
3.4.11.1 Important resolutions of 2019 General Shareholders’ Meeting:

Date	Resolution matters	Resolution result and execution situation
2019.05.29	1. Ratification of the 2018 business report and financial statements	1. The weight of approval is accounting for 99.52% of the voting weight of attending shareholders, this case is approved by voting as proposed.
	2. Ratification of 2018 earnings distribution	1. The weight of approval is accounting for 99.52% of the voting weight of attending shareholders, this case is approved by voting as proposed. 2. Distribution of stock dividend to shareholders at NT$0.49999996 per share (namely free allotment of 49.99999573 shares per thousand shares) and cash dividend at NT$1.00000004 per share. The ex-right (ex-dividend) base date is on August 9, 2019, and stock dividend and cash dividend has been issued on August 30, 2019.
	3. Passed the Company’s planning to transfer surplus to capital increase by issuing new shares.	1. The weight of approval is accounting for 99.50% of the voting weight of attending shareholders, this case is approved by voting as proposed. 2. Transfer surplus to capital increase by issuing 4,098,248 new shares, the base date for capital increase is planned on August 9, 2019, and new shares will be listing on the stock market on August 30, 2019.
	4. Passed the amendments to the “Regulations Governing the Acquisition and Disposal of Assets” of the Company	1. The weight of approval is accounting for 99.47% of the voting weight of attending shareholders, this case is approved by voting as proposed. 2. Handle according to the amended regulations.
	5. Passed the amendments to the “Articles of Incorporation” of the Company	1. The weight of approval is accounting for 99.52% of the voting weight of attending shareholders, this case is approved by voting as proposed. 2. Handle according to the amended regulations.

Date	Resolution matters	Resolution result and execution situation
	6. Passed the amendments to the “Rules of Procedure for Shareholders’ Meetings” of the Company.	1. The weight of approval is accounting for 99.49% of the voting weight of attending shareholders, this case is approved by voting as proposed. 2. Handle according to the amended regulations.

3.4.11.2 Important resolutions of Board of Directors Meeting in 2019:

Date	Important resolution matters
2019.01.18	1. Expansion of new production line of sub-subsidiaries LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD 2. The plan of sub-subsidiaries XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) to apply for the change of joint guarantor for the financing limit in CTBC Bank 3. The plan of sub-subsidiaries XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) to apply for canceling the financing limit in Taipei Fubon Commercial Bank 4. Endorsement and guarantee of LU HAI HOLDING CORP. (hereinafter referred to as the Company) 5. Bank (Bank SinoPac) financing limit 6. Bank (CTBC Bank) financing limit 7. Bank (Mega Bank) financing limit 8. Amendments to the “Regulations Governing the Acquisition and Disposal of Assets” 9. Amendments to the “Accounting System” of the Company 10. The Company’s distribution of year-end bonus to managerial officers in 2018 11. The Company’s distribution of annual performance bonus to managerial officers in 2018 12. Amendments to the Company’s allocation proportion of performance bonus 13. The Company’s acquisition of right-of-use assets 14. The Company’s planto establisha branchcompanyin Taiwan
2019.03.13	1. The Company’s Internal Control System Statement in 2018 2. The Company’s distribution of director and employee’s remuneration in 2018 3. The Company’s regular assessment on the independence and competency of the appointed certified public accountant 4. 2018 business report and financial statements of the Company 5. 2018 earnings distribution of the Company 6. The Company’s planning to transfer surplus to capital increase by issuing new shares 7. Appointment of certified public accountants of the Company in 2019, review of 2019 financial statements, and examination of certified remuneration 8. The Company’s opening of special account for foreign capital custody 9. Amendments to the “Articles of Incorporation” of the Company 10. Amendments to the “Rules of Procedure for Shareholders’ Meetings” of the Company 11. Amendments to the “Corporate Governance Best Practice Principles” of the Company 12. Amendments to the “Regulations Governing Procedures for Board of Directors Meetings”of the Company

Date

Important resolution matters

2019.01.18

1. Expansion of new production line of sub-subsidiaries LUHAI RUBBER
METAL INDUSTRIAL (KUNSHAN) CO., LTD
2. The plan of sub-subsidiaries XIAMEN XIAHUI RUBBER METAL
INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) to
apply for the change of joint guarantor for the financing limit in CTBC Bank
3. The plan of sub-subsidiaries XIAMEN XIAHUI RUBBER METAL
INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) to
apply for canceling the financing limit in Taipei Fubon Commercial Bank
4. Endorsement and guarantee of LU HAI HOLDING CORP. (hereinafter
referred to as the Company)
5. Bank (Bank SinoPac) financing limit
6. Bank (CTBC Bank) financing limit
7. Bank (Mega Bank) financing limit
8. Amendments to the “Regulations Governing the Acquisition and Disposal of
Assets”
9. Amendments to the “Accounting System” of the Company
10. The Company’s distribution of year-end bonus to managerial officers in 2018
11. The Company’s distribution of annual performance bonus to managerial
officers in 2018
12. Amendments to the Company’s allocation proportion of performance bonus
13. The Company’s acquisition of right-of-use assets
14. The Company’s planto establisha branchcompanyin Taiwan

2019.03.13

1. The Company’s Internal Control System Statement in 2018
2. The Company’s distribution of director and employee’s remuneration in 2018
3. The Company’s regular assessment on the independence and competency of
the appointed certified public accountant
4. 2018 business report and financial statements of the Company
5. 2018 earnings distribution of the Company
6. The Company’s planning to transfer surplus to capital increase by issuing new
shares
7. Appointment of certified public accountants of the Company in 2019, review
of 2019 financial statements, and examination of certified remuneration
8. The Company’s opening of special account for foreign capital custody
9. Amendments to the “Articles of Incorporation” of the Company
10. Amendments to the “Rules of Procedure for Shareholders’ Meetings” of the
Company
11. Amendments to the “Corporate Governance Best Practice Principles” of the
Company
12. Amendments to the “Regulations Governing Procedures for Board of Directors
Meetings”of the Company

Date	Important resolution matters
	13. Formulation of the “Standard Operation Procedures for Handling Director’s Requirement” of the Company 14. Bank (CTBC Bank) financing limit 15. Bank (Citibank) financing limit 16. Relevant matters of convening 2019 General Shareholders’ Meeting of the Company 17. Transfer of Managerial Officer of the Company from Taiwan Office to Taiwan Branchand settlement of retirement pension inthe old system
2019.05.08	1. Consolidated financial statements for the first quarter of 2019 of LU HAI HOLDING CORP. (hereinafter referred to as the Company) 2. Equipment update of new production lines for production expansion in sub- subsidiaries LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) 3. New addition of equipment for truck valve production line in sub-subsidiaries XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) 4. Amendments to the “Internal Control Systems” of the Company 5. Amendments to the “Internal Audit Procedures” of the Company 6. Amendments to the “Measures for Self-Assessment on Internal Control System” of the Company 7. Amendments to the “Audit plan in 2019.” of the Company 8. Amendments to the “Regulations Governing Making of Endorsements/Guarantees” of the Company 9. Amendments to the “Regulations Governing Loaning of Funds” of the Company 10. Bank (EnTie Bank) financing limit 11. Bank (Agricultural Bank) financing limit 12. Bank (Industrial Bank) financing limit 13. Amendments to the “Administrative Measures for negotiable instruments” of the Company 14. The Company’s acquisition of right-of-use assets 15. Amendments to the “Assets Management Measures” of the Company 16. Amendments to the “Measures for Monitoring and Management of Subsidiaries” of the Company 17. Amendments to the “Measures for Budget Preparation and Management” of the Company 18. Amendments to the “Administrative Measures for Business Transaction with Stakeholder’s Group Enterprise” of the Company 19. Sub-subsidiaries XIAMEN XIAHUI plans to purchase 2 multiple processing machinesmadeinGermany (for TR4)
2019.06.25	1. Relocation of current plant of the sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. according to the policy of Kunshan municipal government 2. Sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. plans to authorize the Chairman to look for the site and acquire the land. 3. Determination of the base date for transferring surplus to capital increase by issuingnew shares, and the base dateforcashex-dividend etc.
2019.08.08	1. New appointment of certified public accountant for LU HAI HOLDING CORP. Taiwan Branch (hereinafter referred to as the Branch) and approval and certificationof remuneration in 2019financialstatements ofbranch

Date	Important resolution matters
	companiey; and reduction of approved and certified remuneration in 2019 financial statement of LU HAI INDUSTRIAL CORP. (hereinafter referred to as LU HAI INDUSTRIAL) 2. Consolidated financial statements for the second quarter of 2019 of LU HAI HOLDING CORP. (hereinafter referred to as the Company) 3. Subsidiary of the Company LU HAI INDUSTRIAL CORP. (hereinafter referred to as LU HAI INDUSTRIAL) conducts cash capital reduction and determines the base date for capital reduction 4. Bank (TaiShin International Bank) financing limit 5. Change of bank (Cathay United Bank) financing limit 6. The Company’s distribution of director’s individual remuneration in 2018 7. The Company’s distribution of managerial officer’s remuneration in 2018 8. The Company’s salary adjustment for managerial officers 9. Amendments to the “Salary Management Measures” of the Company 10. Amendments to the “Measures for Remuneration Payment to Director and Functional Committee” of the Company 11. Amendments to the “Ethical Corporate Management Best Practice Principles” of the Company 12. Formulation of the “Board of Directors Performance Assessment Measures” of the Company
2019.11.06	1. Consolidated financial statements for the third quarter of 2019 of LU HAI HOLDING CORP. (hereinafter referred to as the Company) 2. Audit plan of the Company in 2020 3. The budget in 2019 is not planned to be amended 4. Foreign currency (USD and EUR) risk aversion limit of LU HAI HOLDING CORP. (hereinafter referred to as the Company), sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter referred to as XIAMEN XIAHUI), LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) and subsidiary PT. LUHAI INDUSTRIAL (hereinafter referred to as PT. LUHAI) 5. Per board resolution on November 7, 2018, money lending by LU HAI HOLDING CORP. (hereinafter referred to as the Company) to subsidiary PT. LUHAI INDUSTRIAL (hereinafter referred to as PT. LUHAI), sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter referred to as XIAMEN XIAHUI) and LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) 6. Additional quota for money lending by LU HAI HOLDING CORP. (hereinafter referred to as the Company) to subsidiary PT. LUHAI INDUSTRIAL (hereinafter referred to as PT. LUHAI), sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter referred to as XIAMEN XIAHUI) and LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) 7. LU HAI HOLDING CORP. (hereinafter referred to as the Company) plans to change the amount of endorsement guarantee of sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) for the financing limit in Mega International Commercial Bank 8. New endorsementguarantee of LUHAI HOLDING CORP. (hereinafter

Date

Important resolution matters

companiey; and reduction of approved and certified remuneration in 2019
financial statement of LU HAI INDUSTRIAL CORP. (hereinafter referred to
as LU HAI INDUSTRIAL)
2. Consolidated financial statements for the second quarter of 2019 of LU HAI
HOLDING CORP. (hereinafter referred to as the Company)
3. Subsidiary of the Company LU HAI INDUSTRIAL CORP. (hereinafter
referred to as LU HAI INDUSTRIAL) conducts cash capital reduction and
determines the base date for capital reduction
4. Bank (TaiShin International Bank) financing limit
5. Change of bank (Cathay United Bank) financing limit
6. The Company’s distribution of director’s individual remuneration in 2018
7. The Company’s distribution of managerial officer’s remuneration in 2018
8. The Company’s salary adjustment for managerial officers
9. Amendments to the “Salary Management Measures” of the Company
10. Amendments to the “Measures for Remuneration Payment to Director and
Functional Committee” of the Company
11. Amendments to the “Ethical Corporate Management Best Practice Principles”
of the Company
12. Formulation of the “Board of Directors Performance Assessment Measures” of
the Company

2019.11.06

1. Consolidated financial statements for the third quarter of 2019 of LU HAI
HOLDING CORP. (hereinafter referred to as the Company)
2. Audit plan of the Company in 2020
3. The budget in 2019 is not planned to be amended
4. Foreign currency (USD and EUR) risk aversion limit of LU HAI HOLDING
CORP. (hereinafter referred to as the Company), sub-subsidiary XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter referred to
as XIAMEN XIAHUI), LUHAI RUBBER METAL INDUSTRIAL
(KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) and
subsidiary PT. LUHAI INDUSTRIAL (hereinafter referred to as PT. LUHAI)
5. Per board resolution on November 7, 2018, money lending by LU HAI
HOLDING CORP. (hereinafter referred to as the Company) to subsidiary PT.
LUHAI INDUSTRIAL (hereinafter referred to as PT. LUHAI), sub-subsidiary
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter
referred to as XIAMEN XIAHUI) and LUHAI RUBBER METAL
INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as
KUNSHAN LUHAI)
6. Additional quota for money lending by LU HAI HOLDING CORP.
(hereinafter referred to as the Company) to subsidiary PT. LUHAI
INDUSTRIAL (hereinafter referred to as PT. LUHAI), sub-subsidiary
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter
referred to as XIAMEN XIAHUI) and LUHAI RUBBER METAL
INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as
KUNSHAN LUHAI)
7. LU HAI HOLDING CORP. (hereinafter referred to as the Company) plans to
change the amount of endorsement guarantee of sub-subsidiary XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to
as XIAMEN XIAHUI) for the financing limit in Mega International
Commercial Bank
8. New endorsementguarantee of LUHAI HOLDING CORP. (hereinafter

Date	Important resolution matters
	referred to as the Company) 9. Bank (Mega Bank) financing limit 10. Bank (Far Eastern International Bank) line of credit 11. Bank(ShanghaiCommercial& SavingsBank)financinglimit
2019.12.13	1. Acquisition of right-of-use assets by the sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) of the Company 2. Amendments to the procedures for handling acquisition or disposal of negotiable securities investment by the sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHANLUHAI) ofthe Company
2020.01.15	1. Business plan and budget of the Company in 2020 2. Supplementary budget for the construction of new plant of sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. of the Company 3. Application for purchasing new equipment of the sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (plant GUANKOU) of the Company 4. Costs of equipment disassembly and assembly for the sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) of the Company to relocate to the leased plant 5. Sub-subsidiary LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as KUNSHAN LUHAI) of the Company plans to indirectly lend RMB22 million to the sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD (hereinafter referred to as XIAMEN XIAHUI) by entrusted loan 6. Sub-subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) plans to apply for canceling the financing limit in CTBC Bank 7. Endorsement guarantee of LU HAI HOLDING CORP. (hereinafter referred to as the Company) 8. Bank (Mega Bank) financing limit 9. Bank (CTBC Bank) financing limit 10. Amendments to the “Measures for Delegation of Authority” of the Company 11. The Company’s distribution of year-end bonus to managerial officers in 2019 12. The Company’s distribution of annual performance bonus to managerial officers in 2019 13. Amendments to the Company’s annual allocation proportion of performance bonus. 14. Amendments to the “Dispatched Personnel Management Measures” of the Company 15. Amendments to the“AssetsManagementMeasures”ofthe Company
2020.03.12	1. The Company’s Internal Control System Statement in 2019 2. The Company’s distribution of director and employee’s remuneration in 2019 3. The Company’s regular assessment on the independence and competency of the appointed certified public accountant 4. 2019 business report and financial statements of the Company 5. 2019 earnings distribution of the Company 6. The Company’s planning to transfersurplus to capital increase byissuingnew

Date

Important resolution matters

shares
7. Replacement of certified public accountants of the Company, and approval and
certification of remuneration in 2020 financial statements
8. Amendments to the “Articles of Incorporation” of the Company
9. Amendments to the “Audit Committee Charter”, “Rules Governing the Scope
of Powers of Independent Directors”, “Standard Operation Procedures for
Handling Director’s Requirement”, and “Corporate Governance Best Practice
Principles” of the Company
10. Amendments to the “Rules for Election of Directors” and "Rules of Procedure
for Shareholders Meetings" of the Company
11. Amendments to the “Regulations Governing Procedures for Board of Directors
Meetings” of the Company
12. Amendments to the “Remuneration Committee Charter” of the Company
13. Amendments to the “Procedures for Ethical Management and Guidelines for Conduct” of
the Company
14. Application for purchase of new equipment of the sub-subsidiary XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (plant GUANKOU) in
respond to the demand planning for mass production of new products in the
second and third quarter of 2020
15. Relevant matters of convening 2020 General Shareholders’ Meeting of the
Company

2020.05.08

1. Consolidated financial statements for the first quarter of 2020 of LU HAI
HOLDING CORP. (hereinafter referred to as the Company)
2. Endorsement guarantee of LU HAI HOLDING CORP. (hereinafter referred to
as the Company)
3. Bank (Citi Bank) financing limit
4. Bank (CTBC Bank) financing limit
5. Bank (Agricultural Bank) financing limit
6. Bank (Construction Bank) financing limit
7. Amendments to the “Accounting System” of the Company
8. The Company’s salary adjustment (subsequent recognition) for managerial
officers
9. Amendments to the “Detailed Statement of Job Grade and Level” of the sub-
subsidiary XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD.
10. Transfer of equipment for business use between and among subsidiaries of the
Company

(1) Resolution result: all above proposals were agreed and passed by all attending directors unanimously.
(2) Execution situation: execution according to resolution result.

3.4.12 In the last year and as at the publication date of annual report, if a director or supervisor has different opinion on the important resolution passed in the Board of Directors Meeting and with record and written statement, major contents thereof: None.
3.4.13 In the last year and as at the publication date of annual report, the resignation or dismissal of Chairman, General Manager, Accounting Director, Financial Director, Internal Audit Director, Corporate Governance Executive and R&D Director etc. of the Company: None.

3.5 Accountant’s fees information

3.5.1 Class interval of accountant’s fees information

Name of accounting firm	Name of accounting firm	Name of	accountant	Examination period	Notes
Crowe (TW) CPAs		LIN, MING- SHOU	HUANG, SU- CHUAN	2019

Range of amount		Fees item	Audit fees	Non-audit fees	Total
1	Below NTD2,000 thousand			
2	NTD2,000 thousand (inclusive) ~ NTD4,000 thousand				
3	NTD4,000 thousand (inclusive) ~ NTD6,000 thousand
4	NTD6,000 thousand (inclusive) ~ NTD8,000 thousand
5	NTD8,000 thousand (inclusive) ~ NTD10,000 thousand
6	Over NTD10,000 thousand(inclusive)

3.5.2 If the non-audit fees paid to the certified public accountant and affiliated firm and enterprise of certified public account are more than one fourth of the audit fees, the amounts of audit and nonaudit fees and the non-audit service contents shall be disclosed.

Unit: NTD thousand

Name of accounting firm				Non-audit fees	Non-audit fees			Examination
	Name of accountant	Audit fees	System design	Business	Human	Other		period of	Notes
				registration	Resources	(Notes)	Total	accountant
Crowe (TW) CPAs	LIN, MING- SHOU HUANG, SU-CHUAN	2,735	-	222	-	65	287	2019	-

Notes: please list the non-audit fees according to service items, if the “Other” non-audit fees reach to 25% of the total non-audit fees, the service contents thereof shall be listed in notes column.

3.5.3 In case of change of accounting firm and the audit fees paid in the year of change is reduced comparing with that in the year before change, amounts of audit fees before and after change and reasons shall be disclosed: None.
3.5.4 If the audit fees are reduced by more than 10% comparing with that in the last year, the reduced amount of audit fees, proportion and reason shall be disclosed: None.

3.6 Information on change of CPA:

3.6.1 Information on the Former CPA

Information on the Former	CPA	CPA	CPA	CPA	CPA
Date of change	Passed byBoard of Directors on March 12,2020
reason and explanation of change	In order to maintain the independence of accountant, and implement the internaljob rotation of accountants in accountingfirm.
Describe whether the appointer terminates or the accountant rejects the appointment	Parties concerned Facts			By the CPAs	By the Appointer
	Initiative termination of appointment			N/A
	No longer accept (continue)the appointment
In addition to clean opinion, opinion of audit report issued in the last twoyears and the reason	None
Is there any different opinion with the issuer	Yes		Accounting principles orpractice
			Disclosure of financial report
			Audit scope or step
			Others

	No	Ｖ
	Explanation
Other disclosure matters (Should be disclosed pursuant to 4 to 7 of Subparagraph 1, Paragraph 6, Article 10 of this criterion)	None

3.6.2About the succeeding CPA

pursuant to 4 to 7 of Subparagraph 1, Paragraph 6, Article 10 of this criterion) About the succeedingCPA
Name of accounting firm	Crowe (TW) CPAs
Name of CPA	LIN, MING-SHOU、SHAO, CHAO-BIN
Date of engagement	2020/3/12(Since 2020 firstquarter)
Accounting treatment methods or accounting principles of specific transaction before appointment, advisory opinions might be issued on financial report and results	N/A
Written opinions of successive accounting on different opinions of former accountant	N/A

3.6.3 Reply of former accountant to the matter prescribed in Subparagraph 1 and 3 of Subparagraph
2, Paragraph 6, Article 10 of this criterion: Not applicable.

3.7 Whether the Chairman, General Manager, and managerial officers responsible for financial or accounting affairs of the Company once worked in the affiliated firm or enterprise of the CPA in the last year: None .
3.8 In the last year and as at the publication date of annual report, stock right transfer and changes in pledge of stock right in the directors, supervisors, managerial officers and shareholders with shareholding ratio over 10%:

3.8.1 Changes in stock right in the directors, supervisors, managerial officers and major shareholders:

Unit: share

				As at April 30, 2020 in the	As at April 30, 2020 in the
		2019
				currentyear

		Increased	Increased	Increased	Increased
Title	Name
		(decreased)	(decreased)	(decreased)	(decreased)

		number of	number of	number of	number of
		shareholding	pledged shares	shareholding	pledged shares
Chairman & General Manager	HSU, LIEN-KAI	334,015	(500,000)	-	-
Director	WU, CHIN-LU	17,314	-	-	-
Director	WU, CHIEN-SZU	256,089	-	50,000	-
Director	HSU, HUAI-YUN	-	-	23,000	-
Director & XIAMEN XIAHUI General Manager	HSU, HAN-YUAN	95,326	340,000	-	-
Director & XIAMEN XIAHUI VP	HSU, YA-TING	28,290	-	-	-
Independent Director	YEN, MEI-YING	-	-	-	-
Independent Director	CHANG, HORNG-YAN	-	-	-	-
Independent Director	HU, TA-HSIANG	-	-	-	-
Executive VP	HSU, HSIU-HUA	66,002	-	34,000	-
CFO of Finance Department	CHANG, SHENG-HUNG	445	-	-	-
Audit Supervisor	CHEN, YING-HUEI	1,594	-	-	-
PT. LUHAI VP	QIU ZHONG-LIE	395	-	-	-
KUNSHAN LUHAI VP	HSU, KUANG-WU	-	-	-	-
Major shareholder	DAY LIGHT BUSINESS CO., LTD.	440,195	-	-	-
Major shareholder	GET JOINT BUSINESS CORPORATION	440,195	-	-	-

3.8.2 Shares Trading with Related Parties: None.

3.8.3 Stock Pledge with Related Parties: None.

3.9 Information that the top ten shareholders in shareholding are of interested party, spouse or relatives within second degree relationship mutually:

							March 31,2020;Unit: share;	March 31,2020;Unit: share;	%
Name	Individual shareholding		Spouse & Minor children Shareholding		Total shareholding in the name of other person		Name and relationship between Company’s top ten shareholders, spouse or relatives within second degree.		Notes
	shares	%	shares	%	shares	%	Name	Relation
GET JOINT BUSINESS CORPORATION	9,244,115	10.74	-	-	-	-	-	-
(Representative: HSU, CHIN)	967,237	1.12	396,559	0.46	-	-	DAY LIGHT BUSINESS LARGE RISE HOLDING HIGHMOOR LIMITED HOLD INVESTMENT GROUP NEWS UP ENTERPRISE KEEP GRACE TECHNOLOGY PATTERN FINANCIAL GET TOGETHER	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree
DAY LIGHT BUSINESS CO.,LTD.	9,244,115	10.74	-	-	-	-	-	-
(Representative: WU, CHIN-LU)	363,614	0.42	232,049	0.27	2,796,833	3.25	GET JOINT BUSINESS LARGE RISE HOLDING HIGHMOOR LIMITED HOLD INVESTMENT GROUP NEWS UP ENTERPRISE KEEP GRACE TECHNOLOGY PATTERN FINANCIAL GET TOGETHER	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree
Taiwan Life Insurance Co., Ltd.	3,737,278	4.34	-	-	-	-	-	-
(Representative: HUANG,SI-GUO)	-	-	-	-	-	-	-	-
NEWS UP ENTERPRISE LIMITED	3,456,624	4.02	-	-	-	-	-	-

(Representative: HSU, SHOU)	409,348	0.48	-	-	3,456,624	4.02	GET JOINT BUSINESS DAY LIGHT BUSINESS LARGE RISE HOLDING HIGHMOOR LIMITED HOLD INVESTMENT GROUP KEEP GRACE TECHNOLOGY PATTERN FINANCIAL GET TOGETHER	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree
LARGE RISE HOLDING LIMITED	3,401,519	3.95	-	-	-	-	-	-
(Representative: HSU, HO)	543,691	0.63	180,599	0.21	3,401,519	3.95	GET JOINT BUSINESS DAY LIGHT BUSINESS HIGHMOOR LIMITED HOLD INVESTMENT GROUP NEWS UP ENTERPRISE KEEP GRACE TECHNOLOGY PATTERN FINANCIAL GET TOGETHER	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree
PATTERN FINANCIAL MANAGEMENT S.A.	3,401,519	3.95	-	-	-	-	-	-
(Representative: WU, CHING-SHU)	764,887	0.89	105,646	0.12	3,401,519	3.95	GET JOINT BUSINESS DAY LIGHT BUSINESS LARGE RISE HOLDING HIGHMOOR LIMITED HOLD INVESTMENT GROUP NEWS UP ENTERPRISE KEEP GRACE TECHNOLOGY GET TOGETHER	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree
HSU, LIEN-KAI	2,822,402	3.28	66,365	0.08	-	-	HSU, HO	First degree relative
KEEP GRACE TECHNOLOGY LIMITED	2,796,833	3.25	-	-	-	-	-	-

(Representative: WU, CHIN-LU)	363,614	0.42	232,049	0.27	2,796,833	3.25	GET JOINT BUSINESS DAY LIGHT BUSINESS LARGE RISE HOLDING HIGHMOOR LIMITED NEWS UP ENTERPRISE KEEP GRACE TECHNOLOGY PATTERN FINANCIAL GET TOGETHER	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree
HOLD INVESTMENT GROUP LTD.	2,755,345	3.20	-	-	-	-	-	-
(Representative: HSU, CHIN)	967,237	1.12	396,559	0.46	-	-	GET JOINT BUSINESS DAY LIGHT BUSINESS LARGE RISE HOLDING HIGHMOOR LIMITED HOLD INVESTMENT GROUP NEWS UP ENTERPRISE PATTERN FINANCIAL GET TOGETHER	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree
GET TOGETHER DEVELOPMENT GROUP S.A.	2,650,647	3.08	-	-	-	-	-	-
(Representative: HSU, HO)	543,691	0.63	180,599	0.21	3,401,519	3.95	GET JOINT BUSINESS DAY LIGHT BUSINESS LARGE RISE HOLDING HIGHMOOR LIMITED HOLD INVESTMENT GROUP NEWS UP ENTERPRISE KEEP GRACE TECHNOLOGY PATTERN FINANCIAL HSU,LIEN-KAI	Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree Representative is the relative within second degree First degree relative

3.10Number of shareholding of the Company, the directors, supervisors, managerial officers of the

Company, and the enterprise under direct or indirect control of the Company in the same reinvestment enterprise, and the consolidated comprehensive shareholding ratio

	April 30,2020	Unit: Thousand shares;	%
	Investment of director,
	supervisor, managerial officer	Comprehensive
	and enterprise under direct or indirect control	investment
	shares %	shares %

			April 30,2020 Unit: Thousand shares;% Investment of director, supervisor, managerial officer and enterprise under direct or indirect control Comprehensive investment shares % shares %	April 30,2020 Unit: Thousand shares;% Investment of director, supervisor, managerial officer and enterprise under direct or indirect control Comprehensive investment shares % shares %	April 30,2020 Unit: Thousand shares;% Investment of director, supervisor, managerial officer and enterprise under direct or indirect control Comprehensive investment shares % shares %	April 30,2020 Unit: Thousand shares;% Investment of director, supervisor, managerial officer and enterprise under direct or indirect control Comprehensive investment shares % shares %
Reinvestment enterprise	Investment of the Company		Investment of director, supervisor, managerial officer and enterprise under direct or indirect control
					Comprehensive
					investment

	shares	%	shares	%	shares	%
Lu Hai (BVI) Industrial Corp.	8,857	100	-	-	8,857	100
Allpro International Corp.	6,643	100	-	-	6,643	100
Mega Power Co., Ltd.	50	100	-	-	50	100
Yuanhui International Co, Ltd.	6,500	100	-	-	6,500	100
Lu Hai Industrial CORP.	3,000	100	-	-	3,000	100
PT. Luhai Industrial	8,000	100	-	-	8,000	100
Xiamen Xiahui Rubber Metal Industrial CO.,LTD.	-	100	-	-	-	100
Luhai Rubber Metal Industrial (KUNSHAN)CO.,LTD.	-	100	-	-	-	100

IV. Fundraising Situation

4.1 Capital and stock

4.1.1 Sources of share capital

4.1.1.1 Stock formation process:

March 31, 2020; Unit: thousand shares; NTD thousand

Month & Year	Issue price (NTD)	Authorized capital	Authorized capital	Paid-in capital	Paid-in capital		Notes	Notes
		shares	Amount	shares	Amount	Sources of share capital	Compensation of shares payment with property other than cash	Other
2009/10	10	120,000	1,200,000	42,000	420,000	Share swap	None	-
2009/10	14.8	120,000	1,200,000	54,000	540,000	Cash capital increase	None	-
2010/11	18	120,000	1,200,000	60,100	601,000	Cash capital increase	None	-
2013/12	23.8	120,000	1,200,000	67,614	676,140	Cash capital increase	None	November 13, 2013 Jin-Guan-Zheng-Fa- Zi No. 1020045461
2014/09	10	120,000	1,200,000	70,995	709,947	Transfer surplus to capital increase	None	September 19, 2014, Document No.: Tai- Zheng-Shang-Er-Zi No. 10300194131
2015/04	50	120,000	1,200,000	74,495	744,947	Cash capital increase	None	April 7, 2015, Document No.: Tai-Zheng-Shang- Er-Zi No. 10400057261
2017/06	57.7	120,000	1,200,000	74,515	745,155	Convertible bonds and conversion of new shares	None	-
2017/09	10	120,000	1,200,000	81,965	819,650	Transfer surplus to capital increase	None	-
2019/08	10	120,000	1,200,000	86,063	860,632,	Transfer surplus to capital increase	None	-

4.1.1.2 Capital and shares:

March 31, 2020; Unit: share

Authorized capital	Authorized capital	Authorized capital
			Notes
Issued shares (Listed Stock)	Unissued shares	Total


86,063,215	33,936,785	120,000,000

4.1.1.3 Summary of relevant information on reporting system: Not applicable.

4.1.2 Shareholder structure

March 31, 2020

Shareholder			Other		Foreign
	Government	Financial		Domestic Natural
structure			Juridical		Institutions and	Total
	Agencies	Institutions		Persons
Quantity			Persons		Natural Persons

Number of Shareholders	0	5	14	2,801	28	2,848
Number of shareholding	0	6,011,749	510,776	39,931,100	39,609,590	86,063,215
Shareholding (%)	0.00%	6.99%	0.59%	46.40%	46.02%	100.00%

4.1.3 Dispersion of shares

4.1.3.1 Common shares

March 31, 2020; par value per share: NTD10


	Number of	Number of
Classification of shareholding			Shareholding (%)
	shareholders	shareholding


1~ 999	877	146,543	0.17%
1,000 ~ 5,000	1,358	2,565,639	2.98%
5,001 ~ 10,000	242	1,767,957	2.05%
10,001 ~ 15,000	139	1,681,372	1.95%
15,001 ~ 20,000	50	859,331	1.00%
20,001 ~ 30,000	61	1,479,952	1.72%
30,001 ~ 50,000	36	1,315,520	1.53%
50,001 ~ 100,000	24	1,702,929	1.98%
100,001 ~ 200,000	14	1,952,666	2.27%
200,001 ~ 400,000	15	4,523,087	5.26%
400,001 ~ 600,000	6	2,976,952	3.46%
600,001 ~ 800,000	3	2,167,664	2.52%
800,001 ~ 1,000,000	2	1,891,236	2.20%
Over 1,000,001	21	61,032,367	70.92%
Total	2,848	86,063,215	100.00%

4.1.3.2 Preferred share: Unissued.

4.1.4 List of major shareholders

Name, shareholding amount and proportion of the shareholders with over five percent equity proportion, if less than ten shareholders, the top ten shareholders in equity proportion shall be disclosed:

March 31, 2020; Unit: share

Share Name of major shareholders
	Number of
		Shareholding (%)
	shareholding


GET JOINT BUSINESS CORPORATION	9,244,115	10.74%
DAY LIGHT BUSINESS CO., LTD.	9,244,115	10.74%
Taiwan Life Insurance Co. Ltd.	3,737,278	4.34%
NEWS UP ENTERPRISE LIMITED	3,456,624	4.02%
LARGE RISE HOLDING LIMITED	3,401,519	3.95%
PATTERN FINANCIAL MANAGEMENT S.A.	3,401,519	3.95%
HSU, LIEN-KAI	2,822,402	3.28%
KEEP GRACE TECHNOLOGY LIMITED	2,796,833	3.25%
HOLD INVESTMENT GROUP LTD.	2,755,345	3.20%
GET TOGETHER DEVELOPMENT GROUP S.A.	2,650,647	3.08%

4.1.5 Market price, net value, earnings, dividend per share and relevant materials in the last two years

Unit: NTD/ thousand shares

	Year	Year			As at March 31, 2020 in the
			2018	2019
Item					currentyear(notes 1)

Market price per share	Highest market price		48.65	48.00	42.30
	Lowest market price		27.50	32.80	32.55
	Average market price		35.74	38.85	37.97
Net value per share	Before distribution		27.18	26.73	26.34
	After distribution		24.93	23.36(Notes2)	-
Earnings per share	Weighted-average shares (thousand shares)		81,965	86,063	86,063
	Earnings per share (after tax)		2.54	2.81	0.46
Dividend per share	Cash dividend (Notes 3)		1.00	2.20	-
	Stock Dividends	Stock dividends from retained earnings (Notes 3)	0.50	0.50	-
		Stock dividends from capital surplus	-	-	-
	Accumulated unappropriated dividends		-	-	-
Analysis of return on investment	Price/Earnings ratio (Notes 4)		14.07	13.83	12.69
	Price/Dividend ratio (Notes 5)		35.74	17.66	-
	Cash dividend yield (Notes 6)		2.80	5.66	-

Notes 1. The Company’s financial report of the first quarter of 2020 reviewed by the accountant. Notes 2. This earnings distribution has not been passed by the General Shareholders’ Meeting. Notes 3. The year in which the dividend is distributed by resolution is the year of disclosure. Notes 4. Price/Earnings ratio = average market price / earnings per share. Notes 5. Price/Dividend ratio = average market price / cash dividend per share. Notes 6. Cash dividend yield = cash dividend per share / average market price.

