VPEC — Audit Report / Information 2019

Nov 1, 2019

VISUAL PHOTONICS EPITAXY CO., LTD.

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

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

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REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of VISUAL PHOTONICS EPITAXY CO., LTD.

Opinion

We have audited the accompanying balance sheets of Visual Photonics Epitaxy Co., Ltd. as at December 31, 2019 and 2018, and the related statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Visual Photonics Epitaxy Co., Ltd. as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with the “Regulations Governing the Preparations of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

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

Key audit matters

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

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Key audit matters for Visual Photonics Epitaxy Co., Ltd.’s financial statements of the current period are stated as follows:

Appropriateness of cut-off of warehouse operating revenue

Description

For accounting policy of revenue recognition, please refer to Note 4(23).

The types of sale is separated into direct delivery from factory and warehouse operating revenue. The warehouse operating revenue involves shipping the goods to the warehouse in the USA or others first, then customer pick-up the goods. When the control of goods are transferred, and revenue is recognized. Visual Photonics Epitaxy Co., Ltd.’s revenue is recognized in accordance with statements provided by sales customers or online shipping system information.

Due to the multi-location of the warehouses and the different frequency of each custodian providing their statements, the revenue recognition procedure is complex and involves reconciliation of mutual payments. Visual Photonics Epitaxy Co., Ltd.’s daily transaction quantity is voluminous and the transaction amount around the balance sheet date is significant to the financial statements, therefore, we determined that the appropriateness of cut-off of warehouse operating revenue as one of the key audit matters for this fiscal year.

How our audit addressed the matter

Our key audit procedures performed in respect to the above matter included:

1. Obtained an understanding and tested the timing of sales revenue recognition procedures between Visual Photonics Epitaxy Co., Ltd. and the customers to verify the effectiveness of the internal control for warehouse operating revenue recognition.

2. Performed cut-off test on the transactions of warehouse operating revenue around the period of balance sheet date, including verifying the supporting documents of warehouse custodian, the movement of accounted inventory, and related records of cost of goods sold generated to evaluate the timing appropriateness of warehouse operating revenue recognition.

3. Conducted physical inventory count observation and verified whether the physical count is reconciled with the quantity on record, tested the adjustment items prepared by management, and confirmed that the significant variances have been recorded and adjusted appropriately.

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Valuation of inventory

Description

For description of accounting policy on inventory valuation, please refer to Note 4(10). For accounting estimates and assumption uncertainty in relation to inventory valuation, please refer to Note 5(2). For description of allowance for inventory valuation losses, please refer to Note 6(4).

As of December 31, 2019, Visual Photonics Epitaxy Co., Ltd.’s inventories and allowance for inventory valuation losses amounted to NT $380,333 thousand and NT $50,180 thousand, respectively.

Visual Photonics Epitaxy Co., Ltd.’s inventories are mainly optoelectronics semiconductor Epi wafer products. Since the industry involves rapidly changing technology and are affected by the communications industry, there is higher risk of incurring inventory valuation losses. Visual Photonics Epitaxy Co., Ltd.’s inventories are measured at the lower of cost and net realisable value, if the price change does not have the expected net realizable value, it may affect the net realizable value estimation result of the inventory evaluation.

Visual Photonics Epitaxy Co., Ltd.’s determination of net realisable value for obsolete or slow-moving inventories involves subjective judgement resulting in a high degree of estimation uncertainty. Considering the inventories and the allowance for inventory valuation losses are material to its financial statements, we determined that the estimates of the allowance for inventory valuation losses as one of the key audit matters for this fiscal year.

How our audit addressed the matter

Our key audit procedures performed in respect to the above matter included:

1. Assessed the reasonableness and the consistency of provision policies on allowance for inventory valuation losses and procedures based on our understanding of Visual Photonics Epitaxy Co., Ltd.’s operation and industry, including the classification of inventory for determining net realizable value.

2. Obtained an understanding of the Visual Photonics Epitaxy Co., Ltd.’s warehousing control procedures. Reviewed annual physical inventory count plan and participated in the annual inventory count event in order to assess the classification of obsolete inventory and effectiveness of obsolete inventory internal control.

3. Selected samples to check the inventory clearance and historical data of inventory discount in order to evaluate the reasonableness of allowance of inventory valuation losses.

4. Tested the appropriateness of the estimated basis that Visual Photonics Epitaxy Co., Ltd. adopted to evaluate net realizable value, selected a sample of individual inventory data like inventory selling and

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accuracy of purchase price, and recalculate and evaluate the reasonableness of allowance for inventory valuation losses which were determined by management.

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

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

In preparing the financial statements, management is responsible for assessing the Company’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 Company 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 Company’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

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

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

1. Identify and assess the risks of material misstatement of the 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 Company’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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

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

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.

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

Chou, Hsiao-Tzu

[Lee, Hsiu-Ling ]

For and on behalf of PricewaterhouseCoopers, Taiwan March 19, 2020

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

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

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VISUAL PHOTONICS EPITAXY CO., LTD.

BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Assets	Notes 6(1) 6(3) 6(3) 6(4) 6(2) 6(5) and 8 6(6) 6(19) 6(5) 6(10)	December31,2019 AMOUNT % $ 874,549 20 432 - 513,599 12 1,135 - 330,153 8 65,295 1 1,785,163 41 - - 2,529,540 59 2,706 - 2,808 - 7,841 - 11,303 - 67 - 161 - 2,554,426 59 $ 4,339,589 100	December31,2018	December31,2018
		AMOUNT $ 874,549 432 513,599 1,135 330,153 65,295 1,785,163 - 2,529,540 2,706 2,808 7,841 11,303 67 161 2,554,426 $ 4,339,589	AMOUNT $ 617,023 281 273,279 6,909 375,310 46,868 1,319,670 - 2,572,657 - 2,028 9,484 27,439 129 655 2,612,392 $ 3,932,062	%
Current assets 1100 Cash and cash equivalents 1150 Notes receivable, net 1170 Accounts receivable, net 1200 Other receivables 130X Inventories 1410 Prepayments 11XX Current Assets Non-current assets 1517 Non-current financial assets at fair value through other comprehensive income 1600 Property, plant and equipment 1755 Right-of-use assets 1780 Intangible assets 1840 Deferred income tax assets 1915 Prepayments for business facilities 1920 Guarantee deposits paid 1975 Net defined benefit asset, non-current 15XX Non-current assets 1XXX Total assets				16 - 7 - 10 1
				34
				- 65 - - - 1 - -
				66
				100

(Continued)

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VISUAL PHOTONICS EPITAXY CO., LTD. BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	Notes 6(7) 6(14) 6(8) 6(19) 6(9) and 8 6(19) 6(11) 6(12) 6(13) 6(11) 9 11	December31,2019 December31,2018 AMOUNT % AMOUNT % $ 470,000 11 $ 500,000 13 6,936 - 6,633 - 303,605 7 232,688 6 245,677 6 212,432 5 74,473 2 59,209 2 1,774 - - - 5,266 - 5,117 - 1,107,731 26 1,016,079 26 400,000 9 380,000 10 32 - 131 - 947 - - - 400,979 9 380,131 10 1,508,710 35 1,396,210 36 1,849,059 43 1,849,059 47 16,691 - 107,182 3 450,724 10 411,007 10 514,405 12 410,075 10 - - ( 241,471) ( 6 ) 2,830,879 65 2,535,852 64 $ 4,339,589 100 $ 3,932,062 100
		AMOUNT $ 470,000 6,936 303,605 245,677 74,473 1,774 5,266 1,107,731 400,000 32 947 400,979 1,508,710 1,849,059 16,691 450,724 514,405 - 2,830,879 $ 4,339,589
Current liabilities 2100 Short-term borrowings 2130 Current contract liabilities 2170 Accounts payable 2200 Other payables 2230 Current income tax liabilities 2280 Current lease liabilities 2300 Other current liabilities 21XX Current Liabilities Non-current liabilities 2540 Long-term borrowings 2570 Deferred income tax liabilities 2580 Non-current lease liabilities 25XX Non-current liabilities 2XXX Total Liabilities Equity attributable to owners of parent Share capital 3110 Ordinary shares Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3350 Unappropriated retained earnings 3500 Treasury stocks 3XXX Total equity Significant commitments and contingent liabilities Significant events after the balance sheet date 3X2X Total liabilities and equity

