SCI — Audit Report / Information 2020

Dec 2, 2020

1

Stock Code:4119

SCI PHARMTECH, INC. AND SUBSIDIARIES

Consolidated Financial Statements

With Independent Auditors’ Report For the Years Ended December 31, 2020 and 2019

Address: No.61, LN. 309, HAIHUN.RD., LUZHU DIST., TAOYUAN CITY 33856, TAIWAN (R.O.C) Telephone: (03)354-3133

The independent auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors’ report and consolidated financial statements, the Chinese version shall prevail.

2

Table of contents

Contents 1. Cover Page 2. Table of Contents 3. Representation Letter 4. Independent Auditors’ Report 5. Consolidated Balance Sheets 6. Consolidated Statements of Comprehensive Income 7. Consolidated Statements of Changes in Equity 8. Consolidated Statements of Cash Flows 9. Notes to the Consolidated Financial Statements (1) Company history (2) Approval date and procedures of the consolidated financial statements (3) New standards, amendments and interpretations adopted (4) Summary of significant accounting policies (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty (6) Explanation of significant accounts (7) Related-party transactions (8) Pledged assets (9) Commitments and contingencies (10) Losses Due to Major Disasters (11) Subsequent Events (12) Other (13) Other disclosures (a) Information on significant transactions (b) Information on investees (c) Information on investment in mainland China (d) Major shareholders (14) Segment information

Page

1 2 3 4 5 6 7 8 9 9 9～10 10～26 26～27 27～55 55～56 56 56 56～57 57 57 57～59 59 59 59 59～60

3

Representation Letter

The entities that are required to be included in the combined financial statements of SCI Pharmtech, Inc. as of and for the year ended December 31, 2020 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 endorsed by the Financial Supervisory Commission, "Consolidated Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, SCI Pharmtech, Inc. and subsidiaries do not prepare a separate set of combined financial statements.

Company name: SCI Pharmtech, Inc. Chairman: Weichyun Wong Date: March 24, 2021

4

==> picture [169 x 19] intentionally omitted <==

KPMG

台北市110615信義路5段7號68樓(台北101大樓) Telephone 電話 + 886 2 8101 6666 68F., TAIPEI 101 TOWER, No. 7, Sec. 5, Fax 傳真 + 886 2 8101 6667 Xinyi Road, Taipei City 110615, Taiwan (R.O.C.) Internet 網址 home.kpmg/tw

Independent Auditors’ Report

To the Board of Directors of SCI Pharmtech, Inc.: Opinion

We have audited the consolidated financial statements of SCI Pharmtech, Inc. and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as of December 31, 2020 and 2019, the consolidated statement of comprehensive income, consolidated statement of changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretations developed by the International Financial Reporting Interpretations Committee (“IFRIC”) or the former Standing Interpretations Committee (“SIC”) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

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

Emphasis of Matter

As stated in Note 10 of the financial statements, SCI Pharmatech, Inc., a major fire accident occurred on December 20, 2020, and caused damage to some buildings, equipment, construction in progress, and inventories, and spreading to several nearby factories, of which property was impaired and business operation was interrupted. The related compensation for damages and loss has been estimated. SCI Pharmatech, Inc. has entered into property insurance contracts, and is currently in the negotiating process with insurance companies. As the claims involve disaster identification, the compensation amount is not completely confirmed yet as of the reporting date. Except for the compensation (recorded as a deduction to miscellaneous disbursements), which is virtually certain to be received, the Company will recognize the rest of the compensation income in the subsequent year when it could be reasonably estimated. Our opinion is not modified in respect of this matter.

KPMG, a Taiwan partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

4-1

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters we judged shall be presented in the financial report as follows:

1. Inventory valuation

Please refer to Note 4(h) and Note 5 of the consolidated financial statements for the accounting policy of inventory valuation, as well as the estimation of inventory valuation, respectively. Information regarding the inventory and related expenses are shown in Note 6(e) of the consolidated financial statements.

Description of key audit matters:

Due to the characteristics of the pharmaceutical industry, products are manufactured for specific customers, providing batch-specific differentiation services according to their needs while the Group estimates the net realizable value of inventory. If there were no objective information regarding the current sales price available for reference, the Group has to make an evaluation of each product's various factors, such as the demands of the market, to determine the net realizable value of the product. As the reasonableness of estimation might have an impact on the inventory valuation, the test of inventory valuation is one of the key audit matters in our audit.

Our audit procedures include:

• ． Assessing the reasonableness of provision policies and procedures on allowance for inventory valuation losses, including the evaluation of changes in the market, customer demand and inventory turn-over to identify the obsolete inventories.

• ． Performing a retrospective review of inventory movements to evaluate the reasonableness of inventory obsolescence reserve policy and policy on scrapping of inventories.

• ． Sampling and inspecting the Group’s sales price; as well as verifying the calculation of the lower of cost or net realizable value; evaluating the adopted net realizable value as a basis for obsolete inventories.

2. Revenue recognition

Please refer to Note 4(n) of the consolidated financial statements, for the accounting policy of Revenue recognition for operating revenue recognition.

Description of key audit matters:

The Group’s main products are the manufacture of Active Pharmaceutical Ingredients, and Intermediates, etc. The Group’ s major customers are foreign pharmaceutical companies that have transaction terms different from each other, and the revenue recognition was booked by using manual adjustments, which may result in an inappropriate risk in revenue recognition. Therefore, the revenue recognition is one of the key audit matters in our audit.

4-2

Our audit procedures include:

• ． Understanding and testing the related controls surrounding the aforementioned sales and collection cycle;

• ． Testing of details;

• ． Verifying whether the revenue had been recognized in the proper period by testing the selected sales transactions before and after the balance sheet date in order to evaluate the accuracy of the timing of the Group's operating revenue recognition.

3. Insurance claims and disaster indemnity estimates for major disasters

As stated in Note 10 of the financial statements, SCI Pharmatech, Inc., a major fire accident occurred on December 20, 2020 and caused damage to some buildings, equipment, construction in progress, and inventories, and spreading to several nearby factories. At present, the Company is actively handling insurance claims and negotiating related compensation losses with these damaged companies. As the assessment of insurance claims and compensation loss involves significant accounting judgments and estimates of the management, including the claim list approved by the insurance company, the assessment of the amount of insurance claims, and the basis for the estimation of damages loss claimed by the affected companies, etc.. Therefore, insurance claims and compensation loss estimates for major disasters is one of the significant evaluations in our audit procedures.

Our audit procedure included:

• ． Review the property insurance contract signed by the Company and the insurance company, and confirm if the inventories, building and equipment damaged by the fire are within the scope of property insurance claims.

• ． Obtain a claim list jointly issued by the insurance company and the insurance notary, and validate it with the list damaged inventories, buildings and equipment provided by the Company. Use the sampling method to cross check the completeness and correctness of the data.

• ． Interview the insurance company and its appointed notary to confirm that the Company did not lose the rights to apply for compensation due to the breach of insurance contracts. Obtain its opinion on the minimum amount of insurance compensation that the Company can collect. Check the accuracy of the accounting records and amounts of insurance claims.

• ． Obtain the opinion of a third-party notary public to evaluate the rationality of the property compensation losses accrual for the neighboring damaged companies.

• ． Obtain the management's estimate of the loss of business interruption of the damaged companies. Carefully evaluate the assumptions and bases used by the Company, and select samples to verify the correctness of the data. Review the accuracy of the accounting records and amounts of compensation losses and provisions.

Other Matter

SCI Pharmtech Inc. has additionally prepared its parent-company-only financial statements as of and for the years ended December 31, 2020 and 2019, on which we have issued an unmodified opinion including an emphasis of matter paragraph.

4-3

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the IFRSs, IASs, IFRIC, SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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

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

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

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

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

4-4

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

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the review resulting in this independent auditors’ report are Kuan-Ying Kuo and Shu-Min Hsu.

KPMG

Taipei, Taiwan (Republic of China) March 24, 2021

Notes to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

The independent auditors’ audit report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors’ audit report and consolidated financial statements, the Chinese version shall prevail.

5

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) SCI PHARMTECH, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2020 and 2019

(expressed in thousands of New Taiwan dollars)

Assets Current assets: 1100 Cash and cash equivalents (note 6(a)) 1110 Current financial assets at fair value through profit or loss (note 6(b)) 1170 Notes and accounts receivable, net (notes 6(d) and 6(q)) 1310 Inventories, net (note 6(e)) 1470 Other current assets (notes 6(f) and 10) Non-current assets: 1510 Non-current financial assets at fair value through profit or loss (note 6(b)) 1518 Non-current financial assets at fair value through other comprehensive income (note 6(c)) 1600 Property, plant and equipment (notes 6(g) and 8) 1755 Right-of-use assets (note 6(h)) 1780 Intangible assets 1840 Deferred tax assets (note 6(n)) 1900 Other non-current assets Total assets	December 31, 2020 Amount % $ 633,029 14 - - 337,749 8 380,879 8 567,154 12 1,918,811 42 667,955 14 85,697 2 1,500,152 33 2,568 - 41,319 1 263,546 6 89,890 2 2,651,127 58 $ 4,569,938 100	December 31, 2019
		Amount % 553,555 13 466,025 11 352,404 9 527,081 13 36,953 1 1,936,018 47 - - 137,329 3 1,876,999 46 2,974 - 47,661 1 57,243 2 23,253 1 2,145,459 53 4,081,477 100

Liabilities and Equity Current liabilities: 2170 Notes and accounts payable 2130 Current contract liabilities (note 6(q)) 2200 Other payables (note 6(j)) 2213 Payables on contractors and equipment 2230 Current tax liabilities 2250 Current provisions (notes 6(l) and 10) 2280 Current lease liabilities (note 6(k)) 2300 Other current liabilities Non-Current liabilities: 2580 Non-current lease liabilities (note 6(k)) 2570 Deferred tax liabilities (note 6(n)) 2640 Provisions for employee benefits, non-current (note 6(m)) Total liabilities Equity attributable to owners of parent (note 6(o)): 3100 Ordinary Share 3200 Capital surplus 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings 3400 Other components of equity Total equity Total liabilities and equity	December 31, 2020		December 31, 2019
	Amount %		Amount %
	$ 80,878 2 97,295 2 188,938 4 21,064 1 127,490 3 595,232 13 1,340 - 9,977 - 1,122,214 25 1,248 - 103,811 2 20,443 - 125,502 2 1,247,716 27 794,853 17 1,348,339 30 390,081 9 - - 818,327 18 (29,378) (1) 3,322,222 73 $ 4,569,938 100		94,302 2 59,092 2 229,830 6 16,605 - 96,671 2 83,957 2 1,795 - 2,012 - 584,264 14 1,197 - - - 21,376 1 22,573 1 606,837 15 794,853 19 1,348,339 33 332,971 8 4,788 - 971,435 24 22,254 1 3,474,640 85 4,081,477 100

See accompanying notes to consolidated financial statements.