4.1.6 Dividend policy and execution status

4.1.6.1 Dividend policy stipulated in Articles of Incorporation:

Article 115(a) If the Company has pre-tax profits in the current year, the Company shall set aside not less than1.5% of the profits as employees’ compensation and not more than 3% of the profits as Directors’ remuneration. When the employees’ compensation is distributed by cash or by issuing new shares, the employees entitled to such compensation may include employees of the Subsidiaries satisfying certain criteria as promulgated and amended by the Board of Directors from time to time. A resolution for employees’ compensation or Directors’ remuneration proposed to the Board of Directors of the Company shall be adopted by a majority vote at a meeting of the Board of Directors attended by two-thirds of the total number of directors and reported to the general meeting. However, before setting aside the profits as employees’ compensation and Directors’ remuneration in accordance with the ratio set forth in this paragraph, the Company’s accumulated losses shall have been covered. A Director who also serves as an executive officer of the Company

may receive a bonus in his capacity as a Director and a bonus in his capacity as an employee.

Article 115(b) The Company may distribute profits in accordance with a proposal for distribution of profits prepared by the Directors and approved by the Members by Ordinary Resolution. The Directors shall prepare such proposal as follows: the proposal shall begin with the Company’s Annual Net Income and offset its losses in previous years that have not been previously offset; then set aside a Legal Capital Reserve at 10% of the profits left over, until the accumulated Legal Capital Reserve has equaled the total paid-up capital of the Company; then set aside a Special Capital Reserve if one is required in accordance with the Applicable Public Company Rules or as requested by the authorities in charge. If there is net remainder, the Directors may prepare the proposal for distribution of Dividends, bonus or other benefits accounted together with undistributed profits accrued in previous years and submit to the general meeting for review and approval by a resolution.

Article 115(c) The Company is currently positioned in a growth and development phase. Due to the need for capital expenditure, operation expansion and an integrated financial planned in order to maintain sustainable growth, any balance left over under Article 115(a) and/or (b) may be distributed as Dividends (including cash dividends or stock dividends) or bonuses in accordance with the Statute and the Applicable Public Company Rules, among which the Dividends to be distributed shall not be lower than 10% of the balance left over and the cash Dividends shall not be lower than 10% of the total amount of Dividends distributed to the Members.

4.1.6.2 Situation of dividend distribution planned to be discussed in this year:

The 2019 earnings distribution of the Company has been passed by the resolution of the Board of Directors on March 12, 2020, it is planned to distribute stock dividend to shareholders at NTD0.49999991 per share (namely free allotment of 49.99999129 shares per thousand shares), and cash dividend at NTD2.20000009 per share, this part is still pending for the resolution of General Meeting, relevant earnings distribution statement is as follows:

follows:
	Unit: NTD
Item	Amount
Net profit after tax in 2019		241,909,875
Minus:
Allocation of statutory surplus reserve	24,190,988
Allocation of other equities minus special surplus reserve(Notes 1)	86,853,054
Earnings available for distribution in 2019		130,865,833
Plus:
Beginning undistributed earnings	680,723,341
Accumulated earnings available for distribution as at the end of 2019		811,589,174
Distribution item:
Shareholder Dividend－share(Notes 2)	43,031,600
Shareholder Dividend－cash(Notes 2)	189,339,081
Endingundistributed earnings		579,218,493

Notes 1. The Company has allocated the balance of NTD86,853,054 between the

NTD282,676,470 of special surplus reserve and NTD369,529,524 of recorded other equities minus net amount, hence other equities minus special surplus reserve is allocated.

Notes 2. It is planned to distribute stock dividend to shareholders at NTD0.49999991 per share (namely free allotment of 49.99999129 shares per thousand shares) and cash dividend at NTD2.20000009 per share this time, the total distribution of dividend to shareholders is NTD2.70 per share, and total distribution of dividends to shareholders is NTD232,370,681.
4.1.7 The impact of stock Dividends proposed by General Meeting this time on company’s business performance and earnings per share:

No stock bonus is allotted to employees this time, free allotment of 49.99999129 shares per thousand shares is planned, the dilution of earnings per share is about 4.76%, and it has little impact on the company’s business performance and earnings per share.

4.1.8 Compensation of Employees, directors and supervisors:
4.1.8.1 Percentage or scope of compensation of employees, directors and supervisors stated in Articles of Incorporation:

Article 115(a) of Articles of Incorporation of the Company has stipulated that, if the Company has pre-tax profits in the current year, the Company shall set aside not less than 1.5% of the profits as employees’ compensation and not more than 3% of the profits as Directors’ remuneration. When the employees’ compensation is distributed by cash or by issuing new shares, the employees entitled to such compensation may include employees of the Subsidiaries satisfying certain criteria as promulgated and amended by the Board of Directors from time to time. A resolution for employees’ compensation or Directors’ remuneration proposed to the Board of Directors of the Company shall be adopted by a majority vote at a meeting of the Board of Directors attended by two-thirds of the total number of directors and reported to the general meeting. However, before setting aside the profits as employees’ compensation and Directors’ remuneration in accordance with the ratio set forth in this paragraph, the Company’s accumulated losses shall have been covered. A Director who also serves as an executive officer of the Company may receive a bonus in his capacity as a Director and a bonus in his capacity as an employee.

4.1.8.2 Estimation base of employee, director and supervisor compensation in this estimation, the shares calculation base for employee’s compensation in stock distribution, and accounting treatment when the actual distribution amount is different from and estimated figure:
(1) Estimation base of employee and director’s compensation in this estimation: the 2019 employee and director’s compensation of the Company is subject to the profitability in such year, and it is estimated according to 1.5% of the profitability.
(2) Calculation base for stock bonus distribution: No stock bonus is distributed.
(3) In case of difference with the actual distribution amount according to the resolution of General Meeting and the recorded amount, it will be deemed as the change in accounting estimate, and the difference will be adjusted as the profit and loss of the actual distribution year.
4.1.8.3 Situation of compensation distribution passed by Board of Directors:
(1) Date of board resolution: March 12, 2020
(2) The amount of employee, director and supervisor’s compensation in cash or stock distribution. In case of difference with the annual estimated amount of recognized

expenses, the difference, reason and handling situation shall be disclosed:

A. Proposed employee’s compensation: NTD3,770,101
B. Proposed director’s compensation: NTD3,770,101

The employees’ compensation and directors’ compensation proposed to be distributed by the Company in 2019 have no difference with the estimated amount.

(3) The amount of employee’s compensation in stock distribution, and the proportion in the net profit after tax in individual financial report of this period and in the total amount of employee’s compensation:
- The 2019 earnings distribution of the Company does not plan to distribute stock bonus to employees, hence it is not applicable.
4.1.8.4 For the actual distribution situation of employee, director and supervisor remuneration in last year, if it is different from the recognized employee, director and supervisor remuneration, the balance, reason and handling situation shall be specified:
(1) Employees’ compensation: NTD3,223,656, it has no difference with the actual distribution.
(2) Directors’ compensation: NTD3,223,656, it has no difference with the actual distribution.

4.1.9 Buyback of Common Stock: None.

4.2 Status of Corporate bonds: There is no outstanding and in process corporate bonds.

4.3 Status of Preferred Shares: None.

4.4 Issuance of Global Depositary Receipts: None.
4.5 Status of Employee Stock Options Plan: None.
4.6 Status of New Restricted Employee Shares: None.
4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: None.
4.8 Financing Plans and Implementation : None.

V. Operational Highlights

5.1 Business content

5.1.1 Business scope

5.1.1.1 Major contents of operating business

LU HAI Group is the manufacturer specialized in producing all kinds of valves, it has complete product lines and its product quality is deeply trusted by customers. Currently, the valves produced by the Group can be roughly divided into the following four categories according to application use: ① Bicycle class; ② Motorcycle and electric motorcycle class; ③Passenger car, truck and off-the-road vehicles class; ④Accessories and other.

5.1.1.2 Proportion of business

Unit: NTD thousand; %

roportion of business			Unit: NTD thousand;%	Unit: NTD thousand;%
Year Major products	2018		2019
	Sales amount	%	Sales amount	%
Bicycle class	522,225	19.87	565,702	20.82
Motorcycle and electric motorcycle class	926,797	35.26	967,602	35.62
Passenger car, truck and off- the-road vehicles class	718,012	27.31	698,610	25.71
Accessories and other	461,744	17.56	484,975	17.85
Total	2,628,778	100.00	2,716,889	100.00

5.1.1.3 Current commodity (service) items of the company

All kinds of valves produced by the Group are a kind of independent valve body device, the air can enter into tubeless tire or tube space when opening it, then it will be closed and sealed automatically to preserve the air to generate air pressure, so as to prevent the air from flowing out from tire or tube. Apart from solid, all other inflatable tires or tubes need to use such device for inflation.

5.1.1.4 New products and services planned to be developed

Apart from development of new products according to customer’s tire design concept and functional requirements, R&D Team of the Group also continues to invest in projects such as equipment automation, system deployment and research and development of mold and jig etc., so as to improve the Group’s competitiveness in valve industry.

5.1.2 Industry overview

5.1.2.1 Current situation and development of industry:

All kinds of valves produced by the Group can be roughly divided into the following four categories according to application use: ① Bicycle class; ② Motorcycle and electric motorcycle class; ③Passenger car, truck and off-the-road vehicles class; ④Accessories and other; hence the proportion of revenue and future development of company are of high relevance to bicycle industry, motorcycle and electric motorcycle industry, automobile industry and TPMS industry, it is hereby explained the current situation and development of the Group’s industry according to the development of the aforesaid four industries.

A. Bicycle industry

Bicycle is the industry of ten thousand years, with the development of social economy and improvement of living standards, bicycle also marches towards diversified use along with era development; markets in developing countries will take bicycle as the major riding products instead of walk for transport, and markets in developed countries mainly take bicycle as recreational sport products and complementarily as riding products instead of walk. With rising environmental awareness and under the trend of energy saving and carbon reduction, bicyclists have higher and higher requirements in system and configuration, the atmosphere of riding bicycle has been obviously evolved into an expression of life attitude from the merely commuting or sports mode in the past.

Major bicycle consumption markets worldwide include USA, Europe, China and Japan, the year-round sales volume of bicycle worldwide is approximately 120~130 million bicycles, among them, approximately 17 million bicycles in USA, 20~21 million bicycles in Europe, and 25 million bicycles in China. In recent years, impacted by the rising bicycle sharing in China, China’s domestic demand market continues to be sluggish, but as the heat of bicycle sharing fading away and driven by upgrading bicycle demand, we can obviously feel that the China’s domestic demand market has been recovered; in mature European market, the demand on electric bicycle of high quality, light weight and high unit price continue to grow rapidly due to the subsidy policy of local government.

According to the data published by Department of Customs Administration, Ministry of Finance and Taiwan Bicycle Association, the export volume of complete bicycle was approximately 2.21 million bicycles in Taiwan in 2018, reduced by 6.72% year-on-year, mainly due to the gradual popular electric bicycle in European Union countries, causing overall decline of sales volume of regular bicycles; in 2019, both the quantity and price declined, the export volume of complete bicycle was 2.1256 million bicycles, reduced by 3.82% year-on-year, and the average export unit price was USD633.62, reduced by 5.26% year-on-year.

However, the export volume of Taiwan electric bicycle showed an increasing trend year by year, in 2018, the export volume of electric bicycle was approximately 280 thousand bicycles, increased by 56% year-on-year, and the export volume reached to 647.8 thousand bicycles in 2019, showing a multiple growth. The export unit price of one electric bicycle is approximately equivalent to the unit price of 2 regular bicycles, hence the average unit price of overall bicycle industry still increased.

Export Volume of Taiwan Electric Bicycle

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Data source: Taiwan Bicycle Association; summarized by LU HAI (2020/3)

Trend of Production Value and Average Unit Price of Taiwan Bicycle in the Last Ten Years

Unit: NTD

	Production quantity	Production value	Average unit price
Year
	(ten thousand)	(one hundred million)	(NTD/bicycle)

2010	511.2	475.6	9,304
2011	452.3	505.2	11,170
2012	450.5	540.4	11,995
2013	397.9	510.7	12,834
2014	375.8	502.3	13,365
2015	383.8	565.3	14,728
2016	269.8	474.1	17,574
2017	199.4	378.4	18,972
2018	189.4	402.1	21,231
2019	188.0	419.3	22,302

Data source: Department of Statistics, Ministry of Economic Affairs

According to the report of market research institution - PMR, for global bicycle market, the compound annual growth rate is expected to be 4.2% from 2018 to 2026, and the scale is expected to grow from USD55 billion to over USD80 billion. Among them, for the growth of global electric bicycle market, according to the statistics of Persistence, a market research company, from 2017 to 2025, the compound annual growth rate of global electric bicycle market will reach 6.3% to USD8.5 billion.

B. Motorcycle and electric motorcycle industry

Motorcycle is not only one of the important means of transportation in emerging developing countries, but also one of the components in the compound and modern means of transportation in metropolis of developed countries, and its demand will also continue to increase in the future. In recent years, the government has been actively promoting the southing policy, taking ASEAN, South Asia, New Zealand and Australia as the key areas for economic and trade development of our country, among them, the sales of motorcycles showed a continuous growing trend in India and Southeast Asia, but in China Mainland and Japan, the sales of motorcycles showed a declining trend due to the saturation

in domestic demand market. In market forecasting, it will grow by 0.4% in 2019 comparing with that in 2018, the industry scale of global motorcycles is 58.29 million motorcycles.

Asia is an important production base for global motorcycle, apart from that India, China and Indonesia are the top 3 in global sales respectively, together with those in Vietnam, Thailand, Pakistan, Malaysia, Philippine and Taiwan etc., the sales volume is accounting for over 90% worldwide, with economic growth in Southeast Asia, it is expected that those markets will continue to grow. But with continuous global economic recovery, it will drive economic upturn in various areas worldwide, consumers are more willing to buy automobiles instead of motorcycles, besides, the promotion of motorcycle sharing also causes demand decline in some areas, but driven by the demand growth in Asia and Latin America, it is predicted that the market scale of global motorcycle will be 57.89 million motorcycles in 2021.

Global Motorcycle Market Scale Forecast

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Data source: IEK Consulting(2019/07)

With national governments also have been actively promoting relevant motorcycle electrification policies, the cost of electric motorcycle reduces and the price of gas motorcycle rises due to more rigorous emission standards, according to the data of automotive and motorcycle industry yearbook of the Industrial Technology Research Institute, in 2019, the global sales volume of electric motorcycle has reached 571 thousand motorcycles, and the market share in Asian regions is the highest, recording 73.6%, followed by European regions, recording 10.4%, and 8.0% in American regions, and the rest is accounting for 8.0%, the total sales volume of electric motorcycle worldwide (excluding low speed electric motorcycle and bicycle) will reach to 705 thousand motorcycles.

Global Electric Motorcycle Sales Volume Forecast

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Data source: IEK Consulting(2019/07)

C. Automobile industry

Among the sales volume of new automobile worldwide, the sales volume in China is approximately accounting for thirty percent, and twenty percent in US, China and US are accounting for approximately half of the automobile market. The Sino-US trade war made the automobile market decline synchronously and lack of market support of equivalent scale, the sales volume of global automobile market in 2019 recorded negative growth, declined by 4.8% year-on-year, recording 90.27 million automobiles. According to the estimation of German Automobile Industry Association, it might further decline to 78.90 million automobiles in 2020, showing the decline for three consecutive years.

Overview of Sales Volume in Global Automobile Market in Recent Years

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Data source: LMC Automotive; summarized by LU HAI (2020/03)

Overview of Automobile Production and Sales in China Mainland in Recent Years

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Data source: China Association of Automobile Manufactures; summarized by LU HAI (2020/03)

In recent years, due to the rising of car sharing service, according to the survey data of IHS Market, from 2018 to 2022, the annual average growth rate in new car market will be 2%, almost declined by a half comparing with 3.7% from 2011 to 2017. It is estimated that the automobile markets in Japan, US and Europe will turn into negative growth, and the increasing speed in China will slow down sharply. Despite shrinking global market scale, the automobile industry still has bright prospects, including ever-growing electric vehicle and development of automatic driving technology. The global electric vehicle grows continuously, with annual sales volume close to 5 million vehicles in 2019, grew

by 20% year-on-year, the main force supporting sales volume is hybrid vehicles, approximately accounting for 54.2% of total sales volume of electric vehicles. The sales of electric vehicles is obviously driven by the policy, among the top five in the ranking list of national electric vehicles sales growth, three countries have announced to forbid selling fuel vehicles in 2030, countries of the highest growth are German, Israel and Netherlands successively; and France, England and Norway have also announced to stop selling gasoline and diesel vehicles entirely in 2025 and 2040; it is estimated that the sales volume of electric vehicle will be accounting for 10% of global vehicle market in 2021.

According to the statistics of IEA, in the last ten years, the deployment of electric automobiles has been growing rapidly, in 2018, the inventory of global electric passenger vehicles exceeded 5 million vehicles, grew by 63% year-onyear. In 2018, electric automobiles in China (2.3 million automobiles in total) were accounting for 45% approximately, and only 39% in 2017. In comparison, Europe was accounting for 24% of global electric automobiles, and US was accounting for 22%.

Electric car deployment in selected countries, 2013-2018

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Data source: IEA (2019/05). Global EV Outlook 2019

D. TPMS Industry

According to market analysis on Tire Pressure Monitoring System (TPMS for short), major function of TPMS is active safety of automobile, apart from avoiding the traffic accident caused by tire burst, it can also improve tire life and reduce oil consumption, and emission of carbon dioxide and exhaust gas, therefore, national governments have been promoting TPMS legislation successively in recent years. US is the country listing TPMS as the standard configuration by legislation at the earliest worldwide, legislation was passed in 2005, and 100% standard configuration was listed in 2007, it is estimated that there are approximately 280 million tire pressure monitoring systems are under operation currently. Apart from US, EU also started to promote TPMS by legislation in November 2012, and officially stipulated to list tire pressure monitoring system as standard configuration in November 2014. In Asian regions, the timing of TPMS legislation has been mature, currently Korea has followed up the legislation in 2013, and new automobiles delivered in July 2016

in Taiwan also listed TPMS as standard configuration, and starting from 2019, China Mainland, the biggest automobile market worldwide, requires that all newly certified passenger vehicles must install TPMS; and mandatory installation requirement will be implemented for all passenger vehicles under production as of 2020. Other regions including Japan and India etc. are also going through relevant legislative programs. Besides, according to the research report of Frost & Sullivan, the battery life of TPMS is approximately 5 to 10 years, since the formulation of regulations is earlier in US, hence the replacement was boomed in 2012; and the legislation in EU is later, therefore, after 2019, another wave of replacement will be stirred up. According to the “Global Automobile Tire Pressure Monitoring System (TPMS) Market Growth and Forecast” published by Mordor Intelligence LLP in February 2020, it is estimated that, during the investigation period from 2018 to 2023, it will be developed at the compound annual growth rate of 15.23%. Since China’s mandatory installation, China is expected to become the market with the rapidest growth of TPMS worldwide, or become the third biggest TPMS consumption market worldwide after Europe and America.

On one hand, the major growth momentum of TPMS comes from the demand on original (OE) components of TPMS driven by the increase of finished automobile production, the sales volume of new automobiles has been growing at a stable growth rate, hence the promoting effect on market growth of TPMS is limited; on the other hand, for countries (such as US and EU) have passed legislation for mandatory installation of TPMS, the accumulation of automobile holdings will bring strong momentum to the growth of demand on TPMS after market (AM) parts.

a. TPMS - OE market

According to the time of regulations formulation, currently the demand of OEM market mainly focuses on US and EU, and major growth point will be in China market in the future. The global TPMS OEM market is mainly dominated by Sensata, Continental, Pacific, ZF TRW and HUF currently, and the competition among these top five manufacturers are quite fierce, with their technological superiority, their market share worldwide is nearly 90%, and due to earlier entry into the market and having close relations with international car factories, the opportunity of new TPMS manufacturers to enter into the existing supply chain is quite low. According to the investigation and measurement by the Research Department of China CITIC Securities, it is estimated that in 2025, the global penetration rate of direct tire pressure monitoring system will reach 85%, and the global market scale of direct TPMS is RMB7.5 billion approximately.

Global TPMS market share in 2018

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Data source: CHYXX，CITIC Securities’ Special Report on TPMS in Automobile Industry (2019/12)

Measurement of Market Space of Front Loading TPMS in Global Passenger vehicles

		2014	2015	2016	2017	2018	2019E	2020E	2025E
Production quantity of	global
passenger vehicle (ten thousand		6,753	6,856	7,239	7,288	7,057	7,021	7,000	7,000
vehicles)
Production quantity growth of passenger vehicle	global	3.3%	1.5%	5.6%	0.7%	-3.2%	-0.5%	-0.5%	0%
Average price of global TPMS in single vehicle(NTD/vehicle)					173	147	135	128	126
Global penetration rate of TPMS	direct				75%	75%	80%	85%	85%
Global market scale of direct	TPMS
(NTD100 million)					94.3	77.6	75.8	76.2	74.7

Data source: CAAM，CITIC Securities’ Special Report on TPMS in Automobile Industry (2019/12)

b. TPMS - After Market (AM)

The life of TPMS battery is approximately 5~10 years, the TPMS mandatorily installed by legislation of US and EU in 2007 and 2014 respectively will enter into the period of battery replacement in 2012 and 2019 successively, and the demand on AM market emerges and becomes bigger and bigger, according to the estimation of Frost & Sullivan, the shipment volume of (AM) market in Europe and America will reach to 116 million items until 2020.

Besides, according to the statistics of research data of MarkLines, in 2015, the sales volume of automobile in Europe was 18.9 million automobiles, if 4 tire pressure monitoring systems are configured in each automobile, it is estimated that the market demand on TPMS original OE items in Europe is approximately 75.6 million items in one year, the wave of replacement of battery of 7 years of service life will emerge as of 2021. In Northern Europe and German, there is special winter snow tire market due to decree and insurance factors, the public in such regions will extra purchase a set of winter snow tire when buying automobiles, the snow tire market is the market available for occupation currently, after the wave of replacement emerges in 2021, the demand in AM market will be more obvious.

Estimate of Shipment Volume of TPMS-AM Market in Europe and America Unit: Million

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Data source: Frost & Sullivan

5.1.2.2 Relevance of upstream, midstream and downstream of industry

Upstream Midstream Downstream

Upstream	Midstream	Downstream
Rubber material	Valve industry	Tire industry:
Copper material Valve core	LU HAI GROUP PACIFIC INDUSTRIAL CO., LTD.	Bridgestone, Michelin Goodyear, Cheng Shin, Kenda etc.
Packaging material	Schrader International, Inc. Wonder S. p. a. SHANGHAI BAOLONG	Automobile and motorcycle manufacturing industry: FORD, HONDA, YAMAHA
Other	AUTOMOTIVE CORP.	etc.
		Wheel manufacturing
		industry:
		YUAN HENG, ALCOA etc.

5.1.2.3 Various development trends of product:

The Group focuses on research and development of the sealing gas of valves and the process technology of jointing rubber materials to metal body and tube. The developed equipment and process technologies are applied to the production of all kinds of valves, product lines are complete, applying to the tires in industries of bicycle, motorcycle and electric motorcycle, automobile, truck and Off-the-road vehicle etc. The valve industry can be of hundred years, apart from solid tire, all other inflatable tires or tubes need to use such device for inflation. Since the performance of solid tire has great limitations, inflatable tires almost have achieved complete success, valves are almost the indispensable components in tire commodities.

TPMS and valves are relevant to tires, and the sales channels of these two products are almost the same. Currently in international market, major TPMS suppliers include Sensata Technologies, Inc. (hereinafter referred to as Sensata), Continental AG and Pacific Industrial Co., Ltd. (hereinafter referred to as Pacific), and they are also the valve suppliers at the same time. The Group is one of the biggest valve suppliers worldwide, possessing thorough sales channels and customer resources, in the future, in response to the trend of legislation and safety awareness, the growth of TPMS is promising.

R&D team of the Group comprises of multiple senior experts engaging in rubber

material, metal processing, machine design, and automation control industries etc., they have been dedicated to respective fields of professional skills for more than ten year, under the coordination with the development trend of tires in bicycle, motorcycle and electric motorcycle, and automobile industries etc., the Group matches up with customer development and performance improvement, and improve the degree of process production automation, so as to reduce costs and enhance product competitiveness.

5.1.2.4 Competition situation:

World-class U.S. company Sensata has sold its traditional valve business to Japanese company Pacific, only keep developing TPMS products; Due to Japanese company Pacific previously failed to effectively reduce the production cost of valve, Pacific is focusing on other products within the Development Group and finding partner to reduce costs; German company Contiental’s major supplier Baolong has formed a joint venture with Huff Group. As the result is bound to replace the valve industry, Luhai Corp. as the industry’s leading enterprise, with obvious marketing channels, quality advantage which is the best of opportunity to undertake the industrial sector adjustment.

For the Group’s major competitors in valve products currently, among domestic listed manufacturers and unlisted practitioners, there are no relevant manufacturers. The Group’s professional manufacturing capabilities of valve products have been deeply recognized by customers in the market, in the future, the Group will attach more attention to the investment in automation equipment and differentiated customer service, so as to get rid of the low price competition with valve manufacturers from mainland.

5.1.3 Technology and research and development overview:

5.1.3.1 Research and development costs input in the last year and as at the publication date of annual report

Unit: NTD thousand

annual report		Unit: NTD thousand
Year Item	2019	As at March 31, 2020 in current year
Research and development costs	29,410	6,198
Net revenue	2,716,889	530,954
Proportion of research and development costs %	1.08	1.17

5.1.3.2 Technologies or products successfully developed

Year	Product
2008	Part composite valve, light tire valve, improved structure of tire valve, multi-station metalworking combined machine tool, automatic feeder, automatic bendingmachine
2009	Process technique improvement, change manual tapping into automatic threading, truck valve anti-bending testing machine, one-time bending jig,and special valve

Year	Product
2010	Vacuum vulcanizing technique, improvement of green copper process, truck valve with deep end hole, O type assembly machine, assembly machine with rubber mat,valve with rubber mat
2011	Automatic pin removal machine, patent for new valve, patent for improved structure of valve, full-automatic valve marking equipment, two-end type truck valve,extension tube,TPMS airtight machine
2012	Air pressure cover technique development, valve core body development, TPMS rubber base valve development, air-conditioning valve, multi-functional airtight machine, stainless steel sand blasting technique
2013	Development of various rubber bases and aluminum valves for TPMS, multi-axis base cutting equipment, hot forging production technique
2014	Coil material technique development, visual inspection tester, vulcanizing mold cover improvement, hot hammer automation development, automatic tapping machine development, aluminum alloyvalve bodydevelopment
2015	Automatic chamfering machine, communal automatic bending machine, communal visual inspection airtight machine, valve automatic sorting machine, hot forging rotary table and change it to one-shot, change manual feeding into automatic feeding by mechanical arm in hot forging, vulcanizing mold improvement, development of TPMS high speed valve, development of green passivation technique, development of vacuum automatic feeding, development of cost reduction in PVR70 series, green copper technique improvement, development of green copper hollow technique, development of low cost in 87 series
2016	JS2 automatic technique development, development of cut resistance H-SR rubber material, development of tube valve of balance car, development of free cutting copper AR technique, renovation for energy saving in electrothermal vulcanizing machine, change steam vulcanizing machine into electrothermal type, development of various tungsten steel cutting tools in the plant, optimization of aluminum alloy jointingtechnique
2017	Renovation of visual inspection automatic sorting machine, realization of automatic upending and marking process after grinding, development and production of cutting tools for five-axis CNC sharpening equipment, development of PVR series automatic bottom forming machine, VFR riveting machine development, VFR airtight machine development, ITV punching machine development, valve core airtight machine development, development of copper coil winding machine and pay-off machine, development of automatic stock cutter, development of automatic upender, MH series airtight machine development, development of various German tungsten steel cutting tools

Year

Product

2018

Development of TR4 series full-automatic plugging machine and
grinding machine, development of CR202 sand blasting automatic
discharging machine, development of PVR70 visual airtight machine
and automatic bending machine, development of full-automatic copper
powder dumping machine, development of VFR visual image airtight
testing machine, dual copper rod synchronous automatic stock cutter,
four stations all-in-one machine, two-sided processing machine, green
automatic sand blasting machine, research and development on the
issue of new anti-rust liquid for truck valve, research and development
of the new mold of rubber for wastage reduction in high speed valve.

2019

Development of disulfide rubber saving mold, development of smoke-
free hot header, development of PVR70 series automatic vulcanized
disc inserting machine, development of TR4/AR/CR202 series full-
automatic grinding machine, development of TR4 automatic sand
blasting machine, development of German processor with VFR/CR202
stem, research and development of annealing flow-line equipment,
research and development of new punch equipment, automatic
connection of body processing line, and research and development of
grinding and feeding robot, automatic grinding machine and V002
gaseous core assemblymachine.

5.1.4 Long-term and short-term business development plan

5.1.4.1 Short-term development plan

① In the aspect of marketing strategy
A. Provide stable quality and quantity, strengthen after-sales service and establish a perfect system, dedicated to serve existing customers.
B. Develop potential customers in OE automobile market.
C. Construct complete production process for subsidiaries in Indonesia, actively develop domestic market of Indonesia.
D. Continuously develop products of high gross profit to ensure competitive advantage of the company.
② In the aspect of production strategy
A. Improve procurement efficiency, master the dynamic condition of raw materials, and reduce inventory.
B. Strengthen cooperation relationship with suppliers to reduce procurement cost.
C. Strengthen production management to reduce production cost and improve product competitiveness.
③ In the aspect of R&D strategy
A. Enhance process improvement, and further conduct lean management on production process to reduce wastage and stabilize quality.
B. Continue to invest in the update of automation equipment and develop technologies actively, and expand the market of high gross profit products.
④ In the aspect of operation management
A. Construct Enterprise Resource Planning (ERP) system to simplify work process and improve management efficiency.

  - B. Regularly hold educational training inside and outside the plant to improve the quality of manpower in terms of technology research and development, business and operation management.

⑤ In the aspect of financial management
- A. Establish close relationship with contacting financial institution to master financial market fluctuation and improve the performance of financial use.
- B. According to the plan on medium and long term fund demand, carry out short term financial planning under safe and steady principles.
5.1.4.2 Long-term development plan
① In the aspect of marketing strategy
- A. Actively develop the market for niche products to acquire higher profits.
- B. Seek for possible strategic partner to give play to the operating efficiency of one plus one is greater than two.
- C. Participate in overseas exhibitions, actively establish cooperation relationship with OE car factories.
② In the aspect of production strategy
- A. Integrate procurement power of the Group to acquire reasonable price to reduce production cost, and maintain a long-term, good and stable cooperation relationship with suppliers.
- B. Keep close to major customers and markets, and carry out nearby production to shorten delivery time.
- C. Vertical integration, develop copper smelting and rubber refining businesses, and expand the self-production rate of large valve core.
③ In the aspect of R&D strategy
- A. Establish system integration capability to provide consulting and technical services to subsidiaries of the Group and customers.
- B. Jointly improve products with customers, and improve added value and gross profit of products.
④ In the aspect of operation management
- A. Establish the flat organization, thorough objective management system and reasonable employee’s performance appraisal system.
- B. Regularly hold educational training for employees of the company, so as to enrich professional technical competence and improve work efficiency.
- C. Construct enterprise electronization, information security system and thorough knowledge management system.
- D. Initiate global competition and employee’s concept of lifelong learner, and take marching towards an international enterprise as the striving objective.
- E. Establish high quality, integrity and innovative corporate culture, so as to condense the centripetal force of the management team and employees of the company.
⑤ In the aspect of financial management

A. Regarding working capitals, apart from supplemented by net profit after tax, collocate with loans and cash capital increase from financial institutions to inject funds necessary for future development.
B. Properly arrange financial planning of the company to reduce operating risks.

5.2 Market, production and marketing overview:

5.2.1 Market analysis

5.2.1.1 Sales (supply) regions of main commodities (services):

Unit: NTD thousand; %

			Unit: NTD thousand;%	Unit: NTD thousand;%
Year Salesregion	2018		2019
	Amount	%	Amount	%
China	1,158,441	44.07	1,179,262	43.41
Indonesia	712,812	27.11	761,096	28.01
Other	757,525	28.82	776,531	28.58
Total	2,628,778	100.00	2,716,889	100.00

5.2.1.2 Market share:

The Group is a professional valve manufacturer, currently, there is no professional research institute on making research on global valve industry. According to the “Report on 2012-2016 Valve Market In-depth Research and Future Development Trend Forecast” published by Beijing Junyi Huasheng Technology Co., Ltd., the production capacity of valve industry in China is approximately 3.4~4 billion items, and monthly production capacity of the Group is approximately 66 million items, namely with annual production capacity of at least 700 million items, it is estimated that the Group’s production capacity is approximately accounting for at least 1/10 of the production capacity of global valve market, it can be called as the professional valve supplier with maximum production capacity worldwide.