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

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VISUAL PHOTONICS EPITAXY CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

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

Items

Year ended December 31 2019 2018 Notes AMOUNT % AMOUNT % 6(14) $ 2,530,909 100 $ 2,062,120 100 6(4)(17)(18) ( 1,496,637 ) ( 59) ( 1,287,761) ( 62 ) 1,034,272 41 774,359 38 6(17)(18) ( 10,901 ) - ( 12,145) ( 1 ) ( 117,763 ) ( 5) ( 104,895) ( 5 ) ( 256,598 ) ( 10) ( 193,413) ( 9 ) 12(2) ( 27 ) - - - ( 385,289 ) ( 15) ( 310,453) ( 15 ) 648,983 26 463,906 23 6,978 - 3,919 - 6(15) ( 19,065 ) ( 1) 26,014 1 6(16) ( 8,293 ) - ( 4,660) - ( 20,380 ) ( 1) 25,273 1 628,603 25 489,179 24 6(19) ( 114,278 ) ( 5) ( 92,009) ( 5 ) $ 514,325 20 $ 397,170 19 6(10) ( $ 583 ) - $ 801 - 6(19) 117 - 352 - ( 466 ) - 1,153 - ($ 466 ) - $ 1,153 - $ 513,859 20 $ 398,323 19 6(20) $ 2.79 $ 2.16 6(20) $ 2.78 $ 2.15

4000 Sales revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6450 Impairment loss determined in accordance with IFRS 9 6000 Total operating expenses 6900 Operating profit Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7000 Total non-operating income and expenses 7900 Profit before income tax 7950 Income tax expense 8200 Profit for the year Other comprehensive income Components of other comprehensive income that will not be reclassified to profit or loss 8311 (Losses) gains on remeasurements of defined benefit plans 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Components of other comprehensive income that will not be reclassified to profit or loss 8300 Total other comprehensive (loss) income for the year 8500 Total comprehensive income for the year 9750 Total basic earnings per share 9850 Total diluted earnings per share

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

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VISUAL PHOTONICS EPITAXY CO., LTD. STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Notes Year 2018 Balance at January 1, 2018 Effects on retrospective application Balance at January 1, 2018 after adjustments Net income for 2018 Other comprehensive income for 2018 Total comprehensive income Earnings appropriation Legal reserve 6(13) Cash dividends 6(13) Purchase of treasury shares Disposal of equity instruments at fair value through other comprehensive income 6(2) Balance at December 31, 2018 Year 2019 Balance at January 1, 2019 Net income for 2019 Other comprehensive income for 2019 Total comprehensive income Earnings appropriation Legal reserve 6(13) Cash dividends 6(12)(13) Treasury shares reissued to employees Balance at December 31, 2019	Notes		Share capital - commonstock		Capital	surplus	surplus		Retained	earnings	earnings	Unrealised gains (losses) from financial assets measured at fair value through other comprehensive income		Treasury stocks		Totalequity
					Additional paid-in capital		Treasury stock transactions		Legal reserve		Unappropriated retained earnings
			$ 1,849,059 - 1,849,059 - - - - - - - $ 1,849,059 $ 1,849,059 - - - - - - $ 1,849,059	$ 102,682 - 102,682 - - - - - - - $ 102,682 $ 102,682 - - - - ( 92,453 ) - $ 10,229			$ 4,500 - 4,500 - - - - - - - $ 4,500 $ 4,500 - - - - - 1,962 $ 6,462		$ 371,572 - 371,572 - - - 39,435 - - - $ 411,007 $ 411,007 - - - 39,717 - - $ 450,724	$ 513,342 68,773 582,115 397,170 1,153 398,323 ( 39,435 ) ( 462,265 ) - ( 68,663 ) $ 410,075 $ 410,075 514,325 ( 466 ) 513,859 ( 39,717 ) ( 369,812 ) - $ 514,405		$ - ( 68,773 ) ( 68,773 ) - - - - - - 68,773 $ - $ - - - - - - - $ -	$ - - - - - - - - ( 241,471 ) - ($ 241,471 ) ($ 241,471 ) - - - - - 241,471 $ -		$ 2,841,155 - 2,841,155 397,170 1,153 398,323 - ( 462,265 ) ( 241,471 ) 110 $ 2,535,852 $ 2,535,852 514,325 ( 466 ) 513,859 - ( 462,265 ) 243,433 $ 2,830,879

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

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VISUAL PHOTONICS EPITAXY CO., LTD. STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments Adjustments to reconcile profit (loss) Depreciation expense (including right-of-use assets) Amortization expense Expected credit loss Interest expense Interest income Gain on disposal of property, plant and equipment Unrealized foreign exchange (gain) loss Share-based compensation cost Changes in operating assets and liabilities Changes in operating assets Notes receivable Accounts receivable Other receivables Inventories Prepayments Changes in operating liabilities Current contract liabilities Accounts payable Other payables Other current liabilities Other non-current liabilities Cash inflow generated from operations Interest received Interest paid Income taxes paid Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of financial assets at fair value through other comprehensive income Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Increase in prepayments for business facilities Decrease (increase) in refundable deposits Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt (Decrease) increase in short-term borrowings Payments of lease liabilities Cash dividends paid Purchase of treasury shares Treasury shares reissued to employees Net cash flows (used in) from financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Notes 2019 2018 $ 628,603 $ 489,179 6(5)(6)(17) 254,873 219,458 6(17) 756 669 12(2) 27 - 8,293 4,660 ( 3,380 ) ( 3,540 ) 6(15) - ( 555 ) 10,254 ( 6,082 ) 1,971 - ( 150 ) ( 52 ) ( 240,348 ) 206,328 5,774 ( 4,235 ) 45,157 ( 54,162 ) ( 18,427 ) ( 7,547 ) 303 6,633 70,917 ( 4,408 ) 32,751 9,432 149 ( 4,876 ) ( 89 ) 7 797,434 850,909 3,380 3,540 ( 8,293 ) ( 4,660 ) ( 97,353 ) ( 72,717 ) 695,168 777,072 6(2) - 110 6(22) ( 127,974 ) ( 1,242,001 ) - 555 ( 1,536 ) ( 894 ) ( 65,443 ) ( 27,404 ) 62 ( 62 ) ( 194,891 ) ( 1,269,696 ) 20,000 380,000 ( 30,000 ) 500,000 ( 1,694 ) - 6(12)(13) ( 462,265 ) ( 462,265 ) 6(11) - ( 241,471 ) 6(11) 241,462 - ( 232,497 ) 176,264 ( 10,254 ) 6,082 257,526 ( 310,278 ) 6(1) 617,023 927,301 6(1) $ 874,549 $ 617,023

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

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VISUAL PHOTONICS EPITAXY CO., LTD. NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

1. History and Organization

Visual Photonics Epitaxy Co., Ltd. (the “Company”) was incorporated in November 1996. The Company is primarily engaged in research & development, manufacture and sales of optoelectronic semiconductors epitaxy, optoelectronic components products and etc. On January 24, 2002, the Company’s common stock was officially listed on the Taiwan Stock Exchange Corporation.