6

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) SCI PHARMTECH, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2020 and 2019

(expressed in Thousands of New Taiwan Dollars , except for earnings per common share)

2020 Amount % 4110 Sales revenue (note 6(q)) $ 2,689,222 100 5110 Cost of sales (notes 6(e), 6(m) and 12) 1,414,894 53 5900 Gross profit 1,274,328 47 Operating expenses (notes 6(m) and 12): 6100 Selling expenses 111,927 4 6200 Administrative expenses 68,637 2 6300 Research and development expenses 43,365 2 6450 Impairment loss (impairment gain and reversal of impairment loss) determined in accordance with IFRS 9 (note 6(d)) (1,179) - 222,750 8 6900 Net operating income 1,051,578 39 Non-operating income and expenses: 7190 Other income 13,129 - 7101 Interest income 4,099 - 7235 Gains (losses) on financial assets (liabilities) at fair value through profit or loss (15,707) - 7510 Interest expense (note 6(k)) (43) - 7590 Miscellaneous disbursements (notes 6(s) and 10)) (567,285) (21) 7610 Gains (losses) on disposals of property, plant and equipment 74 - 7630 Foreign exchange gains (losses) (30,630) (1) (596,363) (22) 7900 Profit before tax 455,215 17 7950 Less: Income tax expenses (note 6(n)) 95,091 4 8200 Profit 360,124 13 8300 Other comprehensive income: 8310 Items that may not be reclassified subsequently to profit or loss: 8311 Gains (losses) on remeasurements of defined benefit plans (note 6(m)) 130 - 8316 Unrealized gains (losses) from investments in equity instruments measured at fair value through other comprehensive income (51,632) (2) 8349 Less: Income tax related to components of other comprehensive income that will not be reclassified to profit or loss (note 6(n)) 26 - 8300 Other comprehensive income, net (51,528) (2) 8500 Total comprehensive income $ 308,596 11 Earnings per share (note 6(p)): 9750 Basic earnings per share $ 4.53 9850 Diluted earnings per share $ 4.49	2019
	Amount % 2,355,747 100 1,419,977 60 935,770 40 108,286 4 91,446 4 38,917 2 - - 238,649 10 697,121 30 13,895 - 4,622 - 7,635 - (52) - (470) - (1,623) - (9,968) - 14,039 - 711,160 30 140,059 6 571,101 24 130 - 27,042 1 26 - 27,146 1 598,247 25 7.19
	7.12

See accompanying notes to consolidated financial statements.

7

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) SCI PHARMTECH, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2020 and 2019

(expressed in Thousands of New Taiwan Dollars)

Equity attributable to owners of parent

				Equity attributable to owners of parent	Equity attributable to owners of parent	Equity attributable to owners of parent
Balance at January 1, 2019 Profit for the year ended December 31, 2019 Other comprehensive income for the year ended December 31, 2019 Total comprehensive income for the year ended December 31, 2019 Appropriation and distribution of retained earnings: Legal reserve appropriated Reversal of special reserve Cash dividends of ordinary share Balance at December 31, 2019 Profit for the year ended December 31, 2020 Other comprehensive income for the year ended December 31, 2020 Total comprehensive income for the year ended December 31, 2020 Appropriation and distribution of retained earnings: Legal reserve appropriated Reversal of special reserve Cash dividends of ordinary share Balance at December 31, 2020	Ordinary shares	Capital surplus		Retained earnings
				Legal reserve	Special reserve Unappropriated retained earnings
	$ 794,853 - - - - - - 794,853 - - - - - - $ 794,853	1,348,339		288,248 - - - 44,723 - - 332,971 - - - 57,110 - - 390,081	7,727 - - - - (2,939) - 4,788 - - - - (4,788) - -	775,852
		- -				571,101 104
		-				571,205
		- - -
		1,348,339 - -
		-
		- - -
		1,348,339

See accompanying notes to consolidated financial statements.

8

(English Translation of Consolidated Financial Statements Originally Issued in Chinese)

SCI PHARMTECH, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2020 and 2019

(expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) operating activities: Profit before tax Adjustments for: Adjustments to reconcile profit (loss): Depreciation expense Amortization expense Expected credit loss (gain) Net loss (gain) on financial assets or liabilities at fair value through profit or loss Interest expense Interest income Losses due to major disasters Loss (gain) from disposal of property, plant and equipment and others Total adjustments to reconcile profit Changes in operating assets and liabilities: Decrease (increase) in notes and accounts receivable Decrease (increase) in inventories Decrease (increase) in other current assets Increase (decrease) in contract liabilities Increase (decrease) in notes and accounts payable Increase (decrease) in other payable Increase (decrease) in provisions Increase (decrease) in other current liabilities Increase (decrease) in provision for employee benefits , non-current Total changes in operating assets and liabilities Total adjustments Cash flow from (used in) operations Interest received Interest paid Income taxes paid Net cash flows from (used in) operating activities Cash flows from (used in) investing activities: Acquisition of financial assets at fair value through other comprehensive income 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 property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease (increase) in refundable deposits Acquisition of intangible assets Increase in prepayments of property, plant and equipment Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Payment of lease liabilities Cash dividends paid Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

See accompanying notes to consolidated financial statements.

9

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) SCI PHARMTECH, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

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

(1) Company history

SCI Pharmtech, Inc. (the “Company”) was incorporated in September 18, 1987 as a company limited by shares and registered under the Ministry of Economic Affairs, R.O.C. The major business activities of the Company are the research and development, manufacture and sale of Active Pharmaceutical Ingredients (“ API” ), Intermediates, specialty chemicals. The consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the “Group” and individually as the “ Group entities”). Please refer to note 4(c)(ii) for related information of the Group primarily business activities. Mercuries & Associates, Holding Ltd. is the parent company of the Company.

(2) Approval date and procedures of the consolidated financial statements

These consolidated financial statements were authorized for issuance by the Board of Directors on March 24, 2021.

(3) New standards, amendments and interpretations adopted:

• (a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.

The Group has initially adopted the following new amendments, which do not have a significant impact on its consolidated financial statements, from January 1, 2020:

• ●Amendments to IFRS 3 “Definition of a Business”

• ●Amendments to IFRS 9, IAS39 and IFRS7 “Interest Rate Benchmark Reform”

• ●Amendments to IAS 1 and IAS 8 “Definition of Material”

• ●Amendments to IFRS 16 “COVID-19-Related Rent Concessions”

• (b) The impact of IFRS issued by the FSC but not yet effective

The Group assesses that the adoption of the following new amendments, effective for annual period beginning on January 1, 2021, would not have a significant impact on its consolidated financial statements:

• ●Amendments to IFRS 4 “Extension of the Temporary Exemption from Applying IFRS 9”

• －

• ●Amendments to IFRS 9, IAS39, IFRS7, IFRS 4 and IFRS 16 “Interest Rate Benchmark Reform Phase 2”

(Continued)

10

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (c) The impact of IFRS issued by IASB but not yet endorsed by the FSC

The following new and amended standards, which may be relevant to the Group, have been issued by the International Accounting Standards Board (IASB), but have yet to be endorsed by the FSC:

Standards or Interpretations Amendments to IAS 1 “Classification of Liabilities as Current or Non-current”

Content of amendment Effective date per IASB The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of balance sheet, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a company might settle by converting it into equity. January 1, 2023

The Group is evaluating the impact of its initial adoption of the abovementioned standards or interpretations on its consolidated financial position and consolidated financial performance. The results thereof will be disclosed when the Group completes its evaluation.

The Group does not expect the following other new and amended standards, which have yet to be endorsed by the FSC, to have a significant impact on its consolidated financial statements:

• ●Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture”

• ●IFRS 17 “ Insurance Contracts” and amendments to IFRS 17 “ Insurance Contracts”

• －

• ●Amendments to IAS 16 “Property, Plant and Equipmentt Proceeds before Intended Use”

• －

• ●Amendments to IAS 37 “Onerous Contracts Cost of Fulfilling a Contract”

• ●Annual Improvements to IFRS Standards 2018-2020

• ●Amendments to IFRS 3 “Reference to the Conceptual Framework”

• ●Amendments to IAS 1 “Disclosure of Accounting Policies”

• ●Amendments to IAS 8 “Definition of Accounting Estimates”

(4) Summary of significant accounting policies:

The significant accounting policies presented in the consolidated financial statements are summarized as follows. Except for those specifically indicated, the following accounting policies were applied consistently throughout the periods presented in the consolidated financial statements.

(Continued)

11

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as “the Regulations” ) and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations endorsed and issued into effect by the Financial Supervisory Commission, R.O.C.

(b) Basis of preparation

• (i) Basis of measurement

Except for the following significant accounts, the consolidated financial statements have been prepared on a historical cost basis:

• 1) Financial instruments at fair value through profit or loss are measured at fair value;

• 2) Financial assets at fair value through other comprehensive income are measured at fair value;

• 3) The defined benefit liabilities (assets) are measured at fair value of the plan assets less the present value of the defined benefit obligation, limited as explained in note 4(o).

• (ii) Functional and presentation currency

The functional currency of each Group entity is determined based on the primary economic environment in which the entity operates. The consolidated financial statements are presented in New Taiwan Dollar (NTD), which is the Company’ s functional currency. All financial information presented in NTD has been rounded to the nearest thousand.

• (c) Basis of Consolidation

• (i) Principles of preparation of the consolidated financial statements

The consolidated financial statements comprise the Company and subsidiaries. Subsidiaries are entities controlled by the Group. The Group ‘controls’ an entity when it is exposed to, 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.

The financial statements of the subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Intragroup balances and transactions, and any unrealized income and expenses arising from Intragroup transactions are eliminated in preparing the consolidated financial statements. The Group attributes the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests, even if this results in the noncontrolling interests having a deficit balance.

(Continued)

12

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group prepares consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances. Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control 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 will be recognized directly in equity, and the Group will attribute it to the owners of the parent.

• (ii) List of subsidiaries in the consolidated financial statements.

Name of investor	Name of subsidiary	Principal activity Investment The research and development, manufacture and sale of API The research and development, manufacture and sale of API	Shareholding December 31, 2020 December 31, 2019 Note % - % - Note 1 % 100.00 % 100.00 Note 2 % - % - Note 2	Shareholding December 31, 2020 December 31, 2019 Note % - % - Note 1 % 100.00 % 100.00 Note 2 % - % - Note 2
			December 31, 2020 % - % 100.00 % -
The Company The Company Yushan Holding Universal Ltd.	Yushan Holding Universal Ltd. Yushan Pharmaceuticals Inc. (Yushan) Yushan			% - Note 1 % 100.00 Note 2 % - Note 2

Note 1: Yushan Holding Universal Ltd. completed liquidation procedure in May 2019.

Note 2: Yushan was a subsidiary of Yushan Holding Universal Ltd.. Since April 2019, Yushan has become a subsidiary of the Company due to the Group's adjustment of organization structure.

(d) Foreign currencies

Transactions in foreign currencies are translated into the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. At the end of each subsequent reporting period, monetary items denominated in foreign currencies are translated into the functional currencies using the exchange rate at that date. Non-monetary items denominated in foreign currencies that are measured at fair value are translated into the functional currencies using the exchange rate at the date that the fair value was determined. Non monetary items denominated in foreign currencies that are measured based on historical cost are translated using the exchange rate at the date of the transaction.