Professional valve core committee of China Chemical Industrial Equipment Association shows that, the valve manufacturing in China is accounting for eighty percent worldwide, and the output of valve industry in China is approximately 3~4 billion items, the output of the Group in 2019 is approximately 660 million items, it is estimated that the Group’s output is accounting for at least 1/10 of the output of global valve market, it can be called as the professional valve supplier with maximum output worldwide.

The news of China valve core website in May 2014 indicated that, the valve industry had entered into the era of micro growth, according to the estimate based on the annual sales volume of 5 billion items worldwide, by conservative estimate, the sales volume of the Company in 2019 is accounting for 10% of market share.

5.2.1.3 Future market supply and demand condition and growth:

① Supply and demand aspect

The demand of valve market is mainly divided into OE market and AM market, valve is an important safety item in wheel module, since it is exposed outside for a long time and needs to bear all kinds of severe environments and changes in temperature difference, and it needs to bear strong centrifugal force upon running at high speed, the valve can be easily worn down, upon annual vehicle inspection or tire

replacement, generally the valve will be replaced for the sake of “driving safety”, hence the demand on valve in AM market is far higher than that in OE market.

US Tire Business has announced the “Ranking of 2019 Global Tire Companies”, according to the statistics, in the last year, the total revenue of 75 tire manufacturers worldwide was approximately USD160.925 billion (information of some enterprises are not available), increased by 1.73% year-on-year.

According to the tire performance in the first half of 2019 successively published by the world’s tire giants, most of them achieved increase in sales amount, and the tire price rose generally, it’s estimated that the global tire sales amount will be better in 2019, but since the beginning of 2020, due to the outbreak of COVID-19 in China Mainland, People are going out less and there is less demand on economic activities.

The top ten ranking in 2019 is roughly the same as that in 2018, Bridgestone has been ranking No. 1 in the ranking of global tire industry for eleven years consecutively, followed by Michelin, and Goodyear ranked No. 3, And Cheng Shin Group from Taiwan maintains ranking No. 9 from 2012 to 2018, and retreat to the tenth largest in 2019.

	Global TopTen Rankingin Tire Industry	Global TopTen Rankingin Tire Industry	Global TopTen Rankingin Tire Industry
Ranking in 2019	Company/country	Sales volume of tire in 2018 (USD 100 million)	Sales volume of tire in 2017 (USD 100 million)
1	Bridgestone/Japan	249.82	243.5
2	Michelin/France	232.75	235.6
3	Goodyear/USA	143.92	143
4	Continental/German	117.57	113.25
5	Sumitomo Rubber Industries/Japan	69.62	67.55
6	Pirelli/Italy	61.25	60.34
7	Hankook Tire/Korea	58.1	55.35
8	Yokohama Rubber/Japan	47.46	48.62
9	ZC Rubber/China	39.96	36.21
10	Cheng Shin Rubber/Taiwan	39.07	39.55

Data source: US Tire Business

② Future market growth

The proportion of global tire production is roughly as follows: Asia (59.8%), Europe (15.5%), North American (11.7%), South America (5.8%) and other (7.2%); and the proportion of consumption in global tire market is roughly as follows: Asia (37.1%), Europe (21.8%), North American (23.6%), South America (7.6%) and other (9.9%); among them, the tire demand in China Mainland is obviously greater than global level, generally speaking, replacement of tire is needed about every 2~3 years, hence it is expected that the AM market in China will grow stably, and the demand on tire replacement will increase gradually, and the global top tire manufacturers happened to make external announcement on plant expansion plan successively in

2014, In 2020, despite the market demand reduces due to the impact of COVID-19, in the long run, the demand of valves will return to normal standard and grow steadily.

5.2.1.4 Competition niche:

① Technology aspect
A. With key capability in process and mold
B. Capability of providing output promptly
C. Degree of automation equipment is ahead of the general industry level

In order to ensure to provide customers stable quality and rapid service, the Group continuously increases automation equipment investment and the research and development of process improvement, in recent years, the research and development costs have been rising along with the increase in revenue, the achievements in these process improvement and automation equipment investment will continue to produce benefits in the future, the error generated from manual operation and the impact on the rising wage costs can be reduced substantially.

② Product aspect
A. Rapid delivery
B. The product quality is recognized by major international manufacturers
C. With advantage in scale production

The Group has acquired certification from world’s top three tire manufacturers, namely Bridgestone, Michelin and Goodyear, and the top ten tire manufacturers including Cheng Shin and Kenda are also the customers of the Group, indicating that the product quality of the Group is deeply recognized by major international manufacturers; besides, currently the Group takes a leading position worldwide in terms of overall yield and quality of valves, with advantage in scale production, the Group is able to deploy production line according to the delivery time of customers to achieve rapid delivery and stable quality.

③ Management aspect
A. Degree of mastering cost and inventory
B. The management team has rich experience and have been engaged in valve industry for over thirty years.

Directors and managerial officers of the Company are the professionals engaging in valve industry for many years, they are highly sensitive to industry changes, and are able to promptly adjust raw materials and cost inventory for strict cost control in response to the changes in the upstream, midstream and downstream of the industry.

④ Customer aspect
A. Satisfy special specification requirement of the customer
B. Complete product lines, convenient to provide one-stop service to customers

The Group has complete product lines, and products have extensive scope of application to bicycle class, motorcycle and electric motorcycle class, automobile and truck and off-the-road vehicle class, satisfying application

requirements of different customers and products have various specifications, which is convenient to provide one-stop service to customers, saving procurement management costs of customers.

5.2.1.5 Favorable and unfavorable factors in development prospect and solutions: ① Favorable factors
A. Legislation trend

With various countries are attaching importance to the issues of environment friendly and energy saving and driving safety, advanced countries have legislated and implemented regulations on mandatory installation of Tire Pressure Monitoring System (TPMS) successively. For example, US had passed the legislation in 2005 and listed TPMS as standard configuration in 2007, after 2015, over 90% of old automobiles in US were installed with TPMS; EU and Korea also gradually implemented mandatory installation in new automobiles in November 2012 and January 2013 respectively; Taiwan planned to release standard configuration for new automobiles in July 2016; starting from 2019, TPMS must be installed in all newly certified passenger vehicles in China Mainland; and as of 2020, mandatory installation requirement will be implemented for all passenger vehicles under production. And Japan and India have also gone through similar legislative procedures. Due to such international trend, the valves produced by the Group can be combined with electronic sensor of various electronics developers to TPMS, taking advantages in AM market and future OE regulatory requirements.

B. Restructuring of industrial order is favorable to us

Under the pressure of unable to reduce production cost effectively, the world’s leading manufacturers, namely Schrader from US and Pacific Industrial Co., Ltd. from Japan, who have made their fortune in valve industry, withdraw from the traditional valve market gradually, and focus on developing TPMS valves or other products of the Group instead. Under the background of global sourcing and industrial transfer, with existing advantages in customer resources and market popularity, in the course of undertaking industrial transfer, the Group has the chance to improve the market share of products.

C. Full and complete product lines

The Group possesses full and complete product lines respectively applied to bicycle industry, motorcycle and electric motorcycle industry, automobile industry and tire pressure monitoring system, therefore, the Group has not focused on application to a single industry, and industrial risks are relatively dispersed.

D. Degree of automation is superior to general industry level

The Group’s degree of investment in automation equipment is higher than the general industry level, under the trend of rising wages in Mainland, due to higher investment in automation equipment, the Group’s management efficiency will continue to emerge in the future and widen the gap between the competitors.

② Unfavorable factors

A. Declining product gross profit rate

China Mainland increases the basic salary year by year and implements social insurance system and housing fund, making the costs of human resources in business management increasing continuously, along with the price competition pressure from competitors, it will affect the performance of product gross profit rate of the company. Solutions

a. The rising wages in mainland dilutes the gross profit, the Group will strengthen automation equipment and make the best of labors in Indonesia plant, so as to shorten manufacturing and production process, reduce defect rate and cost, and provide products of more price competitiveness to customers.
b. Continue technology development and launch niche products, conduct market segmentation to maintain higher gross profit rate.
B. Price competition among competitors

In recent years, the China’s automobile market is booming, driving rapid growth of relevant industry and supply and demand of components, causing gradual increase of investment competitors, and the price competition among competitors will cause impact on profitability.

Solutions

In respond to industrial demand, the Group will focus on the differentiation in product and operation model, actively improve the existing products, and continue to develop niche products to make the differentiation advantage of the company prominent and make market segmentation, so as to improve overall competitiveness of the company.

C. Fluctuations in prices of raw materials

Major procurement raw materials of the Group are copper material and rubber, the rising prices of raw materials will increase the procurement costs and dilute gross profit from sales; and the declining prices of raw materials will make the downstream customers postpone ordering due to expecting price reduction, hence the fluctuations in prices of raw materials will have considerable impact on the profitability of the Group. Solutions

According to the report of the Department of Industry of Australia, in 2019, the global copper consumption quantity was approximately 23.70 million tons in 2019, the largest consuming country China Mainland was accounting for half the number, and China is also the major source of growth in the future; in the long run, the consumption growth of global copper demand will mainly reply on the investment in electric vehicle, battery and power grid (including wind power generation and solar power generation). At the beginning of 2020, the Sino-US trade war seems to ease, which is good for the rising of copper price originally, but the outbreak of novel coronavirus in various countries

successively causes great impact on the economic activities, hence the trend of copper price is still unknown.

Rubber tree is a kind of plant in fond of high temperature and humidity, it has obvious regionalism, due to climatic suitability, Southeast Asia is the most important natural rubber production region worldwide, over 90% natural rubbers are produced from Southeast Asia ever year, among them, Thailand and Indonesia are the major place of production, accounting for 60% worldwide. Generally in the first half year, the market mainly focuses on the government's policy on price maintenance and increase, in the second half year, the market mainly focuses on whether extreme weather will take place during the period of rubber tapping, which will have impact on the progress of rubber tapping. Throughout the global natural rubber market, since the new planting area in major natural rubber production countries reached to peak from 2010 to 2012, after 5-7 years of planting, rubber tapping will be started, and high yielding period will come after 10-15 years, hence it is estimated that from 2020 to 2025, it might be difficult to change the excess supply of natural rubber, and the price will maintain at the trend of low price shocks. Besides, due to continuous decline of oil price, it is estimated that the price of butyl rubber will decline as well.

The Group masters market information all the time, reduces the pressure from rising price of raw materials with a stable procurement quantity, prepares reasonable and safe inventory for raw materials, and appropriately reflects the sales price of downstream customers upon price fluctuation, so as to reduce the impact on operation performance.

5.2.2 Important use and production process of major products

5.2.2.1 Important use of major products:

The Group is a professional manufacturer producing all kinds of valves, the valve is a kind of independent valve body device, its main function is to let air enter into tubeless tire or tube space when opening it, then it will be closed and sealed automatically to preserve the air to generate air pressure, so as to prevent the air from flowing out from tire or tube.

5.2.2.2 Production process

The production technique is divided into two parts of process: namely the part for metal piece and the part for rubber piece.

Metal piece production process: after forging raw copper materials into a certain length, it will enter into automatic thread rolling machine for thread rolling, after cutting by multiple processing machining, one-off degreasing will be conducted, then conduct machining such as head refining (deburring), reaming etc. in head refining machine, after further cleaning (removing greasy dirt on the surface) of the processed metal piece, it will enter into plating line for nickel plating, after treatment of the electroplated piece by bottom forming machine (the purpose is to remove cladding material, and make copper material able to set off vulcanization reaction with rubber), it will be taken as the semi-finished product of metal piece and stored for further use.

Rubber piece production process: place rubber material into rubber refining machine for mixing processing to make the mixing thickness of rubber meet the requirements of the next working procedure; after forming into piece in mixing machine, apply a layer of powder onto the rubber piece after a while, after cut into certain size by stock cutter, place the cut rubber piece into vulcanizing machine together with metal piece, then go through high-temperature steam by mold, rubber mat will be vulcanized and machine shaping into all kinds of rubber mat valve products, finally, conduct roughening and grinding, after passing manual quality inspection, the product will be packed and stored.

==> picture [382 x 149] intentionally omitted <==

5.2.3 Main raw materials’ supply condition

Main raw materials	Main supplier (domestic)	Supply condition
Copper material	DAECHANG, Ningbo Jintian, Ningbo Boway	Good
Rubber material	Exxon Mobil, Sinopec	Good

5.2.4 List of main trade creditors and debtors

5.2.4.1 Name of the suppliers once accounting for over 10% of total purchase in any year of the last two years and its purchase amount and proportion, and describe the reason for increase or decrease change:

Unit: NTD thousand

			2018	2018						2019	2019				As at the first quarter of 2020	As at the first quarter of 2020	As at the first quarter of 2020	As at the first quarter of 2020	As at the first quarter of 2020	As at the first quarter of 2020	As at the first quarter of 2020
Item	Name		Amount		Proportion of net purchase in the whole year (%)		Relation with the company	Name		Name		Proportion of net purchase in the whole year (%)		Relation with the company	Name			Name		Proportion of net purchase in the whole year (%)	Relation with the company
1	Ningbo Jintian		390,274		27.35		None	Ningbo Jintian		488,842		31.75		None	Ningbo Jintian			75,564		24.50	None
2	DAECHANG		215,094		15.07		None	DAECHANG		175,991		11.43		None	DAECHANG			41,164		13.35	None
	Other		821,636		57.58		-	Other		874,714		56.82		-	Other			191,656		62.15	-
	Net purchase		1,427,004		100.00			Net purchase		1,539,547		100.00			Net purchase			308,384		100.00

		2018							2019							As at the first quarter of 2020
Item	Name	Amount		Proportion net sales in the whole year (%)		Relation with the company		Name	Amount		Proportion net sales in the whole year (%)		Relation with the company			Name	Amount		Proportion net sales in the whole year (%)		Relation with the company
1	Cheng Shin Group	346,067		13.16		None		Cheng Shin Group	367,569		13.53		None			Cheng Shin Group	51,777		9.75		None
	Other	2,282,711		86.84		-		Other	2,349,320		86.47		-			Other	479,177		90.25		-
	Net sales	2,628,778		100.00				Net sales	2,716,889		100.00					Net sales	530,954		100.00

Reason for increase or decrease change: major sales objects of the Group are stable, there is no significant change, and there is no risk of centralized sales.

5.2.5 Table of production quantity and value in the last two years

Unit: 10 thousand pcs; NTD thousand

Year Major commodity Production quantity and value	2018	2018	2018	2019	2019	2019
	Production capacity	Production quantity (Notes 1)	Production value	Production capacity	Production quantity (Notes 1)	Production value
Bicycle class	30,150	20,856	446,067	30,150	23,157	478,593
Motorcycle and electric motorcycle class	36,800	29,975	808,489	36,800	34,098	889,116
Passenger car, truck and off-the- road vehicles class(Notes 2)	16,587	9,463	677,873	16,587	9,015	672,672
Total	83,537	60,294	1,932,429	83,537	66,270	2,040,381

Notes 1. The production quantity of valves includes the quantity in outsourcing.

Notes 2. Production quantity of valves for passenger car, truck and off-the-road vehicles class includes the values of other classes and quantity of assembly.
Reason for increase or decrease change: for production capacity of major commodities, the Group can adjust the vulcanization process at later stage of production line to produce products of different specifications according to customer order; Driven by the market growth in ASEAN and Brazil, the production quantity and order of valves for bicycles and motorcycles of the Group grows in 2019; with increasing awareness of environmental protection, energy saving and carbon reduction, and continuous growth of demand on electric vehicles in European regions, the production quantity and shipment volume of valves for electric vehicles increase; the trade friction between China and US slows down economic growth, and poor domestic demand in China slows down the automobile market, the production quantity and shipment volume of valves for automobiles decrease; however, various countries have successively legislated to make the tire pressure monitoring system (TPMS) become the standard configuration of automobiles, and the Group has been actively developing customers for TPMS valves, hence the customer order increases, and the production quantity is stable.

5.2.6 Table of sales quantity and value in the last two years

Unit: 10 thousand pcs; NTD thousand

Year	2018	2018	2018	2018	2019	2019	2019	2019
Sales quantity and value Major commodity	Domestic sales		Export sales		Domestic sales		Export sales
	Sales quantity	Sales value	Sales quantity	Sales value	Sales quantity	Sales value	Sales quantity	Sales value
Bicycle class	-	-	18,254	522,225	-	-	19,496	565,702
Motorcycle and electric motorcycle class	-	-	27,041	926,797	-	-	28,101	967,602
Passenger car, truck and off-the-road vehicles class	-	-	6,712	718,012	-	-	6,267	698,610
Accessories and other	-	-	-	461,744	-	-	-	484,975
Total	-	-	52,007	2,628,778	-	-	53,864	2,716,889

Notes: For accessories and other items of the Group, due to various product categories and specifications, hence only sales value is included in statistics.

Reason for increase or decrease change: please refer to Item (V), the description on the reason for increase or decrease change stated in the table of production quantity and value in the last two years.

5.3 Information of service employees in the last 2 years and as at the publication date of annual report

Item	Year	2018	2019	As at the end of April 2020
Number of employees	Indirect labor	375	377	383
	Direct labor	814	758	756
	R&D labor	57	53	58
	Sales and Management labor	106	121	117
	Total	1,352	1,309	1,314
	Average age	37	37	37
Average length of service		7	6	6
Degree distribution ratio	Doctor degree	-	-	-
	Master degree	0.30%	0.54%	0.68%
	College degree	13.61%	14.51%	15.00%
	Senior high school degree	36.76%	34.61%	33.64%
	Below senior high school degree	49.33%	50.34%	50.68%

5.4 Environmental protection expenditure information

5.4.1 In the last year and as at the publication date of annual report, the loss suffered due to environmental pollution (including compensation and violation of environmental protection regulations according to the inspection results of environmental protection, the date of punishment, punishment number, legal provisions violated, contents of legal provisions violated, and punishment contents shall be listed), and disclosure of estimated amount might occur currently and in the future and the solutions, if it cannot be reasonably estimated, the facts of unable to estimate reasonably shall be described:
In the last year and as at the publication date of annual report, the Group is free of
any dispute regarding environmental pollution, hence there is no major punishment and loss due to polluting the environment.
5.4.2 Pursuant to laws and decrees, if pollution facility setting license or pollutant discharge permit shall be applied for, or pollution prevention and control costs shall be paid, or environmental protection dedicated unit and personnel shall be set, description on the application, payment or setting circumstances thereof:

			Pollution prevention
Region	License	Validity date
			and control costs

XIAMEN XIAHUI	Pollutant discharge permit	05/22/2019-02/02/2021	Subject to local regulations, RMB1.5 per ton of water

			Pollution prevention and control costs
Region	License	Validity date

KUNSHAN LUHAI	Pollutant discharge permit	04/24/2020~04/23/2025	RMB100 thousand per year
PT. LUHAI	Waste disposal permit	07/23/2018-07/23/2020	None
PT. LUHAI	Waste temporary disposal permit	11/13/2017-11/13/2022	None
PT. LUHAI	Environmental treatmentpermit	Permanent validity	None

5.4.3 Investment in major pollution prevention and control equipment, and their use and benefits might be generated:

March 31, 2020

		Date of	Investment	Undepreciated	Use and expected
Equipment name	Quantity
		acquisition	cost	balance	possible benefits

Sewage treatment equipment (industrial and domestic)	1	11/12/2001	RMB 225.5 thousand	RMB 39.5 thousand	1. Use: treatment of sewage from the blank grinding area of Manufacturing Section 1 and 3; body cleaning sewage from Manufacturing Section 2; treatment of sewage from the dining hall and rest rooms of the plant. 2. Benefits: ensure the discharged water quality meet the emission standard; reduce pollutant discharge.
Sewage treatment system	1	12/30/2010	RMB 836 thousand	RMB 39.5 thousand	Supporting measures for environmental protection, reducepollutant discharge.
Sewage treatment system	1	8/31/2012	IDR 218.27 million	IDR 52.75 million	Sewage treatment, reduce pollutant discharge.
Nickel sulfate sewage treatment equipment	1	8/31/2014	RMB 201 thousand	RMB 111.6 thousand	Treatment of nickel- containing wastewater generating from electroplating
Oily fume treatment system	1	12/25/2014	RMB 232.5 thousand	RMB 110.4 thousand	Collect oily fume generated from hot working process, purification treatment to meet emission standard.
Dust remover (filter cartridge included)	1	2/4/2015	RMB 163.8 thousand	RMB 80.5 thousand	1. Collect fume and dust generated from copper melting and casting, and conduct purification treatment to meet emission standard. 2. Benefits: recycle the

					zinc oxide from exhaust gas,fume and dust.
Vulcanized exhaust gas purification equipment	1	12/7/2015	RMB 837 thousand	RMB 481.6 thousand	Collect exhaust gas generated from vulcanization, and conduct purification treatment to meet emission standard.
Oily fume treatment system (electrostatic dust collector)	1	1/6/2016	RMB 51.2 thousand	RMB 8.5 thousand	Collect oily fume generated from hot working process, purification treatment to meet emission standard.
Environmental protection cleaning wastewater treatment system	1	9/25/2017	RMB 312 thousand	RMB 234 thousand	Use for treatment of wastewater from environmental protection cleaning
Hot forging acid fog tower	1	6/7/2018	RMB 76.9thousand	RMB 63.5 thousand	1. Use: treatment of acid fog generating from pickling in hot forging; 2. Benefits: reduce the emission of acid mist.
Environmental emergency pool	1	12/30/2018	RMB 227.3 thousand	RMB 212.1 thousand	Use: treatment of pollutant effluents generated from abrupt environmental accidents;
Dust remover	1	11/11/2019	RMB 18.1 thousand	RMB 17.5 thousand	Dispose dust and purify air at the finishing room of truck valve
Copper-containing wastewater treatment facility	1	12/9/2019	RMB 195.2 thousand	RMB 190.3 thousand	1. Use for treatment of wastewater and high- concentration wastewater from environmental protection cleaning. 2. Ensure up-to-standard discharge of wastewater.
Dust collecting box	1	4/1/2019	RMB 10.8 thousand	RMB 9.8 thousand	1. Collect dusts in grinding shop. 2. Purify air and ensure up- to-standard emission of exhaustgas.
Impulse type filter cartridge dust collector	2	1/8/2020	RMB 486.7 thousand	RMB 47.9 thousand	1. Collect dusts in grinding shop. 2. Purify air and ensure up- to-standard emission of exhaustgas.

5.5 Labor relations

5.5.1 Employee welfare measures, further education, training and retirement system of the company and the implementation circumstances thereof, agreement between labor and

employer, and management measures for all kinds of employees’ rights and interests

5.5.1.1 Employee welfare measures
The Company and its affiliated reinvested subsidiaries have formulated management measures and regulations regarding employees, such as remuneration, promotion, award and punishment, leave and social insurance etc., which are complying with relevant local laws and decrees.
The Company and its affiliated reinvested subsidiaries provide clean and sanitary foods to employees, and reinvested companies provide dormitory to employees and implement level-to-level management.
Cash gift for important festivals, birthday cash gift, education sponsorship for children of employees and subsidies for weddings and funerals etc., and irregularly hold staff traveling to enhance affective interaction among employees.
Provide employees health examination every year, taking care of employees’ physical and psychological health by active action.
5.5.1.2 Further education and training circumstance

The Company and affiliated reinvested subsidiaries attach importance to employees’ educational training, including orientation training before entry into the plant, in-service training and external professional training, so as to assist employees to improve professional working knowledge and skills.

5.5.1.3 Retirement system

The Company and affiliated reinvested subsidiaries are the companies within the territory of the Republic of China, and adopt defined contribution system pursuant to “Labor Pension Act”, for the payment of pension contribution, the Company and its subsidiaries contribute six percent of monthly salary as the pension on a monthly basis, and deposit it in the special pension account of labors. For affiliated investment companies outside the Republic of China, the pension is contributed according to local laws and decrees of the investment country, and the rates are as follows:

	Xiamen City	Xiamen City	Nonnative of Xiamen City	Nonnative of Xiamen City	Kunshan City and nonnative	Kunshan City and nonnative	Indonesia	Indonesia
	Contribution byenterprise	Personal contribution	Contribution byenterprise	Personal contribution	Contribution byenterprise	Personal contribution	Contribution byenterprise	Personal contribution
XIAMEN XIAHUI	12%	8%	12%	8%
KUNSHAN LUHAI					19%	8%
PT. LUHAI							5.7%	3%

5.5.1.4 Agreement between labor and capital and management measures for all kinds of employees' rights and interests

 The Company and its reinvested subsidiaries have set the Employees Union as the communication channel between employees and management of the company, consensus is reached between the Employees Union and employees

for all important matters involving in employees to condense centripetal force; besides, internal periodical of the Group “LUHAI’s Window” has been set to encourage employees to contribute to share their spirits and actively give feedbacks.

The Group has formulated internal control system and various administrative measures, whose contents explicitly stipulate employees’ rights and obligations and welfare items, and welfare contents are reviewed regularly to safeguard employees’ rights and interests.
5.5.2 In the last year and as at the publication date of annual report, the loss suffered due to labor dispute (including the violation of Labor Standards Act according to labor inspection results, the date of punishment, punishment number, legal provisions violated, contents of legal provisions violated, and punishment contents shall be listed), and disclosure of estimated amount might occur currently and in the future and the solutions, if it cannot be reasonably estimated, the facts of unable to estimate reasonably shall be described: None.

5.6 Important contracts

Contract
	Contracting Parties	Term	Major contents	Restrictions
nature

Credit granting	Mega International Commercial Bank - LU HAI HOLDING	2019/11~2022/11	Medium and long-term borrowing, financing limit of USD5 million, revolving use.	-
Credit granting	KGI Bank - LU HAI HOLDING	2017/07~2020/10	Medium and long-term borrowing, financing limit of USD3.5 million, revolving use. 18 months after the first appropriation, the limit of the first phase will be reduced, thereafter, every three months will be deemed as one phase, and the limit will be equally reduced by seven phases (the limit reduced in every three months is USD500 thousand).	-
Credit granting	Far Eastern International Bank - LU HAI HOLDING	2019/11~2021/11	Medium and long-term borrowing, financing limit of USD5 million, revolving use.	-
Financial transaction	Far Eastern International Bank - LU HAI HOLDING	2019/11~2021/11	Financial transaction limit (USD600 thousand for forward exchange, FX swap and foreign exchange option respectively, provided the total shall not exceed USD600 thousand).	-
Credit granting	CTBC Bank - LU HAI HOLDING	2017/12~2020/12	Medium and long-term project borrowing, financing limit of USD4 million, non-revolving use. (Amortization period till April 2021)	-
Credit granting	Mega International Commercial Bank - LU HAI HOLDING	2018/02~2023/02	Medium and long-term project borrowing, financing limit of USD10 million, non-revolving use. (Amortization period till April 2023)	-
Credit granting	Cathay United Bank - LU HAI HOLDING	2019/08~2020/09	Medium and long-term borrowing, financing limit of USD4 million, revolving use.	Total limit is controlled at USD6 million.
Credit granting	Cathay United Bank - LU HAI HOLDING (Branch in Taiwan)	2019/08~2020/09	Medium and long-term borrowing, financing limit of NTD60 million, revolving use.

Contract
	Contracting Parties	Term	Major contents	Restrictions
nature

Credit granting	TaiShin International Bank - LU HAI HOLDING	2018/08~2021/11	Medium and long-term borrowing, financing limit of USD3 million, revolving use, appropriation period till the end of February 2019. (Repayment date till November 2021)	Total limit is controlled at USD5 million.
Credit granting	TaiShin International Bank - LU HAI HOLDING	2019/08~2022/09	Medium and long-term borrowing, financing limit of USD4 million,revolving use, the limit is reduced to USD3.5 million since December 27, 2019, and appropriation period till the end of May 2020.(Repayment date till September 2022)
Credit granting	CTBC Bank - LU HAI HOLDING	2019/01~2020/12	Medium and long-term borrowing, financing limit of USD2 million, revolving use, appropriation period till the end of December 2020.	-
Credit granting	CTBC Bank - LU HAI HOLDING(Branch in Taiwan)	2020/01~2020/12	Short-term borrowing, financing limit of NTD 60 million, revolving use.	-
Credit granting	Bank Sinopac - LU HAI HOLDING	2019/01~2021/01	Medium and long-term borrowing, financing limit of USD2 million, revolving use.	-
Credit granting	EnTie Band- LU HAI HOLDING	2019/05~2021/06	Medium and long-term borrowing, financing limit of USD3 million, revolving use.	-
Credit granting	Shanghai Commercial & Savings Bank- LU HAI HOLDING	2019/11~2022/11	Medium and long-term borrowing, financing limit of USD1.5 million, non-revolving use. (Amortization period till December 2022)	-
Credit granting	Mega International Commercial Bank - XIAMEN XIAHUI	2016/11~2021/11	Medium and long-term borrowing, financing limit of USD6 million. (Appropriation within two years as of the date of approval (before November 2018), it may be appropriated by installment, non-revolving use)	-

Contract
	Contracting Parties	Term	Major contents	Restrictions
nature

Credit granting	Mega International Commercial Bank - XIAMEN XIAHUI	2019/12~2024/11	Medium and long-term borrowing, financing limit of USD6 million. (Appropriation within one year as of the date of approval (before November 20, 2020), it may be appropriated by installment, non-revolving use) (amortization period till January 2025)	-
Credit granting	CTBC Bank - XIAMEN XIAHUI	2020/02~2024/12	Medium and long-term borrowing, financing limit of USD5 million. (Non-revolving use, can be appropriated by installment, appropriation period is 1 year (before December 31, 2020))	-
Credit granting	Industrial Bank Co., Ltd. - XIAMEN XIAHUI	2019/07~2020/07	Short-term borrowing, financing limit of RMB45 million.	-
Financial transaction	Industrial Bank Co., Ltd. - XIAMEN XIAHUI	2019/07~2020/07	Financial transaction limit of RMB5 million.	-
Credit granting	Mega International Commercial Bank - XIAMEN XIAHUI	2020/02~2020/11	Short-term borrowing, financing limit of USD3 million.	-
Credit granting	CTBC Bank - XIAMEN XIAHUI	2020/02~2020/12	Short-term borrowing, financing limit of USD3 million.	-
Credit granting	CTBC Bank - KUNSHAN LUHAI	2020/02~2020/12	Short-term borrowing, financing limit of USD2 million.	-
Credit granting	Mega International Commercial Bank - PT. LUHAI	2018/02~2021/01	Medium and long-term borrowing, financing limit of USD3 million,revolvinguse.	-
Credit granting	Citi Bank - PT. LUHAI	2019/04~2020/04	Short-term borrowing, financing limit of USD3 million, revolving use.	-
Financial transaction	Citi Bank - PT. LUHAI	2019/04~2020/04	Financial transaction limit of USD500 thousand.	-
Credit granting	CTBC Bank - PT. LUHAI	2019/05~2020/05	Short-term borrowing, financing limit of USD2 million.	-

VI. Financial Overview

6.1 Concise financial information in the last five years

6.1.1 Condensed balance sheet and consolidated profit and loss statement

6.1.1.1 Condensed balance sheet - International Financial Reporting Standards:

Unit: NTD thousand

		Unit: NTD	Unit: NTD	Unit: NTD	Unit: NTD	Unit: NTD	thousand
Year Item		Financial information in the last fiveyears					Financial information in current year as at March 31, 2020 (Notes 1)
		2015 (Notes 1)	2016 (Notes 1)	2017 (Notes 1)	2018 (Notes 1)	2019 (Notes 1)
Current assets		2,158,021	2,262,483	2,458,745	2,397,353	2,732,532	2,456,820
Financial assets at fair value through profit or loss - noncurrent (Notes 3)		-	-	-	930	1,558	1,094
Financial assets carried at cost - noncurrent (Notes 3)		1,011	928	914	-	-	-
Property, plant and equipment		612,512	621,704	634,053	723,273	1,148,538	1,196,154
Right-of-use assets (Notes 4)		-	-	-	-	197,862	228,637
Intangible assets		7,941	8,912	8,307	7,449	6,956	15,152
Other assets		150,090	134,474	180,078	254,858	59,210	74,917
Total assets		2,929,575	3,028,501	3,282,097	3,383,863	4,146,656	3,972,774
Current liabilities	Before distribution	445,140	553,529	914,919	565,542	1,345,967	1,190,019
	After distribution	609,028	628,023	1,037,866	647,507	(Notes 2)	-
Non-current liabilities		424,165	430,941	169,785	590,717	499,994	515,601
Total liabilities	Before distribution	869,305	984,470	1,084,704	1,156,259	1,845,961	1,705,620
	After distribution	1,033,193	1,058,964	1,207,651	1,238,224	(Notes 2)	-
Capital stocks		744,947	744,947	819,650	819,650	860,632	860,632
Capital surplus		442,724	442,724	443,701	443,701	443,701	443,701
Retained earnings	Before distribution	880,898	1,034,601	1,162,621	1,246,929	1,365,892	1,405,653
	After distribution	717,010	960,107	1,039,674	1,164,964	(Notes 2)	-
Other equity		(8,299)	(178,241)	(228,579)	(282,676)	(369,530)	(442,832)
Treasury shares		-	-	-	-	-	-
Non-controlling interests		-	-	-	-	-	-
Total equity	Before distribution	2,060,270	2,044,031	2,197,393	2,227,604	2,300,695	2,267,154
	After distribution	1,896,382	1,969,537	2,074,446	2,145,639	(Notes 2)	-

Notes 1: Financial information from 2015 to 2019 have been audited and certified by the accountant, the financial report of the first quarter of 2020 has been reviewed by the accountant.
Notes 2: The 2019 earnings distribution has not been passed by General Shareholders’ Meeting.
Notes 3: According to the provisions in the bulletin of IFRS 9 “Financial Instruments”, as of 2018, the title of account “Financial assets carried at cost - non-current” will be adjusted into “Financial assets at fair value through profit or loss - non-current”.
Notes 4: According to the provisions in the bulletin of IFRS 16 “Lease”, as of 2019, newly added the title of “Right-of-use assets”.