1. The Date of Authorisation for Issuance of the Financial Statements and Procedures for Authorisation

2. These financial statements were authorised for issuance by the Board of Directors on March 19, 2020.

3. Application of New Standards, Amendments and Interpretations

• (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

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

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

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

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

• B. The Company has elected to apply IFRS 16 by not restating the comparative information (referred herein as the ‘modified retrospective approach’) when applying “IFRSs” effective in 2019 as endorsed by the FSC. Accordingly, the Company increased both ‘right-of-use’ and ‘lease liability’

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by $2,258 with respect to the lease contracts of lessees on January 1, 2019.

• C. The Company has used the following practical expedients permitted by the standard at the date of initial application of IFRS 16:

• (a) Reassessment as to whether a contract is, or contains, a lease is not required, instead, the application of IFRS 16 depends on whether or not the contracts were previously identified as leases applying IAS 17 and IFRIC 4.

• (b) The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.

• (c) The accounting for operating leases whose period will end before December 31, 2019 as shortterm leases and accordingly, rent expense of $727 was recognised in 2019.

• (d) The exclusion of initial direct costs for the measurement of ‘right-of-use asset’.

• (e) The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

• (f) The adjustment of the ‘right-of-use asset’ by the amount of any provision for onerous leases.

• D. The Company calculated the present value of lease liabilities by using weighted average incremental borrowing interest rate of 1.09%.

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

January 1, 2019 is as follows:
Operating lease commitments disclosed by applying IAS 17 as at	$	2,810
December 31, 2018
Less: Short-term leases	(	524)
Total lease contracts amount recognised as lease liabilities by applying
IFRS 16 on January 1, 2019	$	2,286
Incremental borrowing interest rate at the date of initial application		1.09%
Lease liabilities recognised as at January 1, 2019 by applying IFRS 16	$	2,258

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

the Company

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

the Company New standards, interpretations and amendments endorsed by the FSC follows:	effective from 2020 are
New Standards,Interpretations and Amendments	Effective date by International Accounting Standards Board
Amendment to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition of Material’ Amendments to IFRS 3, ‘Definition of a business’	January 1, 2020 January 1, 2020

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Effective date by International Accounting New Standards, Interpretations and Amendments Standards Board Amendments to IFRS 9, IAS 39 and IFRS 7, ‘Interest rate benchmark January 1, 2020 reform’

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

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

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

International Accounting New Standards, Interpretations and Amendments Standards Board Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between To be determined by an investor and its associate or joint venture’ International Accounting Standards IFRS 17, ‘Insurance contracts’ January 1, 2021 Amendments to IAS 1, ‘Classification of liabilities as current or non-current’ January 1, 2022

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

4. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these financial statements are set out

below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

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

(2) Basis of preparation

• A. Except for the following items, the financial statements have been prepared under the historical cost convention:

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

• (b) Defined benefit assets and liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation.

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

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are disclosed in Note 5.

(3) Foreign currency translation

• Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the “functional currency”). The financial statements are presented in New Taiwan Dollars, which is the Company’s functional and presentation currency.

Foreign currency transactions and balances

• A. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.

• B. Monetary assets and liabilities denominated in foreign currencies at the period end are retranslated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.

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

• D. All foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains and losses’.

(4) Classification of current and non-current items

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

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

• (b) Assets held mainly for trading purposes;

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

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

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

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

• (b) Liabilities arising mainly from trading activities;

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

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

• (5) Cash equivalents

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

• (6) Financial assets at fair value through other comprehensive income

• A. Financial assets at fair value through other comprehensive income comprise equity securities which are not held for trading, and for which the Company has made an irrevocable election at initial recognition to recognise changes in fair value in other comprehensive income.

• B. On a regular way purchase or sale basis, financial assets at fair value through other comprehensive income are recognised and derecognised using trade date accounting.

• C. At initial recognition, the Company measures the financial assets at fair value plus transaction costs. The Company subsequently measures the financial assets at fair value:

  • The changes in fair value of equity investments that were recognised in other comprehensive income are reclassified to retained earnings and are not reclassified to profit or loss following the derecognition of the investment. Dividends are recognised as revenue when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Company and the amount of the dividend can be measured reliably.

• (7) Accounts and notes receivable

• A. Accounts receivable entitle the Company a legal right to receive consideration in exchange for transferred goods or rendered services.

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

(8) Impairment of financial assets

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

(9) Derecognition of financial assets

The Company derecognises a financial asset when the contractual rights to receive the cash flows

~17~

from the financial asset expire.

• (10) Inventories

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

(11) Property, plant and equipment

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

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

• C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.

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

  • ～

  • Buildings and structures 50 60 years

  • ～

  • Machinery and equipment 3 15 years

  • ～

  • Office equipment 3 10 years

  • Other equipment 3 ～ 15 years

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

Effective 2019

• A. Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Company. For short-term leases or leases of low-value assets, lease payments are recognised as an expense on a straight-line basis over the lease term.

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• B. Lease liabilities include the net present value of the remaining lease payments at the commencement date, discounted using the incremental borrowing interest rate. Lease payments are comprised of the following:

• (a) Fixed payments, less any lease incentives receivable;

• (b) Variable lease payments that depend on an index or a rate;

• (c) Amounts expected to be payable by the lessee under residual value guarantees;

• (d) The exercise price of a purchase option, if the lessee is reasonably certain to exercise that option; and

• (e) Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

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

• C. At the commencement date, the right-of-use asset is stated at cost comprising the following:

• (a) The amount of the initial measurement of lease liability;

• (b) Any lease payments made at or before the commencement date;

• (c) Any initial direct costs incurred by the lessee; and

• (d) An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

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

(13) Leased assets/operating leases (lessee)

Prior to 2019

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

(14) Intangible assets

Intangible assets, mainly patent and computer software, are recognised at cost and amortised on a straight-line basis over their estimated useful lives of 3 ~ 5 years.

(15) Impairment of non-financial assets

The Company assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons

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for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

• (16) Borrowings

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

(17) Notes and accounts payable

• A. Accounts payable are liabilities for purchases of goods or services and notes payable are those resulting from operating and non-operating activities.

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

(18) Derecognition of financial liabilities

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

(19) Employee benefits

• A. Short-term employee benefits

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

• B. Pensions

• (a) Defined contribution plans

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

• (b) Defined benefit plans

• i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Company in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date) of a currency and term consistent with the currency and term of the employment benefit obligations.

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     - ii. Remeasurements arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

     - iii. Past service costs are recognised immediately in profit or loss.

• C. Termination benefits

  • Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Company’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Company recognises expense as it can no longer withdraw an offer of termination benefits or it recognises relating restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

• D. Employees’ compensation and directors’ remuneration

  • Employees’ compensation and directors’ remuneration are recognised as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employee compensation is paid by shares, the Company calculates the number of shares based on the closing price at the previous day of the board meeting resolution.