Exchange differences are generally recognized in profit or loss, except for those differences relating to the following, which are recognized in other comprehensive income:

• (i) an investment in equity securities designated as at fair value through other comprehensive income;

• (ii) a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or

• (iii) qualifying cash flow hedges to the extent that the hedges are effective.

(Continued)

13

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (e) Classification of current and non-current assets and liabilities

An asset is classified as current under one of the following criteria, and all other assets are classified as non-current.

• (i) It is expected to be realized, or intended to be sold or consumed, in the normal operating cycle;

• (ii) It is held primarily for the purpose of trading;

• (iii) It is expected to be realized within twelve months after the reporting period; or

• (iv) The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

A liability is classified as current under one of the following criteria, and all other liabilities are classified as non-current.

An entity shall classify a liability as current when:

• (i) It is expected to be settled in the normal operating cycle;

• (ii) It is held primarily for the purpose of trading;

• (iii) It is due to be settled within twelve months after the reporting period; or

• (iv) The Group does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by issuing equity instruments do not affect its classification.

(f) Cash and cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Time deposits which meet the above definition and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes should be recognized as cash equivalents.

(g) Financial instruments

Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(Continued)

14

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(i) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

On initial recognition, a financial asset is classified as measured at: amortized cost; Fair value through other comprehensive income (FVOCI) – equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

• 1) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

• ‧ it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• ‧ its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

These assets are subsequently measured at amortized cost, which is the amount at which the financial asset is measured at initial recognition, plus/minus, the cumulative amortization using the effective interest method, adjusted for any loss allowance. Interest income, foreign exchange gains and losses, as well as impairment, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

• 2) Fair value through other comprehensive income (FVOCI)

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

• ‧ it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

• ‧ its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis.

Debt investments at FVOCI are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in other comprehensive income. On derecognition, gains and losses accumulated in other comprehensive income are reclassified to profit or loss.

(Continued)

15

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Equity investments at FVOCI are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in other comprehensive income and are never reclassified to profit or loss.

Dividend income is recognized in profit or loss on the date on which the Group’s right to receive payment is established.

3) Fair value through profit or loss (FVTPL)

All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

• 4) Impairment of financial assets

The Group recognizes loss allowances for expected credit losses (ECL) on financial assets measured at amortized cost (including cash and cash equivalents, amortized costs, notes and trade receivables, other receivable, guarantee deposit paid and other financial assets), debt investments measured at FVOCI and contract assets.

The Group measures loss allowances at an amount equal to lifetime ECL, except for the following which are measured as 12-month ECL:

• ‧ debt securities that are determined to have low credit risk at the reporting date; and

• ‧ other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.

Lifetime ECL are the ECL that result from all possible default events over the expected life of a financial instrument.

12-month ECL are the portion of ECL that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECL is the maximum contractual period over which the Group is exposed to credit risk.

(Continued)

16

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group’s historical experience and informed credit assessment as well as forward-looking information.

The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher per Taiwan Ratings’.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The Group considers a financial asset to be in default when the financial asset is more than 90 days past due or the debtor is unlikely to pay its credit obligations to the Group in full.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECL are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘ creditimpaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is credit-impaired includes the following observable data:

• ‧ significant financial difficulty of the borrower or issuer;

• ‧ a breach of contract such as a default or being more than 90 days past due;

• ‧ the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider;

• ‧ it is probable that the borrower will enter bankruptcy or other financial reorganization; or

• ‧ the disappearance of an active market for a security because of financial difficulties.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charge to profit or loss and is recognized in other comprehensive income instead of reducing the carrying amount of the asset.

(Continued)

17

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

5) Derecognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group enters into transactions whereby it transfers assets recognized in its statement of balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.

• (ii) Financial liabilities and equity instruments

1) Classification of debt or equity

Debt and equity instruments issued by the Group are classified as financial liabilities or equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

2) Equity instrument

An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued are recognized as the amount of consideration received, less the direct cost of issuing.

3) Financial liabilities

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

(Continued)

18

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

4) Derecognition of financial liabilities

The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

On derecognition of a financial liability, the difference between the carrying amount of a financial liability extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

5) Offsetting of financial assets and liabilities

Financial assets and financial liabilities are offset and the net amount presented in the statement of balance sheet when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

(h) Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is calculated using the weighted average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their present location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

• (i) Property, plant and equipment

• (i) Recognition and measurement

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

If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.

(ii) Subsequent expenditure

Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.

(Continued)

19

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Depreciation

Depreciation is calculated on the cost of an asset less its residual value and is recognized in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment.

Land is not depreciated.

The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:

• 1) Buildings: 2 ~ 55 years

• 2) Machinery: 3 ~15 years

• 3) Other equipment: 3 ~ 15 years

Building and equipment constitutes mainly building, mechanical and electrical power equipment and its related facilities. Each such part depreciates based on its useful life.

Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted if appropriate.

• (j) Lease

• (i) Identifying a lease

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:

• 1) the contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; and

• 2) the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and

• 3) the Group has the right to direct the use of the asset throughout the period of use only if either:

• The Group has the right to direct how and for what purpose the asset is used throughout the period use; or

(Continued)

20

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• the relevant decisions about how and for what purpose the asset is used are predetermined and:

• － the Group has the right to operate the asset throughout the period of use, without the supplier having the right to change those operating instructions; or

• － the Group designed the asset in a way that predetermines how and for what purpose it will be used throughout the period of use.

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

(ii) As a lessee

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be reliably determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise the following:

• 1) fixed payments, including in-substance fixed payments;

• 2) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• 3) amounts expected to be payable under a residual value guarantee; and

• 4) payments or penalties for purchase or termination options that are reasonably certain to be exercised.

(Continued)

21

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when:

• 1) there is a change in future lease payments arising from the change in an index or rate; or

• 2) there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee; or

• 3) there is a change in the lease term resulting from a change of its assessment on whether it will exercise an option to purchase the underlying assets, or

• 4) there is a change of its assessment on whether it will exercise a extension or termination option; or

• 5) there is any lease modifications in lease subject, scope of the lease or other terms.

When the lease liability is remeasured, other than lease modifications, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or in profit and loss if the carrying amount of the right-of-use asset has been reduced to zero.

When the lease liability is remeasured to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease, the Group accounts for the remeasurement of the lease liability by decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, and recognize in profit or loss any gain or loss relating to the partial or full termination of the lease.

The Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases of assets that have a lease term of 12 months or less and leases of low-value assets. The Group recognizes the lease payments associated with these leases as an expense on a straightline basis over the lease term.

(k) Intangible assets

• (i) Other intangible assets

Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.

(ii) Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

(Continued)

22

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Amortization

Amortization is calculated over the cost of the asset, less its residual value, and is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, from the date that they are available for use.

The estimated useful lives of computer software is 6~11 years.

Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

(l) Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax asset) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.

Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(m) Provisions

A provision is recognized if, as a result of a past event, the Group has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

(Continued)

23

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(n) Revenue from contracts with customers

Revenue is measured based on the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer. The Group recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Group’s main types of revenue are explained below.

(i) Sale of goods

The Group recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.

A receivable is recognized when the goods are delivered as this is the point in time that the Group has a right to an amount of consideration that is unconditional.

(ii) Financing components

The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

(o) Employee benefits

(i) Defined contribution plans

Obligations for contributions to defined contribution plans are expensed as the related service is provided.

(ii) Defined benefit plans

The Group’s net obligation in respect of defined benefit plans is calculate by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of plan assets.

The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

(Continued)

24

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income, and accumulated in retained earnings within equity. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset). Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

• (iii) Termination benefits

Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.

(iv) Short-term employee benefits

Short-term employee benefits are expensed as the relat4ed service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(p) Income taxes

Income taxes comprise current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes are recognized in profit or loss.

The Group has determined that interest and penalties related to income taxes, including uncertain tax treatment, do not meet the definition of income taxes, and therefore accounted for them under IAS37.

Current taxes comprise the expected tax payables or receivables on the taxable profits (losses) for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payables or receivables are the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date.

(Continued)

25

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes are recognized except for the following:

• (i) temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profits (losses) at the time of the transaction;

• (ii) temporary differences related to investments in subsidiaries and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

• (iii) taxable temporary differences arising on the initial recognition of goodwill.

Deferred taxes are measured at tax rates that are expected to be applied to temporary differences when they reserve, using tax rates enacted or substantively enacted at the reporting date, and reflect uncertainty related to income taxes, if any.

Deferred tax assets and liabilities are offset if the following criteria are met:

• (i) The Group has a legally enforceable right to set off current tax assets against current tax liabilites; and

• (ii) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:

• 1) the same taxable entity; or

• 2) different taxable entities which intend to settle current tax assets and liabilities on a net basis, or to realize the assets and liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Deferred tax assets are recognized for the carry-forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefits will be realized; such reductions are reversed when the probability of future taxable profits improves.

(q) Earnings per share

The Group discloses the Company’s basic and diluted earnings per share attributable to ordinary shareholders of the Company. Basic earnings per share is calculated as the profit attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares outstanding. Diluted earnings per share is calculated as the profit attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares outstanding after adjustment for the effects of all potentially dilutive ordinary shares. Dilutive potential ordinary shares comprise convertible bond, employee stock options, remuneration to employees not yet approved by the Board of directors, and restricted employee shares.

(Continued)

26

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(r) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group). Operating results of the operating segment are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Each operating segment consists of standalone financial information.

(5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty:

The preparation of the consolidated financial statements in conformity with the Regulations and the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates.

The management continues to monitor the accounting estimates and assumptions. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the following period.

There are no critical judgments in applying the accounting policies that have significant effects on the amounts recognized in the consolidated financial statements.

Besides, for those uncertainties due to accounting assumptions and estimations, information about the significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year is as follows. Those assumptions and estimation have been updated to reflect the impact at COVID-19 pandemic:

(a) Inventory valuation

Inventories are measured at the lower of cost or net realizable value. The Group writes down the cost of inventories to net realizable value since the inventories at reporting date were estimated to be obsolescence and unmarketable items. The inventory valuation is based on the demand of the products within a specific period. Therefore, the value of inventories will vary significantly variable. Please refer to note (6)(e) of the financial statement for inventory valuation.

• (b) Insurance claims and disaster indemnity estimates for major disaster

• (i) The Company has entered into property insurance contracts based on the replacement cost. Due to the highly uncertainty of the actual compensation income, the Company recognizes the compensation income when the income is virtually certain to be received. The final compensation income may be materially different from the estimated amount.

• (ii) The fire disaster spread to several nearby factories, of which property was impaired. The damage indemnity is based on:

  • ． the available information that the third-party notary public can provide through its survey and investigations,

  • ． the scale of each factory

  • ． the average financial ratio of the comparable listed companies,

  • ．the estimation of the financial information of each factories.

(Continued)

27

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

However, the damage indemnity requires further negotiation, and there are material uncertainties. The final damage indemnity may be materially different from the estimated amount.

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

Cash on hand Checking accounts and demand deposits Time deposits Bills sold under repurchase agreements	December 31, 2020 $ 592 283,291 127,505 221,641 $ 633,029	December 31, 2019
		535 223,273 207,580 122,167
		553,555

(i) The Group did not provide cash and cash equivalents as collateral for its loans.