6.1.1.2 Condensed consolidated statement of comprehensive income - International Financial Reporting Standards:

Unit: NTD thousand

Year Item	Financial information in the last five years	Financial information in the last five years	Financial information in the last five years	Financial information in the last five years	Financial information in the last five years	Financial information in current year as at March 31, 2020 (Notes 1)
	2015 (Notes 1)	2016 (Notes 1)	2017 (Notes 1)	2018 (Notes 1)	2019 (Notes 1)
Net revenue	2,474,627	2,606,582	2,647,010	2,628,778	2,716,889	530,954
Gross Profit	545,640	682,178	681,005	561,055	615,058	121,143
Operatingincome(loss)	282,299	406,043	395,201	269,342	312,635	50,695
Non-operating income and expenses	35,568	28,870	329	27,827	33,203	6,942
Income (loss) before tax from continuing operations	317,867	434,913	395,530	297,169	345,838	57,637
Net income (loss) from continuing operations	246,505	318,406	274,152	208,463	241,910	39,761
Loss from discontinued operations	-	-	-	-	-	-
Net income(loss)	246,505	318,406	274,152	208,463	241,910	39,761
Other comprehensive income (loss) for the year, net of income tax	(23,517)	(170,757)	(47,481)	(55,552)	(86,854)	(73,302)
Total comprehensive income (loss) for the year	222,988	147,649	226,671	152,911	155,056	(33,541)
Net income (loss) attributable to: Shareholders of the parent	246,505	318,406	274,152	208,463	241,910	39,761
Net income attributable to non-controlling interests	-	-	-	-	-	-
Total comprehensive income (loss) attributable to: shareholders of the parent	222,988	147,649	226,671	152,911	155,056	(33,541)
Comprehensive income attributable to non- controlling interests	-	-	-	-	-	-
Earningsper share	3.35	4.27	3.35	2.54	2.81	0.46

Notes 1: Financial information from 2015 to 2019 have been audited and certified by the accountant,

the financial report of the first quarter of 2020 has been reviewed by the accountant.

6.1.2 Name and audit opinion of certified public accountants in the last five years

Year	Accounting firm	Name of CPA	Audit opinion
2015	Crowe (TW) CPAs	SHAO, CHAO-BIN HUANG,SU-CHUAN	Unqualified Opinion
2016	Crowe (TW) CPAs	SHAO, CHAO-BIN HUANG,SU-CHUAN	Unmodified Opinion
2017	Crowe (TW) CPAs	LIN, MING-SHOU HUANG,SU-CHUAN	Unmodified Opinion
2018	Crowe (TW) CPAs	LIN, MING-SHOU HUANG,SU-CHUAN	Unmodified Opinion
2019	Crowe (TW) CPAs	LIN, MING-SHOU HUANG,SU-CHUAN	Unmodified Opinion

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6.2 Financial analysis in the last five years

6.2.1 Financial analysis - International Financial Reporting Standards

Year Analysisitem	Year Analysisitem	Financial analysis in the last five years	Financial analysis in the last five years	Financial analysis in the last five years	Financial analysis in the last five years	Financial analysis in the last five years	As at March 31 in 2020 (Notes 1)
		2015 (Notes1)	2016 (Notes1)	2017 (Notes1)	2018 (Notes1)	2019 (Notes1)
Financial structure	Debt to assets ratio (%)	29.67	32.51	33.05	34.17	44.52	42.93
	Long-term funds to property, plant and equipment(%)	405.61	398.09	373.34	389.66	243.85	232.64
Liquidity	Current ratio (%)	484.80	408.74	268.74	423.90	203.02	206.45
	Quick ratio (%)	381.06	324.89	196.85	316.68	153.18	149.98
	Times interest earned (times)	32.57	44.57	34.92	25.77	27.62	21.35
Operating Performance	Accounts receivables turnover (times)	3.67	3.84	3.89	3.97	4.10	3.65
	Average collection days	99	95	94	92	89	100
	Average inventory turnover (times)	3.75	4.24	3.57	3.35	3.44	2.57
	Accounts payable turnover (times)	9.23	9.09	7.88	7.63	7.53	7.07
	Average inventory turnover period	97	86	102	109	106	142
	Property, plant and equipment turnover(times)	4.24	4.22	4.22	3.87	2.90	1.81
	Total assets turnover (times)	0.86	0.87	0.84	0.79	0.72	0.52
Profitability	Return on assets (%)	8.86	10.93	8.94	6.51	6.67	4.11
	Return on equity (%)	12.79	15.52	12.93	9.42	10.68	6.96
	Pre-tax income to paid-in capital (%)	42.67	58.38	48.26	36.26	40.18	26.79
	Net profit margin (%)	9.96	12.22	10.36	7.93	8.90	7.49
	Earnings per share (NTD)	3.35	4.27	3.35	2.54	2.81	0.46
Cash flow	Cash flow ratio(%)	98.06	69.28	26.70	57.10	21.06	1.89
	Cash flow adequacyratio(%)	90.79	91.19	85.38	84.26	76.15	61.64
	Cash reinvestment ratio (%)	8.74	6.91	5.44	5.53	5.53	0.63
Leverage	Operatingleverage	2.91	2.41	2.39	3.24	2.91	3.72
	Financial leverage	1.04	1.03	1.03	1.05	1.04	1.06
If the increase or decrease change in various financial ratios reaches to 20% in the last two years, descriptions are as follows: 1. The increase of proportion of liabilities in assets (%), and decrease of current ratio (%) and quick ratio (%) are mainly due to the relocation by coordinating with the policy of Huaqiao municipal government for the construction needs of S1 railway transportation project, the compensation for relocation has been received, but relocation has not completed, hence it is listed as deferred income, and current liabilities increase. 2. The proportion of property, plant and equipment (%) decreases is mainly to the construction of new plant in Xiamen, and the construction in progress increases. 3. The turnover rate of property, plant and equipment (times) decreases is mainly to the construction of new plant in Xiamen, and the construction in progress increases. 4. The decrease of cash flow ratio (%) is mainly due to the relocation by coordinating with the policy of Huaqiao municipal government for the construction needs of S1 railway transportation project, the compensation for relocation has been received, but relocation has not completed, hence it is listed as deferred income, and current liabilities increase.

Notes 1. Financial information from 2015 to 2019 have been audited and certified by the accountant, the financial report of the first quarter of 2020 has been reviewed by the accountant.

101

Calculation formulas of financial analysis are listed as follows:

Financial structure
(1) Debt to assets ratio = total liabilities / total assets
(2) Long-term funds to property, plant and equipment = (total equity + long-term liabilities (non-current liabilities)) / net property, plant and equipment
Liquidity
(1) Current ratio = current assets / current liabilities
(2) Quick ratio = (current assets-inventory-prepaid expenses) / current liabilities
(3) Times interest earned = income tax and net profit before interest expense/ interest expenses
Operating Performance
(1) Accounts receivables (including accounts receivable and notes receivable arising from business) turnover = net sales/ average account receivable (including accounts receivable and notes receivable arising from business) balance
(2) Average collection days=365/ accounts receivables turnover
(3) Average inventory turnover = cost of goods sold /average inventory
(4) Accounts payables (including accounts payable and notes payable arising from business) turnover = cost of goods sold / average account payable (including accounts payable and notes payable arising from business) balance
(5) Average inventory turnover period =365/inventory turnover
(6) Property, plant and equipment turnover = net sales / average net property, plant and equipment
(7) Total assets turnover = net sales/average total assets
Profitability
(1) Return on assets =[post-tax profit or loss + interest expense  (1-tax rate)]/average total assets
(2) Return on equity= post-tax profit or loss / average total equity
(3) Proportion of net profit before tax in paid-in capital = pretax profit / amount of paidin capital
(4) Net profit margin = post-tax profit or loss/net sales
(5) Earnings per share = (net profit attributable to owners of parent company - preferred share dividend) / weighted average number of outstanding shares
Cash flow
(1) Cash flow ratio = net cash flow in operating activities/current liabilities
(2) Cash flow adequacy ratio = net cash flow in operating activities in the last 5 years/ (capital expenditure + inventory increment + cash dividend) in the last five years
(3) Cash reinvestment ratio= (net cash flow in operating activity-cash dividend) / (gross amount of property, plant and equipment + long-term investment + other non-current assets + working capital)
Leverage
(1) Operating leverage = (net revenue - changes in operating costs and expenses)/operating income
(2) Financial leverage = operating income / (operating income - interest expense)

102

6.3 Audit Committee’s Examination Report of the financial report in the last year

LU HAI HOLDING CORP.

Audit Committee’s Review Report

The Board of Directors has prepared 2019 business report, financial statements and earning distribution proposal etc. of the Company; among them, the financial statements have been audited by accountants LIN, MING-SHOU and HUANG, SU-CHUAN from Crowe (TW) CPAs, and the audit report of unmodified opinion has been issued. The above business report, financial statements and earnings distribution proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of the Company, we hereby submit this report.

To the 2020 General Shareholders’ Meeting

Audit Committee：

YEN, MEI-YING CHANG, HORNG-YAN HU, TA-HSIANG

March 12, 2020

103

6.4 Financial statements in the last year: Please refer to page 105 to 181 for details.
6.5 Company’s individual financial statements audited and certified by the accountant in the last year: Not applicable.
6.6 In the last year and as at the publication date of annual report, if the company and its affiliated enterprise have difficulty in financial turnover, its impact on the financial situation of the Company shall be listed: None.

104

105

106

107

108

109

110

LUHAI HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents Financial assets at fair value through profit or loss - current Financial assets at amortized cost-current Notes receivable, net Accounts receivable, net Other receivables Income tax assets Inventories, net Prepaid expenses Other current assets Total current assets NONCURRENT ASSETS Financial assets at fair value through other comprehensive income - noncurrent Property, plant and equipment Right-of-use assets Intangible assets Deferred income tax assets Long-term prepaid rent Other noncurrent assets Total noncurrent assets TOTAL ASSETS LIABILITIES AND EQUITIES CURRENT LIABILITIES Short-term loans Contract liabilities - current Accounts payable Other payables Income tax liabilities Current lease liabilities Advanced receipts Deferred income Long-term loan due within a year Other current liabilities Total current liabilities NONCURRENT LIABILITIES Long-term loans Deferred income tax liabilities Noncurrent lease liabilities Net defined benefit liability - noncurrent Total noncurrent liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF PARENT Capital stocks Capital surplus Retained earnings Legal reserve Special reserve Unappropriated retained earnings Other equities Equity attributable to owners of parent Total equity TOTAL LIABILITIES AND EQUITIES	NOTES	December 31,2019	December 31,2018
		% $ 1,122,302 27 202,684 5 86,105 2 46,999 1 587,682 14 10,750 - 4,643 - 615,928 15 54,909 1 530 - 2,732,532 65 1,558 - 1,148,538 28 197,862 5 6,956 - 26,262 1 - - 32,948 1 1,414,124 35 $ 4,146,656 100 $ - - 477 - 264,374 6 219,317 5 22,942 1 4,376 - 2,626 - 619,044 15 207,419 5 5,392 - 1,345,967 32 471,313 11 19,336 1 9,345 - - - 499,994 12 1,845,961 44 860,632 21 443,701 11 160,582 4 282,676 7 922,634 22 (369,530) (9) 2,300,695 56 2,300,695 56 $ 4,146,656 100 Amount	% $ 824,221 24 44,905 1 214,581 6 68,713 2 597,346 19 9,719 - 3,839 - 565,263 17 41,148 1 27,618 1 2,397,353 71 930 - 723,273 21 - - 7,449 - 24,715 1 193,407 6 36,736 1 986,510 29 $ 3,383,863 100 $ 30,715 1 3,651 - 293,973 9 150,982 4 24,326 1 - - - - - - 61,314 2 581 - 565,542 17 574,292 17 11,291 - - - 5,134 - 590,717 17 1,156,259 34 819,650 24 443,701 13 139,736 4 228,579 7 878,614 26 (282,676) (8) 2,227,604 66 2,227,604 66 $ 3,383,863 100 Amount
	5,6(1) 5,6(2) 5,6(3) 5,6(4) 5,6(5) 5,6(6) 6(7) 6(8) 5,6(9) 5,6(10) 5,6(11) 5,6(28) 6(12) 6(13) 6(14) 6(24) 6(15) 5,6(10) 5,6(16) 6(17) 6(18) 6(17) 6(29) 5,6(10) 6(19) 6(20) 6(21) 6(22) 6(23)

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

(Concluded)

111

LUHAI HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR YEARS ENDED DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

NOTES	2019		2018
	Amount	%	Amount	%
6(24) 6(6,25) 6(25),7 6(26) 6(27) 6(28) 6(29) 6(30) 6(19) 6(29) 6(29) 6(31)	$ 2,716,889 (2,101,831)	100 (77)	$ 2,628,778 (2,067,723)	100 (79)
	615,058	23	561,055	21
	(101,729) (182,235) (29,410) 10,951	(4) (6) (1) -	(97,372) (163,734) (25,589) (5,018)	(4) (6) (1) -
	(302,423)	(11)	(291,713)	(11)
	312,635	12	269,342	10
	28,368 17,829 (12,994)	1 1 (1)	37,469 2,357 (11,999)	1 - -
	33,203	1	27,827	1
	345,838 (103,928)	13 (4)	297,169 (88,706)	11 (3)
	241,910	9	208,463	8
	- 688 - (87,542) -	- - - (3) -	(1,184) (209) (24) (54,135) -	- - - (2) -
	(86,854)	(3)	(55,552)	(2)
	$ 155,056	6	$ 152,911	6
	$ 241,910	9	$ 208,463	8
	$ 155,056	6	$ 152,911	6
	$ 2.81		$ 2.42
	$ 2.81		$ 2.38

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

(Concluded)

112

					Total	2,197,393	247	2,197,640		-	-	(122,947)	208,463	(55,552)	2,227,604		-	-	(81,965)	-	241,910	(86,854)	2,300,695
						$																	$
	Other Equities	Unrealized Profit (Loss) Exchange	on Financial Assets at Fair Differences Arising	Value Through Other on Translation of	Comprehensive Income Foreign Operations	$ (228,579) $ -	- 247	(228,579) 247		- -	- -	- -	- -	(54,135) (209)	(282,714) 38		- -	- -	- -	- -	- -	(87,542) 688	$ (370,256) $ 726
Equity Attributable to Shareholders of the Parent	Retained Earnings			Unappropriated	Special Reserve Retained Earnings Legal Reserve	112,321 $ 223,028 $ 827,272	- - -	112,321 223,028 827,272		27,415 - (27,415)	- 5,551 (5,551)	- - (122,947)	- - 208,463	- - (1,208)	139,736 228,579 878,614		20,846 - (20,846)	- 54,097 (54,097)	- - (81,965)	- - (40,982)	- - 241,910	- - -	160,582 $ 282,676 $ 922,634
						$																	$
					Capital Surplus	443,701	-	443,701		-	-	-	-	-	443,701		-	-	-	-	-	-	443,701
						$																	$
					Capital Stocks	819,650	-	819,650		-	-	-	-	-	819,650		-	-	-	40,982	-	-	860,632
						$																	$
						BALANCE, JANUARY 1, 2018	Effect of retrospective application and retrospective restatement	ADJUSTED BALANCE, JANUARY 1, 2018	Appropriations of earnings	Legal reserve	Special reserve	Cash dividends to shareholders - NT$1.50 per share	Net income in 2018	Other comprehensive income (loss) in 2018, net of tax	BALANCE, DECEMBER 31, 2018	Appropriations of earnings	Legal reserve	Special reserve	Cash dividends to shareholders - NT$1.00 per share	Stock dividends to shareholders - NT$0.50 per share	Net income in 2019	Other comprehensive income (loss) in 2019, net of tax	BALANCE, DECEMBER 31, 2019

113

LUHAI HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Adjustments to reconcile profit (loss) Depreciation Amortization Expected credit loss (reversal) Gains on financial assets at fair value through profit or loss Interest expense Interest income Dividend income Losses (Gains) on disposal of property, plant and equipment Impairment loss of property, plant and equipment Net changes in operating assets and liabilities Notes receivable Accounts receivable Other receivables Inventories Prepaid expenses Other current assets Conrtract liabilities Accounts payable Other payables Other current liabilities Net defined benefit liability Cash generated from operations Interest received Dividend received Interest paid Income taxes paid Net cash provided by operating activities	$ 345,838 111,077 2,027 (10,951) (1,906) 12,994 (14,906) (85) 2,617 5,288 18,551 6,032 (3,425) (67,015) (15,907) (8) (3,236) (19,970) 16,707 (368) (5,134) 378,220 16,913 85 (12,623) (99,154) 283,441 2019		2018
		$	297,169 96,239 5,767 5,018 (1,154) 11,999 (16,729) (123) (717) - (26,780) (28,215) (3,663) 46,437 (11,486) (323) 2,523 51,875 (12,021) 141 (38)
			415,919 18,671 123 (9,890) (101,910)
			322,913
			(Continued)

114

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss Acquisition of financial assets at amortized cost Proceeds from disposal of financial assets at amortized cost Acquisition of property, plant and equipment Proceeds from disposal of Property, plant and equipment Increase in advanced receipts Acquisition of intangible assets Increase in land use right Increase in prepaid equipment Refundable deposits (paid) refunded Other noncurrent assets Proceeds from relocation compensation Payments of relocation expenses Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans Increase in guarantee deposits received Proceeds from long-term debt Repayment of long-term debt Repayment of bonds payable Cash dividends paid Repayments of the principal portion of lease liabilities Net cash used in financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR	$ (312,976) 149,302 (849,507) 974,697 (449,819) 10,713 2,727 (1,779) - (71,851) 24,455 (4,353) 662,180 (12,540) 121,249 (30,226) 5,365 306,715 (257,109) - (81,965) (4,558) (61,778) (44,831) 298,081 824,221 $ 1,122,302 2019	2018
		$ (109,073) 82,754 (509,005) 509,005 (155,621) 7,376 - (916) (114,295) (22,787) (28,123) 530 - -
		(340,155)
		(27,979) - 656,470 (181,227) (398,800) (122,947) -
		(74,483)
		(11,385)
		(103,110) 927,331
		$ 824,221

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

(Concluded)

115

LUHAI HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (Expressed in Thousands of New Taiwan Dollars, Except Stated Otherwise)

1. GENERAL INFORMATION

Luhai Holding Corp. (the “Company”) was incorporated in the Cayman Islands in October 19, 2009. The main purpose of establishment, which resulted from organizational restructuring, was to apply for emerging stock registration on the Taiwan Stock Exchange (“TWSE”). The Company had established a branch in consideration of the Group’s business operation and development. The Company and its subsidiaries (collectively referred herein as the “Group”) mainly engage in the production and sale of tire valves and accessories. The Company’s shares have been listed on the TWSE since December 25, 2013. The principal operating activities of the subsidiaries are described in Note 4(3) B.

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were approved and authorized for issue by the Board of Directors on March 12, 2020.

3. APPLICATION OF NEW, AMENDED STANDARDS AND INTERPRETATIONS

(1) Effect of the adoption of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC) ：

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Group’s accounting policies:

A. IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that supersedes IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, and a number of related interpretations. Refer to Note 4 for information relating to the relevant accounting policies.

The Group applies the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts indentified as containing a lease under IAS 17 and IFRIC 4 are not reassessed and are accounted for in accordance with the transitional provisions under IFRS 16.

The Group as lessee

116

The Group will recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value and short-term leases will be recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal and interest portion of the lease liability are classified within financing activities and operating activities respectively. Previsously, payments under operating lease contracts are recognized as expenses on a straight-line basis. Prepaid lease payments for land use rights of land located in China and Indonesia are recognized as prepayments for leases. Cash flows for operating leases are classified within operating activities on the consolidated statements of cash flows.

The Group applying IFRS 16 retrospectively with the cumulative effect of the initial application recognized at the date of initial application but does not restate comparative information.

Lease agreements classified as operating leases under IAS 17, except for short-term leases, are measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments. Right-of-use assets are subject to impairment testing under IAS 36.

The Group applied the following practical expedients to measure right-of-use assets and lease liabilities on January 1, 2019:

(a)The Group applied a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.
(b)Except for lease payments, the Group excluded incremental costs of obtaining the lease from right-of-use assets on January 1, 2019.
(c)Using hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease.

Anticipated impact on assets, liabilities and equity

Item Prepaid expenses Long-term prepaid rent Right-of-use assets Total effect on assets Current Lease liabilities Noncurrent Lease liabilities	Carrying Amount as of January1,2019 $ 41,148 193,407 - $ 234,555 $ - -	Adjustments Arising from Initial Application $ (1,139) (193,407) 212,739 $ 18,193 $ 4,454 13,739	Adjusted Carrying Amount as of January1,2019 $ 40,009 - 212,739 $ 252,748 $ 4,454 13,739

117

Item Total effect on liabilities	Carrying Amount as of January1,2019 $ -	Adjustments Arising from Initial Application $ 18,193	Adjusted Carrying Amount as of January1,2019 $ 18,193

(2) Effect of the new issuances of or amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs as endorsed by the FSC but not yet adopted by the Group:

New standards, interpretations and amendments as endorsed by the FSC effective from 2020 are as follows:

2020 are as follows:
New Standards, Interpretations and Amendments Amendments to IFRS 3 “Definition of a Business” Amendments to IAS 1 and IAS 8 “Definition of Material” Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform”	Effective Date Issued by IASB(Note 1)
	January 1, 2020 (Note 1) January 1, 2020 (Note 2) January 1, 2020 (Note 3)

Note 1: The Group shall apply these amendments to business combinations and assets acquisition that occur on or after January 1, 2020.
Note 2: The Group shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020
Note 3: The Group shall apply these amendments retrospectively for annual reporting periods beginning on or after January 1, 2020.

The Group has no plans to acquire any business in 2020, therefore it is not expected to have any effect on the consolidated financial statements when the amendment to IFRS 3 is first applied in 2020 and the amendments to IAS 1 and IAS 8 are assessed as having no effect on the consolidated financial statements. The Group is not engaged in hedging transaction, so the amendments to IFRS 9, IAS 39 and IFRS 7 is assessed as having no effect on the consolidated financial statements. However, the estimated impact of the above-mentioned amendments may be subject to change due to future operating environment or program changes.

(3) The IFRSs issued by IASB but not yet endorsed and issued into effect by the FSC:

New Standards, Interpretations and Amendments Amendments to IFRS 10 and IAS 28 “Sales or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 “Classification of Liabilities as Current or Non-current”	Effective Date Issued by IASB(Note 1)
	To be determined by IASB January 1, 2021 January 1, 2022

Note 1: Unless stated otherwise, the above new, amended and revised standards and interpretations are effective for annual periods beginning on or after the respective effective dates.

As of the date the consolidated financial statements were authorized for issue, the Group

118

is continuously assessing the possible impact that the application of above standards and interpretations will have on the Group’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(1) Statement of Compliance

The accompanying consolidated financial statements have been prepared in conformity with the Regulation Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs as endorsed by the FSC.

(2) Basis of Preparation

A. The accompanying consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.
B. The preparation of consolidated financial statements in compliance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.
C. The Group elected to apply IFRS 16 retrospectively on January 1,2019 with the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings of the annual reporting.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements:
(a) All subsidiaries are included in the Group's consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
(b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
(c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive

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income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

(d) Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are accounted for as equity transactions. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity.
(e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognized in profit or loss. All amounts previously recognized in other comprehensive income in relation to the subsidiary are reclassified to profit or loss or transferred directly to retained earnings as appropriate, on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognized in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.
B. Subsidiaries included in the consolidated financial statements:

Name of investor The Company The Company The Company The Company The Company The Company YUANHUI LU HAI BVI ALLPRO LU HAI IND.	Name of subsidiary LU HAI`（`BVI`）` INDUSTRIAL CORP. `（`LU HAI BVI`）` YUANHUI INTERNATIONAL CO., LTD. `（`YUANHUI`）` ALLPRO INTERNATIONAL CORP. `（`ALLPRO`）` LU HAI INDUSTRIAL CORP. `（`LU HAI IND.`）` MEGA POWER CO., LTD. `（`MEGA`）` PT.LUHAI INDUSTRIAL `（`PT.LUHAI`）` LUHAI RUBBER METAL INDUSTRIAL `（`KUNSHAN`）`CO., LTD. `（`LUHAI KUNSHAN`）` XIAMEN XIAHUI RUBBER METAL IND. CO., LTD. `（`XIAHUI`）` XIAHUI PT.LUHAI	Main business activities Investing activities Investing activities Investing activities Leasing and selling various kinds of valves and accessories Selling activities Manufacturing and selling various kinds of valves and accessories Manufacturing and selling various kinds of valves and accessories Manufacturing and selling various kinds of valves and accessories Manufacturing and selling various kinds of valves and accessories Manufacturing and selling various kinds of	Percentage of ownership	Percentage of ownership
			December 31, 2019 100.00% 100.00% 100.00% 100.00% 100.00% 85.00% 100.00% 57.14% 42.86% 15.00%	December 31, 2018
				100.00% 100.00% 100.00% 100.00% 100.00% 85.00% 100.00% 57.14% 42.86% 15.00%

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Percentage of ownership Name of December 31, December 31, investor Name of subsidiary Main business activities 2019 2018 valves and accessories

The financial statements of the subsidiaries included in the consolidated financial statements for the years ended December 31, 2019 and 2018 are audited by certified public accountants.

C. The subsidiaries that were not included in the consolidated financial statements: None.
(4) Foreign Currencies
A. Items included in the financial statements of each of the Group’s entities were expressed in the currency which reflected its primary economic environment (functional currency). The consolidated financial statements are presented in New Taiwan Dollars, which is the Company's functional currency.
B. In preparing the financial statements of each individual consolidated entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences are recognized in profit or loss for the period. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are retranslated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss as part of the fair value gain or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income is retranslated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, nonmonetary assets and liabilities denominated in foreign currencies that are not measured at fair value are measured using the historical exchange rates at the dates of the initial transactions.
C. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into NTD using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.
(5) Classification of Current and Noncurrent Items
A. Assets that meet one of the following criteria are classified as current assets:
- (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
- (b) Assets held mainly for trading purposes;
- (c) Assets that are expected to be realized within twelve months from the end of reporting period.
- (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those

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that are to be exchanged or used to pay off liabilities more than twelve months after the end of reporting period.

The Group classifies all assets that do not meet the above criteria as non-current.

B. Liabilities that meet one of the following criteria are classified as current liabilities:
(a) Liabilities that are expected to be paid off within the normal operating cycle;
(b) Liabilities arising mainly from trading activities;
(c) Liabilities that are to be paid off within twelve months from the end of reporting period.
(d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the end of reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

The Group classifies all liabilities that do not meet the above conditions as noncurrent.

(6) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(7) Financial instruments

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are recognized initially at fair value plus or minus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

A. Financial assets

A regular way purchase or sale of financial assets shall be recognized and derecognized using trade date accounting.

(a) Measurement category

Financial assets are classified into the following categories: financial assets at fair value through profit or loss, financial assets at amortized cost and equity instruments at fair value through other comprehensive income.

i. Financial assets at fair value through profit or loss
Financial assets at FVTPL includes financial assets mandatorily classified as at FVTPL and financial assets designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments that are not designated as at fair value through other comprehensive income (FVOCI) and debt instruments that do not meet the amortized cost criteria or the FVOCI criteria.

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Financial assets of the Group were designated as at fair value through profit or loss on initial recognition when they meet either of the following criteria:

(a)being a hybrid contract; or

(b)eliminating or significantly reducing a measurement or recognition inconsistency;
(c)being managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. Fair value is determined in the manner described in Note 12.

ii. Financial assets at amortized cost

Financial assets that meet the following 2 conditions are subsequently measured at amortized cost:

(i.) The financial asset is held within a business model whose objective is collecting contractual cash flows; and
(ii.) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost are measured at amortized cost which equals gross carrying amount determined by the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

iii. Investments in equity instruments at fair value through other comprehensive income

On initial recognition, the Group may make an irrevocable election to designate investments in equity instruments, which are not held for trading or not contingent consideration recognized by an acquirer in a business combination, as at FVTOCI.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, instead, they will be transferred to retained earnings. Dividends on these investments in equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

(b) Impairment of financial assets

At the end of each reporting period, an impairment of expected credit loss is recognized for financial assets at amortized cost (including accounts receivable),

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investment of debt instruments at fair value through other comprehensive income, lease receivable and contract assets.

The Group always recognizes lifetime expected credit loss for trade receivables, contract receivables and lease receivables. For all other financial instruments, the Group recognizes lifetime expected credit loss when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk of the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit loss.

Expected credit losses reflect the weighted average credit losses with the respective risks of a default occurring as the weights. Lifetime expected credit loss represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month expected credit loss represents the portion of lifetime expected credit loss that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of such financial asset.

The Group derecognizes a financial asset when one of the following conditions is met:

i. The contractual rights to receive cash flows from the financial asset expire.
ii. The contractual rights to receive cash flows from the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.
iii. The Group neither retains nor transfers substantially all risks and rewards of ownership of the financial asset.
On derecognition of a financial asset at amortized cost in its entirely, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in debt instrument at fair value through other comprehensive income, the difference between the asset’s carrying amount and the sum of the consideration received and receivable as well as the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at fair value through other comprehensive income, the cumulative gain or loss that had

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been recognized in other comprehensive income is transferred directly to retained earnings, without reclassifying to profit or loss.

B. Financial liabilities and equity instruments
(a) Classification of financial liabilities and equity instruments
- Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
(b) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs.

Except for the following circumstances, all financial liabilities are measure at amortized cost under effective interest method:

i. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or designated as financial liabilities at fair value through profit or loss on initial recognition. Financial liabilities are classified as held for trading if the principal purpose of acquisition is repurchasing in the short term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges.
ii. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or loss.
(d) Derecognition of financial liabilities
The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expired.
On derecognition of financial liabilities, the difference between the carrying amount of the financial liability derecognized and the consideration paid and payable (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
(e) Bonds payable

Convertible corporate bonds issued by the Group contain conversion options (that is, the bondholders have the right to convert the bonds into the Group’s common shares by exchanging a fixed amount of cash for a fixed number of common shares) and call options. The Group initially classifies the bonds payable in accordance with derivative features embedded in convertible corporate bonds on initial recognition as a financial asset, a financial liability or an equity instrument. Convertible corporate bonds are accounted for as follows:

i. Call options embedded in convertible corporate bonds issued by the Group are

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initially recognized at net fair value in financial assets at fair value through profit or loss and subsequently remeasured and stated at fair value on each balance sheet date. The gain or loss is recognized in gain or loss from financial assets (liabilities) at fair value through profit or loss.

ii. Bonds payable of convertible corporate bond is initially recognized at fair value. The difference between the proceeds and the redemption value is presented as an addition to or deduction from bonds payable, which is amortized in profit or loss as an adjustment to financial costs over the period of bond circulation using the effective interest method.
iii. Conversion options embedded in convertible corporate bonds issued by the Group, which meet the definition of an equity instrument, are initially recognized in capital surplus – share options at the residual amount of total issue price less amounts of financial assets at fair value through profit or loss and bonds payable. Conversion options are not remeasured subsequently. If the conversion options of convertible corporate bonds have not been exercised as of expiration dates, the amount recognized in equity will be transferred to capital surplus - other.
iv. Any transaction costs directly attributable to the issuance of convertible bonds are allocated to the liability and equity components in proportion to the allocation of proceeds.
v. When bondholders exercise conversion options, the liability component of the bonds (including bonds payable and financial assets at fair value through profit or loss) shall be remeasured on the conversion date. The book value of common shares issued due to the conversion shall be based on the adjusted book value of the above-mentioned liability component plus the book value of capital surplus – share options.

(8) Inventories

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

(9) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.
B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and

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maintenance are charged to profit or loss during the financial period in which they are incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each end of reporting year. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change.

The estimated useful lives of property, plant and equipment are as follows:

Buildings	5~35 years
Machinery	3~20 years
Other equipment	2~20 years

D. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
(10) Leases

2019

The Group assesses whether the contract is (or includes) a lease at the date of the contract. The Group as lessee

Except for payments for low-value asset leases and short-term leases which are recognized as expenses on a straight-line basis, the Group recognized right-of-use assets and lease liabilities for all leases at the commencement date of lease. Right-of-use assets are measured at cost. The cost of right-of-use assets comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus an estimate of costs needed to restore the underlying assets. Subsequent measurement is calculated as cost less accumulated depreciation and accumulated impairment loss and adjusted for changes in lease liabilities as a result of lease term modification or other related factors. Right-of-use assets are presented separately in the consolidated balance sheets.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities are measured at the present value of the lease payments. If the implied interest rate on the lease is easy to determine, the lease payment is discounted using that interest rate. If the interest rate is not easy to determine, the lessee’s increase borrowing rate is used.

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Subsequently, lease liabilities are measured at amortized cost using the effective interest method with interest expense recognized over the lease terms. When there is a change in future lease payments resulting from a change in a lease term, the Group remeasures the lease liabilities with a corresponding adjustment to the right-of-use assets. If the carrying amount has been reduced to zero, the remaining amount will recognize in the profit and loss. Lease liabilities are presented separately in consolidated balance sheets.

2018

A. Leases are classified as finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
B. Operating leases are lease other than finance lease. Lease payments made under an operating lease (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the lease term.

(11) Intangible Assets

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis over the following estimated lives: 3 to 10 years for computer software; trademarks and patents based on the economic benefit or contract period. The estimated useful life and amortization method are reviewed at each end of reporting year, with the effect of any changes in estimate being accounted for on a prospective basis.