• (20) Income tax

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

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

• C. Deferred tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

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

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

• (21) Share capital

• A. Ordinary shares are classified as equity.

• B. Where the Company repurchases the Company’s equity share capital that has been issued, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders. Where such shares are subsequently reissued, the difference between their book value and any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

(22) Dividends

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

• (23) Revenue recognition

Sales of goods

• A. The Company manufactures and sells optoelectronic semi-conductors epitaxy, component and etc. Sales are recognised 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, or the Company has objective evidence that all criteria for acceptance have been satisfied.

• B. Sales revenue is recognised based on the price specified in the contract, net of the business tax, sales return and discounts. Revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. The estimation is subject to an assessment at each reporting date. No element of financing is deemed present as the sales are made with a credit term of 30 to 90 days after control of goods are transferred, which is consistent with market practice.

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

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(24) Operating segments

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

5. Critical Accounting Judgements, Estimates and Key Sources of Assumption Uncertainty

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

(1) Critical judgements in applying the Company’s accounting policies

None.

(2) Critical accounting estimates and assumptions

• Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Company must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Company evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation.

As of December 31, 2019, the carrying amount of inventories was $330,153.

6. Details of Significant Accounts

(1) Cash and cash equivalents

tails of Significant Accounts Cash and cash equivalents
Cash on hand and revolving funds Checking accounts and demand deposits Time deposits	December 31,2019 335 $ 498,374 375,840 874,549 $	December 31, 2018
		318 $ 463,990 152,715
		617,023 $

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

• B. The Company has no cash and cash equivalents pledged to others.

~23~

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

• (No such transaction was recorded as at December 31, 2019)

• A. Aiming to adjust the stock position, the Company sold $110 of unlisted stocks at fair value and resulted in cumulative gains on disposal amounting to $110 during the year ended December 31, 2018.

• B. Amounts recognized in retained earnings in relation to disposal of the financial assets at fair value through other comprehensive income was $68,773.

• (3) Financial assets at fair value through other comprehensive income

Items Notes receivable	December 31,2019 432 $	December 31,2019 432 $	December 31,2019 432 $	December $	December $	31,2018 281
Accounts receivable	$		514,179	$		273,859
Less: Allowance for uncollectible accounts	(		580)	(		580)
	$		513,599	$		273,279
A. The ageing analysis of accounts receivable and notes receivable are as follows:
Accounts receivable		December 31,2019			December	31,2018
Not past due		$	397,074		$	245,450
Up to 60 days			85,625			25,744
61 to 90 days			7,921			2,504
91 to 180 days			21,753			161
Over 180 days			1,806			-
		$	514,179		$	273,859
Notes receivable		December 31,2019			December	31,2018
Not past due		$	432		$	281

The above ageing analysis was based on past due date.

• B. The Company does not hold any collateral as security.

• C. As of December 31, 2019 and 2018, accounts receivable and notes receivable were all from contracts with customers. And as of January 1, 2018, the balance of receivables from contracts with customers amounted to $480,415.

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

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(4) Inventories

Inventories
Raw materials Work in progress Finished goods Total Raw materials Work in progress Finished goods Total	Allowance for Cost valuation loss 163,129 $ 4,728) ($ 40,510 430) ( 176,694 45,022) ( 380,333 $ 50,180) ($ Allowance for Cost valuation loss 156,772 $ 4,728) ($ 29,708 430) ( 239,509 45,521) ( 425,989 $ 50,679) ($ December 31,2019 December 31,2018	Book value 158,401 $ 40,080 131,672 330,153 $ Book value
		152,044 $ 29,278 193,988
		375,310 $

The cost of inventories recognised as expense for the period:

		For the years ended	For the years ended	December 31,
		2019		2018
Cost of goods sold	$	1,496,637	$	1,284,561
Scrap loss		499		-
(Gain on reversal of) loss on decline in market value	(	499)		3,200
	$	1,496,637	$	1,287,761

The gain on reversal of decline in market value arose from partially scrapping of slow-moving finished goods for the year ended December 31, 2019.

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(5) Property, plant and equipment

2019

				2019	2019
At January 1, 2019 Cost Accumulated depreciation 2019 January 1 Additions Reclassifications Depreciation charge December 31 At December 31, 2019 Cost Accumulated depreciation At January 1, 2018 Cost Accumulated depreciation 2018 January 1 Additions Reclassifications Depreciation charge December 31 At December 31, 2018 Cost Accumulated depreciation	Buildings and Land structures Machinery 141,004 $ 1,040,600 $ 2,678,541 $ - 574,508) ( 1,849,311) ( 141,004 $ 466,092 $ 829,230 $ 141,004 $ 466,092 $ 829,230 $ - 30,716 85,162 - 158,902 962,679 - 53,619) ( 189,596) ( 141,004 $ 602,091 $ 1,687,475 $ 141,004 $ 1,229,493 $ 3,718,928 $ - 627,402) ( 2,031,453) ( 141,004 $ 602,091 $ 1,687,475 $			Unfinished construction Office and equipment under equipment acceptance 21,201 $ 1,105,451 $ 20,560) ( - 641 $ 1,105,451 $ 641 $ 1,105,451 $ - 4,172 - 1,082,125) ( 252) ( - 389 $ 27,498 $ 21,201 $ 27,498 $ 20,812) ( - 389 $ 27,498 $ 2018		Others Total 172,229 $ 5,159,026 $ 141,990) ( 2,586,369) ( 30,239 $ 2,572,657 $ 30,239 $ 2,572,657 $ 8,418 128,468 42,123 81,579 9,697) ( 253,164) ( 71,083 $ 2,529,540 $ 222,770 $ 5,360,894 $ 151,687) ( 2,831,354) ( 71,083 $ 2,529,540 $
							2,529,540 $
							5,360,894 $ 2,831,354) (
							2,529,540 $
	Land 141,004 $ - 141,004 $ 141,004 $ - - - 141,004 $ 141,004 $ - 141,004 $	Buildings and structures 898,826 $ 529,938) ( 368,888 $ 368,888 $ 103,568 38,206 44,570) ( 466,092 $ 1,040,600 $ 574,508) ( 466,092 $	Machinery 2,579,117 $ 1,689,909) ( 889,208 $ 889,208 $ 104,577 2,285 166,840) ( 829,230 $ 2,678,541 $ 1,849,311) ( 829,230 $	Office equipment 20,722 $ 20,458) ( 264 $ 264 $ 616 - 239) ( 641 $ 21,201 $ 20,560) ( 641 $	Unfinished construction and equipment under acceptance - $ - - $ - $ 1,011,107 94,344 - 1,105,451 $ 1,105,451 $ - 1,105,451 $	Others 155,278 $ 134,263) ( 21,015 $ 21,015 $ 17,033 - 7,809) ( 30,239 $ 172,229 $ 141,990) ( 30,239 $	Total
							3,794,947 $ 2,374,568) (
							1,420,379 $
							1,420,379 $ 1,236,901 134,835 219,458) (
							2,572,657 $
							5,159,026 $ 2,586,369) (
							2,572,657 $

• A. The significant components of buildings include main plants, which are depreciated over 50 and 60 years, respectively.

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

• C. For the requirement of production and operation, the Company has successively entered into equipment purchase contracts starting from 2017. As of December 31, 2019 and 2018, the amounts of partial payment for undelivered equipment were $11,303 and $27,439 (shown as ‘prepayments for business facilities’).