• (ii) Please refer to note 6(t) for the interest rate risk and sensitivity analysis of the financial assets and liabilities of the Group.

• (b) Financial assets at fair value through profit or loss

Mandatorily measured at fair value through profit or loss: Non-derivative financial assets Beneficiary certificate Stocks listed on domestic markets Total Current Non-current	December 31, 2020 $ 417,065 250,890 $ 667,955 $ - $ 667,955	December 31, 2019
		237,529 228,496
		466,025
		466,025
		-

The Group reassessed the purpose of holding the aforementioned financial assets and reclassified them under non-current assets from current assets on September 30, 2020.

The Group did not provide any aforementioned financial assets as collateral for its loans as of December 31, 2020 and 2019, respectively.

(c) Financial asset at fair value through other comprehensive income, non-current:

Financial assets at fair value through other comprehensive income: Emerging stocks and unlisted stocks in domestic markets	December 31, 2020 $ 85,697	December 31, 2019
		137,329

(Continued)

28

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group designated the investments shown above as equity securities as at fair value through other comprehensive income because these equity securities represent those investments that the Group intends to hold for long-term for strategic purposes.

In June 2019, the Group participated in the capital increase by cash of Energenesis Biomedical Co., Ltd. (Energenesis) with the amount of $14,994. Furthermore, the Group purchased Energenesis' privately placed common shares amounting to $19,997 in November 2019, resulting in the Group to obtain Energenesis' ownership interest of 2.44% as of December 31, 2020.

No strategic investments were disposed for the years ended December 31, 2020 and 2019, and there were no transfers of any cumulative gain or loss within equity relating to these investments.

Please refer to note 6(t) for market risk of the Group.

As of December 31, 2020 and 2019, the Group did not provide any aforementioned financial assets as collateral for its loans.

• (d) Notes and accounts receivable

December 31, 2020 December 31, 2019 Notes receivable $ 99 19 Accounts receivable 337,650 353,564 Less: Loss allowance - (1,179) $ 337,749 352,404 The Group applies the simplified approach to provide for its expected credit losses, i.e. the use o lifetime expected loss provision for all receivables, as well as incorporated forward looking information, including the reasonable prediction of historical credit loss experience and future economic situation (macroeconomic and relevant industry information). The loss allowance provision was determined as follows: December 31, 2020 Gross carrying amount Rate of loss allowance provision Loss allowance provision Current $ 211,365 - - 1 to 30 days past due 106,352 - - 31 to 60 days past due 19,739 - - 61 to 90 days past due 293 - - 91 to 180 days past due - - - 181 to 270 days past due - - - 271 to 360 days past due - - - More than 360 days past due - % 100 - $ 337,749 -	December 31, 2020 December 31, 2019 Notes receivable $ 99 19 Accounts receivable 337,650 353,564 Less: Loss allowance - (1,179) $ 337,749 352,404 The Group applies the simplified approach to provide for its expected credit losses, i.e. the use o lifetime expected loss provision for all receivables, as well as incorporated forward looking information, including the reasonable prediction of historical credit loss experience and future economic situation (macroeconomic and relevant industry information). The loss allowance provision was determined as follows: December 31, 2020 Gross carrying amount Rate of loss allowance provision Loss allowance provision Current $ 211,365 - - 1 to 30 days past due 106,352 - - 31 to 60 days past due 19,739 - - 61 to 90 days past due 293 - - 91 to 180 days past due - - - 181 to 270 days past due - - - 271 to 360 days past due - - - More than 360 days past due - % 100 - $ 337,749 -	December 31, 2020 December 31, 2019 Notes receivable $ 99 19 Accounts receivable 337,650 353,564 Less: Loss allowance - (1,179) $ 337,749 352,404 The Group applies the simplified approach to provide for its expected credit losses, i.e. the use o lifetime expected loss provision for all receivables, as well as incorporated forward looking information, including the reasonable prediction of historical credit loss experience and future economic situation (macroeconomic and relevant industry information). The loss allowance provision was determined as follows: December 31, 2020 Gross carrying amount Rate of loss allowance provision Loss allowance provision Current $ 211,365 - - 1 to 30 days past due 106,352 - - 31 to 60 days past due 19,739 - - 61 to 90 days past due 293 - - 91 to 180 days past due - - - 181 to 270 days past due - - - 271 to 360 days past due - - - More than 360 days past due - % 100 - $ 337,749 -	December 31, 2020 December 31, 2019 Notes receivable $ 99 19 Accounts receivable 337,650 353,564 Less: Loss allowance - (1,179) $ 337,749 352,404 The Group applies the simplified approach to provide for its expected credit losses, i.e. the use o lifetime expected loss provision for all receivables, as well as incorporated forward looking information, including the reasonable prediction of historical credit loss experience and future economic situation (macroeconomic and relevant industry information). The loss allowance provision was determined as follows: December 31, 2020 Gross carrying amount Rate of loss allowance provision Loss allowance provision Current $ 211,365 - - 1 to 30 days past due 106,352 - - 31 to 60 days past due 19,739 - - 61 to 90 days past due 293 - - 91 to 180 days past due - - - 181 to 270 days past due - - - 271 to 360 days past due - - - More than 360 days past due - % 100 - $ 337,749 -
	Gross carrying amount $ 211,365 106,352 19,739 293 - - - - $ 337,749	Rate of loss allowance provision - - - - - - - % 100	Loss allowance provision
			- - - - - - - -
			-

The Group applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables, as well as incorporated forward looking information, including the reasonable prediction of historical credit loss experience and future economic situation (macroeconomic and relevant industry information). The loss allowance provision was determined as follows:

(Continued)

29

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2019 Gross carrying amount Rate of loss allowance provision Current $ 306,855 - 1 to 30 days past due 38,822 - 31 to 60 days past due 6,714 - 61 to 90 days past due - - 91 to 180 days past due - - 181 to 270 days past due 13 - 271 to 360 days past due - - More than 360 days past due 1,179 % 100 $ 353,583 The movement in the allowance for notes and trade receivable was as follows: 2020 Balance at January 1 $ 1,179 Impairment losses reversed (1,179) Balance at December 31 $ -	December 31, 2019	December 31, 2019
	Gross carrying amount	Rate of loss allowance provision - - - - - - - % 100 was as follows: 2020 $ 1,179 (1,179) $ -	Loss allowance provision
			- - - - - - - 1,179
			1,179
			2019
			1,179 -
			1,179

As of December 31, 2020 and 2019, the Group did not provide any aforementioned notes and accounts receivable as collaterals for its loans.

(e) Inventories

Inventories
Raw materials Work in progress Finished goods	December 31, 2020 $ 116,984 16,322 247,573 $ 380,879	December 31, 2019
		106,971 103,055 317,055
		527,081

For the years ended December 31, 2020 and 2019, inventory cost recognized as cost of sales amounting to $1,439,109 and $1,409,304, respectively.

The write-down of inventories to net realizable value were recorded as cost of sales. Furthermore, the Group reversed the allowance for inventory valuation loss and obsolescence because the net realizable value was no longer lower than the cost after the disasters and the disposal of obsolete inventories. The details are as following:

inventories. The details are as following:
The write-downs (reversals)	2020 $ (24,215)	2019
		10,673

(Continued)

30

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

In 2020, the Company derecognized the inventories in fire damage amounting to $175,565, which are recorded under the losses due to disasters (miscellaneous disbursements). Please refer to note 6(s) and note 10 for the details.

As of December 31, 2020 and 2019, the Group did not provide any inventories as collaterals for its loans.

• (f) Other current assets

Insurance claim receivable Prepayments to suppliers Others	December 31, 2020 $ 519,057 26,876 21,221 $ 567,154	December 31, 2019
		- 19,310 17,643
		36,953

• (g) Property, plant and equipment

The cost, depreciation, and impairment of the property, plant and equipment of the Group for the years ended December 31, 2020 and 2019 were as follows:

Cost: Balance on January 1, 2020 Additions Transferred (out) in Disposal and derecognitions Balance on December 31, 2020 Balance on January 1, 2019 Additions Transferred (out) in Disposal and derecognitions Balance on December 31, 2019 Depreciation and impairments loss: Balance on January 1, 2020 Depreciation for the year Transferred (out) in Disposals and derecognitions Balance on December 31, 2020	Land	Buildings and construction	Buildings and construction	Machinery and equipment	Machinery and equipment		Office equipment		Others equipment		Prepayment for equipment and construction in progress 168,428 108,624 (7,130) (47,209) 222,713 138,178 52,666 (22,416) - 168,428 - - - - -	Total 3,458,826 136,669 11,080 (1,414,892) 2,191,683 3,406,056 116,128 7,482 (70,840) 3,458,826 1,581,827 125,461 (2,052) (1,013,705) 691,531
	$ 825,680 - - - $ 825,680 $ 825,680 - - - $ 825,680 $ - - - - $ -		737,842 7,065 2,130 (193,516) 553,521 700,219 26,927 21,594 (10,898) 737,842 334,054 31,420 - (117,472) 248,002		1,667,500 19,447 17,524 (1,160,587) 543,884 1,683,172 34,384 7,533 (57,589) 1,667,500 1,219,926 88,377 - (887,579) 420,724		40,656 1,533 (1,444) (7,828) 32,917 42,658 351 - (2,353) 40,656 20,099 4,102 (2,052) (4,186) 17,963		18,720 - - (5,752) 12,968 16,149 1,800 771 - 18,720 7,748 1,562 - (4,468) 4,842

(Continued)

31

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Balance on January 1, 2019 Depreciation for the year Disposals and derecognitions Balance on December 31, 2019 Carrying amounts: Balance on December 31, 2020 Balance on January 1, 2019 Balance on December 31, 2019	Land	Buildings and construction	Buildings and construction	Machinery and equipment	Machinery and equipment		Office equipment		Others equipment		Prepayment for equipment and construction in progress - - - - 222,713 138,178 168,428	Total 1,521,892 129,152 (69,217) 1,581,827 1,500,152 1,884,164 1,876,999
	$ - - - $ - $ 825,680 $ 825,680 $ 825,680		314,702 30,250 (10,898) 334,054 305,519 385,517 403,788		1,182,640 93,252 (55,966) 1,219,926 123,160 500,532 447,574		18,474 3,978 (2,353) 20,099 14,954 24,184 20,557		6,076 1,672 -
									7,748
									8,126
									10,073
									10,972

In May 2013, the Group purchased a piece of land for the construction of its factory in Taoyuan Luzhu that was auctioned by the court at a price of $211,184. The amount had been paid in full, and the transfer procedures have been completed. The title deed of a certain portion of the land, measuring 2,259 square meters, was given to Mr. Weichyun Wong due to certain legal requirements. However, both parties agreed that the Group is the actual owner of the land.

In 2020, the Company derecognized some part of property, plant and equipment in fire damage amounting to $401,187, which were recorded under the losses due to disasters(miscellaneous disbursements). Please refer to note 6(s) and note 10 for the details.