An item of intangible assets is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of intangible assets is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

(12) Impairment of non-financial assets

The Group assesses at the end of reporting period the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years.

(13) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be

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required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date. The discount rate shall be a pre-tax rate that reflect(s) current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognised as interest expense. Provisions are not recognised for future operating losses.

In addition, levies imposed by governments are recognized as provisions once the transaction or activity that triggers a levy occurs. If the obligation to pay a levy occurs over time, a levy is recognised as provisions progressively over time. If an obligation to pay a levy is triggered when a minimum threshold is reached, the levy is recognized when the threshold is reached.

(14) Employee benefits

A. Short-term employee benefits

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

B. Pensions
(a) Defined contribution plans

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

(b) Defined benefit plans
i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior period. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit net obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the end of the reporting period) instead.
ii. Remeasurement arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise and are recorded as retained earnings.

iii. Past service costs are recognized immediately in profit or loss.

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C. Employees’ compensation and directors’ and supervisors’ remuneration Employees’ compensation and directors’ and supervisors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees’ compensation and directors’ and supervisors’ remuneration are different from the actual distributed amounts as resolved by board of directors meeting subsequently, the differences should be recognized based on the accounting for changes in estimates.
D. Termination benefits
Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Group recognizes expense when it can no longer withdraw an offer of termination benefits or it recognizes related restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

(15) Capital stock

Capital stock is classified as equity. Incremental costs directly attributable to the issuance of stock or options are deducted from the capital issued.
(16) Income tax
A. The tax expense for the year comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.
B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the financial reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense when the actual appropriation of earnings is resolved by the shareholders meeting held in the next year.
C. Deferred income tax is recognized, using the balance sheet method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is

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provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences, deductible loss, and unused tax credit can be utilized. At each balance sheet date, unrecognized and recognized deferred income tax assets are reassessed.
E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.
(17) Revenue recognition

When applying IFRS 15, the Group shall recognize revenue by applying the following steps:

A. Identify the contract with the customer;
B. Identify the performance obligations in the contract;
C. Determine the transaction price;
D. Allocate the transaction price to the performance obligations in the contract; and
E. Recognize revenue when the entity satisfies a performance obligation.

For contracts where the period between the date the Group transfers a promised good or service to a customer and the date on which the customer pays for that good or service is within one year, the Group does not adjust the consideration for the effects of a significant financing component.

A. Sale of goods

The Group sells various valve and accessory products. Sales are recognized when control of the products has been transferred to the customers since the customers obtain the rights to list price, use the products and assure the obligation to resale them as well as to bear the risk of obsolescence. The Group recognizes revenue and accounts receivable on transferring the control of the products. Revenue is presented net of sales return, quantity discounts and sales allowance.

The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of control of materials.

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B. Service income

Service income is recognized when services are provided.

(18) Government grants

Government grants are recognized at fair value when the Group will comply with the conditions attached to them and will receive the grants. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Government grants related to property, plant and equipment are recognized as liabilities and are amortized to profit or loss over the estimated useful lives of the related assets using to straight-line method.

(19) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY

The preparation of the Group's consolidated financial statements is adopting accounting policies based on the following significant judgements, significant accounting estimates and assumptions:

(1) Key judgments for accounting policy application

A. Business model assessment for financial assets

The Group determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. This assessment includes judgment about all relevant evidence including how the performance of the assets is evaluated, the risks that affect the performance, and how the managers are compensated. The Group continuously assesses whether the business model for the remaining financial assets held continues to be appropriate and monitors financial assets at amortized cost or at fair value through other comprehensive income. When assets are derecognized prior to their maturity, the Group analyzes the reasons for their disposal and assesses whether the reasons are consistent with the objective of the business model. If there has been a change in the business model, the Group adjusts the classifications of financial assets obtained afterwards.

B. Lease terms - 2019

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In determining the lease term, the Group considers all the facts and circumstances that create an economic incentive to exercise (or not exercise) the option, including all expected change in facts and circumstances from the commencement date until the exercise date of the option. Factors considered include the contractual terms and conditions for the optional period, the significant leasehold improvements made (or expected) during the contract period, and the importance of the underlying assets to the Group’s operations, etc. The lease term is reassessed if a significant change in circumstance that are within the control of the Group occurs.

(2) Key accounting estimates and assumptions
A. Estimated impairment of financial assets

The provision for impairment of trade receivables and investments in debt instruments is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs to the impairment assessment based on the Group’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. Where the actual future cash flows are less than expected, a material impairment loss may arise.

B. Impairment of Tangible and Intangible Assets

In the process of evaluating the potential impairment of tangible and intangible assets, the Group is required to make subjective judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to the specific asset groups with the consideration of the way assets are used and nature of the industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges in future years.

C. Realization of Deferred Income Tax Assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Group’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets.

D. Evaluation of inventories

As inventories are stated at the lower of cost and net realizable value, the Group must determine the net realizable value of inventories on balance sheet date based on judgments and estimates. The Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realizable value. The net realizable value of inventory is mainly determined based on assumptions of future demand within a specific period, the assumptions might change in the future and may result in significant differences in its realizable value.

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E. Lessee’s incremental borrowing rates - 2019

In determining a lessee’s incremental borrowing rate used in discounting lease payment, the risk-free interest rate of the same currency and period is used as the reference rate, and the estimated lessee’s credit risk spread and lease specific adjustment (such as asset status and secured factors) are taken into account.

F. Deferred income

The compensation from relocation to be received according to the agreement and the expense related to the relocation is recognized as deferred income. Since the derecognition of the immovable items including land use right, buildings and some equipment, recognition of related relocation expenses, and the timing of the recognition of the compensation income to profit or loss from relocation involve estimates, any changes in economic environment and relevant laws and regulations may lead to significant adjustments in deferred income.

6. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

Item Cash on hand Checking accounts and demand deposits Time deposits Total	December 31	December 31
	2019 $ 657 352,425 769,220 $ 1,122,302	2018
		$ 464 352,852 470,905
		$ 824,221

A. The Group has no cash and cash equivalents pledged to others.

B. Please refer to Note 12 for relating credit risk management and assessment.

(2) Financial assets at fair value through profit or loss - current

Item Mandatorily measured at FVTPL Nonderivative financial assets Financial instruments with guaranteed principle and floating yield	December 31	December 31
	2019 $ 202,684	2018 $ 44,905

The Group has no financial assets at fair value through profit or loss pledged to others.

(3) Financial assets at amortized cost - current

Financial assets at amortized cost - current
Item Financial instruments with guaranteed principle and defined yield	December 31 2019 2018 $ 86,105$ 214,581
		2018
		$ 214,581

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A. The Group has no financial assets at amortized cost pledged to others.
B. Please refer to Note 12 for relating credit risk management and assessment.

(4) Notes receivable, net

Notes receivable, net
Item At amortized cost Less: Loss allowance Notes receivable, net	December 31
	2019 $ 48,383 (1,384) $ 46,999	2018
		$ 68,713 -
		$ 68,713

A. The Group has no notes receivable pledged to others.
B. As of December 31, 2019 and 2018, notes receivable being accepted by banks were $31,384 thousand and $54,994 thousand, respectively.
C. Please refer to Note 6(5) for the information on loss allowance for notes receivable.

(5) Accounts receivable, net

Item At amortized cost Less: Loss allowance Accounts receivable, net	December 31	December 31
	2019 $ 593,001 (5,319) $ 587,682	2018
		$ 615,693 (18,347)
		$ 597,346

A. The Group has no accounts receivable pledged to others.
B. The average credit period of sales of goods ranges from 14 to 90 days, which is determined by reference to the credit granting policy based on the counterparties’ industrial characteristics, operation scales and profitability. Where appropriate ask customers to pay in advance, as a means of mitigatingthe risk of financial loss from defaults.
C. The Group applies the simplified approach to providing expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Group’s different customer base. The Group takes into account the future prospect of market and assess the loss allowance for notes and accounts receivable using loss ratio established based on historical and timely information plus forwarding-looking adjustments.

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D. The loss allowance for the Group’s notes and accounts receivables based on the provision matrix is as follows:

December 31, 2019

December 31, 2019
Aginginterval Not past due Past due within 30 days Past due 31-60 days Past due 61-90 days Past due 91-180 days Past due over 181 days Total	Rate of expected credit loss	Gross carrying amount	Loss allowance (lifetime expected credit loss)	Amortized cost
	0.18% 3.38% 6.21% 11.03% 24.07% 100%	$ 598,961 28,373 4,163 5,842 2,152 1,893	$ (2,430) (959) (259) (644) (518) (1,893)	$ 596,531 27,414 3,904 5,198 1,634 -
		$ 641,384	$ (6,703)	$ 634,681

December 31, 2018

December 31, 2018
Aginginterval Not past due Past due within 30 days Past due 31-60 days Past due 61-90 days Past due 91-180 days Past due over 181 days Total	Rate of expected credit loss	Gross carrying amount	Loss allowance (lifetime expected credit loss)	Amortized cost
	0.18% 3.38% 6.21% 11.03% 24.07% 100%	$ 599,405 24,315 16,478 12,618 23,031 8,559	$ (1,007) (822) (1,023) (1,392) (5,544) (8,559)	$ 598,398 23,493 15,455 11,226 17,487 -
		$ 684,406	$ (18,347)	$ 666,059

The Group has not held any collateral or other credit enhancement for these notes and accounts receivable.

E. Movements of loss allowance for notes and accounts receivable are as follows:

Item Balance, January 1 Provision for impairment Reversal of impairment Write-offs Effect of exchange rate changes Balance, December 31	Years ended December 31	Years ended December 31
	2019 $ 18,347 1,200 (12,151) (511) (182) $ 6,703	2018
		$ 13,702 6,685 (1,667) - (373)
		$ 18,347

The Group has recognized an appropriate amount of loss allowance complying with the Group’s policies as of December 31, 2019 and December 31, 2018.

F. Please refer to Note 12 for relating credit risk management and assessment.

(6) Inventories and cost of goods sold

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Item Merchandise Finished goods Work in process Raw materials Supplies Inventory in transit Total	December 31	December 31
	2019 $ 74,335 84,115 218,908 136,660 32,118 69,792 $ 615,928	2018 $ 62,079 89,925 165,227 140,581 32,145 75,306 $ 565,263

A. The cost of inventories recognized as expense for the period:

Item Loss on decline (gain on reversal) in market value of inventories Unallocated overhead Gain on inventory taking Loss on inventory disposed Total	Years Ended December 31	Years Ended December 31
	2019 $ (370) 21,158 (704) 200 $ 20,284	2018
		$ 1,122 11,270 (754) 352
		$ 11,990

The reversal in market value of the Group’s inventories as for 2019 is mainly due to decline in the amount of slow-moving inventory and increase in the copper price.

B. The Group has no inventory pledged to others.

(7) Other current assets

Other current assets
Item Refundable deposits Other Total	December 31
	2019 $ - 530 $ 530	2018
		$ 27,091 527
		$ 27,618

XIAHUI signed a contract for the land use right of Jeimei District, Xiamen in January, 2018. According to the contract, the construction of the land use right should be done before October, 2021, and the deposit for the construction amounted to RMB 6,060 thousand had been paid and recognized in other non-current assets. The Government of Xiamen City abolished the deposit system since December, 2018. Therefore, the deposit was reclassified to other current asset, and was returned to XIAHUI in March, 2019.

(8) Financial assets at fair value through other comprehensive income – noncurrent

Item Equity instruments Unlisted stocks	December 31	December 31
	2019 $ 1,558	2018
		$ 930

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A. These investments in equity instruments are held for medium-to-long term strategic purposes and were thus classified as financial assets at fair value through other comprehensive income.
B. The Group has no financial assets at fair value through other comprehensive income pledged to others.

(9) Property, plant and equipment

Property, plant and equipment
Item Land Buildings Machinery Other equipment Equipment to be inspected and construction in progress Total cost Less: Accumulated depreciation and impairment Property, plant and equipment, net	December 31
	2019 $ 7,567 327,983 1,043,913 134,657 476,727 1,990,847 (842,309) $ 1,148,538	2018
		$ 7,567 323,247 978,565 125,773 85,538
		1,520,690 (797,417)
		$ 723,273

	Land $ 7,567 - - - - $ 7,567 $ - - - - - $ - $ 7,567 - - - - $ 7,567	Buildings $ 323,247 2,642 - 9,427 (7,333) $ 327,983 $ (168,539) (16,838) - - 4,960 $ (180,417) $ 313,431 2,284 (77) 14,349 (6,740) $ 323,247	Machinery $ 978,565 39,448 (38,539) 100,104 (35,665) $ 1,043,913 $ (540,298) (74,108) (5,288) 27,635 20,476 $ (571,583) $ 921,220 40,797 (41,245) 79,492 (21,699) $ 978,565	Other equipment $ 125,773 13,830 (9,693) 8,723 (3,976) $ 134,657 $ (88,580) (11,757) - 7,267 2,761 $ (90,309) $ 117,436 6,913 (3,545) 7,582 (2,613) $ 125,773	Equipment to be inspected and construction in progress $ 85,538 446,165 - (36,858) (18,118) $ 476,727 $ - - - - - $ - $ 30,524 104,234 - (47,418) (1,802) $ 85,538	Total
						$ 1,520,690 502,085 (48,232) 81,396 (65,092)
Cost
Balance, January 1, 2019 Additions Disposals Reclassification Effect of exchange rate difference Balance, December 31, 2019 Accumulated depreciation and impairment
						$ 1,990,847
						$ (797,417) (102,703) (5,288) 34,902 28,197
Balance, January 1, 2019 Depreciation expense Impairment loss Disposal Effect of exchange rate difference Balance, December 31, 2019 Cost
						$ (842,309)
						$ 1,390,178 154,228 (44,867) 54,005 (32,854)
Balance, January 1, 2018 Additions Disposals Reclassification Effect of exchange rate difference Balance, December 31, 2018
						$ 1,520,690

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Accumulated depreciation and impairment	Land $ - - - - $ -	Buildings $ (156,186) (15,524) 13 3,158 $ (168,539)	Machinery $ (518,940) (68,170) 35,091 11,721 $ (540,298)	Other equipment $ (80,999) (12,545) 3,104 1,860 $ (88,580)	Equipment to be inspected and construction in progress $ - - - - $ -	Total
						$ (756,125) (96,239) 38,208 16,739
Balance, January 1, 2018 Depreciation expense Disposals Effect of exchange rate difference Balance, December 31, 2018
						$ (797,417)

A. In response to the growth of sales and the planning to expand the plant, the Group engaged China City Investment Construction Group to build plants and an administration building on the land of Jeimei District, Xiamen. The contract price is RMB 151,880 thousand. The construction began in December, 2018 and is expected to complete in the first half of year 2020.
B. The Group has no property, plant and equipment pledged to others.
C. Please refer to Note 6(28) for the information on interest capitalization.
D. Please refer to Note 6(16) for the relocation of LUHAI KUNSHAN.

(10) Lease agreement

A. Right-of-use assets - 2019

Item	December 31,2019	December 31,2019
Land Buildings Total cost Less: Accumulated depreciation and impairment Right-of-use assets, net Land Cost Balance, January 1, 2019 $ - Adjustments arising from initial application of IFRS 16 193,407 Balance, January 1, 2019 (Adjusted) 193,407 Effect of exchange rate difference (6,100) Balance, December 31, 2019 $ 187,307 Accumulated depreciation and impairment Balance, January 1, 2019 $ - Adjustments arising from initial application of IFRS 16 -	$	187,307 18,618
		205,925 (8,063)
	$	197,862
		Total
		$ - 212,739
		212,739 (6,814)
		$ 205,925
		$ - -

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Balance, January 1,2019 (Adjusted) Depreciation expense Effect of exchange rate difference Balance, December 31, 2019	Land $ - (4,077) 151 $ (3,926)	Buildings $ - (4,297) 160 $ (4,137)	Total
			$ - (8,374) 311
			$ (8,063)

The Group has no right-of-use assets pledged to others.

B. Lease liabilities - 2019

The Group has no right-of-use assets pledged to others. Lease liabilities - 2019
Item Current lease liabilities Noncurrent lease liabilities Ranges of discount rates for lease liabilities are as follows: Item Buildings	December 31,2019
	$ 4,376
	$ 9,345
	December 31,2019
	3.65%

Please refer to Note 6(28) for interest on lease liabilities.

C. Material lease-in activities and terms

Right-of-use assets include building leased by XIAHUI and the land use rights in China and Indonesia owned by XIAHUI, LUHAI KUNSHAN and PT. LUHAI. The land use right was originally recognized in long-term prepaid rent. Please refer to Note 3 and Note 6(12) for information of the land use right in 2018 and its reclassification. XIAHUI leased some buildings with the lease terms from 2018 to 2023. XIAHUI is not allowed to sublease the buildings to others without the permission of the lessor.

LUHAI KUNSHAN and XIAHUI signed land use right contract with Jiangsu government and Xiamen government with the lease terms of 40 to 50 years. PT. LUHAI obtained the land use right of Serang, Indonesia. The aforementioned land is used to build plants, office buildings and employees’ dormitories.

Please refer to Note 6(16) for the relocation of LUHAI KUNSHAN.

D. Other lease information

Other lease information
2019 Item Short-term lease expense Total cash outflow for leases	Year ended December 31,2019
	$ 1,777
	$ (6,335)

The Group applied the recognition exemption to short-term leases and low-value asset leases and did not recognized right-of-use assets and lease liabilities for these leases.

2018

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The Group leases land use rights under non-cancellable operating lease agreements. The future aggregate minimum lease payments payable under non-cancellable operating leases are as follows:

operating leases are as follows:	operating leases are as follows:	operating leases are as follows:
Item Within 1 year 1-5 years Total Intangible assets Item	Item			December 31,2018 $ 4,864 17,418 $ 22,282 December 31
							4,864 17,418
							22,282

				2019 $ 16,754 408 175 17,337 (10,381) $ 6,956 Year Ended December 2019			2018
Software Trademark Patent Total cost Less: Accumulated amortization Intangible assets, net Software Cost Balance, January 1, 2019 $ 16,315 Additions 1,779 Disposals (876) Effect of exchange rate difference (464) Balance, December 31, 2019 $ 16,754 Accumulated amortization Balance, January 1, 2019 $ (9,017) Amortization expense (1,967) Disposals 876 Effect of exchange rate difference 222 Balance, December 31, 2019 $ (9,886) Software Cost Balance, January 1, 2018 $ 16,488 Additions 916 Disposals (833) Effect of exchange rate difference (256) Balance, December 31, 2018 $ 16,315 Accumulated amortization Balance, January 1, 2018 $ (8,396)						$	16,315 424 181
							16,920 (9,471)
						$	7,449

		Software $ 16,315 1,779 (876) (464) $ 16,754 $ (9,017) (1,967) 876 222 $ (9,886)		Trademark Patent 424 $ 181 - - - - (16) (6) 408 $ 175 (313) $ (141) (42) (18) - - 13 6 (342) $ (153) Year Ended December 2018			Total
			$				$ 16,920 1,779 (876) (486)
			$				$ 17,337
			$				$ (9,471) (2,027) 876 241
			$				$ (10,381)

		Software $ 16,488 916 (833) (256) $ 16,315 $ (8,396)		Trademark 433 - - (9) 424 (277)	Patent $ 185 - - (4) $ 181 $ (126)		Total
			$				$ 17,106 916 (833) (269)
			$				$ 16,920
			$				$ (8,799)

(11) Intangible assets

141

	Year Ended December 2018	Year Ended December 2018
Software $ (1,562) 833 108 $ (9,017)	Trademark $ (43) - 7 $ (313)	Patent $ (18) - 3 $ (141)	Total
			$ (1,623) 833 118
			$ (9,471)

The Group has no intangible assets pledged to others.

(12) Long-term prepaid rents-2018

Item Land use right	December 31,2018
	$ 193,407

The Group has no long-term prepaid rents pledged to others.

(13) Other noncurrent assets

Item Prepaid of equipment Refundable deposits Other noncurrent assets Total	December 31	December 31
	2019 $ 19,528 4,864 8,556 $ 32,948	2018
		$ 29,804 2,405 4,527
		$ 36,736

(14) Short-term loans

The nature of borrowings Unsecured borrowings Interest rates	December 31	December 31
	2019 $ - -	2018 $ 30,715 3.90%

The Group does not provide any asset as a collateral for short-term borrowings.

(15) Other payables

Item Salaries and bonus payable Consumption expense payable Construction and equipment payable Insurance payable Sales tax payable Outsourced expense payable Compensation payable of employees, directors and supervisors Other	December 31	December 31
	2019 $ 73,289 30,146 56,663 14,173 2,380 11,215 7,713 23,738	2018 $ 62,221 23,799 4,397 14,303 4,611 11,111 6,688 23,852

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(16)	Item Total Deferred Income Item Compensation income for relocation Relocation cost Economic compensation to employees Expenses of moving and installing assets Others Subtotal Deferred income, net	December 31	December 31
		2019 2018 $ 219,317$ 150,982 December 31	2018
			$ 150,982
		2019 $ 637,618 (9,091) (8,012) (1,471) (18,574) $ 619,044	2018
			$ - - - -
			-
			$ -

At the request of the local government for the need of constructing S1 rails, the Board of Directors authorized the chairman to sign the relocation agreement per applicable laws and regulations. The relocation agreement had been signed by Kunshan Huaqiao Weimin House Demolition Limited Company (Weimin Company) and LUHAI KUNSHAN in November, 2019. The content includes compensation for the expropriation of the land use right, plant, buildings and equipment (collectively referred to as “the immovable items”), cessation of production and business, termination of labor contracts and expenses related to relocation. Main clauses are as follows:

A. The total compensation amounts to RMB 185,128 thousand.
B. Weimin Company shall pay 50% of the total compensation, which equals to RMB 92,564 thousand, within 10 days once the agreement is signed. 30% of the total compensation, which equals to RMB 55,538 thousand, shall be paid when the certificates for the use of land and for building are submitted. LUHAI KUNSHAN is obligated to transfer the immovable items before April 30[th] , 2020 and Weimin Company shall pay the remaining 20% of the total compensation, which amounts to RMB 37,026 thousand. As of December 31, 2019, LUHAI KUNSHAN had received 80% of the total compensation which is 637,618 thousand (RMB 148,102 thousand) and is included in deferred income.
C. Loss from disposal of the immovable items, termination of labor contracts and related relocation expenses are recognized as a deduction of deferred income on occurrence. Deferred income begins to be recognized in profit or loss upon the transfer of the immovable items and the completion of the second stage of relocation.
D. The agreement also states that Weimin Company shall assist LUHAI KUNSHAN with obtaining 36 mu (approximated to 5.93 acres) of land use right within 2 years once the agreement is signed, or the aforementioned compensation would be increased. The increase in compensation includes defined amount including financial incentive for

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signing the contract, relocation bonus and compensation for not providing land amounting to RMB 86,661 thousand, plus a compensation of 30% of evaluated price for movable equipment, and an extra compensation based on the actual expenditure or loss from the termination of labor contracts and rent expenses for plants and factories during the transition period.

E. According to the relocation agreement, if Weimin Company finishes settling the land, yet LUHAI KUNSHAN has not completed the construction of new factories, LUHAI KUNSHAN will have to pay RMB 60,000 thousand as damages.

(17) Long-term loans and long-term loans due within a year

The nature of borrowings Secured borrowings Less: Current portion Total Interest rates Maturity date	December 31	December 31
	2019 $ 678,732 (207,419) $ 471,313 0.9%-3.30% 2020 to 2023	2018
		$ 635,606 (61,314)
		$ 574,292
		0.9%-4.01%
		2019 to 2023

A. The Group does not provide any asset as a collateral for long-term borrowings.
B. According to loan agreements with banks, the Company and XIAHUI should maintain certain agreed financial ratios. The Company and XIAHUI have not breached the agreements as of December 31, 2019 and 2018.

(18) Other current liabilities

Other current liabilities
Item Guarantee deposits received Other Total	December 31
	2019 $ 5,166 226 $ 5,392	2018
		$ - 581
		$ 581

The deposits received are from public bidding for building the power supply of XIAHUI’s new plants.

(19) Retirement benefit plans

A. Defined contribution plans
(a)The Company and LU HAI IND. adopted a pension plan under the Labor Pension Act, which is a state-managed defined contribution plan. The Group make monthly contributions to employees' individual pension accounts at 6% of monthly salaries and wages.
(b)The foreign subsidiaries also make contribution in accordance with the rate specified in the plans in the local regulations, which is a defined contribution plan.

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(c)A total expense of $19,136 thousand and $19,887 thousand were recognized in accordance with rate specified in defined contribution plans in consolidated comprehensive income statement as of December 31, 2019 and 2018.
B. Defined benefit plans
- (a)The Company and LU HAI IND. adopted the pension plan under the Labor Standards Law, which is a government managed defined benefit plan, under which pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company and LU HAI IND. make contributions, equal to 2% of total monthly salaries, to a pension fund which are administered by Labor Pension Fund Supervisory Committee (the Committee) and deposited in the name of the Company’s and LU HAI IND.’s Committee in the Bank of Taiwan. Before the end of each year, the Company and LU HAI IND. assess the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who qualified to retirement requirements in the next year, the Company and LU HAI IND. are required to fund the difference in one deposit by the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company and LU HAI IND. have no right to influence the investment policy and strategy
- (b)The Company and LU HAI IND. set March 31[st] , 2019 as record date to pay off the retirement payment with the employees and the labor pension account had been cancelled with the consent of the authority. The appropriated pension amounts to 285 thousand had been refunded.
- (c)Amounts recognized in the consolidated balance sheets in respect of these defined benefit plans were as follows:

Item Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability	December 31	December 31
	2019 $ - - $ -	2018
		$ 9,298 (4,164)
		$ 5,134

(d)Movement in the net defined benefit liability were as follows:

Year ended December 31, 2019: None.

Item Balance, January 1, 2018 Service cost Current service cost	Year ended December 31,2018	Year ended December 31,2018	Year ended December 31,2018
	Present value of defined benefit obligation $ 7,820 91	Fair value of plan assets $ (3,832) -	Net defined benefit liability
			$ 3,988 91

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Year ended December 31, 2018

Item Interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest expense) Actuarial (gain) loss arising from changes in financial assumptions Actuarial (gain) loss arising from experience adjustments Recognized in other comprehensive income Contributions from employer Benefits paid Balance, December 31, 2018	Present value of defined benefit obligation $ 102 193 - 551 734 1,285 - - $ 9,298	Fair value of plan assets $ (51) (51) (101) - - (101) (180) - $ (4,164)	Net defined benefit liability
			$ 51
			142
			(101) 551 734
			1,184
			(180) -
			$ 5,134

The pension costs of the defined benefit plans were recognized in profit or loss by the following items:

the following items:
Item Marketing expenses General and administrative Other income Total	Years ended December 31
	2019 $ 49 281 (770) $ (440)	2018
		$ 21 121 -
		$ 142

(e)Fair value of the plan assets was as follows:

Item Cash and cash equivalents	December 31	December 31
	2019 $ -	2018
		$ 4,164

(f)Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:
i. Investment risk

The plan assets are invested in domestic and foreign equity securities, debt securities, and bank deposits, etc. The investment is conducted at the discretion of the Bureau of Labor Funds, Ministry of Labor or under the mandated management. However, in accordance with relevant regulations, the return

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generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

ii. Interest risk:

A decrease in the government bond and corporation bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments. iii. Salary risk

The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

(g)The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Item Discount rate Future salary increase rate	Measurement date	Measurement date
	December 31
	2019 - -	2018
		1.05% 2.75%

If possible change in the significant actuarial assumptions will occur and other assumptions remain constant, the present value of the defined benefit obligation would (increase) decrease as follows:

Item Discount rate 0.25% increase 0.25% decrease Future salary increase rate 1% increase 1% decrease	December 31	December 31
	2019 $ - - $ - -	2018
		$ (283) 298 $ 1,044 (1,253)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

(20) Capital stocks

A. The Company’s movement of outstanding shares and capital were as follows:

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Years ended December 31

2019 Shares (in thousands) Amount 81,965 $ 819,650 4,098 40,982 86,063$ 860,632	2018	2018
Shares (in thousands) 81,965 4,098 86,063	Shares (in thousands) 81,965 - 81,965	Amount
		$ 819,650 -
		$ 819,650

The par value of capital stock is $10 per share; every share has one voting right and the right to receive dividends.

Pursuant to a shareholders’ resolution on May 29, 2019, the Company increase its common capital with stock dividends by 40,982 thousand shares, at a par value of $10, the total paid-in capital was $860,632 thousand after capital increment. The capital increment by stock dividends had obtained approval in the BOD’s meeting and the effective date of the capital increment was August 9, 2019.

B. The Company’s authorized capital was $1,200,000 thousand, consisting of 120,000 thousand shares as of December 31, 2019.

(21) Capital surplus

Item From merger Additional paid-in capital From convertible bonds From difference between acquisition of interests in subsidiaries and its Share-based payments Other Total	December 31	December 31
	2019 $ 44,012 349,674 1,033 28,451 2,028 18,503 $ 443,701	2018
		$ 44,012 349,674 1,033 28,451 2,028 18,503
		$ 443,701

Under the Company Act, the capital surplus generated from the excess of the issuance price over the par value of capital stock （ including mergers, convertible bonds and difference between acquisition of interests in subsidiaries and its carrying value of equity ） and from donations can be used to offset deficit or may be distributed as stock dividends or cash dividends. Under the regulations of the Security Exchange Law, the maximum amount transferred from the foregoing capital surplus to the Company's capital per year shall not be over 10% of the Company's capital surplus. Capital surplus can't be used to offset deficit unless legal reserve is insufficient. The capital surplus from long-term investments may not be used for any purpose.

(22) Retained earnings and earnings appropriation

148

A. Under the regulation of the earning distribution policy in amended article of incorporation, The Company may distribute profits in accordance with a proposal for distribution of profits prepared by the Directors and approved by the Members by Ordinary Resolution. The Directors shall prepare such proposal as follows: the proposal shall begin with the Company’s Annual Net Income and offset its losses in previous years that have not been previously offset; then set aside a Legal Capital Reserve at 10% of the profits left over, until the accumulated Legal Capital Reserve has equaled the total paid-up capital of the Company; then set aside a Special Capital Reserve if one is required in accordance with the Applicable Public Company Rules or as requested by the authorities in charge. If there is net remainder, the Directors may prepare the proposal for distribution of Dividends, bonus or other benefits accounted together with undistributed profits accrued in previous years and submit to the general meeting for review and approval by a resolution.
The Company is currently positioned in a growth and development phase. Due to the need for capital expenditure, operation expansion and an integrated financial planned in order to maintain sustainable growth, any balance left over under the proposal mentioned above may be distributed as Dividends (including cash dividends or stock dividends) or bonuses, among which the Dividends to be distributed shall not be less than 10% of the total amount of Dividends distributed to the shareholders.
B. Legal reserve may be used to offset a deficit or to distribute as dividend in cash or in stock for the portion in excess of 25% of the Company's paid-in capital.
C. Special reserve

stock for the portion in excess of 25% of Special reserve	the Company's paid-in capital.	the Company's paid-in capital.
Item Special reserve	December 31
	2019 $ 282,676	2018
		$ 228,579

(a)In accordance with the regulation, the Company shall set aside special reserve from the debit balance on other equity item at the end of the year before distributing earnings. When debit balance on other equity is reversed subsequently, the reversed amount could be included in the distributable earnings.
(b)The amounts previously set aside by the Company as special reserve on initial application of IFRSs in accordance with rule NO.1010012865 issued by the FSC, dated April 6, 2012, shall be reversed proportionately to retained earnings when the relevant assets are used, disposed of or reclassified subsequently.
D. The appropriations of 2018 and 2017 earnings have been approved by shareholders’ meetings held on May 29, 2019 and June 25, 2018, respectively. The appropriations and dividends per share were as follows:

Item Legal reserve Special reserve	Appropriation of Earnings For Year 2018 For Year 2017 $ 20,846 $ 27,415 54,097 5,551	Dividends Per Share(NT$)	Dividends Per Share(NT$)
	For Year 2018 $ 20,846 54,097	For Year 2018 $ - -	For Year 2017
			$ - -

149

Appropriation of Earnings For Year 2018 For Year 2017 $ 81,965 $ 122,947 40,982 - $ 197,890$ 155,913	Dividends Per Share(NT$)	Dividends Per Share(NT$)
For Year 2018	For Year 2018 $ 1.00 0.50	For Year 2017
$ 81,965 40,982		$ 1.50 -
$ 197,890

E. The Company’s appropriations of earnings for 2019 had been approved in the meeting

of the Board of Directors held on March 12, 2020. The appropriations and dividends per share were as follows:

per share were as follows:
Item Legal reserve Special reserve Cash dividends Stock dividends Total	Appropriation of Earnings $ 24,191 86,854 189,339 43,032 $ 343,416	Dividends Per Share (NT$)
		$ - - 2.20 0.50

The appropriations of earnings for 2019 are to be presented for approval in the Company's annual shareholders' meeting to be held on May 29, 2020.

F. Information on proposal and resolution regarding earnings appropriation of the Board of Directors' and shareholders' meetings is available from the "Market Observation Post System" on the website of the TWSE.