~26~

－ (6) Leasing arrangements lessee

Effective 2019

• A. The Company leases various assets including business vehicles. Rental contracts are typically made for periods of 1 to 3 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose covenants, but leased assets may not be used as security for borrowing purposes.

• B. The carrying amount of right-of-use assets and the depreciation charge are as follows:

Transportation equipment (Business vehicles)	At December 31, 2019 Carryingamount 2,706 $	For the year ended December 31, 2019
		Depreciation charge
		1,709 $

• C. The Company increased right-of-use asset by $2,157 for the year ended December 31, 2019.

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

The information on profit and loss accounts relating to	lease contracts is as	follows:
		December 31, 2019
Items affecting profit or loss
Interest expense on lease liabilities	$	38
Expense on short-term lease contracts		727

• E. For the year ended December 31, 2019, the Company’s total cash outflow for leases were $2,459.

• (7) Short-term borrowings

Short-term borrowings
Type of borrowings Bank unsecured borrowings Interest rate range	December 31,2019 470,000 $ 0.88%~0.909%	December 31,2018
		500,000 $
		0.88%~0.90%

The Company did not provide any collateral for the abovementioned borrowings.

• (8) Other payables

Other payables
Wages, salaries and bonus payable Payables on machinery and equipment Other	December 31,2019 202,070 $ 30,462 13,145 245,677 $	December 31,2018
		167,916 $ 29,968 14,548
		212,432 $

~27~

- (9) Long term borrowings

Long-term borrowings
Type of borrowings	Borrowing period and repayment term	Interest rate range	Collateral Land, Building and Machinery Collateral Land, Building and Machinery	December 31,2019
Long-term bank borrowings Secured borrowings Less: Current portion Type of borrowings	Borrowing period is from June 21, 2018 to June 21, 2023 ; interest is repayable monthly. Borrowing period and repayment term	1.1228%~ 1.1230% Interest rate range		400,000 $ -
				400,000 $
				December 31, 2018
Long-term bank borrowings Secured borrowings Less: Current portion	Borrowing period is from June 21, 2018 to June 21, 2023 ; interest is repayable monthly.	1.0907%~ 1.0929%		380,000 $ -
				380,000 $

(10) Pensions

• A. (a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by the end of December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contributions for the deficit by next March.

~28~

(b) The amounts recognised in the balance sheet are as follows:

(c) Movements in net defined benefit liabilities are as follows: December Present value of defined benefit obligations ($ Fair value of plan assets Net defined benefit liability $ Present value of defined benefit obligations Year ended December 31, 2019 Balance at January 1 57) ($ Interest (expense) income - Settlement profit or loss 1) ( 58) ( Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) - Change in financial assumptions 64) ( Experience adjustments 536) ( 600) ( Pension fund contribution - Balance at December 31 658) ($ Present value of defined benefit obligations Year ended December 31, 2018 Balance at January 1 372) ($ Interest (expense) income 79) ( Settlement profit or loss 6) ( 457) ( Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) - Change in financial assumptions 4) ( Experience adjustments 404 400 Pension fund contribution - Balance at December 31 57) ($	December	31,2019 December 31,2018 658) 57) ($ 819 712 161 655 $ Fair value of Net defined plan assets benefit liability 712 $ 655 $ - - 9 8 721 663 17 17 - 64) ( - 536) ( 17 583) ( 81 81 819 $ 161 $ Fair value of Net defined plan assets benefit liability 233 $ 139) ($ - 79) ( 4 2) ( 237 220) ( 401 401 - 4) ( - 404 401 801 74 74 712 $ 655 $

~29~

• (d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s and domestic subsidiaries’ defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorised by the Regulator. The Company and domestic subsidiaries have no right to participate in managing and operating that fund and hence the Company and domestic subsidiaries are unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2019 and 2018 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

• (e) The principal actuarial assumptions used were as follows:

Discount rate Future salary increases	For the years ended December 31,	For the years ended December 31,
	2019 0.90% 2.75%	2018
		1.30%
		2.75%

Future mortality rate was estimated based on the 5th Taiwan Standard Ordinary Experience Mortality Table.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

Increase Decrease 0.25% 0.25% December 31, 2019 Effect on present value of defined benefit obligation 41) ($ 44 $ December 31, 2018 Effect on present value of defined benefit obligation 4) ($ 4 $ Discount rate	Future salary

The sensitivity analysis above is based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once.

~30~

The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

• (f) Expected contributions to the defined benefit pension plans of the Company for the year ending December 31, 2020 amounts to $42.

• (g) As of December 31, 2019, the weighted average duration of the retirement plan is 26 years. The analysis of timing of the future pension payment was as follows:

Within 1 year	$	-
1-2 year(s)		-
2-5 years		-
Over 5 years		830
	$	830

• B. (a) Effective July 1, 2005, the Company has established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.

  • (b) The pension costs under defined contribution pension plans of the Company for the years ended December 31, 2019 and 2018 were $8,103 and $7,628, respectively.

• (11) Share capital/Treasury shares

• A. As of December 31, 2019, the Company’s authorised capital was $2,600,000, consisting of 260,000 thousand shares of ordinary stock (including 15,000 thousand shares reserved for employee stock options), and the paid-in capital was $1,849,059 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected. Movements in the number of the company’s ordinary shares outstanding are as follow:

At January 1 Treasury shares reissued to employees Shares reacquisition (treasury shares) At December 31	2019 2018 181,042 $ 184,906 $ 3,864 - - 3,864) ( 184,906 $ 181,042 $

B. Treasury shares

• (a) Reason for share reacquisition and movements in the number of the Company’s treasury shares are as follows:

(No such transaction was recorded as at December 31, 2019)

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December 31, 2018 Name of company Number of shares holding the shares Reason for reacquisition (In thousands) Carrying amount The Company To be reissued to employees 3,864 $ 241,471

  - (b) Pursuant to the R.O.C. Securities and Exchange Act, the number of shares bought back as treasury share should not exceed 10% of the number of the Company’s issued and outstanding shares and the amount bought back should not exceed the sum of retained earnings, paid-in capital in excess of par value and realised capital surplus.

  - (c) Pursuant to the R.O.C. Securities and Exchange Act, treasury shares should not be pledged as collateral and is not entitled to dividends before it is reissued.

  - (d) Pursuant to the R.O.C. Securities and Exchange Act, treasury shares should be reissued to the employees within three years from the reacquisition date and shares not reissued within the three-year period are to be retired. Treasury shares to enhance the Company’s credit rating and the stockholders’ equity should be retired within six months of acquisition.

• (12) Capital surplus

• A. Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. However, capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

• B. On June 12, 2019, the Stockholders resolved that the Company shall distribute cash dividend of $0.5 (in dollars) per share from the capital surplus arising from paid-in capital in excess of par value on issuance of common stocks amounting to $92,453.

(13) Retained earnings

• A. Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be used to pay all taxes and offset prior years’ operating losses and then 10% of the remaining amount shall be set aside as legal reserve unless existing legal reserve exceeds or is equal to issued share capital. Special reserve is set aside or reversed in accordance with related laws or regulations.

• B. The Company’s dividend policy is summarised below: as the Company operates in a growth stage and future expansion plans are expected in the future years, the earnings dividend policy considers fostering of competitiveness, capital needs in future years and expansion of share capital. For stable growth of earnings per share, dividends are adjusted based on performance, and cash dividends shall account for at least 10% of the total dividends distributed. The Board of Directors shall propose for dividend distribution based on capital structure and budget, and the proposals shall be resolved in shareholders’ meetings.