As of December 31, 2020 and 2019, part of the property, plant and equipment the Group had provided at collateral for its loans. Please refer to note 8 for details.

(h) Right-of-use assets

The Group leases many assets including company cars and copy machines. Information about leases for which the Group as a lessee is presented below:

Cost: Balance on January 1, 2020 Additions Reductions Balance on December 31, 2020 Balance on January 1, 2019 Additions Reductions Balance on December 31, 2019	Amount $ 4,747 1,662 (752) $ 5,657 $ 4,113 868 (234) $ 4,747

(Continued)

32

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Accumulated depreciation: Balance on January 1, 2020 Depreciation for the year Reductions Balance on December 31, 2020 Balance on January 1, 2019 Depreciation for the year Reductions Balance on December 31, 2019 Carrying amount: Balance on December 31, 2020 Balance on January 1, 2019 Balance on December 31, 2019	Amount $ 1,773 2,049 (733) $ 3,089 $ - 1,929 (156) $ 1,773 $ 2,568 $ 4,113 $ 2,974

(i) Short-term borrowings

The details of short-term borrowings were as following:

Unsecured bank loans Unused credit line for short-term borrowings Range of interest rates	December 31, 2020 $ - $ 338,989 -	December 31, 2019
		-
		341,212
		-

Please refer to note 8 for the details of property, plant and equipment as collateral for its loans.

Please refer to note 6(t) for the information of interest risk, foreign currency risk and liquidity risk.

(j) Other payables

Salaries payable Others	December 31, 2020 $ 118,602 70,336 $ 188,938	December 31, 2019
		152,767 77,063
		229,830

(k) Lease liabilities

The carrying amount of lease liabilities was as follows:

Current Non-current	December 31, 2020 $ 1,340 $ 1,248	December 31, 2019
		1,795
		1,197

(Continued)

33

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Please refer to note 6(t) for maturity analysis.

2020 The amounts recognized in profit or loss were as follows: Interest on lease liabilities $ 43 Expenses relating to short-term leases $ 1,662 Variable lease payments not included in the measurement of lease liabilities $ 546 Expense relating to leases of low-value assets, excluding short-term leases of low-value assets $ 259 Profits from the change of the lease (recorded as other income) $ - The amounts recognized in the statement of cash flows for the Group were as follows: Total cash outflow for leases $ 4,557	2020	2019 52 1,412 300 19 (1) 3,693

The Group leases company cars and copy machines: The leases typically run for a period of three to six years.

The Group also leases vehicles and office equipment with contract terms of less than one year. These leases are short-term or leases of low-value items. The Group has elected not to recognize right-ofuse assets and lease liabilities for these leases.

(l) Provisions

Balance at January 1, 2020 Provisions made during the year Provisions used during the year Balance at December 31, 2020 Balance at January 1, 2019 Provisions made during the year Provisions used during the year Balance at December 31,2019	Environmental protection costs		Fire Disaster Indemnity - 509,076 - 509,076 - - - -	Total 83,957 579,746 (68,471) 595,232 76,501 79,326 (71,870) 83,957

• (i) In 2020 and 2019, the provisions were recognized for the treatment of liquid waste in accordance with the Standards of Environmental Protection Administration; the amount of provisions were estimated at quantity and cost of the treatment of liquid waste. The Group considers to write off and recognize the said provisions in the following year.

• (ii) In 2020, the Group estimated the fire disaster indemnity amounting to $509,076 due to fire spreading to the nearby factories. Please refer to note 6(s) and note 10 for the details.

(Continued)

34

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(m) Employee benefits

(i) Defined benefit plans

Reconciliation of the defined benefit obligation at present value and plan assets at fair value are as follows:

Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities	December 31, 2020 $ (85,075) 64,632 $ (20,443)	December 31, 2019 (87,066) 65,690 (21,376)

The Company makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pensions for its employees upon retirement. The plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on the years of service and average monthly salary for the six months prior to retirement.

1) Composition of plan assets

The Company allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Bureau of Labor Funds, Ministry of Labor. With regard to the utilization of the funds, minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from two-year time deposits with interest rates offered by the local banks.

The Company’ s Bank of Taiwan labor pension reserve account balance amounted to $64,114 at the end of the reporting period. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

• 2) Movements in present value of the defined benefit obligations

The movements in present value of defined benefit obligations for the Company were as follows:

Defined benefit obligation at January 1 Current service costs and interest Remeasurement in net defined benefit liability (assets) Benefits paid Defined benefit obligation at December 31	2020 $ (87,066) (1,778) (2,012) 5,781 $ (85,075)	2019 (82,812) (2,150) (2,104) - (87,066)

(Continued)

35

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• 3) Movements of defined benefit plan assets

The movements in the present value of the defined benefit plan assets for the Company were as follows:

Fair value of plan assets at January 1 Contributions made Interest income Remeasurement in net defined benefit liability (assets) Benefits paid Fair value of plan assets at December 31	2020 $ 65,690 2,123 459 2,141 (5,781) $ 64,632	2019
		60,722 2,149 585 2,234 -
		65,690

• 4) Movements of the effect of the asset ceiling

In 2020 and 2019, there were no movements on the effect of the Company's defined benefit plans asset ceiling.

• 5) Expenses recognized in profit or loss

The expenses recognized in profit or loss for the Company were as follows:

Service cost Net interest of net liabilities for defined benefit obligations Operating cost Operating expenses	2020 $ 1,178 141 $ 1,319 $ 1,259 60 $ 1,319	2019
		1,356 209
		1,565
		1,564 1
		1,565

• 6) Remeasurement in net defined benefit liability (asset) recognized in other comprehensive income

The Company’s remeasurement of the net defined benefit liability (assets) recognized in other comprehensive income for the years ended December 31, 2020 and 2019 was as follows:

Cumulative amount at January 1 Recognized during the year Cumulative amount at December 31	2020 $ 7,894 (130) $ 7,764	2019 8,024 (130) 7,894

(Continued)

36

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• 7) Actuarial assumptions

The principal actuarial assumptions at the reporting date were as follows:

Discount rate as of December 31 Future salary increasing rate	December 31, 2020 December 31, 2019 % 0.30 % 0.70 % 1.50 % 1.50

The expected allocation payment to be made by the Company to the defined benefit plans for the one-year period after the reporting date is $2,305.

The weighted-average duration of the defined benefit obligation is 7 years.

• 8) Sensitivity analysis

If the actuarial assumptions had changed, the impact on the present value of the defined benefit obligation shall be as follows:

benefit obligation shall be as follows:
		The impact on the	present value of
		the defined benefit obligation
		Increased 0.25%	Decreased 0.25%
As of December 31, 2020
Discount rate	$	(1,594)	1,644
Future salary increasing rate		1,621	(1,579)
As of December 31, 2019
Discount rate		(1,698)	1,753
Future salary increasing rate		1,735	1,689

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions remain constant, would have affected the defined benefit obligation by the amounts shown above. The method used in the sensitivity analysis is consistent with the calculation of the pension liabilities in the balance sheets.

There is no change in the method and assumptions used in the preparation of sensitivity analysis for 2020 and 2019.

(ii) Defined contribution plans

The Group allocates 6% of each employee’ s monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under this defined contribution plan, the Group allocates a fixed amount to the Bureau of Labor Insurance without additional legal or constructive obligations.

(Continued)

37

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group recognized the pension costs under the defined contribution method amounting to $7,076 and $6,769 for the years ended December 31, 2020 and 2019, respectively. Payment was made to the Bureau of Labor Insurance.

(n) Income taxes

(i) Income tax expenses

The amount of income tax for the years ended December 31, 2020 and 2019, was as follows:

Current income tax expense Recognized during the year Surtax on unappropriated earnings Income tax estimate under (over) Deferred income tax expense Recognition and reversal of temporary differences Income tax underestimate (overestimate) for prior years Income tax expense	2020 $ 197,199 2,893 (2,483) 197,609 (104,064) 1,546 (102,518) $ 95,091	2019 145,929 - 214 146,143 (6,084) - (6,084) 140,059

The amount of income tax recognized in other comprehensive income for 2020 and 2019 was as follows:

Items that will not be reclassified subsequently to profit or loss: Remeasurement in defined benefit plan	2020 $ 26	2019 26

Reconciliation of income tax and profit before tax for 2020 and 2019 is as follows:

Profit excluding income tax Income tax using the Company’s domestic tax rate Under (over) provision in prior periods Surtax on unappropriated earnings Other	2020 $ 455,215 91,043 (937) 2,893 2,092 $ 95,091	2019 711,160 142,232 214 - (2,387) 140,059

(Continued)

38

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Deferred tax assets and liabilities

• 1) Unrecognized deferred tax liabilities: None.

• 2) Unrecognized deferred tax assets

Details of unrecognized under deferred tax assets are as follows:

Tax effect of loss carry forward	December 31, 2020 $ 4,113	December 31, 2019
		4,249

The ROC Income tax Act allows losses for tax purposes, as assessed by the tax authorities, to be offset against taxable income in the following ten years. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilize the benefits therefrom.

• 3) Recognized deferred tax assets and liabilities

Changes in the amount of deferred tax assets and liabilities for 2020 and 2019 were as follows:

Deferred tax assets: Balance on January 1, 2020 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2020 Balance on January 1, 2019 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2019	Loss for market price decline and obsolete inventories $ 30,663 (4,843) - $ 25,820 $ 28,528 2,135 - $ 30,663	Losses due to major disasters - 115,350 - 115,350 - - - -	Provision 16,231 100,324 - 116,555 14,740 1,491 - 16,231	Investment income recognized under the equity method (overseas) - - - - 4,012 (4,012) - -	Deferred revenue 3,231 (2,064) - 1,167 1,303 1,928 - 3,231	Others 7,118 (2,438) (26) 4,654 2,649 4,495 (26) 7,118	Total 57,243 206,329 (26) 263,546 51,232 6,037 (26) 57,243

(Continued)

39

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Deferred tax liabilities: Balance on January 1, 2020 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2020 Balance on January 1, 2019 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2019	Insurance claim compensation $ - 103,811 - $ 103,811 $ - - - $ -	Foreign exchange gain - - - - 47 (47) - -	Total
			- 103,811 - 103,811 47 (47) - -

• (iii) Examination and approval

The ROC tax authorities have examined the Company’s and Yushan Pharmaceuticals Inc.'s income tax returns through 2018.

• (iv) The ROC Income Tax Act allows losses for tax purposes, as assessed by the tax authorities, to offset taxable income over a period of ten years. Yushan Pharmaceuticals Inc. estimated tax losses which can be used to offset future taxable income as of December 31, 2020, were as follows:

Year of loss 2013(Assessed) 2014(Assessed) 2015(Assessed) 2016(Assessed) 2017(Assessed) 2018(Assessed) 2019(Filed) 2020(Estimated)	Unused amount Expiry year $ 4,627 2023 10,633 2024 885 2025 959 2026 1,139 2027 825 2028 704 2029 792 2030 $ 20,564

(Continued)

40

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(o) Capital and other equity

As of December 31, 2020 and 2019, the authorized common stocks were $900,000 with a par value of 10 New Taiwan dollars per share, of which 8,000 thousand shares were reserved for the issuance of employee stock options, and of which 79,485 thousand shares, were issued. All issued shares were paid up upon issuance.