(23) Other equity items

Item Balance, January 1, 2019 Exchange differences on translation of foreign financial statements Valuation adjustments on financial assets at fair value through other comprehensive income Balance, December 31, 2019 Balance, January 1, 2018 Effect of retrospective application of IFRS 9 Balance, January 1, 2018 (adjusted) Exchange differences on translation of foreign financial statements Valuation adjustments on financial assets at fair value through other comprehensive income Balance, December 31, 2018	Exchange differences on translation of foreign financial statements $ (282,714) (87,542) - $ (370,256) $ (228,579) - (228,579) (54,135) - $ (282,714)	Profit (loss) on financial assets at fair value through other comprehensive income $ 38 - 688 $ 726 $ - 247 247 - (209) $ 38	Total
			$ (282,676) (87,542) 688
			$ (369,530)
			$ (228,579) 247
			(228,332) (54,135) (209)
			$ (282,676)

(24) Net revenue

150

Item Revenue from contract with customers Revenue from sale of goods Service revenue Total	Years ended December 31	Years ended December 31
	2019 $ 2,716,823 66 $ 2,716,889	2018
		$ 2,627,341 1,437
		$ 2,628,778

A. Description of contract with customers

Revenue from contract with customers mainly derives from sales of valves and accessories and processing fees income from customers. The consideration, fixed and agreed on the contracts, is classified as short-term receivables, and is therefore measured at invoice price.

B. Disaggregation of revenue from contracts with customers

The Group classifies revenue from the following categories of main products:

Year ended December 31, 2019

The Company $ 30,703 17,453 48,182 12,618 $ 108,956 $ 108,956 - $ 108,956	XIAHUI $ 433,427 462,122 227,563 207,050 $1,330,162 $ 1,330,107 55 $1,330,162	LUHAI KUNSHAN	LUHAI KUNSHAN	Others	Eliminations	Total
		$ 17,448 20,010 321,911 56,067		$ 12,870 109,471 67,343 58,711	$ - - - (28,322)	$ 565,702 967,602 698,610 484,975
		$ 415,436		$248,395	$ (28,322)	$ 2,716,889
		$ 415,436 -		$ 248,395 -	$ (28,322) -	$ 2,716,823 66
		$ 415,436		$248,395	$ (28,322)	$ 2,716,889
				31,2018
The Company $ - - - - $ - $ - -	XIAHUI $ 335,768 413,528 241,281 183,261 $1,173,838 $ 1,173,699 139	LUHAI KUNSHAN	PT.LUHAI $ 59,053 344,286 35,353 147,472 $ 586,164 $ 584,866 1,298	Others	Eliminations	Total
		$ 89,100 56,648 324,280 77,580		$ 38,304 112,335 117,098 71,620	$ - - - (18,189)	$ 522,225 926,797 718,012 461,744
		$ 547,608		$339,357	$ (18,189)	$ 2,628,778
		$ 547,608 -		$ 339,357 -	$ (18,189) -	$ 2,627,341 1,437

151

Item Total			Year ended Decembe	Year ended Decembe	r 31,2018
	The Company $ -	XIAHUI $1,173,838	LUHAI KUNSHAN	PT.LUHAI	Others $339,357	Eliminations	Total
			$ 547,608	$ 586,164		$ (18,189)	$ 2,628,778

C. Contract balances

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

Item Contract liabilities - current	Years ended 2019 $ 477	December 31
		2018
		$ 3,651

(25) Employee benefits, depreciation and amortization expense

	Years ended December 31	Years ended December 31	Years ended December 31
	2019	Total $ 453,850 4,590 14,788 18,696 37,436 12,212 111,077 2,027 $ 654,676		2018
Operating costs $ 331,444 - 9,629 14,219 28,004 - 97,774 - $ 481,070	Operating expenses $ 122,406 4,590 5,159 4,477 9,432 12,212 13,303 2,027 $173,606		Operating costs $ 314,712 - 10,329 15,085 22,901 - 88,783 - $ 451,810	Operating expenses $ 114,460 3,954 5,129 4,944 14,147 - 7,456 5,767 $155,857	Total
					$ 429,172 3,954 15,458 20,029 37,048 - 96,239 5,767
					$ 607,667

A. According to the Company’s Article of Incorporation, if the Company has pre-tax profits in the current year, the Company shall aside not less than 1.5% of the profits as employees’ compensation and not more than 3% of the profits as Directors’ remuneration. If there is a change in amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate.
B. The appropriations of employees’ compensation and remuneration of directors of 2019 and 2018 have been approved by directors’ meeting held on March 12, 2020 and March 13, 2019, respectively. The amounts approved and recognized in financial statements are shown as follows:

are shown as follows:
Amount resolved to be distributed Amount recognized in	Years ended	December 31
	2019 Employees’ compensation Remuneration to directors $ 3,770 $ 3,770 3,770 3,770	2018
	Employees’ compensation $ 3,770 3,770	Employees’ compensation $ 3,224 3,224	Remuneration t o directors
			$ 3,224 3,224

152

Years ended	December 31	December 31
2019 Employees’ compensation Remuneration to directors $ -$ -	2018
Employees’ compensation $ -	Employees’ compensation $ -	Remuneration t o directors

		$ -

The employees’ compensation and remuneration to directors of 2019 and 2018 will be paid by cash.

C. Information on employees' compensation and remuneration to directors of the Company as resolved by the meeting of Board of Directors is available from the "Market Observation Post System" at the website of the TWSE.
D. For the years ended December 31, 2019 and 2018, the numbers of employees of the Group were 1,315 and 1,358, respectively. Among them, the numbers of Directors who were not employees were both 6, respectively.

(26) Other income

Item Interest income Bank deposit Financial assets at amortized cost Subtotal Subsidies Others Total	Years ended December 31	Years ended December 31
	2019 $ 10,213 4,693 14,906 8,560 4,902 $ 28,368	2018
		$ 10,322 6,407
		16,729 17,188 3,552
		$ 37,469

(27) Other gains and losses

Item Net currency exchange gains Gains of financial assets at fair value through profit or loss Impairment loss of property, Plant and equipment Gains (losses) on disposal of property, Plant and equipment Other losses Total	Years ended December 31	Years ended December 31
	2019 $ 26,263 1,906 (5,288) (2,617) (2,435) $ 17,829	2018
		$ 4,907 1,154 - 717 (4,421)
		$ 2,357

(28) Financial costs

Financial costs
Item Interest expense	Years ended December 31
	2019	2018

153

Item Bank borrowings Convertible bonds Interest of lease liabilities Less: capitalized amount for qualified assets Financial cost Interest capitalization rates	Years ended December 31	Years ended December 31
	2019 $ 15,772 - 612 (3,390) $ 12,994 1.15%-3.99%	2018
		$ 12,703 1,789 - (2,493)
		$ 11,999
		1.15%-4.10%

(29) Income tax

A. Income tax expense recognized in profit or loss

Components of income tax expense:

Components of income tax expense:
Item Current income tax expense Current tax expense recognized in the current year Income tax adjustments on prior years Additional income tax on unappropriated earnings Current income tax expense Deferred income tax expense Deferred income tax expense (benefit) related to temporary differences Unused loss carryforwards Effect of tax rate changes Deferred income tax expense (benefit) Income tax expense	Years ended December 31
	2019 $ 97,171 67 521 97,759 7,677 (1,508) - 6,169 $ 103,928	2018
		$ 94,544 (296) 1,953
		96,201
		(7,433) - (62)
		(7,495)
		$ 88,706

B. Income tax expense recognized in other comprehensive income

Item Remeasurement of defined benefit obligations Exchange differences on translation of foreign operations	Years ended December 31	Years ended December 31
	2019 $ - $ -	2018
		$ 24
		$ -

C. Reconciliation between income tax expense and accounting profit:

Item Income before tax Income tax expense at the statutory rate	Years ended December 31	Years ended December 31
	2019 $ 345,838 $ 93,655	2018
		$ 297,169
		$ 93,607

154

Years ended December 31 Item 2019 2018 Tax effect of adjusting items: Deductible items in determining taxable income $ 3,516 $ 937 Additional tax on unappropriated earnings 521 1,953 Income tax adjustments on prior years 67 (296) Net changes on deferred income tax Temporary differences 7,677 (7,495) Unused loss carryforwards (1,508) - Income tax expense recognized in profit or loss $ 103,928 $ 88,706 Starting from January 1, 2018, the corporate income tax that LU HAI IND. applies will be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated earnings will be reduced from 10% to 5%. For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction. Deferred tax assets or liabilities resulting from temporary differences: Year ended December 31,2019 Item Beginning balance Recognized in (losses) gains Recognized in other comprehensive income Effect of exchange rate changes Ending Balance Deferred tax assets (liabilities) Temporary differences Timing of revenue recognition $ 1,935 $ (255) $ - $ (40) $ 1,640 Loss allowance 4,556 (2,878) - (46) 1,632 Loss on decline (gain on reversal) in market value of inventory 5,210 (74) - (146) 4,990 Gain (loss) on foreign Investments accounted For using equity method (10,715) (6,784) - 450 (17,049) Deferred depreciation expense 5,915 (238) - (206) 5,471 Impairment loss 3,951 1,210 - (191) 4,970 Deferred insurance expense and housing provident fund 2,772 - - (102) 2,670 Remeasurement of defined benefit obligation (558) 558 - - - Other 358 784 - (48) 1,094 Unused loss carryforwards - 1,508 - - 1,508 Total $ 13,424 $ (6,169) $ - $ (329) $ 6,926	Years ended December 31 Item 2019 2018 Tax effect of adjusting items: Deductible items in determining taxable income $ 3,516 $ 937 Additional tax on unappropriated earnings 521 1,953 Income tax adjustments on prior years 67 (296) Net changes on deferred income tax Temporary differences 7,677 (7,495) Unused loss carryforwards (1,508) - Income tax expense recognized in profit or loss $ 103,928 $ 88,706 Starting from January 1, 2018, the corporate income tax that LU HAI IND. applies will be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated earnings will be reduced from 10% to 5%. For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction. Deferred tax assets or liabilities resulting from temporary differences: Year ended December 31,2019 Item Beginning balance Recognized in (losses) gains Recognized in other comprehensive income Effect of exchange rate changes Ending Balance Deferred tax assets (liabilities) Temporary differences Timing of revenue recognition $ 1,935 $ (255) $ - $ (40) $ 1,640 Loss allowance 4,556 (2,878) - (46) 1,632 Loss on decline (gain on reversal) in market value of inventory 5,210 (74) - (146) 4,990 Gain (loss) on foreign Investments accounted For using equity method (10,715) (6,784) - 450 (17,049) Deferred depreciation expense 5,915 (238) - (206) 5,471 Impairment loss 3,951 1,210 - (191) 4,970 Deferred insurance expense and housing provident fund 2,772 - - (102) 2,670 Remeasurement of defined benefit obligation (558) 558 - - - Other 358 784 - (48) 1,094 Unused loss carryforwards - 1,508 - - 1,508 Total $ 13,424 $ (6,169) $ - $ (329) $ 6,926	Years ended December 31 Item 2019 2018 Tax effect of adjusting items: Deductible items in determining taxable income $ 3,516 $ 937 Additional tax on unappropriated earnings 521 1,953 Income tax adjustments on prior years 67 (296) Net changes on deferred income tax Temporary differences 7,677 (7,495) Unused loss carryforwards (1,508) - Income tax expense recognized in profit or loss $ 103,928 $ 88,706 Starting from January 1, 2018, the corporate income tax that LU HAI IND. applies will be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated earnings will be reduced from 10% to 5%. For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction. Deferred tax assets or liabilities resulting from temporary differences: Year ended December 31,2019 Item Beginning balance Recognized in (losses) gains Recognized in other comprehensive income Effect of exchange rate changes Ending Balance Deferred tax assets (liabilities) Temporary differences Timing of revenue recognition $ 1,935 $ (255) $ - $ (40) $ 1,640 Loss allowance 4,556 (2,878) - (46) 1,632 Loss on decline (gain on reversal) in market value of inventory 5,210 (74) - (146) 4,990 Gain (loss) on foreign Investments accounted For using equity method (10,715) (6,784) - 450 (17,049) Deferred depreciation expense 5,915 (238) - (206) 5,471 Impairment loss 3,951 1,210 - (191) 4,970 Deferred insurance expense and housing provident fund 2,772 - - (102) 2,670 Remeasurement of defined benefit obligation (558) 558 - - - Other 358 784 - (48) 1,094 Unused loss carryforwards - 1,508 - - 1,508 Total $ 13,424 $ (6,169) $ - $ (329) $ 6,926	Years ended December 31 Item 2019 2018 Tax effect of adjusting items: Deductible items in determining taxable income $ 3,516 $ 937 Additional tax on unappropriated earnings 521 1,953 Income tax adjustments on prior years 67 (296) Net changes on deferred income tax Temporary differences 7,677 (7,495) Unused loss carryforwards (1,508) - Income tax expense recognized in profit or loss $ 103,928 $ 88,706 Starting from January 1, 2018, the corporate income tax that LU HAI IND. applies will be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated earnings will be reduced from 10% to 5%. For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction. Deferred tax assets or liabilities resulting from temporary differences: Year ended December 31,2019 Item Beginning balance Recognized in (losses) gains Recognized in other comprehensive income Effect of exchange rate changes Ending Balance Deferred tax assets (liabilities) Temporary differences Timing of revenue recognition $ 1,935 $ (255) $ - $ (40) $ 1,640 Loss allowance 4,556 (2,878) - (46) 1,632 Loss on decline (gain on reversal) in market value of inventory 5,210 (74) - (146) 4,990 Gain (loss) on foreign Investments accounted For using equity method (10,715) (6,784) - 450 (17,049) Deferred depreciation expense 5,915 (238) - (206) 5,471 Impairment loss 3,951 1,210 - (191) 4,970 Deferred insurance expense and housing provident fund 2,772 - - (102) 2,670 Remeasurement of defined benefit obligation (558) 558 - - - Other 358 784 - (48) 1,094 Unused loss carryforwards - 1,508 - - 1,508 Total $ 13,424 $ (6,169) $ - $ (329) $ 6,926	Years ended December 31 Item 2019 2018 Tax effect of adjusting items: Deductible items in determining taxable income $ 3,516 $ 937 Additional tax on unappropriated earnings 521 1,953 Income tax adjustments on prior years 67 (296) Net changes on deferred income tax Temporary differences 7,677 (7,495) Unused loss carryforwards (1,508) - Income tax expense recognized in profit or loss $ 103,928 $ 88,706 Starting from January 1, 2018, the corporate income tax that LU HAI IND. applies will be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated earnings will be reduced from 10% to 5%. For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction. Deferred tax assets or liabilities resulting from temporary differences: Year ended December 31,2019 Item Beginning balance Recognized in (losses) gains Recognized in other comprehensive income Effect of exchange rate changes Ending Balance Deferred tax assets (liabilities) Temporary differences Timing of revenue recognition $ 1,935 $ (255) $ - $ (40) $ 1,640 Loss allowance 4,556 (2,878) - (46) 1,632 Loss on decline (gain on reversal) in market value of inventory 5,210 (74) - (146) 4,990 Gain (loss) on foreign Investments accounted For using equity method (10,715) (6,784) - 450 (17,049) Deferred depreciation expense 5,915 (238) - (206) 5,471 Impairment loss 3,951 1,210 - (191) 4,970 Deferred insurance expense and housing provident fund 2,772 - - (102) 2,670 Remeasurement of defined benefit obligation (558) 558 - - - Other 358 784 - (48) 1,094 Unused loss carryforwards - 1,508 - - 1,508 Total $ 13,424 $ (6,169) $ - $ (329) $ 6,926
Beginning balance $ 1,935 4,556 5,210 (10,715) 5,915 3,951 2,772 (558) 358 - $ 13,424	Recognized in (losses) gains $ (255) (2,878) (74) (6,784) (238) 1,210 - 558 784 1,508 $ (6,169)	Recognized in other comprehensive income $ - - - - - - - - - - $ -	Effect of exchange rate changes $ (40) (46) (146) 450 (206) (191) (102) - (48) - $ (329)	Ending Balance
				$ 1,640 1,632 4,990 (17,049) 5,471 4,970 2,670 - 1,094 1,508
				$ 6,926

D. Deferred tax assets or liabilities resulting from temporary differences:

155

	Year ended December 31,	Year ended December 31,	2018
Beginning balance	Recognized in (losses) gains $ (236) 1,442 352 6,515 (547) (52) - - 21 $ 7,495	Recognized in other comprehensive income $ - - - - - - - (24) - $ (24)	Effect of exchange rate changes $ (49) (95) (116) (417) (134) (88) (61) - (7) $ (967)	Ending Balance
$ 2,220 3,209 4,974 (16,813) 6,596 4,091 2,833 (534) 344				$ 1,935 4,556 5,210 (10,715) 5,915 3,951 2,772 (558) 358
$ 6,920				$ 13,424

E. As of December 31, 2019, the tax authorities have examined LU HAI IND.’s income tax returns through 2017.

(30) Other comprehensive income

Other comprehensive income
Item Items that will not be reclassified subsequently to profit or loss: Unrealized profit (losses) from equity instrument at fair value through other comprehensive income Subtotal Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Subtotal Total	Year ended December 31,2019
	Before tax $ 688 688 $ (87,542) (87,542) $ (86,854)	Income tax (expense) benefit	After tax
		$ -	$ 688
		-	688
		$ -	$ (87,542)
		-	(87,542)
		$ -	$ (86,854)

Item Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligation Unrealized profit (losses) from equity instrument at fair value through other comprehensive income	Year ended December 31,2018	Year ended December 31,2018	Year ended December 31,2018
	Before tax $ (1,184) (209)	Income tax (expense) benefit	After tax
		$ (24) -	$ (1,208) (209)

156

Year ended December 31,2018	Year ended December 31,2018	Year ended December 31,2018
Before tax $ (1,393) $ (54,135) (54,135) $ (55,528)	Income tax (expense) benefit	After tax
	$ (24)	$ (1,417)
	$ -	$ (54,135)
	-	(54,135)
	$ (24)	$ (55,552)

(31) Earnings per share

Item Basic earnings per share Net income attributable to shareholders of the parent Net income for calculating basic earnings per share Weighted average number of shares outstanding for the period (in thousand s) Basic earnings per share, after tax (in dollar) Diluted earnings per share Net income attributable to shareholders of the parent Effect of dilutive potential common shares Convertible bonds Net income for calculating diluted earnings per share Weighted average number of shares outstanding for the period (in thousand s) Effect of dilutive potential common shares Employees’ compensation Convertible corporate bonds (in thousand shares) Weighted average shares outstanding for dilutive earnings per share Diluted earnings per share, after tax (in dollar)	Years ended December 31	Years ended December 31
	2019 $ 241,910 $ 241,910 86,063 $ 2.81 $ 241,910 - $ 241,910 86,063 110 - 86,173 $ 2.81	2018
		$ 208,463
		$ 208,463
		86,063
		$ 2.42
		$ 208,463 1,789
		$ 210,252
		86,063 115 2,079
		88,257
		$ 2.38

When calculating earnings per share, the effect of issuance of bonus share has been considered and adjusted retrospectively. Due to the retrospective adjustment, the basic earnings per share attributable to shareholders of the basic and diluted earnings per share has been decreased from $2.54 and $2.50 to $2.42 and $2.38 respectively.

If the Company is able to settle the employee compensation by cash or stocks, the employee compensation should be assumed to be settled in stocks and the resulting potential shares increased should be included in the weighted average shares outstanding

157

in calculation of diluted earnings per share, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire amount of the employee compensation by the fair value of the stocks at the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted earnings per share until employee compensation are approved in the following year.

7. RELATED PARTY TRANSACTIONS

Intercompany balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated upon consolidation; therefore, those items are not disclosed in this note. The following is a summary of transactions between the Company and other related parties.

(1) Compensation of key management personnel

Item Salary and short-term employee benefits Post- employment benefits Total	Years ended December 31	Years ended December 31
	2019 $ 17,197 189 $ 17,386	2018
		$ 14,369 141
		$ 14,510

8. PLEDGED ASSETS: NONE

9. SIGNIFICANT CONTINGENCIES LIABILITIES AND UNRECOGNIZED COMMITMENTS

(1) Capital expenditures contracted but not yet incurred are as follows `：`

Capital expenditures contracted but not yet	incurred are as follows`：`	incurred are as follows`：`
Item Property, plant and equipment Deduction of deferred income (relocation cost) Total	December 31
	2019 $ 352,237 9,291 $ 361,528	2018
		$ 713,762 -
		$ 713,762

(2) Lease commitments with lease terms begin after the end of the reporting period:

Lease commitments with lease terms begin	after the end of the reporting period:	after the end of the reporting period:
Item Lease commitment	December 31
	2019 $ 43,914	2018
		$ -

(3) Product liability insurance

The Group has entered into a product liability insurance for the product of tubeless valves manufactured by the Group and sold globally. The period of insurance agreement is from March 15, 2019 to March 15, 2020. The insurance policy covers from March 15, 2007 to March 15, 2020. The maximum indemnification amount during the policy covering period is USD $1,000 thousand.

158

10. SIGNIFICANT DISASTERS: NONE

11. SIGNIFICANT SUBSEQUENT EVENTS

On January 15[th] , 2020, the Board of Directors of the Group approved that LUHAI KUNSHAN loans RMB 22,000 thousand to XIAHUI by means of entrusted loans.

12. OTHERS

(1) Capital risk management

The Group requires an adequate capital structure to enable the expansion and enhancement of equipment. The Group manages its capital in a manner to ensure that it has sufficient and necessary financial resources and operating plan to fund its working capital needs, capital asset purchases, operation expenses, development expenditure and debt payment requirements associated with its existing operations over the next 12 months.

(2) Financial instruments

A. Financial risks on financial instruments

Financial risk management policies

The Group's daily operation activities are exposed to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. For reducing the financial risk, the Group focus on identifying, assessing, and avoiding the unpredictability of market with the objective to reduce the potentially adverse effects the market uncertainties may have on its financial performance.

The plans for material treasury activities are reviewed by the Board of Directors in accordance with procedures required by relevant regulations or internal controls. During the implementation of such plans, the Group’s Treasury function must comply with certain treasury procedures that provide guiding principles for overall financial risk management and segregation of duties.

Significant financial risks and degrees of financial risks

(a) Market risk

i. Foreign exchange risk
The Group’s sales, purchase and borrowing activities denominated in foreign currencies are exposed to foreign currency risk. The Group’s mainly functional currency are New Taiwan dollars, RMB and IDR. The foreign currency of those transactions are US dollars, RMB, Euro and so on. To prevent the reduction in value and the volatility of future cash flows caused by changes in foreign exchange rates, the Group uses foreign currency loans and derivative financial instruments (include forward exchange agreement) to avoid foreign exchange risks. The usage of derivative financial instruments can assist the Group to reduce but not completely eliminate the influence of changes in foreign exchange rates.
Foreign currency risk and sensitivity analysis

159

December 31

Financial assets		2019		2018
	Foreign currency $ 19,014 2,173 607 $ 17,816 10,064	Exchange rate 29.98 4.31 33.59 29.98 33.59	Foreign currency $ 18,213 2,121 1,251 $ 17,891 9,377	Exchange rate 30.72 4.47 35.20 30.72 35.20	New Taiwan Dollars
					$ 559,408 9,482 44,035 $ 549,524 330,078
Monetary items USD RMB EUR Financial liabilities
Monetary items USD EUR

The Group is mainly exposed to US dollars, RMB and Euro. The sensitivity analysis rate for the Group is 1% increase and decrease in NTD against the relevant foreign currencies, and the 1% is used when reporting foreign currenct risk internally to key management personnel. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 1% change in foreign currency rates. An increase/decrease in profit before tax would be resulted where the NTD strengthens/weakens 1% against the relevant currencies with all other variables held constant in the amount of $2,724 and $2,667 for the years ended December 31, 2019 and 2018, respectively.

The Group’s foreign exchange gains and losses, including realized and unrealized, for the years ended December 31, 2019 and 2018 were net exchange gain of $26,263 thousand and $4,907 thousand, respectively. Due to the variety of functional currencies, the Group did not disclose the foreign exchange gains (losses) for each foreign currency with significant influence.

ii. Price risk

The Group is exposed to equity securities price risk because investments held by the Group are classified as financial assets at fair value through other comprehensive income.

The Group mainly invests in equity instrument of foreign unlisted stocks. The prices of equity securities would change due to the uncertainty of the future value of investee companies.

If the prices of equity securities had increased/decreased by 1% with all other variables held constant, other comprehensive income would have increased/decreased by $16 and $9 thousand since the fair value of financial assets at fair value through other comprehensive income increased/decreased for the years ended December 31, 2019 and 2018.

iii. Interest rate risk

The interest rate risk of financial instruments as of reporting date was as follow:

160

December 31

Item Fair value interest rate risk Financial assets Financial liabilities Net value Cash flow interest rate risk Financial assets Financial liabilities Net value	2019 $ 647,812 - $ 647,812 $ 559,818 (678,732) $ (118,914)	2018
		$ 400,703 -
		$ 400,703
		$ 637,515 (666,321)
		$ (28,806)

Sensitivity analysis for instruments with fair value interest rate risk

The Group does not classify any fixed-rate instruments as financial instruments at fair value through profit and loss and financial assets at fair value through other comprehensive income. In addition, the Group does not designate derivatives (interest rate swap) as hedge instruments under hedge accounting. Therefore, the change of interest rate at reporting date does not have influence on profit or loss and other comprehensive income.

Sensitivity analysis for instruments with cash flow interest rate risk

The Group’s financial instruments with variable interest rate are those with floating-rate. If interest rate increases (decreases) 1%, the profit before tax will increase (decrease) $1,189 thousand and $288 thousand for the years ended 。 December 31, 2019 and 2018, respectively

The Group does not utilize derivative financial instruments of interest rate risk as of December 31, 2019.

(b) Credit risk

Credit risk is the risk that counterparty will default on its contractual obligations under a contract leading to a financial loss to the Group. The Group is exposed to credit risk from operation activities, primarily trade receivable, and from investing activities, primarily deposit and other financial instruments with bank. Credit risk is managed separately for business related and financial related exposures. Business related credit risk

In order to maintain the quality of the trade receivables, the Group established credit risk management procedures related to operations and continues to evaluate. The risk evaluation of individual customers takes into consideration the customers’ financial position, internal and external credit ratings and historical transaction records and current economic situation and other factors that may affect the customers’ payment ability.

In order to minimize credit risk, the management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue

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debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Group’s credit risk was significantly reduced. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

Financial credit risk

The Group's exposure to financial credit risk which pertained to bank deposits and other financial instruments was evaluated and monitored by Group Treasury function. The Group only deals with creditworthy counterparties and banks, so that no significant financial credit risk was identified.

i. Concentration of credit risk

The Group’s concentration of credit risk was related to the customers whose balances of accounts receivable are top 4 of the Group, which accounted for 46% and 41% of the total accounts receivable as of December 31, 2019 and 2018.

ii. Evaluation of expected credit loss
(i.) Accounts receivable: The simplified approach is applied. Please refer to Note 6(5) for relating details.
(ii.) Judgment on whether the credit risk has increased significantly: The Group takes into account the credit rating information provided by external rating agencies and examines the material information of debtors in order to evaluate whether the credit risk of debt instruments has increased significantly.
iii. Holding collaterals and other credit enhancements to hedge the credit risk of its financial assets: None.
iv. Credit risk of financial assets at amortized cost

Please refer to Note 6(5) for information on credit risk exposure of notes and accounts receivable. Other financial assets at amortized cost, including cash and cash equivalents, other receivables, financial instruments with guaranteed principal and defined yield and refundable deposits, are low in credit risk. The loss allowance is assessed based on the 12-month expected credit loss. The Group believes that there is no impairment to financial assets at amortized cost.

i. Liquidity risk management

The objective of liquidity risk management is to ensure the Group has sufficient liquidity to fund its business requirements of cash and cash equivalents and the unused of financing facilities associated with existing operations

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ii. Maturity profile of financial liabilities

	December 31,2019	December 31,2019	December 31,2019
Within 1year $ 264,374 202,764 4,477 217,622 5,166 $ 694,403	1-5years Over 5years Contract cash flows $ - $ - $ 264,374 - - 202,764 10,141 - 14,618 481,355 - 698,977 - - 5,166 $ 491,496$ -$ 1,185,899 December 31,2018			Carrying value
				$ 264,374 202,764 13,721 678,732 5,166
				$1,164,757

Within 1year $ 31,135 293,973 132,068 75,149 $ 532,325	1-5years $ - - - 590,944 $ 590,944	Over 5years $ - - - - $ -	Contract cash flows $ 31,135 293,973 132,068 666,093 $ 1,123,269	Carrying value
				$ 30,715 293,973 132,068 635,606
				$1,092,362

The Group does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

(3) Categories of financial instruments

The carrying amount of each financial asset and financial liability of the Group as of December 31, 2019 and 2018 were as follows:

ecember 31, 2019 and 2018 were as follows:
Financial assets Financial assets at fair value through profit or loss Financial assets at amortized cost (Note 1) Financial assets at fair value through other comprehensive income Financial liabilities Financial liabilities at amortized cost (Note 2)	December 31
	2019 $ 202,684 1,850,119 1,558 $ 1,151,036	2018 $ 44,905 1,738,473 930 $ 1,092,362

Note 1: The balances include financial assets such as cash and cash equivalents, notes receivable, accounts receivable, other receivables, financial assets at amortized cost and refundable deposits.

163

Note 2: The balances include accounts payable, other payables, short-term borrowings, guarantee deposits received and long-term borrowings (including long-term borrowings due within 1 year).

(4) Fair value information

A. Fair value measurements are grouped into Levels 1 to 3 as follows:
Level 1: Relevant inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs are unobservable inputs that used to measure fair value to the extent 。
when relevant observable inputs are not available
B. Fair values of financial instruments that are not measured at fair value:
The fair value of the Group’s financial instruments not measured at fair value includes cash and cash equivalents, notes and accounts receivable, financial assets at amortized cost, other financial assets, refundable deposits, short-term loans, payables, long-term loans (including long-term loans due within one year) and guarantee deposits received whose carrying amount is approximately their fair value.
C. Fair value of financial instruments that are measured at fair value:

The financial instruments are measured at fair value on a recurring basis. The information of fair value is listed as follows:

Item		December 31,2019	December 31,2019
	Level 1	Level 2	Level 3	Total
Assets: Recurring fair value measurement Financial assets at fair value through profit or loss Financial instruments with guaranteed capital and floating yield Financial assets at fair value through other comprehensive income Equity instruments Foreign unlisted stocks	$ - -	$ 202,684 -	$ - 1,558	$ 202,684 1,558
	$ -	$ 202,684	$ 1,558	$ 204,242

164

Item		December 31,2018	December 31,2018
	Level 1	Level 2	Level 3	Total
Assets: Recurring fair value measurement Financial assets at fair value through profit or loss Financial instruments with guaranteed capital and floating yield Financial assets at fair value through other comprehensive income Equity instruments Foreign unlisted stocks	$ - -	$ 44,905 -	$ - 930	$ 44,905 930
	$ -	$ 44,905	$ 930	$ 45,835

D. The methods and assumptions the Group used to measure fair value are as follows:
(a) The fair value of financial assets and liabilities traded in an active market is based on the quoted market prices.
(b) The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models.
(c) Fair value of equity investment on unlisted stocks without active market was estimated through the market approach that is mainly referenced to the same type of companies’ valuation, net assets and state of operation. The significant and unobservable input parameter for assessing the unlisted stocks mainly relates to valuation multiple and liquidity discount rate. Since the possible changes of valuation multiple and liquidity discount rate may not cause significant influence on financial standing, the quantitative information will not be disclosed.
(d) Fair value of other financial assets and financial liabilities (except for the aforementioned) are determined in accordance with generally accepted pricing model based on the discounted cash flow analysis.
E. Transfer between Level 1 and Level 2 of the fair value hierarchy: None
F. Changes in level 3 instruments are as follows:

Item Financial assets at fair value through other comprehensive income Balance at January 1 Effect of initial application	Years ended	December 31
	2019 $ 930 -	2018
		$ - 1,161

165

Item Recognized in other comprehensive income Effect of exchange rate difference Balance at December 31	Years ended	December 31
	2019 $ 688 (60) $ 1,558	2018
		$ (209) (22)
		$ 930

G. Sensitivity analysis of Level 3 fair value measurement and assumption of fair value reasonably being substituted: None.

13. SUPPLEMENTARY DISCLOSURES

(1) Disclosure of significant transactions information (before inter-company eliminations) ：
A. Financings provided: Please see Table 1 attached;
B. Endorsement/guarantee provided: Please see Table 2 attached;
C. Marketable securities held (excluding investments in subsidiaries, associates and joint ventures): Please see Table 3 attached;
D. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: Please see Table 4 attached;
E. Acquisition of individual real estate properties at costs of at least NT$300 million or 20% of the paid-in capital: None;
F. Disposal of individual real estate properties at prices of at least NT$300 million or 20% of the paid-in capital: Please see Table 5 attached;
G. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;
H. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 7 attached;
I. Information on the derivative instrument transactions: None;
J. Intercompany relationships and significant intercompany transactions: Please see Table 8 attached;
(2) Information on investees (before inter-company eliminations): Please see Table 9 attached;
(3) Information on investment in Mainland China
A. The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, income (losses) of the investee, share of profits/losses of investee, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 10 attached;
B. Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial statements: Please

166

see Table 8 attached.

14. SEGMENT INFORMATION

(1) General information

For the purpose of group management, the Group has provided to the chief operating decision maker the information on resource allocation and assessment of segment performance focuses on the financial information by geographic plants.

(2) Measurement basis

Management monitors the operation results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss before tax and is measured consistently with profit or loss before tax in the consolidated financial statements. Furthermore, because the information of assets and liabilities is not reported to the chief operating decision maker for operation decision making, segment assets and liabilities are not disclosed. The accounting policies for reportable segments are the same as Group’s accounting policies described in Note 4.

(3) Segment information: Please see Table 11 attached;

(4) Reconciliation for segment income (loss)

The segment revenue, segment income (loss) and segment assets reported to the chief operating decision maker is measured in a manner consistent with that in the consolidated statements of comprehensive income and consolidated balance sheets.