• C. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their

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share ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company’s paid-in capital.

• D. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

• E. The distribution of 2018 and 2017 earnings had been resolved at the stockholders’ meeting on June 12, 2019 and June 15, 2018, respectively as follows:

Dividends per share Amount (in dollar) Legal reserve 39,717 $ Cash dividends 369,812 2.03 $ 2018	Dividends per share Amount (in dollar) 39,435 $ 462,265 2.50 $ 2017

Information about the distribution of retained earnings of the Company as proposed by the Board of Directors and resolved at the meeting of shareholders will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

• F. On March 19, 2020, the Board of Directors proposed and approved the appropriation of 2019 retained earnings in cash with $2.5 per share, total dividend was $462,265. As of March 19, 2020, abovementioned appropriation of 2019 retained earnings has not been resolved by the shareholders in the meeting.

• G. For the information relating to employees’ compensation and directors’ remuneration, please refer to Note 6(18).

(14) Operating revenue

• A. Disaggregation of revenue from contracts with customers

The Group derives revenue from the transfer of goods and services over time and at a point in time in the following major product lines and geographical regions:

For theyear ended December 31,2019 Revenue from external customer contracts For theyear ended December 31,2018 Revenue from external customer contracts	Taiwan 1,217,245 $ Taiwan 888,915 $	US 1,124,540 $ US 1,041,368 $	All other segments 189,124 $ All other segments 131,837 $	Total
				2,530,909 $
				Total
				2,062,120 $

• B. Contract assets and liabilities

The Company has recognised the following revenue-related contract liabilities:

Advance sales receipts	December 31,2019 6,936 $	December 31,2018
		6,633 $

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Revenue recognised that was included in the contract liability balance at the beginning of the period

Advance sales receipts

For the year ended December 31, 2019 $ 5,890

(15) Other gains and losses

Other gains and losses
			For the years ended		December 31,
			2019		2018
Gains on disposals of property, plant and equipment		$	-	$	555
Net foreign exchange (losses) gains	(		18,808)		25,707
Other losses	(		257)	(	248)
Total	($		19,065)	$	26,014

(16) Finance costs

Interest expense

For theyears ended December 31,	For theyears ended December 31,
2019 8,293 $	2018
	4,660 $

(17) Expenses by nature

Expenses by nature
Change in inventory of finished goods and work in progress Raw materials and supplies used Employee benefit expense Depreciation charges on property, plant and equipment Depreciation charges on right- of-use assets Amortisation charges on intangible assets Other expenses Operating costs and expenses	For theyears ended December 31,
	Operatingcosts Operatingexpenses Operatingcosts Operatingexpenses 52,013 $ - $ 27,832) ($ - $ 931,898 - 857,451 - 209,938 116,775 178,416 101,714 153,502 99,662 155,813 63,645 - 1,709 - - - 756 - 669 149,286 166,387 123,913 144,425 1,496,637 $ 385,289 $ 1,287,761 $ 310,453 $ 2019 2018	2018
	Operatingcosts 52,013 $ 931,898 209,938 153,502 - - 149,286 1,496,637 $		Operatingexpenses
			- $ - 101,714 63,645 - 669 144,425
			310,453 $

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(18) Employee benefit expense

Employee benefit expense
Wages and salaries Labour and health insurance fees Pension costs Other personnel expenses	Operatingcosts Operatingexpenses Operatingcosts Operatingexpenses 176,081 $ 106,375 $ 147,365 $ 92,791 $ 12,299 4,625 11,241 4,270 6,072 2,023 5,731 1,978 15,486 3,752 14,079 2,675 209,938 $ 116,775 $ 178,416 $ 101,714 $ 2019 2018 For theyears ended December 31,
		Operatingcosts 147,365 $ 11,241 5,731 14,079 178,416 $	Operatingexpenses 92,791 $ 4,270 1,978 2,675
			101,714 $

• A. In accordance with the Articles of Incorporation of the Company, a ratio of distributable profit of the current year, after covering accumulated losses, shall be distributed as employees’ compensation and directors’ and supervisors’ remuneration. The ratio shall be at least 5 ~ 15% for employees’ compensation and shall not be higher than 3% for directors’ remuneration.

• B. For the years ended December 31, 2019 and 2018, employees’ compensation was accrued at $56,504 and $43,971 respectively; directors’ remuneration was accrued at $21,189 and $16,489, respectively. The aforementioned amounts were recognised in salary expenses.

• The employees’ compensation and directors’ remuneration were estimated and accrued based on 8% and 3% of distributable profit of current year for the years ended December 31, 2019 and 2018. Employees’ compensation and directors’ remuneration of 2018 as resolved by the meeting of Board of Directors were in agreement with those amounts recognised in the 2018 financial statements. Information about employees’ compensation and directors’ remuneration of the Company as resolved by the Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(19) Income tax

• A. Income tax expense

• (a) Components of income tax expense:

e tax ome tax expense Components of income tax expense:
			For theyears ended		December	31,
			2019		2018
Current tax:
Current tax on profits for the period		$	124,997	$	101,293
Prior year income tax overestimation	(		12,380)	(		7,499)
Total current tax			112,617			93,794
Deferred tax:
Origination and reversal of temporary differences			1,661	(		1,024)
Impact of change in tax rate			-	(		761)
Income tax expense		$	114,278	$		92,009

• (b) The income tax (charge)/credit relating to components of other comprehensive income is as follows:

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Remeasurement of defined benefit obligations Impact of change in tax rate	2019 2018 117 $ 160) ($ - 512 117 $ 352 $ For theyears ended December 31,

B. Reconciliation between income tax expense and accounting profit

						For theyears ended December	For theyears ended December	For theyears ended December	For theyears ended December	For theyears ended December	31,
							2019			2018
	Tax calculated based on profit before tax and					$	125,721	$			97,836
	statutory tax rate (note)
	Change in assessment of realisation of deferred tax
	assets						690				639
	Expenses disallowed by tax regulation						828				741
	Temporary differences not recognised as deferred
	tax assets					(	581)				1,053
	Prior year income tax overestimation					(	12,380)	(			7,499)
	Effect from changes in tax regulation						-	(			761)
	Income tax expense					$	114,278	$			92,009
	Note: The basis for computing the applicable tax rate are the rates applicable for									residents of the
	Republic of China.
	Amounts of deferred tax assets or liabilities				as a result of temporary differences					are as follows:
						Year ended	December 31,2019
							Recognised in	other
				Recognised in			comprehensive
		January1			profit or loss		income			December 31
	Temporary differences:
	－Deferred tax assets:
	Inventory at hub
	recognised as gross profit	$	9,228	($		4,694)	$		-	$	4,534
	Book-Tax difference of
	pension		-			-			-		-
	Others		256			3,051			-		3,307
	Subtotal	$	9,484	($		1,643)	$		-	$	7,841
	－Deferred tax liabilities:
	Book-Tax difference of
	pension	($	131)	($		18)	$		117	($	32)
		$	9,353	($		1,661)	$		117	$	7,809

Note: The basis for computing the applicable tax rate are the rates applicable for residents of the Republic of China.

C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

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Temporary differences: －Deferred tax assets: Inventory at hub recognised as gross profit Book-Tax difference of pension Others Subtotal －Deferred tax liabilities: Book-Tax difference of pension		Year ended December 31,2018
	Recognised in January1 profit or loss 5,448 $ 3,780 $ 23 23) ( 1,745 1,489) ( 7,216 $ 2,268 $ - $ 483) ($ 7,216 $ 1,785 $

• D. The amounts of deductible temporary difference that are not recognised as deferred tax assets are as follows:

Deductible temporary differences

December 31,2019 59,004 $	December 31,2018
	61,908 $

• E. The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority.