(i) Capital surplus

The balances of capital surplus as of December 31, 2020 and 2019 were as follows:

Additional paid-in capital Gain on disposal of assets Stock options Employee stock options	December 31, 2020 $ 1,270,247 980 71,530 5,582 $ 1,348,339	December 31, 2019
		1,270,247 980 71,530 5,582
		1,348,339

According to the R.O.C. Company Act, capital surplus can only be used to offset a deficit, and only the realized capital surplus can be used to increase the common stock or be distributed as cash dividends. The aforementioned realized capital surplus includes capital surplus resulting from premium on issuance of capital stock and earnings from donated assets received. According to the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, capital increases by transferring capital surplus in excess of par value should not exceed 10% of the total common stock outstanding.

(ii) Retained Earnings

The Company’s article of incorporation stipulates that Company’s net earnings should first be used to offset the prior years’ deficits, if any, before paying any income taxes. Of the remaining balance, 10% is to be appropriated as legal reserve, and special reserves are supposed to set aside in accordance with the relevant regulations or as required by the government. And then any undistributed retained earnings shall be distributed according to the distribution plan proposed by the Board of Directors and submitted to the stockholders’ meeting for approval.

According to the Company’s dividend policy, the type of dividends should be determined after considering the Company’ s capital and financial structure, operating conditions, operating surplus, industrial characteristics and cycle. The distribution of net earnings should not be lower than 50% of the current profit before tax. Cash dividends to stockholders should not be lower than 10% of the total dividends.

(Continued)

41

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

1) Legal reserve

When a company incurs no loss, it may, pursuant to a resolution by a shareholders’ meeting, distribute its legal reserve by issuing new shares or by distributing cash, and only the portion of legal reserve which exceeds 25% of capital may be distributed.

2) Special reserve

A portion of current-period earnings and undistributed prior-period earnings shall be reclassified as a special earnings reserve during earnings distribution. The amount to be reclassified should equal to the current-period total net reduction of other shareholders’ equity. Similarly, a portion of undistributed prior period earnings shall be reclassified as a special earnings reserve (and is not qualified for earnings distribution) to account for cumulative changes to other shareholders’ equity pertaining to prior periods. Amounts of subsequent reversals pertaining to the net reduction of other shareholders’ equity shall qualify for additional distributions.

(iii) Earnings distribution

Based on the resolutions of annual stockholders' meetings held on June 19, 2020 and June 21, 2019, the appropriations of dividends from the distributable retained earnings of 2019 and 2018 were as follows:

Dividends distributed to ordinary shareholders: Cash	2019 Amount per share (dollars) Total amount $ 5.8 461,014	2018	2018
	Amount per share (dollars) $ 5.8	Amount per share (dollars) 4.2	Total amount
			333,838

On March 24, 2021, the Company’ s Board of Directors resolved to appropriate the 2020 earnings. These earnings were appropriated as follows:

earnings. These earnings were appropriated as follows:
Dividends distributed to ordinary shareholders: Cash Shares	2020
	Amount per share (dollars) Total amount $ 0.5 39,743 2.0 158,970 $ 198,713	Total amount
		39,743 158,970

(Continued)

42

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Other equity (net of tax)

		Financial
		assets
		measured at
		fair value
		through other
	comprehensive
		income
Balance at January 1, 2020	$	22,254
Unrealized gains (losses) from financial assets measured at fair value through
other comprehensive income		(51,632)
Balance at December 31, 2020	$	(29,378)
Balance at January 1, 2019	$	(4,788)
Unrealized gains (losses) from financial assets measured at fair value through
other comprehensive income		27,042
Balance at December 31, 2019	$	22,254

(p) Earnings per share

For the years ended December 31, 2020 and 2019, the Company’s earnings per share was calculated as follows:

2020 Basic earnings per share Profit attributable to ordinary shareholders of the Company $ 360,124 Weighted-average number of ordinary shares (thousand shares) 79,485 $ 4.53 Diluted earnings per share Profit attributable to ordinary shareholders of the Company $ 360,124 Weighted-average number of ordinary shares (thousand shares) 79,485 Effect of potentially dilutive ordinary shares: Effect of employee compensation 653 Weighted-average number of ordinary shares (thousand shares) (diluted) 80,138 $ 4.49	2019
	571,101
	79,485
	7.19
	571,101
	79,485 749
	80,234
	7.12

(Continued)

43

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(q) Revenue from contracts with customers

• (i) Disaggregation of revenue

2020 Primary geographical markets: United States $ 470,942 Italy 455,365 Spain 447,010 Japan 239,884 Taiwan 232,453 Netherlands 145,319 India 93,544 Switzerland 90,905 Others 513,800 $ 2,689,222 Major products Active Pharmaceutical Ingredients 1,962,646 Intermediates 597,497 Specialty Chemical 129,079 2,689,222	2019
	315,998 385,807 399,767 258,866 221,055 139,899 172,716 149,056 312,583
	2,355,747
	1,546,269 627,963 181,515
	2,355,747

(ii) Contract balances

Notes and accounts receivable Less: allowance for impairment Total Contract liabilities (sales received in advance)	December 31, 2020 $ 337,749 - $ 337,749 $ 97,295	December 31, 2019 353,583 (1,179) 352,404 59,092	January 1, 2019 392,096 (1,179) 390,917 30,403

Please refer to note 6(d) for the information of accounts receivable and the impairment.

The changes of contract liabilities are arising from the difference of time point, which the Group transfers the ownership of goods and which customers do the payment.

(Continued)

44

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(r) Remuneration to employees and directors

In accordance with the Articles of incorporation, the Company should contribute no less than 3% of the profit as employee remuneration and less than 2% as directors’ remuneration when there is profit for the year. However, if the Company has accumulated deficits, the profit should be reserved to offset the deficit. The aforementioned employees’ compensation will be distributed in shares or cash. The recipients may include the employees of the subordinate of the Company who meet certain specific requirements.

For the years ended December 31, 2020 and 2019, the remunerations to employees amounted to $44,000 and $69,459, respectively, and the remunerations to directors amounted to $1,000 and $9,301, respectively. These amounts were calculated using the Company’s net income before tax without the remunerations to employees and directors for each period, multiplied by the proposed percentage which is stated under the Company's proposed Article of Incorporation. These remunerations were expensed under operating costs or expenses for each period. Shares distributed to employees as employees’ remuneration are calculated based on the closing price of the Company’ s shares on the day before the approval by the Board of Directors.

There were no differences between the amounts approved in the Board of Directors and those recognized in the 2020 and 2019 financial statements. Related information would be available at the Market Observation Post System Website.

(s) Miscellaneous Disbursements

(s) Miscellaneous Disbursements
2019 Losses due to disaster resulting to property, plant and equipment and construction in progress $ 401,187 Losses due to disaster resulting to inventories 175,565 Fire disaster indemnity 509,076 Insurance claim income (519,057) 566,771 Others 514 $ 567,285 (t) Financial Instruments	2019
	- - - -
	- 470
	470

(i) Credit risk

• 1) Credit risk exposure

The carrying amount of financial assets and contract assets represents the maximum amount exposed to credit risk.

(Continued)

45

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Concentration of credit risk

The Group’ s customers are mainly from the pharmaceutical industry; therefore, the Group does not concentrate on a specific customer and the sales regions are widely spread, thus, there should be no concern on the significant concentrations of accounts receivable credit risk. And in order to mitigate accounts receivable credit risk, the Group constantly assesses the financial status of its customers, wherein it does not require its customers to provide any collateral.

• 3) Receivables and debt securities

• a) For credit risk exposure of notes and trade receivables, please refer to note 6(d).

• b) Other financial assets at amortized cost include other receivables and time deposits. The counterparties of the time deposits held by the Group are the financial institutions with investment grade credit ratings. Therefore, the credit risk is considered to be low.

(ii) Liquidity Risk

The following table shows the contractual maturities of financial liabilities, excluding estimated interest payments:

December 31, 2020 Non-derivative financial liabilities: Notes and accounts payable Lease liabilities (including current and non-current) Other payables Payables on contractors and equipment December 31, 2019 Non-derivative financial liabilities: Notes and accounts payable Lease liabilities (including current and non-current) Other payables Payables on contractors and equipment	Carrying Amount $ 80,878 2,588 188,938 21,064 $ 293,468 $ 94,302 2,992 229,830 16,605 $ 343,729	Contractual cash flows (80,878) (2,629) (188,938) (21,064) (293,509) (94,302) (3,038) (229,830) (16,605) (343,775)	Within a year (80,878) (1,368) (188,938) (21,064) (292,248) (94,302) (1,826) (229,830) (16,605) (342,563)	1 ~ 2 years - (922) - - (922) - (801) - - (801)	Over 2 years - (339) - - (339) - (411) - - (411)

(Continued)

46

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group is not expecting that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amount.

• (iii) Currency risk

• 1) Exposure to foreign currency risk

The Group’s significant exposure to foreign currency risk was as follow:

Foreign currency: in thousands of dollars

Financial assets Monetary items USD to TWD EUR to TWD Financial liabilities Monetary items USD to TWD	December 31, 2020	December 31, 2020	December 31, 2020	December 31, 2019 Foreign currency Exchange rate TWD 19,088 29.93 571,304 2,124 33.39 70,920 1,830 29.93 54,772	December 31, 2019 Foreign currency Exchange rate TWD 19,088 29.93 571,304 2,124 33.39 70,920 1,830 29.93 54,772
	Foreign currency	Exchange rate	TWD		Exchange rate TWD 29.93 571,304 33.39 70,920 29.93 54,772
	$ 17,704 3,178 1,417	28.43 34.82 28.43	503,325 110,658 40,285	19,088 2,124 1,830

• 2) Sensitivity analysis

The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts receivable, loans and borrowings, accounts payable, accrued expenses and other payables that are denominated in foreign currency.

The analysis assumes that all other variables remain constant. A strengthening (weakening) 1% of the functional currency against each foreign currency for the years ended December 31, 2020 and 2019 would have affected the net profit before tax increased or decreased $5,737 and $5,875, respectively. The analysis is performed on the same basis for both periods.

• 3) Foreign exchange gain and loss on monetary items

Since the Group has many kinds of functional currency, the information on foreign exchange gain (loss) on monetary items is disclosed by total amount. For years 2019 and 2018, foreign exchange gain (loss) (including realized and unrealized portions) amounted to $(30,630) and $(9,968), respectively.

(Continued)

47

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iv) Interest rate analysis

The details of financial assets and liabilities exposed to interest rate risk were as follows:

Financial assets Financial liabilities	Carrying amount
	December 31, 2020 December 31, 2019 $ 282,961 223,008 - -

The following sensitivity analysis is based on the exposure to the interest rate risk of derivative and non-derivative financial instruments on the reporting date. Regarding assets with variable interest rates, the analysis is based on the assumption that the amount of assets outstanding at the reporting date was outstanding throughout the year. The rate of change is expressed as the interest rate increases or decreases by 0.25% when reporting to management internally, which also represents the Group management’s assessment of the reasonably possible interest rate change.