(5) Information on product and service

Details of sales from external customers are as follows:

Item	Years ended December 31	Years ended December 31
	2019 $ 565,702 967,602 698,610 484,975 $ 2,716,889	2018
Bicycle valves Motorcycle and electric bike valves Passenger car, truck and other valves Accessories and others Total		$ 522,225 926,797 718,012 461,744
		$ 2,628,778

(6) Geographic information

A. Sales from external customers

Areas China Indonesia Others Total	Years ended December 31	Years ended December 31
	2019 $ 1,179,262 761,096 776,531 $ 2,716,889	2018
		$ 1,158,441 712,812 757,525
		$ 2,628,778

B. Noncurrent assets

167

December 31

Areas China Indonesia Others Total	2019 $ 1,214,236 152,629 14,575 $ 1,381,440	2018
		$ 791,489 150,846 16,125
		$ 958,460

(7) Major customer information

Years ended December 31	Years ended December 31	Years ended December 31
2019 Amount % $ 367,569 13.53%	2018
Amount $ 367,569	Amount $ 346,067	%
		13.16%

168

Financing Company’s Total Financing Limit (Note 4)	Financing Company’s Total Financing Limit (Note 4)	920,278	920,278	920,278	920,278	920,278	920,278
Limit on Financing	Provided to Each Company (Note 3)	920,278		920,278		920,278
Collateral	Value	`－`		`－`		`－`
	Item	`－`		`－`		`－`
Recognized loss allowance		`－`		`－`		`－`
Reason for Financing		Operating capital		Operating capital		Operating capital
Transaction Amounts		`－`		`－`		`－`
Nature for Financing (Note 2)		2		2		2
Interest Rate		3.01%		3.01%		3.01%
Amount Actually Drawn (Note 6)		`－`	`－`	`－`	`－`	`－`	`－`
Ending Balance		59,960	USD 2,000	89,940	USD 3,000	149,900	USD 5,000
Maximum Balance for the Period		59,960	USD 2,000	89,940	USD 3,000	149,900	USD 5,000
Related Party		Yes		Yes		Yes
Financial Statement Item		Other receivables- related parties		Other receivables- related parties		Other receivables- related parties
Counter-party		PT.LUHAI		LUHAI KUNSHAN		XIAHUI
Financing Company		The Company		The Company		The Company
No. (Note 1)		0		0		0

169

Guarantee Provided to Subsidiaries in Mainland China	Guarantee Provided to Subsidiaries in Mainland China	N	N	Y	Y	Y	Y
Guarantee Provided by Subsidiary to Parent Company		N		N		N
Guarantee Provided by Parent company		Y		Y		Y
Maximum Endorsement/ Guarantee Amount Allowable (Note 4)		1,150,348		1,150,348		1,150,348
Ratio of Accumulated Endorsement/ Guarantee to Net Equity per Latest Financial Statements		7.17%		`－`		15.64%
Amount of Endorsement/ Guarantee Collateralized by Properties		`－`		`－`		`－`
Amount Actually Drawn		164,890	USD 5,500	`－`	`－`	359,760	USD 12,000
Ending Balance		164,890	USD 5,500	`－`	`－`	359,760	USD 12,000
Maximum Balance for the Period		164,890	USD 5,500	59,960	USD 2,000	809,460	USD 27,000
Limits on Endorsement/ Guarantee Amount Provided to Each Guaranteed Party `（`Note 3`）`		920,278		920,278		920,278
Guaranteed Party	Nature of Relationship (Note 2)	2		2		2
	Name	PT.LUHAI		LUHAI KUNSHAN		XIAHUI
Endorsement/ Guarantee Provider		The Company		The Company		The Company
No. (Notes 1)		0		0		0

170

	Note	－－－－－－－－－－
December 31, 2019	Fair Value (Note 1)	RMB 10,000 RMB 10,000 RMB 362 RMB 2,014 RMB 3,020 RMB 3,010 RMB 9,024 RMB 10,006 RMB 10,004 RMB 10,000
	Percentage of Ownership (%)	－－ 0.53% －－－－－－－
	Carrying Value	RMB 10,000 RMB 10,000 RMB 362 RMB 2,014 RMB 3,020 RMB 3,010 RMB 9,024 RMB 10,006 RMB 10,004 RMB 10,000
	Shares/Units	－－－－－－－－－－
Financial Statement Item		Financial assets at amortized cost-current Financial assets at amortized cost-current Financial assets at fair value through other comprehensive income-noncurrent Finanvial assets at fair value through profit or loss-current Finanvial assets at fair value through profit or loss-current Finanvial assets at fair value through profit or loss-current Finanvial assets at fair value through profit or loss-current Finanvial assets at fair value through profit or loss-current Finanvial assets at fair value through profit or loss-current Finanvial assets at fair value through profit or loss-current
Relationship with the Company		None None None None None None None None None None
Marketable Securities Type and Name		Financial products of Agricultural bank of China Financial products of Agricultural bank of China Xiamen Taiwan Merchants Association Management Co., LTD Financial products of Fubon Bank (China) Co., Ltd Financial products of Fubon Bank (China) Co., Ltd Financial products of Fubon Bank (China) Co., Ltd Financial products of Fubon Bank (China) Co., Ltd Financial products of Fubon Bank (China) Co., Ltd Financial products of Fubon Bank (China) Co., Ltd Financial products of Fubon Bank (China) Co., Ltd
Held Company Name		XIAHUI XIAHUI XIAHUI LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN

171

	Note	Note 1 Note 2
Ending Balance	Amount	RMB 20,000 RMB 47,078
	Shares	`－` `－`
Disposal	Gain/Loss on Disposal	RMB 1,241 `－`
	Carrying Value	RMB 218,000 RMB 30,332
	Amount	RMB 219,241 RMB 30,332
	Shares	`－` `－`
Acquisition	Amount	RMB 190,000 RMB 67,000
	Shares	`－` `－`
Beginning Balance	Amount	RMB 48,000 RMB 10,045
	Shares	`－` `－`
	Nature of Relationship	None None
	Counterparty	`－` `－`
	Financial Statement Item	Financial assets at amortized cost- current Finanvial assets at fair value through profit or loss- current
	Marketable Securities Type and Name	Financial products of Agricultural bank of China Financial products of Fubon Bank (China) Co., Ltd
	Company Name	XIAHUI LUHAI KUNSHAN

DISPOSAL OF INDIVIDUAL REAL ESTATE PROPERTIES AT PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2019 (AMOUNTS IN THOUSANDS OF FOREIGN CURRENCIES) Table 5	Other Terms	NOTE 2	NOTE 1: The right-of-use assets were obtained in 1999 and 2008 and the plants were acquired in 2000 and 2008 by LUHAI KUNSHAN. NOTE 2: The transaction price includes compensation for the expropriation of the land use right, plant, buildings and equipment, cessation of production and business, termination of labor contracts and expenses relatd to relocation. Please refer to NOTE 6(16) for related information.
	Price Reference	Valuation report
	Purpose of Disposal	At the reguest of local government for the need of constructing rails
	Relationship	None
	Counterparty	Kunshan Huaqiao Weimin House Demolition Limited Company
	Gain (Loss) on Disposal	NOTE 2
	Collection	NOTE 2
	Transaction Amount	RMB 185,128
	Carrying Amount	NOTE 2
	Original Acquisition Date	NOTE 1
	Event Date	November 25th, 2019
	Property	Propert, plant and equipment and right- of-use assets
	Sellor	LUHAI KUNSHAN

173

Note		Note 1 Note 1
Notes/Accounts Payable or Receivable	% to Total	21.45% 4.88%
	Ending Balance	Accounts receivable USD 3,798 Accounts receivable USD 864
Difference in transaction term to third party transaction	Payment Terms	`－` `－`
	Unit Price	`－` `－`
Transaction Details	Payment Terms	According to conditions agreed upon the parties According to conditions agreed upon the parties
	% to Total	19.94% 6.69%
	Amount	USD 12,892 USD 4,328
	Purchases/ Sales	Sales Sales
Nature of Relationships		Subsidiary of ultimate parent company Subsidiary of ultimate parent company
Counterparty		PT.LUHAI MEGA
Purchaser/Seller		XIAHUI XIAHUI

174

Recognized loss allowance	Recognized loss allowance	`－`
Amounts Received in	Subsequent Period	USD 2,298
Overdue	Action Taken	`－`
	Amount	`－`
Turnover	Rate	`－`
Ending Balance of Receivable-Related Party	Ending Balance (Note 1)	USD 3,798
	Item	Accounts receivable
Nature of Relationships		Subsidiary of ultimate parent company
Counterparty		PT.LUHAI
Company Name		XIAHUI

175

Table 8

LUHAI HOLDING CORP. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTION FOR THE YEAR ENDED DECEMBER 31, 2019

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLORS)

No. (Note 1)	Company Name	Counter Party	Nature of Relationship (Note 2)	Intercompany Transactions	Intercompany Transactions	Intercompany Transactions
				Financial Statement Item	Amount	Terms	Percentage of Net Consolidated Revenue
0 0 0 0 0 1 1 1 1 1 1 2 2 2 3 4 4 4 4 4 4 5 5 5 5 5 5 5	The Company The Company The Company The Company The Company LU HAI IND. LU HAI IND. LU HAI IND. LU HAI IND. LU HAI IND. LU HAI IND. MEGA MEGA MEGA PT.LUHAI XIAHUI XIAHUI XIAHUI XIAHUI XIAHUI XIAHUI LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN	PT.LUHAI XIAHUI XIAHUI LUHAI KUNSHAN LUHAI KUNSHAN The Company The Company The Company PT.LUHAI XIAHUI LUHAI KUNSHAN PT.LUHAI XIAHUI LUHAI KUNSHAN XIAHUI The Company LU HAI IND. MEGA PT.LUHAI LUHAI KUNSHAN LUHAI KUNSHAN The Company LU HAI IND. MEGA PT.LUHAI PT.LUHAI XIAHUI XIAHUI	1 1 1 1 1 2 2 2 3 3 3 3 3 3 3 2 3 3 3 3 3 2 3 3 3 3 3 3	Sales revenue Sales revenue Other revenue Sales revenue Other revenue Sales revenue Service revenue Rental income Sales revenue Sales revenue Sales revenue Other revenue Other revenue Other revenue Sales revenue Sales revenue Sales revenue Sales revenue Sales revenue Sales revenue Processing revenue Sales revenue Sales revenue Sales revenue Sales revenue Other revenue Sales revenue Processing revenue	2,515 5,271 9,074 1,105 2,446 6,110 356 1,931 2,328 3,735 840 625 3,021 589 711 76,403 23,250 133,550 397,834 26,714 3,514 18,266 3,942 42,753 9,281 1,041 69,229 13,103	Note 3 `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃`	0.09% 0.19% 0.33% 0.04% 0.09% 0.22% 0.01% 0.07% 0.09% 0.14% 0.03% 0.02% 0.11% 0.02% 0.03% 2.81% 0.86% 4.92% 14.64% 0.98% 0.13% 0.67% 0.15% 1.57% 0.34% 0.04% 2.55% 0.48%

(Continued)

176

Table 8

LUHAI HOLDING CORP. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTION FOR THE YEAR ENDED DECEMBER 31, 2019

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLORS)

No. (Note 1)	Company Name	Counter Party	Nature of Relationship (Note 2)	Intercompany Transactions	Intercompany Transactions	Intercompany Transactions
				Financial Statement Item	Amount	Terms	Percentage of Total Consolidated Assets
0 0 0 1 1 2 2 3 3 3 3 4 4 4 4	The Company The Company The Company LU HAI IND. LU HAI IND. MEGA MEGA XIAHUI XIAHUI XIAHUI XIAHUI LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN LUHAI KUNSHAN	PT.LUHAI XIAHUI LUHAI KUNSHAN The Company MEGA XIAHUI LUHAI KUNSHAN The Company MEGA PT.LUHAI LUHAI KUNSHAN The Company MEGA PT.LUHAI XIAHUI	1 1 1 2 3 3 3 2 3 3 3 2 3 3 3	Account receivables Account receivables Account receivables Other receivables Other receivables Other receivables Other receivables Account receivables Account receivables Account receivables Account receivables Account receivables Account receivables Account receivables Account receivables	1,183 2,994 681 694 6 657 267 41,797 25,895 113,851 12,553 9,589 8,579 1,270 55,945	Note 3 `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃` `〃`	0.03% 0.07% 0.02% 0.02% - 0.02% 0.01% 1.01% 0.62% 2.75% 0.30% 0.23% 0.21% 0.03% 1.35%

Note 1: The numbers filled in for the transaction company represent the follows:

Parent company is ‘0’.
The subsidiaries are numbered in order starting from ‘1’.

Note2: Relationships between transaction companies and counterparties are classified into the following three categories as listed below:

‘1’ represents parent company to subsidiary.

‘2’ represents subsidiary to parent company.

‘3’ represents subsidiary to subsidiary.

Note 3: Sale price with related parties were determined and negotiated referring to related market price. Payment terms were T/T 90 days.

Note 4: All the transactions had been eliminated when preparing consolidated financial report.

(Concluded)

177

Note		Note 7 Note 7 Note 7 Note 7`、` 8`、`10 Note 7 Note 7`、`8 Note 7`、`8
Share of Profits/Losses	of Investee	107,419 80,649 (10,362) 11,692 25,386 39,328 Note 9
Net Income (Losses) of the	Investee	107,419 80,649 (10,362) 11,261 25,386 46,166 46,166
Balance as of December 31, 2019	Carrying Value	1,055,661 793,009 485,766 113,879 31,582 300,131 52,980
	Percentage of Ownership	100% 100% 100% 100% 100% 85% 15%
	Shares (In Thousands)	8,857 6,643 6,500 3,000 50 6,800 1,200
Original Investment Amount	December 31, 2018	179,880 (USD 6,000) 134,910 (USD 4,500) 194,870 (USD 6,500) 98,450 `－` 203,864 (USD 6,800) 35,976 (USD 1,200)
	December 31, 2019	265,533 (USD 8,857) 199,157 (USD 6,643) 194,870 (USD 6,500) 30,000 `－` 203,864 (USD 6,800) 35,976 (USD 1,200)
Main Businesses activities		Investing activities Investing activities Investing activities Leasing and selling various kinds of valves and accessories Selling activities Manufucturing and selling various kinds of valves and accessories Manufucturing and selling various kinds of valves and accessories
Location		Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 6
Investee		LU HAI BVI ALLPRO $ YUANHUI LU HAI IND. MEGA PT.LUHAI PT.LUHAI
Investor		The Company LU HAI IND.

178

Accumulated Inward Remittance of Earnings as of December 31, 2019	Accumulated Inward Remittance of Earnings as of December 31, 2019	Not applicable	Not applicable		Not applicable	Accumulated Investment in Mainland China as of December 31, 2019 Investment Amounts Authorized by Investment Commission, MOEA Upper Limit on Investment Not applicable Not applicable Not applicable Note 1`：`Through investing in an existing company in the third area, which then investing in the investee in Mainland China. Note 2`：`Profit or loss recognized were based on the financial statements audited by the auditor of parent company. Note 3`：`Foreign currencies aforementioned were translated into NTD using the exchange rate as of December 31, 2019 or average exchange rate for the year ended. Note 4`：`The Company had capitalization of retained earnings amounted to USD 1,744 thousand in 2007. Note 5`：`The differences between net income and share of profits/losses are due from unrealized sales (losses) gains.	Accumulated Investment in Mainland China as of December 31, 2019 Investment Amounts Authorized by Investment Commission, MOEA Upper Limit on Investment Not applicable Not applicable Not applicable Note 1`：`Through investing in an existing company in the third area, which then investing in the investee in Mainland China. Note 2`：`Profit or loss recognized were based on the financial statements audited by the auditor of parent company. Note 3`：`Foreign currencies aforementioned were translated into NTD using the exchange rate as of December 31, 2019 or average exchange rate for the year ended. Note 4`：`The Company had capitalization of retained earnings amounted to USD 1,744 thousand in 2007. Note 5`：`The differences between net income and share of profits/losses are due from unrealized sales (losses) gains.
Carrying Amount as of December 31, 2019		1,833,157	USD 61,146	502,765	USD 16,770
Share of Profits/Losses (Note 2)		187,691	USD 6,082	7,221	USD 234
Percentage of Ownership		100%			100%
Net Income (Losses) of the Investee Company (Note 5)		186,518	USD 6,044	7,653	USD 248
						Upper Limit on Investment	Not applicable
Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2019		Not applicable			Not applicable
Amount remitted from Taiwan for the year ended December 31,2019	Remittance back	`－`			`－`
	Remittance to	`－`			`－`
Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2019		Not applicable			Not applicable	Investment Amounts Authorized by Investment Commission, MOEA	Not applicable
Investment Method		Note 1			Note 1
Total Amount of Paid-in Capital		464,690	USD15,500	247,155	USD 8,244 (Note 4)
Main Businesses and activities		Manufucturing and selling various	kinds of valves and accessories	Manufucturing and selling various kinds of valves and accessories
						Accumulated Investment in Mainland China as of December 31, 2019	Not applicable
Investee Company		XIAHUI		LUHAI KUNSHAN

179

LUHAI HOLDING CORP. AND SUBSIDIARIES
SEGMENT INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018
Year ended December 31, 2019
(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS)

The Company
XIAHUI
LUHAI
KUNSHAN
PT.LUHAI
Others
Revenue
Net revenue from external customers
$ 108,956
$ 1,330,162
$ 415,436
$ 642,262
$ 248,395
$ (28,322)
$ 2,716,889
Inter-segment revenue
8,891
661,265
156,574
711
15,100
(842,541)
-
Total
$ 117,847
$ 1,991,427
$ 572,010
$ 642,973
$ 263,495
$ (870,863)
$ 2,716,889
Interest income
$ 555
$ 10,185
$ 1,403
$ 704
$ 2,059
$ -
$ 14,906
Interest expenses
$ 8,669
$ 3,915
$ 47
$ 509
$ -
$ (146)
$ 12,994
Depreciation and amortization
$ 2,111
$ 69,828
$ 23,369
$ 18,113
$ 1,853
$ (2,170)
$ 113,104
Impairment of property, plant and equipment
$ -
$ 5,288
$ -
$ -
$ -
$ -
$ 5,288
Segment benefit (loss)
$ (13,578)
$ 251,392
$ 9,178
$ 68,194
$ 30,652
$ -
$ 345,838
Income (loss) before tax
$ 345,838
Total assets
$ 4,146,656
(Continued)
Elimination
Total
180

LUHAI HOLDING CORP. AND SUBSIDIARIES
SEGMENT INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018
(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS)
Year ended December 31, 2018

The Company
XIAHUI
LUHAI
KUNSHAN
PT.LUHAI
Others
Revenue
Net revenue from external customers
$ -
$ 1,173,838
$ 547,608
$ 586,164
$ 339,357
$ (18,189)
$ 2,628,778
Inter-segment revenue
-
628,485
146,882
2,724
15,800
(793,891)
-
Total
$ -
$ 1,802,323
$ 694,490
$ 588,888
$ 355,157
$ (812,080)
$ 2,628,778
Interest income
$ 809
$ 12,836
$ 1,320
$ 485
$ 1,976
$ (697)
$ 16,729
Interest expenses
$ 7,175
$ 4,091
$ 733
$ 697
$ -
$ (697)
$ 11,999
Depreciation and amortization
$ -
$ 62,939
$ 22,337
$ 14,783
$ 1,947
$ -
$ 102,006
Impairment of property, plant and equipment
$ -
$ -
$ -
$ -
$ -
$ -
$ -
Segment benefit (loss)
$ (34,425)
$ 221,388
$ 16,204
$ 52,453
$ 41,549
$ -
$ 297,169
Income (loss) before tax
$ 297,169
Total assets
$ 3,383,863
(Concluded)
Elimination
Total
181

181

VII. Review of Financial Conditions, Operating Results, and Risk Management

7.1 Financial situation

Unit: NTD thousand

ancial situation			Unit: NTD thousand	Unit: NTD thousand
Year Item	2018	2019	Difference
			Amount	%
Current assets	2,397,353	2,732,532	335,179	13.98%
Financial assets at fair value through profit or loss –noncurrent	930	1,558	628	67.53%
Property, plant and equipment	723,273	1,148,538	425,265	58.80%
Right-of-use assets	-	197,862	197,862	-
Intangible assets	7,449	6,956	(493)	(6.62%)
Other assets	254,858	59,210	(195,648)	(76.77%)
Total assets	3,383,863	4,146,656	762,793	22.54%
Current liabilities	565,542	1,345,967	780,425	138.00%
Non-current liabilities	590,717	499,994	(90,723)	(15.36%)
Total liabilities	1,156,259	1,845,961	689,702	59.65%
Equity attributable to owners of parent company	2,227,604	2,300,695	73,091	3.28%
Capital stocks	819,650	860,632	40,982	5.00%
Capital surplus	443,701	443,701	-	0.00%
Retained earnings	1,246,929	1,365,892	118,963	9.54%
Other equity	(282,676)	(369,530)	(86,854)	30.73%
Treasury shares	-	-	-	-
Non-controlling interests	-	-	-	-
Total equity	2,227,604	2,300,695	73,091	3.28%
Description on major change items: (if the proportion of increase or decrease change exceeds 20%, and the change amount thereof reaches to NTD10 million) 1. The increase of property, plant and equipment is mainly to the construction of new plant in Xiamen, and the construction in progress increases. 2. The increase of right-of-use assets and decrease of other assets are mainly due to the transfer of long-term prepaid rent into the right-of-use assets item according to the bulletin of IFRS 16 “Lease” starting from 2019. 3. For the increase of total assets amount, please refer to the description on increase of current assets in Notes 1 and 2. The increase of current assets is mainly due to receiving 80% of relocation compensation at the end of the year, and the increase of fixed time deposit and structured deposit; the payment of project funds for the new plant in Xiamen, and the capital and income preservation financial products decrease;the overdue account is improved,and the accounts receivable decrease;

182

the inventory increases due to response to relocation to new plant; Xiamen municipal government has canceled the system of performance security deposit, the security deposit for new plant construction is refunded, and other current assets decrease.

4.The increase of current liabilities is mainly due to the relocation by coordinating with the policy of Huaqiao municipal government for the construction needs of S1 railway transportation project, the compensation for relocation has been received, but relocation has not completed, hence it is listed as deferred income, and the long-term borrowings due within the year increase, causing the increase of current liabilities.
5.Please refer to the description in Notes 4 for increase of total liabilities.
6.The decrease of other equity is mainly due to RMB depreciated against USD and NTD appreciated against USD in 2019, causing the decrease of exchange difference in translation of the financial statements of foreign operating institutions.

7.2 Financial performance

7.2.1 Main reasons for major changes in operating income, operating net profit and net profit before tax in the last two years

Unit: NTD thousand

Year Item	2018	2019	Amount of increase (decrease)	Change proportion （%）
Net revenue	2,628,778	2,716,889	88,111	3.35%
Gross Profit	561,055	615,058	54,003	9.63%
Operating income (loss)	269,342	312,635	43,293	16.07%
Non-operating income and expenses	27,827	33,203	5,376	19.32%
Income (loss) before tax from continuingoperations	297,169	345,838	48,669	16.38%
Net income (loss) from continuing operations	208,463	241,910	33,447	16.04%
Loss from discontinued operations	-	-	-	-
Net profit	208,463	241,910	33,447	16.04%
Other comprehensive income (loss) for the year, net of income tax	(55,552)	(86,854)	(31,302)	56.35%
Total comprehensive income (loss)forthe year	152,911	155,056	2,145	1.40%
Net income (loss) attributable to: Shareholders of the parent	208,463	241,910	33,447	16.04%
Net income attributable to non-controllinginterests	-	-	-	-
Total comprehensive income (loss) attributable to: shareholders ofthe parent	152,911	155,056	2,145	1.40%
Comprehensive income attributable to non- controllinginterests	-	-	-	-
Description on major change items: (if the proportion of increase or decrease change exceeds 20%, and the change amount thereof reaches to NTD10 million) 1. The decrease of other equity is mainly due to RMB depreciated against USD in 2019, causing the decrease of exchange difference in translation of the financial statements of foreign operatinginstitutions.

183

7.2.2 Expected sales quantity and its basis

The reinvestment company of the Company has worked out reasonable and achievable sales quantity according to market demand, sales in customer end and supply assessment. For relevant market research analysis and current condition and development of industry, please refer to the descriptions in Operational Highlights.

7.2.3 Possible impact on the company’s future financial affairs and response plan

The market demand of the Group’s product application end is still growing, reinvestment company of the Company will always pay attention to the changes of market demand to improve company performance, and the Company will continue to strengthen the operation and cost control of each subsidiaries to improve profitability of the Group.

7.3 Cash flow

7.3.1 Analysis of cash flow changes in the last year

Unit: %

				Unit: %
Item	2019	2018	Amount of increase or decrease	Proportion of increase or decrease
Net cash provided by operating activities	283,441	322,913	(39,472)	(12.22%)
Net cash provided by (used in) investing activities	121,249	(340,155)	461,404	(135.65%)
Net cash used in financing activities	(61,778)	(74,483)	12,705	(17.06%)
Data source: the financial statement audited and certified by the accountant. Analysis of cash flow changes in this year: 1. The decrease of net cash inflow in operating activity is mainly due to the new plant relocation in Xiamen and increase of inventory, causing decrease of cash inflow generated from operating activity. 2. The increase of cash inflow in investment activity (decrease of cash outflow) is mainly due to receiving 80% of relocation compensation at the end of the year and payment of project funds for the new plant in Xiamen, causing increase of cash inflow in investment activity. 3. The decrease of net cash outflow in fundraising activity is mainly due to the decrease of cash dividend distribution in 2019, causing decrease of cash outflow from fundraising activity.

The increase of cash inflow in investment activity (decrease of cash outflow) is mainly due to receiving 80% of relocation compensation at the end of the year and payment of project funds for the new plant in Xiamen, causing increase of cash inflow in investment activity.
The decrease of net cash outflow in fundraising activity is mainly due to the decrease of cash dividend distribution in 2019, causing decrease of cash outflow from fundraising activity.

7.3.2 Improvement plan for liquidity shortage

The business of the Group is at the stage of profit growth, and the Group appropriates bank loan in due time, and there is no liquidity shortage currently.

7.3.3 Cash liquidity analysis in the coming year

Cash liquidity analysis in the coming year	Cash liquidity analysis in the coming year	Cash liquidity analysis in the coming year	Cash liquidity analysis in the coming year
				Unit: NTD thousand
Cash and cash equivalents, beginning of year	Estimated net cash flow from operating activities	Estimated cash outflow (inflow)	Cash Surplus (Deficit)	Remedial measures for estimated cash surplus (Deficit)
				Investment plan	Financial plan
1,122,302	241,151	(547,199)	816,254	-	-

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Analysis on cash flow changes in the coming Year:

Operating activity: the expected cash inflow to be generated in 2020 is mainly due to the net profit generated after tax.
Expected annual cash outflow (investment and fundraising activities): the cash outflow expected to be generated from the investment activity of the Company in 2020 is mainly due to the capital expenditure for new plant in Xiamen; the cash inflow expected to be generated from the fundraising activity of the Company in 2020 is mainly due to the increase of financing and distribution of cash dividend, it is expected that the investment and fundraising activities will generate cash outflow.

7.4 The impact of significant capital expenditure on financial affairs in the last year

Items of significant capital expenditure of the Group mainly include the expenditure in acquisition of plant, production equipment and detection equipment, mainly because of aiming at increase the investment in automation and continuous purchase of mechanical equipment in respond to market strategy planning, in 2019, the capital expenditure invested was approximately NTD521,670 thousand, accounting for 19.20% of net revenue, and it had no adverse impact on financial affairs of the company yet.

7.5 Reinvestment policy in the last year, the main reason for its profit or loss, improvement plan and investment plan in the coming year

7.5.1 Reinvestment policy of the Company

Reinvestment policy of the Company is to take main business into core consideration, and take the strengthening of vertical integration of upstream and downstream as the development direction. Relevant investment plans have been analyzed and measured in every aspect, they can bring benefits to the Group and comply with the “Investment cycle” in internal control system passed by the resolution of Board of Directors Meeting or General Meeting and the “Regulations Governing the Acquisition and Disposal of Assets” of the Company.

7.5.2 Main reason for profit or loss from reinvestment in the last year, improvement plan and future investment plan

Unit: NTD thousand

Invested company	Direct	Investment		Improvement plan
					Investment
	(indirect)	profit and loss	Reason for profit
					plan in the
	shareholding	recognized in	or loss
					coming year
	ratio	the last year

LU HAI (BVI) INDUSTRIAL CORP.	100%	107,419	Mainly due to the recognition of profits from XIAMEN XIAHUI	None	None
ALLPRO INTERNATIONAL CORP.	100%	80,649		None	None
YUANHUI INTERNATIONAL CO., LTD.	100%	(10,362)	Mainly due to the recognition of profits from KUNSHAN LUHAI, the income tax is remitted for the estimate of surplus from KUNSHAN LUHAI, generating the loss	None	None
LU HAI INDUSTRIAL CORP.	100%	11,692	Under good operating conditions	None	None

185

MEGA POWER	100%	25,386	Under good operating conditions	None	None
PT. LUHAI INDUSTRIAL	100%	46,268	Under good operating conditions	None	None
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD.	100%	187,691	Under good operating conditions	None	Expansion of new plant
LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD.	100%	7,221	Under good operating conditions	None	None

7.6 Risk Management

7.6.1 The impact of interest rate, fluctuation in exchange rate, and inflation on company’s profit and loss and future solutions
7.6.1.1 Interest rate change

terest rate change
	Unit: NTD thousand
	2018		2019
	Amount	Proportion in net sales	Amount	Proportion in net sales
Interest income	16,729	0.64%	14,906	0.55%
Interest expense	11,999	0.46%	12,994	0.48%

The interest income and interest expense of the Group in the last two years are accounting for a low proportion in net sales of the year, recorded at 0.55% and 0.64%, and 0.48% and 0.46% respectively, and the impact on profit and loss is still manageable. Specific solutions of the company in respond to interest rate change:

In principle, the capital planning of the Group is conservative and steady, in the aspect of capital allocation, the Group gives priority to safety management, and the capital investment is mainly short-term deposit, and the proportion of interest income is low. The financial structure of the Group is sound, borrowings are made in respond to the working capital necessary for the expansion of business scale, and the proportion of interest expense is also low. The Company and each subsidiary will give comprehensive consideration to the limit and cost of all kinds of capital sources to raise the needed capital, in the future, we will still pay close attention to the development trend of global economy, and adopt hedging instruments in due to avoid the risk of rising interest rate.

7.6.1.2 Impact of fluctuation in exchange rate

and adopt hedging instruments in due to avoid the risk of rising interest rate. pact of fluctuation in exchange rate	and adopt hedging instruments in due to avoid the risk of rising interest rate. pact of fluctuation in exchange rate	and adopt hedging instruments in due to avoid the risk of rising interest rate. pact of fluctuation in exchange rate
Unit: NTD thousand
Year Item	2018	2019
Foreign exchange gain (loss)	4,907	26,263
Proportion in operating revenue (%)	0.19%	0.97%

Foreign exchange gain (loss) of the Group in the last two years are NTD26,263 thousand and NTD 4,907 thousand respectively, only accounting for 0.97% and 0.19% of the net operating income, and it is not significant. Collection currency of the Group are mainly USD and RMB, and the payment for material procurement is also mainly made by

186

USD and RMB, the mutual offset between them will generate the effect of natural hedge to reduce the exchange demand, and it should be able to minimize the impact of exchange rate fluctuation.

Specific solutions of the company in respond to fluctuation in exchange rate:

Financial personnel will collect real-time exchange rate market information at any time, and maintain appropriate net foreign exchange position according to the judgment on the trend of future exchange rate and provide it to business personnel for reference when making an offer.
Adjust the foreign currency deposit position according to the fluctuation in exchange rate, when necessary, pre-order or presell forward exchange contract for hedging purpose or borrow money to reduce the risk of exchange rate.
Adopt foreign exchange income and expenditure for automatic hedging, use the offset in the foreign currency receipts and payments generated from export sales and external procurement to reduce the position of net assets in foreign currency.
Formulate the “Regulations Governing the Acquisition and Disposal of Assets” pursuant to “Regulations Governing the Acquisition and Disposal of Assets by Public Company”, and take it as the basis for engaging in derivative transactions, making the exchange loss in daily operation within a manageable scope.
7.6.1.3 Impact of inflation

Upon planning annual business plan, the Group has considered the risk of inflation, the profit and loss of the Group has not been significantly impacted by inflation in the past, in case of rising purchasing cost due to inflation, the Group will also always master the price changes in upstream commodities, and reflect it in the cost and offer, so as to reduce the impact on the profit and loss of the company caused by cost fluctuation.

7.6.2 Policy on engaging in high risk and highly leveraged investment, granting of loans, endorsement and derivative securities transaction, main reason for profit or loss, and future solutions
7.6.2.1 Based on the steady principle and practical operation philosophy, apart from focusing on the business fields of the Group, the Group has not engaged in high risk and highly leveraged investment.
7.6.2.2 In the last two years and as at the publication date of annual report, apart from granting of loans to and endorsement and guarantee for the subsidiaries in which the Group with direct and indirect shareholding of one hundred percent, the Group has not made granting of loans to and endorsement and guarantee for others. Besides, the Group has formulated the “Regulations Governing Loaning of Funds” and “Regulations Governing Making of Endorsements/Guarantees”, relevant operations are executed prudently after giving consideration to risk conditions and relevant regulations.
7.6.2.3 The financial derivatives held by important subsidiaries of the Company are used for avoiding the exchange rate risks imposed in operation, financial and investment activities, however, since they are not conforming to the element of hedge accounting, hence they are recognized as the financial assets and liabilities listed in profit and loss according to the change in fair value.
7.6.3 Research and development Plan and expected invested research and development costs

187

7.6.3.1 Future research and development plan
Process improvement: improve the automation degree and reduce production cost.
New technology development: continue to focus on the research and development of professional fields of valves, and obtain patent right of utility models.
The key points in current research and development of the Group is to continuously
develop dedicated automation equipment, improve equipment production efficiency and product quality, accelerate the introduction and conduct mass production for the completed research and development achievements, complete the transformation of production technique, and expand the overall benefits.
7.6.3.2 Expected invested research and development costs

For the investment in research and development costs, the Group has complied gradually according to the progress of new products and process development, in 2018 and 2019, the research and development costs was NTD25,589 thousand and NTD29,410 thousand respectively, the company has maintained stable expenditure in research and development costs, so as to support the future research and development plan and increase the market competitiveness of the Group. The research and development costs compiled by the Group in 2020 is NTD27,961 thousand.