• F. Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China on February 7, 2018, the Company’s applicable income tax rate was raised from 17% to 20% effective from January 1, 2018. The Company has assessed the impact of the change in income tax rate.

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(20) Earnings per share

Earnings per share
Basic earnings per share Profit attributable to ordinary shareholders Diluted earnings per share Profit attributable to ordinary shareholders Assumed conversion of all dilutive potential ordinary shares Employees’ compensation Profit attributable to ordinary shareholders plus assumed conversion of all dilutive potential ordinary shares Basic earnings per share Profit attributable to ordinary shareholders Diluted earnings per share Profit attributable to ordinary shareholders Assumed conversion of all dilutive potential ordinary shares Employees’ compensation Profit attributable to ordinary shareholders plus assumed conversion of all dilutive potential ordinary shares	Amount after tax 514,325 $ 514,325 $ - 514,325 $ For the For the	Weighted average number of ordinary shares outstanding (share in thousands) 184,332 184,332 590 184,922 $ year ended December 31, year ended December 31,	Earnings per share (in dollars) 2019
			2.79 $
			2.78 $
			2018
	Amount after tax 397,170 $ 397,170 $ - 397,170 $	Weighted average number of ordinary shares outstanding (share in thousands) 184,144 184,144 674 184,818 $	Earnings per share (in dollars)
			2.16 $
			2.15 $

(21) Operating leases

Effective 2018

The company’s transportation equipment is obtained through operating leases. The lease terms were

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between 1 to 3 years. Rent expenses recognized through current profit or loss for year ended December 31, 2018 was $2,470. The future aggregate minimum lease payments receivable under non-cancellable operating lease are as follows:

Not later than one year Later than one year but not later than five years

December	31,2018
$	1,560
	1,250
$	2,810

(22) Supplemental cash flow information

A. Investing activities with partial cash payments

Purchase of property, plant and equipment Add: Opening balance of payable on equipment Less: Ending balance of payable on equipment Cash paid during the period

	For theyears ended	For theyears ended	December 31,
	2019		2018
$	128,468	$	1,236,901
	29,968		35,068
(	30,462)	(	29,968)
$	127,974	$	1,242,001

• B. Investing activities with no cash flow effects

For the years ended December 31,

Prepayments for business facilities transferred to property, plant and equipment

2019 81,579 $	2018 134,835 $

7. Related Party Transactions

(1) Parent and ultimate controlling party

None.

(2) Names of related parties and relationship

None.

(3) Key management compensation

For the years ended December 31,

Salaries and other short-term employee benefits Post-employment benefits Total	2019 67,605 $ 644 68,249 $	2018
		63,933 $ 605
		64,538 $

8. Pledged Assets

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

Pledged asset Property, plant and equipment	December 31,2019 December 31,2018 Purpose 1,175,803 $ 1,121,987 $ For guarantee of long-term loans Book value	Purpose
	December 31,2019 1,175,803 $

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9. Significant Contingent Liabilities and Unrecognized Contract Commitments (1) Contingencies

None.

(2) Commitments

• A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

December 31, 2019 December 31, 2018 Property, plant and equipment $ 39,980 $ 130,171

• B. Guarantee for customs duties

The Company’s guarantee for customs duties is as follows:

December 31, 2019 December 31, 2018 $ 10,000 $ 10,000

10. Significant Disaster Loss

None.

11. Significant Events after the Balance Sheet Date

• (1) On March 19, 2020, the Board of Directors proposed the appropriation of 2019 earnings. For details of the appropriation, please refer to Note 6(13).

• (2) On March 19, 2020, the Board of Directors announced the repurchase of 5,000 shares in the open market during March 20 to May 19, 2020 in order to motivate employees and improve their morale. The buyback range is between NT$58 to NT$108 per share.

12. Others

(1) Capital management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the balance sheet). Total capital is calculated as ‘equity’ as shown in the balance sheet.

The gearing ratios at December 31, 2019 and 2018 were as follows:

Total borrowings Total equity Gearing ratio	December 31,2019 870,000 $ 2,830,879 $ 31%	December 31,2018 880,000 $ 2,535,852 $ 35%

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(2) Financial instruments

A. Financial instruments by category

nancial instruments Financial instruments by category
Financial assets Financial assets at amortised cost Cash and cash equivalents Notes receivable Accounts receivable Other receivables Guarantee deposits paid Financial liabilities Financial liabilities at amortised cost Short-term borrowings Accounts payable Other accounts payable Long-term borrowings (including current portion) Lease liability	December 31,2019 874,549 $ 432 513,599 1,135 67 1,389,782 $ December 31,2019 470,000 $ 303,605 245,677 400,000 1,419,282 $ 2,721 $	December 31,2018
		617,023 $ 281 273,279 6,909 129
		897,621 $
		December 31,2018
		500,000 $ 232,688 212,432 380,000
		1,325,120 $
		- $

• B. Financial risk management policies

• (a) The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk.

• (b) Risk management is carried out by Company treasury department under policies approved by the Board of Directors. Company treasury identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

• C. Significant financial risks and degrees of financial risks

• (a) Market risk

Foreign exchange risk

• i. The Company’s businesses involve some non-functional currency operations (the Company’s functional currency is NTD). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

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Financial assets Monetary items USD:NTD Financial liabilities Monetary items USD:NTD Financial assets Monetary items USD:NTD Financial liabilities Monetary items USD:NTD	December 31,2019	December 31,2019
	Foreign currency amount (In thousands) Exchange rate 29,444 $ 29.98 7,743 $ 29.98 December 31,2018		Book value (NTD)
			882,731 $ 232,135 $
	Foreign currency amount (In thousands) 17,288 $ 5,413 $	Exchange rate 30.72 30.72	Book value (NTD)
			531,087 $ 166,287 $

• ii. Analysis of foreign currency market risk arising from significant foreign exchange variation:

variation:
Financial assets Monetary items USD:NTD Financial liabilities Monetary items USD:NTD Financial assets Monetary items USD:NTD Financial liabilities Monetary items USD:NTD		December 31,2019
		Sensitivityanalysis
	Degree of variation 1% 1%	Effect on profit Effect on other or loss comprehensive income 8,827 $ - $ 2,321 $ - $ December 31,2018	Effect on other comprehensive income
		Sensitivityanalysis
	Degree of variation 1% 1%	Effect on profit or loss 5,311 $ 1,663 $	Effect on other comprehensive income
			- $ - $

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• iii. Total exchange gain (loss), including realized and unrealised arising from significant foreign exchange variation on the monetary items held by the Company for the years ended December 31, 2019 and 2018, amounted to ($18,808) and $25,707, respectively.

• Price risk

Not applicable.

Cash flow and fair value Interest rate risk

• i. The Company’s main interest rate risk arises from long-term borrowings issued at variable rates expose the Company to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. For the years ended December 31, 2019 and 2018, the Company’s borrowings at variable rate were mainly denominated in New Taiwan dollars.

• ii. If the borrowing interest rate of New Taiwan dollars had increased/decreased by 1% with all other variables held constant, profit, net of tax for the years ended December 31, 2019 and 2018 would have increased/decreased by $3,200 and $3,040. The main factor is that changes in interest expense result in floating-rate borrowings.