If the interest rate had increased or decreased by 0.25%, the Group's net profit before tax would have increased or decreased by $707 and $558, respectively, for the years ended December 31, 2020 and 2019, with all other variable factors remaining constant. This is mainly due to the Group’s bank savings with variable interest rates.

(v) Fair value

1) Fair value hierarchy

The fair value of financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income are measured on a recurring basis. The carrying amount and fair value of the Group’s financial assets and liabilities, including the information on fair value hierarchy were as follows; however, except as described in the following paragraphs, for financial instruments not measured at fair value whose carrying amount is reasonably close to the fair value, and lease liabilities, disclosure of fair value information is not required:

Financial assets at fair value through profit or loss Non-derivative financial assets Mandatorily measured at fair value through profit or loss Financial assets at fair value through other comprehensive income Emerging stocks and unlisted stocks on domestic market				December 31, 2020	December 31, 2020	December 31, 2020
	Book value				Fair Value
				Level 1 667,955 -	Level 2 - -	Level 3 Total - 667,955 85,697 85,697
	$ 667,955 85,697
		85,697

(Continued)

48

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

Financial assets measured at amortized cost Cash and cash equivalents Notes and accounts receivable Other receivables Refunded deposits (recognized as other non-current assets) Subtotal Total Financial liabilities measured at amortized cost Notes and accounts payable Lease liabilities (including current and non-current) Other payables Payables on contractors and equipment Total Financial assets at fair value through profit or loss Non-derivative financial assets Mandatorily measured at fair value through profit or loss Financial assets at fair value through other comprehensive income Emerging stocks and unlisted stocks on domestic market Financial assets measured at amortized cost Cash and cash equivalents Notes and accounts receivable Other receivables Refunded deposits (recognized as other non-current assets) Subtotal Total Financial liabilities measured at amortized cost Notes and accounts payable Lease liabilities (including current and non-current) Other payables Payables on contractors and equipment Total				December 31, 2020	December 31, 2020	December 31, 2020
		Book value			Fair Value
				Level 1 Level 2 Level 3 Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - December 31, 2019
	633,029 337,749 519,651 1,210 1,491,639 $ 2,245,291 $ 80,878 2,588 188,938 21,064 $ 293,468	633,029 337,749 519,651 1,210
		1,491,639
		Book value			Fair Value
				Level 1 466,025 28,710 - - - - - - - -	Level 2 - - - - - - - - - -	Level 3 Total - 466,025 108,619 137,329 - - - - - - - - - - - - - - - -
	$ 466,025 137,329 553,555 352,404 1,023 7,483 914,465 $ 1,517,819 $ 94,302 2,992 229,830 16,605 $ 343,729

(Continued)

49

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• 2) Valuation techniques for financial instruments not measured at fair value

The Group’ s valuation techniques and assumptions used for financial instruments not measured at fair value are as follows:

• a) Financial assets and liabilities measured at amortized cost

If there is quoted price generated by transactions, the recent transaction price and quoted price data is used as the basis for fair value measurement. However, if no quoted prices are available, the discounted cash flows are used to estimate fair values.

• 3) Valuation techniques for financial instruments measured at fair value

• a) Non-derivative financial instruments

Financial instruments trade in active markets is based on quoted market prices. The quoted price of a financial instrument obtained from main exchanges and on-therun bonds from Taipei Exchange can be used as a base to determine the fair value of the listed companies’ equity instrument and debt instrument of the quoted price in an active market.

If a quoted price of a financial instrument can be obtained in time and often from exchanges, brokers, underwriters, industrial union, pricing institute, or authorities and such price can reflect those actual trading and frequently happen in the market, then the financial instrument is considered to have a quoted price in an active market. If a financial instrument is not in accord with the definition mentioned above, then it is considered to be without a quoted price in an active market. In general, market with low trading volume or high bid-ask spreads is an indication of a non-active market.

Measurements of fair value of financial instruments without an active market are based on a valuation technique or quoted price from a competitor. Fair value measured by a valuation technique can be extrapolated from similar financial instruments, the discounted cash flow method, or other valuation technique including a model using observable market data at the reporting date.

The measurement of fair value of a non-active market financial instruments held by the Group which do not have quoted market prices are based on the comparable market approach, with the use of key assumptions of price-book ratio multiple or earnings multiple of comparable listed companies as its basic measurement. These assumptions have been adjusted for the effect of discount without the marketability of the equity securities.

(Continued)

50

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

4) Transfers between Levels

Part of the Company’ s equity holdings in Energenesis comes from its cash capital increase, which is classified as fair value through other comprehensive income. The fair value as of December 31, 2020 and 2019, was $15,619 and $28,710, respectively. Energenesis is a listed company on the Emerging Stock Market. As of December 31, 2020, the degree of Energenesis’s stock trading activity does not meet the definition of an active market. Therefore, the fair value measurement was transferred from Level 1 to Level 3 of the fair value hierarchy as of December 31, 2020.

There were no transfers in either direction in 2019.

• 5) Reconciliation of Level 3 fair values

January 1, 2020 Total gains and losses recognized: In profit or loss In other comprehensive income Transfers in Level 3 December 31, 2020 January 1, 2019 Total gains and losses recognized: In profit or loss In other comprehensive income Purchased December 31, 2019	Fair value through other comprehensive income Unquoted equity instruments $ 108,619 - (38,541) 15,619 $ 85,697 $ 75,296 - 13,326 19,997 $ 108,619

For the years ended December 31, 2020 and 2019, total gains and losses that were included in unrealized gains and losses from financial assets at fair value through other comprehensive income were as follows:

		2020	2019
Total gains and losses recognized:
In other comprehensive income, and presented in
“unrealized gains and losses from financial assets at
fair value through other comprehensive income”	$	(38,541)	13,326

(Continued)

51

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• 6) Quantified information on significant unobservable inputs (Level 3) used in fair value measurement

The Group’s financial instruments that use Level 3 inputs to measure fair value include “ financial assets measured at fair value through other comprehensive income – debt investments”. Financial assets at fair value through other comprehensive income – equity investments without an active market have more than one significant unobservable inputs. The significant unobservable inputs of financial assets at fair value through other comprehensive income – equity investments without an active market are individually independent, and there is no correlation between them.

Quantified information of significant unobservable inputs was as follows:

Item Fair value through other comprehensive income– equity investments without an active market 〃 〃	Valuation technique Price-Book ratio method 〃 Comparable transaction method	Significant unobservable inputs Inter-relationship between significant unobservable inputs and fair value measurement ‧ The multiplier of Price- Book Ratio (As of December 31, 2020 and 2019 were 1.79~5.01 and 1.91, respectively) The higher the fair value is, the higher the multiplier will be. ‧ Lack-of-Marketability discount rate (As of December 31, 2020 and 2019 were 23%~50% and 50%, respectively) The higher the Lack-of- Marketability discount rate is, the lower the fair value will be. ‧ Lack-of-Marketability discount rate (As of December 31, 2019 was 19.03%~23.38%) The higher the Lack-of- Marketability discount rate is, the lower the fair value will be.

• 7) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible alternative assumptions

The Group’ s measurement on the fair value of financial instruments is deemed reasonable despite different valuation models or assumptions that may lead to various results. For fair value measurements in Level 3, changing one or more of the assumptions would have the following effects on profit or loss and other comprehensive income:

(Continued)

52

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

December 31, 2020 Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income December 31, 2019 Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income	Inputs Price-Book ratio multiples Lack-of Marketability discount rate Price-Book ratio multiples Lack-of Marketability discount rate	Move up or Other comprehensive income downs Favorable Unfavorable 5% $ 3,496 3,536 5% $ 2,895 2,895 5% $ 1,902 1,902 5% $ 2,801 2,801	Other comprehensive income	Other comprehensive income
				Unfavorable
				3,536
				2,895
				1,902
				2,801

The favorable and unfavorable effects represent the changes in fair value, and fair value is based on a variety of unobservable inputs calculated using a valuation technique. The analysis above only reflects the effects of changes in a single input, and it does not include the interrelationships with another input.

(u) Financial risk management

• (i) Overview

The Group have exposures to the following risks from its financial instruments:

• 1) credit risk

• 2) liquidity risk

• 3) market risk

The following likewise discusses the Group’s objectives, policies and processes for measuring and managing the above mentioned risks. For more disclosures about the quantitative effects of these risks exposures, please refer to the respective notes in the accompanying consolidated financial statements.

(ii) Structure of risk management

The Group operations are affected by a variety of financial risks, the risks including market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’ s financial risk management focus on uncertainty in the financial market to avoid hidden difficulty at the financial statement and financial performance of the Group. The Group’s finance department carried out risk management according to the dealer’s authority approved by Board of Directors. The Group’ s financial department maintain close communication with operation department in charge of identifying, evaluating, avoiding financial risk.

(Continued)

53

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.

1) Accounting receivable and other receivables

The Group’s finance department has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Group’s credit limits are offered. Credit limits are established for each customer, which represent the maximum open amount without requiring approval from the finance department, and are reviewed periodically. Customers that fail to meet the Group's benchmark creditworthiness may transact with the Group only on a prepayment basis.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. The Group’s customers are mainly from the pharmaceutical industry. In order to mitigate account receivable credit risk, the Group constantly assesses the financial status of the customers, and requests the customers to provide guarantee or security if necessary. The Group regularly accesses the collectability of accounts receivable and recognizes allowance for accounts receivable. The impairment losses are always within management’s expectation.

In monitoring customer credit risk, customers are grouped according to their credit characteristics, including customer profile, operating and financial status, payment records and the degree of cooperation. Customers that are graded as “high risk” are placed on a restricted customer list and monitored by the finance department more strictly, and the transactions are made on a more cautious way.

The Group set the allowance for bad debt account to reflect the estimated losses for trade, other receivables, and investment. The allowance for bad debt account consists of specific losses relating to individually significant exposure and the unrecognized losses arising from similar assets groups. The allowance for bad debt account is based on historical collection record of similar financial assets.

2) Investment

The exposure to credit risk for the bank deposits, fixed income investments, and other financial instruments is measured and monitored by the Group’s finance department. The Group only deals with banks, other external parties, corporate organizations, government agencies and financial institutions with good credit rating. The Group does not expect any counterparty above fails to meet its obligations hence there is no significant credit risk arising from these counterparties.

(Continued)

54

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

3) Guarantees

The Group’s policy is to provide financial guarantees only to wholly owned subsidiaries. As of December 31, 2020 and 2019, no other guarantees were outstanding.

(iv) Liquidity risk

The Group manages sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Group’ s management supervises the banking facilities and ensures in compliance with the terms of the loan agreements.

Please refer to note (6)(i) for unused short-term bank facilities as of December 31, 2020 and 2019.

(v) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

1) Currency risk

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group’s entities, primarily the New Taiwan Dollars (TWD). The currencies used in these transactions are denominated in TWD and USD.

The Group pays attention to changes in exchange rates and uses forward exchange contracts to hedge its currency risk. The Group’ s risk management policy avoids currency risk by fair value hedge.