7.6.4 The impact of changes in domestic and overseas important policies and laws on financial affairs of the company and solutions

The Company is registered in Cayman Islands and has no substantial economic activities there, and the main places of business include China Mainland, Indonesia, and Taiwan, the Company and subsidiaries always pay attention to the information of changes in important policies and laws in the locating countries and regions, and make preventive preparation through all kinds of channels in advance, hence the changes in important policies and laws both at home and abroad have not caused significant impact on the financial affairs of the Company.

7.6.5 The impact of changes in technology and industry on financial affairs of the company and solutions

The valve industry engaged in by the Company and subsidiaries is the industry of hundred years, it is the essential industry in industrial and commercial society, the Group will always pay attention to the changes in relevant technologies of the industry and changes in prices of rubber material and copper material market and master the market trend, currently, there is no change in technology and industry that might cause significant impact on financial affairs of the company.

Solutions:

Understand industry trend, continue to invest in research and development and apply for patents, and improve automation degree.
Understand customer requirements, provide complete product lines, provide one-stop service, and increase added value.
7.6.6 The impact of change in corporate image on corporate crisis management and solutions: Ever since the establishment, the Company has a good corporate image and comply with
relevant laws and decrees, actively promotes various quality certifications, and maintain a harmonious labor-capital relationship and local relationship at the same time, so as to

188

continuously maintain a good corporate image, and in recent years, there is no any circumstance affecting the corporate image.

7.6.7 Expected benefit and possible risk of merger and acquisition and solutions

As at the publication date of annual report, the Company does not have any plan of merger and acquisition of other companies, in case of any merger and acquisition plan in the future, the Company will conduct assessment prudently and give consideration to the merger synergy, so as to ensure the rights and interests of shareholders.

7.6.8 Expected benefit and possible risk of plant expansion and solutions

In order to satisfy the future market and Group’s strategic planning, the Company ordered subsidiaries XIAMEN XIAHUI to acquire a new land in 2018, currently the plant is under construction, it is planned to expand production capacity in metal processing, so as to win market opportunity and achieve the synergy in the Group’s resources allocation. The funds in plant expansion is supported by own funds, hence the risk might be caused is limited.

7.6.9 Risk encountered in centralized purchasing or sales and solutions
Risk encountered in centralized purchasing and solutions

The purchasing objects of the Group are dispersed, suppliers are from both at home and abroad, there is no single supplier in overall purchasing. In the last three years, the purchasing amount of the first biggest supplier is accounting for 22.20%, 27.35% and 31.75% of the total purchase account respectively, mainly due to the second biggest supplier reduces the supply quantity because of the impact of restricted working hours pursuant to law, resulting in the purchase proportion of the first biggest supplier increase gradually. The Group will continue to expand the recovery and reuse of its own copper materials, dispersed the proportion of purchase of single supplier, it may dispersed the impact of fluctuation in copper price at the same time, and it may also reduce the impact on operation performance.

Risk encountered in centralized sales and solutions

Regions of customers in sales of the Group include Europe, Africa, America and Asia etc., in the last three years, the total sales volume of top ten customers in sales was accounting for 59.35%, 55.97% and 53.76% of the annual net revenue respectively, and the total sales volume of the biggest customer in sales was accounting for 15.18%, 13.16% and 13.53% of the annual net revenue respectively, there is no single customer with sales proportion over 30%, all customers have been doing business of the Group for years, and product quality has been deeply recognized and trusted by customers, both parties are maintaining a long-term and stable sales relationship, hence there is no risk of centralized sales.

7.6.10 The impact and risk of massive transfer or change of the stock rights of directors, supervisors or shareholders with shareholding over ten percent and solutions

As at the publication date of annual report, there is no massive transfer of stock rights in the directors and substantial shareholders with shareholding over ten percent of the Company; the Company carried out comprehensive re-election of directors and supervisors in General Meeting on June 25, 2018, the original 13 seats of directors were changed into 11 seats of directors, and 2 of them refused to take office, so there are 9 seats of directors currently. However, the shareholdings of substantial shareholders are stable, there is no significant change of important managerial officers, and management is stable.

189

7.6.11 The impact and risk of change in management right and solutions

As at the publication date of annual report, the Company has no circumstance of change in management right.

7.6.12 Litigation or non-litigation case

The sentenced or pending significant litigation, non-litigation or administrative litigation involving in the company or the directors, supervisors, General Manager, actual head and substantial shareholders with shareholding ratio over ten percent of the company shall be listed, and if the results thereof have significant impact on shareholders’ equity or securities price, the facts in dispute, amount of object, commencement date of litigation, major parties involved in litigation, and handling circumstance as at the publication date of annual report shall be disclosed: None.

7.6.13 Other important risks and solutions:

Major computer room of information system of the Group locates in Changhua, the operating host adopts IBM System X3650, and the backup host adopts Synology RS810+, and drilling of backup restoration is conducted every year. For the part of network security, the Group has established firewall internally, and the Group adopts ESET NOD32 antivirus software internally and mandatorily update virus code every day; and for all kinds of information risks, such as device management, hardware protection, Internet and mobile security etc., administrative measures have been planned to improve the safety protection capacity of network and information system as well as the level of information governance, hence the risk of information security of the Company is still under control appropriately.

7.7 Other important matters: None.

190

VIII. Special Recorded Matters

8.1 Relevant information of affiliated enterprise

8.1.1 Consolidated business report of affiliated enterprise
8.1.1.1 Organization chart of affiliated enterprise:

==> picture [457 x 251] intentionally omitted <==

Notes: Subsidiaries PT. LUHAI carried out cash capital increase of USD2,000 thousand in 2015, all of them were directly invested by the Company, hence the Company’s proportion of direct investment in it rose from 80% to 85% since April 1, 2015.

8.1.1.2 Basic information of affiliated enterprises:

Unit: NTD thousand and December 31, 2019 foreign currency in thousand

Name of enterprise	Establish ment date	Address	Paid-in capital	Main business or production item
LU HAI (BVI) INDUSTRIAL CORP.	11/5/1996	P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.	265,533 (USD8,857)	Investment holding
ALLPRO INTERNATIONAL CORP.	7/10/2000	Corner Hutson & Eyre Street, Blake Building, Suite 302 Belize City, Belize.	199,157 (USD6,643)	Investment holding
MEGA POWER CO., LTD.	9/3/2008	#35 Barrack Road, 3rdFloor Belize City, Belize C.A.	1,499 (USD50)	Buying and selling business
YUANHUI INTERNATIONAL CO., LTD.	1/31/2003	Level 3, Alexander House, 35 Cybercity, Ebene Mauritius.	194,870 (USD6,500)	Investment holding
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD	5/9/1990	No.41, Xinyuan Rd, Xing Lin District, Xiamen China.	464,690 (USD15,500)	Production, manufacturi ng and sales of valve

191

LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD.	5/23/1997	No.1069 HuaAn Road, HuaQiao Town, Kunshan City, Jiangsu Province, P.R.China.	247,155 (USD8,244)	Production, manufacturi ng and sales of valve
LU HAI INDUSTRIAL CORP.	5/13/1983	No.64, Shing-kong 5th Rd, Tien-Chung Industrial District, Tien-chung,Chang- huaTaiwan.	30,000	Leasing, Buying and selling business
PT. LUHAI INDUSTRIAL	11/8/2011	d\a. Jl. Raya Cikande Rangkasbitung Km. 4.5. Desa Junti. Jawilan. Serang, Indonesia	239,840 (USD8,000)	Production, manufacturi ng and sales ofvalve

Notes: Converted at the exchange rate of USD1=NTD29.980 on the closing day of financial report.

8.1.1.3 Same shareholder information of those presumed with control and subordinate relationship: None.
8.1.1.4 Information of directors, supervisors and General Manager of each affiliated enterprise:

Name of enterprise	Title	Name or representative	Shareholding	Shareholding
			Number of shares	Shareholding ratio %
LU HAI (BVI) INDUSTRIAL CORP.	Director	WU, CHING-SHU	-	-
ALLPRO INTERNATIONAL CORP.	Director	WU, CHING-SHU	-	-
MEGA POWER CO., LTD.	Director	WU, CHING-SHU	-	-
YUANHUI INTERNATIONAL CO., LTD.	Director	WU, CHING-SHU	-	-
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD.	Chairman	HSU, LIEN-KAI	-	-
	Director	HSU, HSIU-HUA
	Director	HSU, YA-TING
	Director	HSU, HUAI-YUN
	Director	HSU, HAN-YUAN
	Supervisor	WU, CHING-SHU
LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD.	Chairman	HSU, LIEN-KAI	-	-
	Director	WU, CHING-SHU
	Director	HSU, HSIU-HUA
	Director	HSU, YA-TING
	Director	HSU, HUAI-YUN
	Supervisor	HSU, HAN-YUAN

192

LU HAI INDUSTRIAL CORP.	Chairman	British Cayman Islands Merchant LU HAI HOLDING CORP. Representative: HSU, LIEN-KAI	-	-
	Director	British Cayman Islands Merchant LU HAI HOLDING CORP. Representative: HSU, HSIU-HUA
	Director	British Cayman Islands Merchant LU HAI HOLDING CORP. Representative: HSU, YA-TING
	Director	British Cayman Islands Merchant LU HAI HOLDING CORP. Representative: HSU, HUAI-YUN
	Director	British Cayman Islands Merchant LU HAI HOLDING CORP. Representative: HSU, HAN-YUAN
	Supervisor	British Cayman Islands Merchant LU HAI HOLDING CORP. Representative: WU, CHING-SHU
PT. LUHAI INDUSTRIAL	Chairman	HSU,HSIU-HUA	-	-
	Director	QIUZHONG-LIE
	Director	QIU JING-HUI
	Supervisor	HSU,LIEN-KAI
	Supervisor	WU, CHING-SHU
	Supervisor	HSU,YA-TING
	Supervisor	HSU,HUAI-YUN
	Supervisor	HSU,HAN-YUAN

8.1.1.5 Operation profile of each affiliated enterprise

December 31, 2019 Unit: NTD thousand

Name of enterprise	Capital amount	Total assets	Total liabilities	Net value	Net revenue	Operating income	Net income(loss) (after tax)	Earnings per share (NTD) (after tax)
LU HAI (BVI) INDUSTRIAL CORP.	265,533	1,055,761	-	1,055,761	-	(160)	107,419	14.13
ALLPRO INTERNATIONAL CORP.	199,157	793,084	-	793,084	-	(154)	80,649	14.14
MEGA POWER CO., LTD.	1,499	69,545	37,963	31,582	207,242	20,583	25,386	507.72
YUANHUI INTERNATIONAL CO., LTD.	194,870	502,838	17,049	485,789	-	(45)	(10,362)	(1.59)

193

XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD.	464,690	2,463,034	616,527	1,846,507	1,991,427	243,848	186,518	-
LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD.	247,155	1,231,611	725,721	505,890	572,010	1,924	7,653	-
LU HAI INDUSTRIAL CORP.	30,000	114,711	896	113,815	56,253	4,438	11,261	1.49
PT. LUHAI INDUSTRIAL	239,840	492,176	138,976	353,200	642,973	64,809	46,166	5.77

Notes: converted according to the exchange rate (USD1=NTD29.980, USD1=RMB6.9636, USD1=IDR13,888) on the closing day of financial report or current average exchange rate (USD1=NTD30.860, USD1=RMB6.9021, USD1=IDR14,065).
8.1.2 Consolidated financial statements of affiliated enterprise: foreign companies may be exempted from preparing consolidated financial statement of affiliated enterprise according to the rules of Chapter 5 of preparation guidelines, please refer to page 105 to 181 for consolidated financial statements of the Company.
8.1.3 Declaration of consolidated statement of affiliated enterprise: foreign companies may be exempted from preparation.
8.1.4 Relationship report: Not applicable.
8.2 In the last year and as at the publication date of annual report, execution situation of private placement of negotiable securities: None.
8.3 In the last year and as at the publication date of annual report, subsidiaries’ holding or disposal of shares of the Company: None.
8.4 Other necessary supplementary explanations: None.
8.5 In the last year and as at the publication date of annual report, in case of matters having significant impact on the shareholders’ equity or security price as prescribed in Subparagraph 2, Paragraph 3, Article 36 of Securities and Exchange Act, it shall also be specified one by one: None.

8.6 Description on significant difference from the shareholders’ equity protection regulations of our country:

The Company has amended Articles of Incorporation according to the important matters of protecting shareholders’ equity listed in the “Checklist for Matters of Protecting Shareholders’ Equity of Foreign issuers in the Country of Registration” published by Stock Exchange, but since some of important matters of protecting shareholders’ equity are not applicable under the laws of Cayman, hence they are not stipulated in Articles of Incorporation, it is hereby explained the difference as follows (Articles of Incorporation is subject to the English version, and the following Chinese contents are for reference only):

194

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
Formation and change of companycapital
1. After buying back its own shares, if the company transfer them to employees at the price of lower than average price in actual shares buyback, it shall be agreed by more than two third of attending shareholders with voting rights in the last General Meeting attended by shareholders holding the majority of total outstanding shares, and the following matters shall be listed and explained in the subject of convocation of such General Meeting, and it shall not be proposed as an Extempore Motion: (1) The transfer price fixed, discount rate, calculation basis and rationality. (2) Number of shares transferred, purpose and rationality. (3) Subscribing employee’s qualification and number of shares may be subscribed. (4) Matters affecting shareholders’ equity: (a) Possible expensing amount and the dilution of earnings per share of the company. (b) Explain the financial burden caused to the company due to transferring shares to employees at the price lower than average price in actual shares buyback. 2. The accumulated number of shares passed by previous General Meetings and transferred to employees shall not exceed five percent of the total outstanding shares of the company, and the accumulated number of shares subscribed by one subscribing employee shall not exceed 0.5% of the total outstanding shares of the company.	Article 14 of “Measures Foreign Issuers’ Buyback of Listed Negotiable Securities” promulgated by Taiwan Stock Exchange.	1. Companies in Cayman may redeem or buy back shares as treasury shares when conforming to certain conditions (Article 37, Article 37A). 2. Companies redeeming or buying back treasury shares according to the provisions of Article 37A may transfer them to anyone at any time.	1. The Company has listed relevant provisions in Article 20 of Articles of Incorporation.

195

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
General Meeting’s convening procedure and resolution method
1. The General Meeting shall be convened at least once a year and convened within six months after the end of every accounting year. The General Meeting is convened by Board of Directors. 2. The General Meeting shall be convened in the territory of the Republic of China. If the General Meeting is convened outside the territory of the Republic of China, it shall be resolved by Board of Directors or reported to Stock Exchange for consent after shareholders have obtained convening license from the competent authority. 3. The shareholder holding more than one percent of the total outstanding shares may propose a motion of General Meeting to the Company in writing or electronically. Apart from that the motion is not resolved in Shareholder’s Meeting, or the shareholding of the shareholder proposing a motion is less than one percent, or the motion is not proposed during the acceptance period, or the words of a motion exceed 300 words or there is more than one motion, it will not be listed in the motion. Board of Directors shall list it as a motion. If a shareholder’s proposal is urging the company to promote public interests or fulfill its social responsibilities, Board of directors may still list it as a motion. 4. The shareholder who holds over three percent of outstanding shares for over one year consecutively may note the proposed matters and reason in writing, and ask Board of Directors to convene an extraordinary general meeting. Within fifteen days after proposing the request, when the Board of Directorsfailstoissueaconveningnotice, such	1. Article 170 of Company Act 2. Article 172-1 of Company Act 3. Paragraph 1 and Paragraph 2, Article 173, Article 173-1 of Company Act 4. Article 172 of Company Act, Article 26-1 and Article 43-6 of Securities and Exchange Act	1. Pursuant to Companies Law of Cayman, a General Meeting of every company, other than an exempted company, shall be held at least once in every year. (Article 58). 2. Unless otherwise stipulated in Articles of Incorporation, the convening notice of General Meeting shall be served to each shareholder 5 days in advance; 3 shareholders shall be competent to convene a General Meeting; it shall be competent for any person elected by the shareholders present to preside the General Meeting (Article 61). 3. Unless otherwise stipulated in Articles of Association, one shareholder being present in person may convene a General Meeting (Article 57). 4. Regarding the proposal of minority shareholders, there is no similar provisions in Companies Law ofCayman.	1. Regarding the request of minority shareholders to Board of Directors to convene an extraordinary general meeting, since there is no similar provisions in Companies Law of Cayman and there is no local corresponding competent authority in Cayman Islands; besides, according to the explanation in Item 3, No. 36 of “Q & A for Listing in Taiwan by Foreign Issuers” (the version on January 23, 2013) promulgated by TWSE, “Under the premises of not contravening the laws and decrees of registration place, a foreign enterprise shall stipulate the rights of minority shareholders to request for convening an extraordinary general meeting in Articles of Incorporation, for the part of convening a meeting with the permission of competent authority, it may be deleted.”, Hence Article 42 of Articles of Incorporation of the Company stipulates that shareholders may voluntarily convene an extraordinary general meeting pursuant to Applicable Public Company Rules. 2. The Company has included relevant provisions in Article 39 to Article 43,Article 47,and Article 49 of

196

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
shareholder may voluntarily convene the meeting with the permission of competent authority. 5. Shareholders continuously holding 50% or more of the total number of outstanding shares of a company for a period of three months or a longer time may voluntarily convene a special shareholders’ meeting. The calculation of above said holding period and number of shareholding in the preceding sentence shall be based on the Register of Members as of the first date of the book closed period. 6. The following matters shall be stated in the notice of general meetings, with a summary of the material content to be discussed, and shall not be brought up as an Extempore Motion, and the summary of above said matters may be put on the website(s) designated by the competent authorities or the Company, and address of such website(s) shall be indicated clearly in the notice: (1) Election or dismissal of directors or supervisors; (2) Alteration to Articles ofIncorporation; (3) Capital reduction; and (4) Application for the approval of ceasing its status as a public company; and (5) Dissolution, merger, shares swap or spun-off of the company; (6) Entry into, amendment to, or termination of any contract for lease of its business in whole, or the delegation of management, or regular joint operation with others; (7) The transfer of the whole or any material part of its business or assets; (8) Taking over another’s whole business or assets, whichwill havea materialeffecton the business		5. Regarding the request of minority shareholders to Board of Directors to convene an extraordinary general meeting, there is no similar provisions in Companies Law of Cayman. 6. Regarding the matters shall be listed in the subject of convocation of a General Meeting, there is no similar provisions in Companies Law of Cayman.	Articles of Incorporation. 3. The Stock Exchange amended the checklist for shareholder’s equity on November 30, 2018 to add that shareholders may propose a motion electronically, and a shareholder may propose to urge the company to promote public interests or fulfill its social responsibilities, shareholders continuously holding 50% or more of the total number of outstanding shares of a company for a period of three months or a longer time may voluntarily convene a shareholders’ meeting, and specific motion shall be put on the website(s) designated by competent authorities, and address of such website(s) shall be indicated clearly in the notice etc., Article 42 and 47 are amended accordingly, Article 42-1 is added.

197

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
operation of the company; (9) Issuing equity-type securities by private placement. (10) Ratification of director’s engagement in non- competition action; (11) Distribution of the whole or part of the dividends or bonus in the form of new shares; (12) Distribution of statutory surplus reserve or the capital reserve obtained from share premium or receiving bestowal in the form of new shares or cash to existing shareholders.
1. When convening a General Meeting, the company may exercise its voting right in writing or electronically; but if the company is within the “Application Scope of Mandatory Electronic Voting” promulgated by competent authority in charge of securities in the Republic of China, and it is the first listed company in new stock listing, the company shall list the electronic voting as one of the channels for exercising voting right. 2. If the company convenes the General Meeting outside the territory of the Republic of China, shareholders in such meeting may exercise the voting right in writing or electronically. 3. When the company exercises the voting right in writing or electronically; the exercising method thereof shall be specified in the convening notice of General Meeting. Shareholders exercising voting right in writing or electronically shall be deemed as attending General Meeting in person. But it shall be deemed as waiver regarding the amendment to Extempore Motions and original proposals of such General Meeting.	1. Article 177-1 of Company Act 2. Article 177-2 of Company Act	Regarding the adoption of voting in writing or electronically in General Meeting, there is no similar provisions in Companies Law of Cayman.	The Company has included relevant provisions in Article 62, Article 63, and Article 69 of Articles of Incorporation.

198

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
4. If a shareholder exercises the voting right in writing or electronically, the declaration of intention thereof shall be served to the company two days before convening General Meeting, in case of repeated declarations of intention, the one served first shall prevail. Except for announcing the cancellation of previous declaration of intention. 5. After a shareholder has exercised voting right in writing or electronically, if intends to attend the General Meeting in person, two days before convening General Meeting, such shareholder shall cancel the preceding declaration of intention on exercising voting right in the same way as exercising voting right, otherwise the voting right exercised in writing or electronically shall prevail. 6. If a shareholder exercises voting right in writing or electronically and entrusts a proxy through a proxy statement to attend the General Meeting, the voting right exercised by the entrusted attending proxy shall prevail.
1. Upon every General Meeting, a shareholder may issue the proxy statement printed by the company to specify the scope of authorization, so as to entrust the proxy to attend the General Meeting. 2. Except for the trust enterprise of the Republic of China or the stock affairs agency approved by competent authority in charge of securities of the Republic of China, when one person is entrusted by more than two shareholders, the proxy vote thereof shall not exceed three percent of the voting rights of total outstanding shares, and the exceeding voting rights will not be calculated. 3. Ashareholder islimited toissue one proxy	1. Article 177 of Company Act 2. Article 177-2 of Company Act	1. Pursuant to Subparagraph a, Paragraph 1, Article 60 of Companies Law of Cayman, the calculation of resolution threshold of General Meeting, if the company allows the proxy entrusted by a shareholder to attend the General Meeting, the entrusted attendance shall be calculated into the number ofvotingrights.	The Company has included relevant provisions in Article 43, Article 67(b), Article 68, Article 70 and Article 71 of Articles of Incorporation.

199

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
statement to entrust one agent, and the proxy statement shall be served to the company five days before convening General Meeting, in case of repeated proxy statement, the one served first shall prevail. Except for announcing the cancellation of previous appointment. 4. After the proxy statement has been served to the company, if a shareholder intends to attend the General Meeting in person or exercise its voting right in writing or electronically, such shareholder shall serve written notice on canceling the proxy statement to the company two days before convening the General Meeting; otherwise the voting right exercised by the entrusted attending proxy shall prevail. 5. When convening a General Meeting outside the territory of the Republic of China, the company shall entrust professional stock affairs agency in the territory of the Republic of China to handle the shareholders’ voting affairs.		2. There are no specific provisions on the use of proxy statement in Companies Law of Cayman. The company may adopt the provisions in Attached Table A, and explicitly stipulates relevant regulations on use of proxy statement in General Meeting in the Articles of Incorporation (Article 22; Article 59 and Article 60 of Attached Table A). 3. Regarding the restriction on proxy vote, there is no similar provisions in Companies Law of Cayman. 4. Regarding the entrustment of stock affairs agency to handle overseas voting affairs, there is no similar provisions in Companies Law ofCayman.
The following proposals involving in major shareholders’ equity shall be agreed by the majority of attending shareholders with voting right in a General Meeting attended by shareholders representing more than two thirds of the total outstanding shares. If the total shares of attending shareholders do not meet the quota as prescribed in preceding paragraph,it shallbe agreed bymore	1. Article 185 of Company Act 2. Article 209 of Company Act 3. Article 227 of Company Act 4. Article 277 of Company Act 5. Paragraph 1, Article 240 of Company Act 6. Article 316 of Company Act	1. The Special Resolution explicitly stipulated in Article 60 of Companies Law of Cayman means (1) the resolution has been passed by a majority of at least two thirds of attending shareholdersas,	1. The Company has included relevant provisions in Article 34, Article 64, Article 65, Article 65-1, Article 66 and Article 123 of Articles of Incorporation. 2. Explanation on the stipulation of voting percentagefor relevant

200

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
than two thirds of attending shareholders with voting rights in a General Meeting attended by shareholders representing the majority of total outstanding shares: 1. The company enters into, changes, or terminates any contract for lease of business in whole, or the delegation of management or the regular joint operation with others; transfers the whole or major part of business or property, or is transferred of the whole business or property from other person, and thereby causes significant impact on business operation. 2. Amendment to Articles of Incorporation. 3. If the amendment to Articles of Incorporation damages the rights of special shareholders, it shall be otherwise resolved by Special General Meeting. 4. Distribution of the whole or part of the dividend or bonus in the form of new shares. 5. Resolution on dissolution, merger or spun-off. 6. Share Exchange	7. Article 43-6 of Securities and Exchange Act 8. Article 29 of Business Mergers And Acquisitions Act	being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given. Higher percentage of voting in special resolution than that in Companies Law of Cayman may be voluntarily stipulated in Articles of Incorporation according to the importance of matters; or (2) if it is explicitly stipulated in Articles of Incorporation that a special resolution may be made with the consent of all shareholders with voting right by written signature. 2. According to the provisions of Companies Law of Cayman, the following matters shall be handled by a special resolution: (1) Change of company name (Article 31); (2)Alterationof	proposals in a General Meeting: except for subject to the ordinary resolution and supermajority resolution stipulated in Company Act of the Republic of China, if special resolution is required pursuant to the Companies Law of Cayman, Articles of Incorporation of the Company is also subject to the special resolution defined in Article 60 of Companies Law of Cayman. This is different from the matters shall be handled by a supermajority resolution (including alteration of articles, dissolution, merger and acquisition etc.) as listed in the “Checklist for Matters of Protecting Shareholders’ Equity of Foreign issuers in the Country of Registration” promulgated by TWSE. Since such difference is due to the provisions of Companies Law of Cayman, Articles of Incorporation of the Company has explicitly stipulated the matters shall be handled by a Supermajority Resolution as listed in the aforesaid checklist for matters of protecting shareholders’ equity and the statutory matters shall be

201

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
		Memorandum of Incorporation (Article 10); (3) Alteration of Articles of Incorporation (Article 24); (4) Reduction of share capital (Article 14); (5)Voluntarily dissolution by a special resolution not due to the company’s incapable of repaying mature debts (Article 116(c)); (6) Merger and acquisition according to the provisions of Companies Law of Cayman (Article 233).	handle by a special resolution as stipulated in Companies Law of Cayman respectively, and it has not caused significant impact on the shareholders’ equity in our country. 3. Subparagraph b, Paragraph 1, Article 64 of Articles of Association explicitly stipulates that if the change of Articles of Association damages the rights of special shareholders, it shall be resolved by Special General Meeting. 4. Cooperate to amend Article 65 of Articles of Association, and add the application of stock conversion.
If the first listed company become delisting due to ceasing to exist after merger, broadly transfer, conversion of stock or spun-off, and the continuous existing, transferred, existing or newly incorporated company is not a listed (OTC) company, it shall be handled with the consent of shareholders holding more than two thirds of the total outstanding shares of the first listed company.	Article 18, Article 27, Article 28, Article 29 and Article 35 of Business Mergers and Acquisitions Act.	There is no similar provisions in Companies Law of Cayman.	The Company has listed relevant provisions in Article 65-1 of Articles of Incorporation.
Authorityand responsibilityof the director
1. Where all directors of a company are re-elected prior to the expiration of the term of office of existing directors, and in the absence of a resolution that existing directors will not be discharged until the expiry of their present term of office, all existing directors shall be deemed discharged in advance.	Article 199-1 of Company Act.	Companies Law of Cayman does not implement the supervisor system, and there are no similar provisions.	The Company has listed relevant provisions in Paragraph b, Article 89 of Articles of Incorporation.

202

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
2. The aforesaid re-election shall be attended by shareholders who represent more than one-half of the total numberof issuedand outstanding shares.
1. During the term of office, when the share transfer of a director (excluding independent director) or supervisor of the company exceeds one second of the company shares held at the time of appointment, such director or supervisor will certainly be relieved from duty. 2. After the appointment, if the director (excluding independent director) or supervisor of the company transfers over one second of the company shares held at the time of appointment before assumption of duty, or transfers over one second of the shareholding within the period of cessation of share transfer before convening the shareholders’ meeting, such appointment will lose its effect.	1. Article 197 of Company Act. 2. Article 227 of Company Act. 3. Article 14-2 of Securities and Exchange Act	There is no similar provisions in Companies Law of Cayman.	The Company has listed relevant provisions in Paragraph 3 and Paragraph 4, Article 109 of Articles of Incorporation.
1. If supervisors are set by the company, they shall be elected in a General Meeting, and at least one of them shall reside in the country. 2. Term of office of a supervisor shall not exceed three years. But he/she may be eligible for re- election. 3. When all supervisors are dismissed, Board of Directors shall convene an extraordinary general meeting for election within sixty days. 4. Supervisors shall supervise the execution of company business, and may investigate company business and financial conditions, and examine books for taking notes or keeping accounts and documents at any time, and may ask Board of	Article 216 to Article 222 of Company Act.	Companies Law of Cayman does not implement the supervisor system, and there is no similar provisions.	In matters of protecting shareholders' equity, it is stipulated that the issuing company shall either set the Audit Committee or supervisor. The Company adopts the Audit Committee system, it is stipulated in Article 125 of Articles of Incorporation that the Audit Committee comprises of all of the independent directors, its authorities and functions are equivalent to the supervisor, and it has limited impact on the shareholders’ equity.

203

Shareholders’ equity protection matters	“Company Act” or “Securities and Exchange Act” related laws and decrees	Explanation on companies laws and decrees of Cayman Islands	Provisions of Articles of Incorporation and explanation
Directors or managerial officers to propose a report. 5. Supervisors shall examine various books of forms prepared by Board of Directors and proposed to the General Meeting, and report their opinions in the General Meeting. 6. For affairs examination, supervisors may entrust the accountant or lawyer on behalf of the company for examination. 7. Supervisors may attend the Board of Directors Meeting to express their opinions. In case of violation of laws and decrees, Articles of Incorporation or resolution of General Meeting by the Board of Directors or a director, supervisors shall promptly inform the Board of Directors or such director to cease action. 8. Supervisors may exercise the right of supervision respectively and independently. 9. Supervisors shall not concurrently hold the post of director, managerial officer or other employee of the company.

204

AI assistant

LU HAI — Annual Report 2019

51977_rns_2020-07-21_dd88d1d3-ce5b-41fa-b26c-f19cf79ce6db.pdf

LU HAI HOLDING CORP.

2019 Annual Report

II. Address and telephone number of all operation locations:

III. Stock Transfer Agent ：

VIII. Board members:

Table of Contents

VII. Review of Financial Conditions, Operating Results, and Risk Management

VIII. Special Recorded Matters

I. Letter to Shareholders

Financial performance

Budget implementation

Financial revenue and expenditure and profitability analysis

Research and development situation

Future development strategy of the Company

II. Company Profile

2.1 Company and Group Introduction

2.1.1 Date of incorporation and Group profile:

2.1.2 Group structure

2.2 Company history:

III. Corporate Governance Report

3.1 Organization system

3.1.1 Organization chart

3.1.2 Operating business of major departments

3.2 Information of directors, supervisors, General Manager, Vice President, Assistant Vice President, and head of each department and branch:

3.2.1 Directors and supervisors’ information

3.2.1.1 Directors and supervisor’s information:

3.2.2 Management Team Information

3.3 Remuneration of Directors, Supervisors, General Manager and Vice Presidents in the Last Year

3.3.1 Remuneration paid to the Director and Independent Director in 2019

Range of Remuneration

3.3.2 Remuneration paid to the Supervisors in 2019: The Company sets Audit Committee, hence it is not applicable.

3.3.3 Remuneration paid to General Manager and Vice President in 2019:

Range of Remuneration

 Directors, Supervisors

3.4 Corporate governance operation situation:

3.4.1 Information of Board of Directors’ operation situation

3.4.4. Composition, responsibility and operation situation of the Remuneration Committee

3.4.4.1 Composition of Remuneration Committee

3.4.4.2 Responsibilities of Remuneration Committee

3.4.9 Execution situation of internal control system:

3.4.9.1 Internal Control Statement:

LU HAI HOLDING CORP.

Internal Control System Statement

Date: March 12, 2020

3.4.11.2 Important resolutions of Board of Directors Meeting in 2019:

3.5 Accountant’s fees information

3.6 Information on change of CPA:

3.6.1 Information on the Former CPA

3.6.2About the succeeding CPA

3.8.1 Changes in stock right in the directors, supervisors, managerial officers and major shareholders:

3.8.2 Shares Trading with Related Parties: None.

3.9 Information that the top ten shareholders in shareholding are of interested party, spouse or relatives within second degree relationship mutually:

3.10Number of shareholding of the Company, the directors, supervisors, managerial officers of the

IV. Fundraising Situation

4.1 Capital and stock

4.1.1 Sources of share capital

4.1.1.1 Stock formation process:

4.1.1.2 Capital and shares:

4.1.1.3 Summary of relevant information on reporting system: Not applicable.

4.1.2 Shareholder structure

4.1.3 Dispersion of shares

4.1.3.1 Common shares

4.1.3.2 Preferred share: Unissued.

4.1.4 List of major shareholders

4.1.5 Market price, net value, earnings, dividend per share and relevant materials in the last two years

4.1.6 Dividend policy and execution status

4.1.6.1 Dividend policy stipulated in Articles of Incorporation:

4.1.9 Buyback of Common Stock: None.

4.3 Status of Preferred Shares: None.

V. Operational Highlights

5.1 Business content

5.1.1 Business scope

5.1.1.1 Major contents of operating business

5.1.1.2 Proportion of business

5.1.1.3 Current commodity (service) items of the company

5.1.1.4 New products and services planned to be developed

5.1.2 Industry overview

LU HAI Annual Report 2019