As for other monetary assets and liabilities denominated in other foreign currencies, when short-term imbalance takes place, the Group buys or sells foreign currencies at spot rate to ensure that the net exposure is kept on an acceptable level.

2) Interest rate risk

The Group did not borrow funds with variable interest rates, therefore there is no risk of cash flows.

(v) Capital management

The Group’s objectives for managing capital to safeguard the capacity to continue to operate, to continue to provide a return on shareholders, to maintain the interest of other related parties, and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the dividend payment to the shareholders, reduce the capital for redistribution to shareholders, issue new shares, or sell assets to settle any liability.

(Continued)

55

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Group use the debt-to-equity ratio to manage capital. This ratio is the total net debt divided by the total capital. The net debt from the balance sheet is derived from the total liabilities less cash and cash equivalents. The total capital and equity include share capital, capital surplus, retained earnings, and other equity plus net debt.

The Group’s capital management strategy is to maintain a debt-to-equity ratio of less than 30% in December 31, 2020 and 2019. The ratio of debt to capital in December 31, 2020 and 2019 is as follows:

Total loan less: cash and cash equivalent Net debt Total equity Debt-to-equity ratio	December 31, 2020	December 31, 2020		December 31, 2019
	$ - 633,029 $ - $ 3,322,222 % -			- 553,555
				-
				3,474,640
		% -		% -

• (w) Investing and financing activities not affecting current cash flow

The Group’s investing and financing activities which did not affect the current cash flow for the years ended December 31, 2020 and 2019, were as follows:

• (i)For the acquisition of right-of-use assets by lease for the years ended December 31, 2020 and 2019, please refer to note 6(h).

• (ii)Reconciliation of liabilities arising from financing activities for the years ended December 31, 2020 and 2019, were as follows:

Lease liabilities Lease liabilities	January 1, 2020 $ 2,992 January 1, 2019 $ 4,113	Cash flows (2,047) Cash flows (1,910)	Non-cash changes Changes in lease payments 1,643 Non-cash changes Changes in lease payments 789	December 31, 2020
				2,588
				December 31, 2019
				2,992

(7) Related-party transactions:

• (a) Parent company and ultimate controlling party

Mercuries & Associates Holding Ltd. (Mercuries) is both the parent company of the consolidated entity and the ultimate controlling party of the Group, holding 33.11% of the Group’s outstanding shares. It has issued the consolidated financial statements available for public use.

(Continued)

56

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (b) Names and relationship with related parties: None.

• (c) Significant transaction with related parties: None.

• (d) Key management personnel compensation

			For the years	ended
			December	31,
			2020	2019
Salary	and short-term employee benefits	$	35,382	43,333

(8) Pledged assets:

The carrying values of pledged assets were as follows:

Assets Land Building	Subject Pledged as collaterals 〃	December 31, 2020 $ 42,736 4,171 $ 46,907	December 31, 2019
			42,736 4,842
			47,578

(9) Commitments and contingencies:

• (a) As of December 31, 2020 and 2019, the unused balance of the Group’s outstanding standby letters of credit amounted to $29,106, and $8,788, respectively.

• (b) The significant outstanding purchase commitments for property, plant and equipment were as follows:

Acquisitions of property, plant and equipment	December 31, 2020 $ 49,143	December 31, 2019 41,087

(10) Losses Due to Major Disasters:

A major fire accident occurred on December 20, 2020, and caused damage to some buildings, equipment, construction in progress, and inventories, and spreading to several nearby factories, of which property was impaired and business operation was interrupted. The Company derecognized damaged buildings, equipment and construction in progress at $401,187, and the inventories at $175,565, and accrued for the damage loss for nearby damaged companies for $509,076. The total disaster loss is $1,085,828. Among which, the damage loss is based on the best estimate from the available evidence as of the reporting date. However, the actual loss of the claim is still subject to future negotiation, and there are contingent liabilities that cannot be estimated or recorded.

The Company has already entered into related property insurance contracts and is currently in the process of negotiation with the insurance company to handle claims.

(Continued)

57

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

The Company has confirmed with the insurance company and its notary to recognize the virtually certain amount of compensation that can be received from the insurance company as claim receivables, but shall not exceed the disaster loss of each asset. As of December 31, 2020, the Company recognizes the claim receivable for $519,057, as a deduction to the miscellaneous disbursements. However, the insurance claims involve disaster identification, the Company has not been able to confirm the total amount of insurance claims, and will recognize it when the Company can almost be certain that it can receive the subsequent increase in insurance claims income.

(11) Subsequent Events: None.

(12) Other:

• (a) The followings are the summary statement of current period employee benefits, depreciation and amortization expenses by function:

By function By item	2020	2020		2019	2019	2019
	Cost of sales	Operating expenses	Total	Cost of sales	Operating expenses	Total
Employee benefits Salary Labor and health insurance Pension Remuneration of directors Others Depreciation Amortization	218,067 14,756 6,601 - 3,503 107,569 1,766	76,850 4,782 1,794 6,070 9,481 19,941 4,027	294,917 19,538 8,395 6,070 12,984 127,510 5,793	208,502 14,067 6,671 - 3,250 111,654 1,738	98,121 4,539 1,663 9,301 9,327 19,427 3,912	306,623 18,606 8,334 9,301 12,577 131,081 5,650

(13) Other disclosures:

• (a) Information on significant transactions:

The following is the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group for the year ended December 31, 2020:

• (i) Loans to other parties: None.

• (ii) Guarantees and endorsements for other parties: None.

(Continued)

58

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Securities held as of December 31, 2020 (excluding investment in subsidiaries, associates and joint ventures):

Unit: thousand dollars

								Unit: thousand dollars	Unit: thousand dollars
Name of holder	Category and name of security	Relationship with company	Account title	Ending balance				Highest balance during the year		Note
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value	Shares/Units (thousands)	Percentage of ownership (%)
The Company 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃	Beneficiary Certificate (UPAMC James Bond Money Market Fund) Beneficiary Certificate (Cathay Taiwan Money Market Fund) Beneficiary Certificate (Nomura Taiwan Money Market) Beneficiary Certificate (Taishin 1699 Money Market Fund) Beneficiary Certificate (Jih Sun Money Market Fund) Beneficiary Certificate (Yuanta USD Money Market Fund-USD) Beneficiary Certificate (Nomura Global Short Duration Bond Fund) Beneficiary Certificate (CTBC Hua Win Money Market Fund) Beneficiary Certificate (Fubon China Policy Bank Bond ETF) Beneficiary Certificate (Yuanta De-Li Money Market Fund) Beneficiary Certificate (Mega Diamond Money Market Fund) Stock (Fubon S&P Preferred Shares A) Stock (Fubon S&P Preferred Shares B) Stock (TAISHIN FINANCIAL HOLDING CO., LTD. Preferred Stock E) Stock (Cathay Financial Holding Co., Ltd. Preferred Stock A) Stock (Cathay Financial Holding Co., Ltd. Preferred Stock B) Stock (Cathay Financial Holding Co., Ltd. Common Stock) Stock (Fubon S&P US Preferred Stock) Stock (CTBC Financial Holding Co., Ltd. Preferred Shares B) Stock (Shin Kong Financial Holding Co., Ltd. Preferred Shares A) Stock (Chailease Hdding Co., Ltd. Preferred Share A) Stock (Energenesis Biomedical Co., Ltd) Stock (Sunny Pharmtech Inc.)	- - - - - - - - - - - - - - - - - - - - - - -	Non-current Financial asset at fair value through profit or loss 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Financial assets at fair value through other comprehensive income 〃	2,760 4,093 1,273 3,592 3,022 99 2,840 4,064 420 2,744 3,568 793 36 400 790 33 28 2,350 685 642 150 1,458 4,497	46,477 51,305 20,940 49,019 45,174 30,151 30,371 45,146 8,236 45,116 45,130 49,404 2,250 21,040 48,822 2,077 1,196 39,644 43,429 28,088 14,940 53,257 32,382	- - - - - - - - - - - - - - - - - - - - - 2.44 % 3.47	46,477 51,305 20,940 49,019 45,174 30,151 30,371 45,146 8,236 45,116 45,130 49,404 2,250 21,040 48,822 2,077 1,196 39,644 43,429 28,088 14,940 53,257 32,382	2,760 4,093 1,273 3,592 3,022 99 2,840 4,064 420 2,744 3,568 793 36 400 790 33 28 2,350 685 642 150 1,458 4,497	% - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % - % 2.47 % 3.47	- - - - - - - - - - - - - - - - - - - - - -

• (iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of $300 million or 20% of the capital stock: None.

• (v) Acquisition of individual real estate with amount exceeding the lower of $300 million or 20% of the capital stock: None.

• (vi) Disposal of individual real estate with amount exceeding the lower of $300 million or 20% of the capital stock: None.

(Continued)

59

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

• (vii) Related-party transactions for purchases and sales with amounts exceeding the lower of $100 million or 20% of the capital stock: None.

• (viii) Receivables from related parties with amounts exceeding the lower of $100 million or 20% of the capital stock: None.

• (ix) Trading in derivative instruments: None.

• (x) Business relationships and significant intercompany transactions: None.

• (b) Information on investees:

The following is the information on investees for the year ended December 31, 2020 (excluding information on investees in Mainland China):

				Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares	Unit: thousand dollars/ thousand shares
Name of investor	Name of investee	Location	Main businesses and products	Original investment amount		Balance as of December 31, 2020			Highest		Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31, 2020	December 31, 2019	Shares (thousands)	Percentage of ownership	Carrying value	Shares (thousands)	Percentage of ownership
SCI PHARMTEC H, INC.	Yushan Pharmaceuticals Inc.	R.O.C.	The research and development, manufacture and sale of API	351,761	351,761	35,190	% 100	349,186	35,190	% 100	(537)	(537)	Note 1

Note 1：The transactions had been eliminated in the consolidated financial statements.

• (c) Information on investment in mainland China: None.

• (d) Major shareholders:

Unit: shares

		Unit: shares
Shareholding Shareholder’s Name	Shares	Percentage
Mercuries & Associates Holding Ltd.	25,236,132	% 31.74

(14) Segment information:

• (a) General Information

The major business activities of the Group are the manufacture and sale of API, Intermediates, and specialty chemicals by a single department. The Group’ s financial information of operating department is the same as the consolidated financial statement. Please refer to the consolidated balance sheets and the consolidated statements of comprehensive income for related information.

• (b) Product information

Please refer to note 6(q) for the details.

60

SCI PHARMTECH, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(c) Geographic information

Stated below are the geographic information on the Group’s sales presented by destination of sales and non-current assets presented by location.

(i) Revenue from external customers: please refer to note 6(q) for the details.

(i) Non-current Assets:

Country Non-current asset: Taiwan	December 31, 2020 $ 1,633,929	December 31, 2019
		1,950,887

Non-current assets include plant, property, and equipment, intangible assets, and other assets, excluding financial instruments and deferred tax assets.

(d) Major customers

The sales revenue from clients with account for more than 10% revenue in the consolidated statements of comprehensive income as follows:

B Company G Company A Company	2020 $ 296,613 295,751 - $ 592,364	2019
		90,234 286,703 321,538
		698,475

(Continued)