• (b) Credit risk

• i. Credit risk refers to the risk of financial loss to the Company arising from default by the clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms.

• ii. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored.

• iii. The Company adopts the assumptions under IFRS 9, the default occurs when the contract payments are past due over 90 days.

• iv. The Company adopts following assumptions under IFRS 9 to assess when the contract payments were past due over 30 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition.

• v. The Company classifies customers’ accounts receivable in accordance with customer types. The Company applies the modified approach to estimate expected credit loss under the provision matrix basis.

• vi. The Company used the forecast ability of Taiwan Institute of Economic Research boom observation report to adjust historical and timely information to assess the default possibility of accounts receivable. On December 31, 2019 and 2018, the provision matrix

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is as follows:

At December 31, 2019 Expected loss rate Total book value Loss allowance At December 31, 2018 Expected loss rate Total book value Loss allowance	Without Up to 60 past due days 0.03% 0.07% 397,074 $ 85,625 $ 119 $ 60 $ Without Up to 60 past due days 0.03% 0.07% 245,450 $ 25,744 $ 74 $ 18 $	Up to 90 days 0.20% 7,921 $ 16 $ Up to 90 days 0.20% 2,504 $ 327 $	Up to 180 days 15.00% 21,753 $ 385 $ Up to 180 days 15.00% 161 $ 161 $	Over 181 days Total 100.00% 1,806 $ 514,179 $ - $ 580 $ Over 181 days Total 100.00% - $ 273,859 $ - $ 580 $

• vii. Movements in relation to the Company applying the modified approach to provide loss allowance for accounts receivable is as follows:

			2019			2018
		Accounts receivable			Accounts receivable
At January 1	$			580	$	580
Provision for impairment				27		-
Write-offs	(			27)		-
At December 31	$			580	$	580

(c) Liquidity risk

• i. Cash flow forecasting is performed in the operating units of the Company and aggregated by the Company’s treasury department. The Company’s treasury department monitors rolling forecast of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs.

• ii. The treasury department invests surplus cash in interest bearing current accounts and time deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.

• iii. The table below analyses the Company’s non-derivate financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

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Non-derivative financial liabilities

Non-derivative financial liabilities
		Less than 1year		Over 1years
December 31, 2019
Short-term borrowings	$	470,380	$	-
Accounts payable		303,605		-
Other payables		245,677		-
Other current payables		5,266		-
Lease liability		1,794		952
Long-term borrowings
(including current portion)		4,492		411,100
Non-derivative financial liabilities
		Less than 1 year		Over 1 years
December 31, 2018
Short-term borrowings	$	500,374	$	-
Accounts payable		232,688		-
Other payables		212,432		-
Other current payables		5,117		-
Long-term borrowings
(including current portion)		4,151		394,217
iv. The Company does not expect the timing	of	occurrence of the	cash flows estimated
through the maturity date analysis will be significantly earlier, nor			expect the actual cash
flow amount will be significantly different.

(3) Fair value information

• A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3: Unobservable inputs for the asset or liability.

• B. The balance of financial instruments measured at fair value on December 31, 2019 and 2018 is 0, so there is no disclosure of relevant fair value information.

• C. For the year ended December 31, 2019 and 2018, there was no transfer between Level 1 and Level 2.

• D. For the year ended December 31, 2019 and 2018, there was no transfer in and out from level 3.

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13. Supplementary Disclosures

(1) Significant transactions information

• A. Loans to others: None.

• B. Provision of endorsements and guarantees to others: None.

• C. Holding of securities at the end of the period (not including subsidiaries, associates and joint ventures): None.

• D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.

• E. Acquisition of real estate reaching $300 million or 20% of the Company’s paid-in capital or more: None.

• F. Disposal of real estate reaching $300 million or 20% of the Company’s paid-in capital or more: None.

• G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of the Company’s paid-in capital or more: None.

• H. Receivables from related parties reaching $100 million or 20% of the Company’s paid-in capital or more: None.

• I. Trading in derivative instruments undertaken during the reporting periods: None.

• J. Significant inter-company transactions during the reporting periods: None.

(2) Information on investees

None.

(3) Information on investments in Mainland China

None.

14. Segment Information

(1) General information

The Company operates business only in a single industry. The Board of Directors who allocates resources and assesses performance of the Company as a whole, has identified that the Company has only one reportable operating segment.

(2) Information about segment profit or loss, assets and liabilities

The Company’s segment information, including segment income or loss, assets and liabilities, is consistent with that in the financial statements.

(3) Reconciliation for segment income (loss)

The Company operates business only in a single industry. The Chief Operating Decision-Maker, who allocates resources and assesses performance of the Company as a whole, has identified that the Company has only one reportable operating segment, therefore, no reconciliation was needed.

(4) Information on products and services

The Company is primarily engaged in manufacturing and sales of optoelectronic semi-conductors epitaxy and optoelectronic components products. Currently, the Company has no other significant products or services provided.

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(5) Geographical information

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

		Year ended December	Year ended December	31,2019		Year ended December	Year ended December	31, 2018
		Revenue	Non-current assets			Revenue	Non-current assets
Taiwan	$	1,217,245	$	2,546,357	$	888,915	$	2,602,124
US		1,124,540		-		1,041,368		-
Others		189,124		-		131,837		-
	$	2,530,909	$	2,546,357	$	2,062,120	$	2,602,124

(6) Major customer information

Major customer information of the Company for the years ended December 31, 2019 and 2018 is as follows:

ollows:
Customer Net Sales Customer A 774,234 $ Customer C 460,676 Customer B 339,725 Customer D 271,137 Year ended December31,2019	% Customer Net Sales 31 Customer A 473,635 $ 18 Customer B 429,863 13 Customer C 429,677 11 Year ended December 31, 2018
		%
		23 21 21

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VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF CASH AND CASH EQUIVALENTS DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 1

==> picture [495 x 194] intentionally omitted <==

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

Item Summary Amount Note
Cash on hand and revolving
funds $ 335
Demand deposits and
checking accounts
TWD deposits 120,666
Foreign currency deposits USD 12,575 thousand dollars 377,012 Exchange rate 29.98
JPY 40 thousand dollars 11 Exchange rate 0.276
HKD 178 thousand dollars 685 Exchange rate 3.849
Time deposits
TWD deposits 136,000
Foreign currency deposits USD 8,000 thousand dollars 239,840 Exchange rate 29.98
$ 874,549
----- End of picture text -----

Details table 1,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF ACCOUNTS RECEIVABLE DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 2
Customer		Amount		Note
Third parties:
L-021	$	175,646
L-007		128,116
O-022		50,572
O-252		40,476
Others		119,369	Each item does not
			exceed	5% of account balance
		514,179
Less: allowance for bad debts	(	580)
	$	513,599

Details table 2,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF INVENTORIES

DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 3

Details table 3
Item		Cost		Market Value	Note
Raw materials	$	163,129	$	164,450	Replacement cost as net realizable value
Work in process		40,510		73,326	Net realizable value as market price
Finished goods		176,694		206,808	Net realizable value as market price
Less: Provision for decline		380,333	$	444,584
in market value	(	50,180)
	$	330,153

Details table 3,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 4

Item Opening net book amount as at January1,2019 Addition Deductions Transfer Cost Land 141,004 $ - $ - $ - $ Bulidings and structures 1,040,600 30,716 725) ( 158,902 Machinery and equipment 2,678,541 85,162 7,454) ( 962,679 Office equipment 21,201 - - - Unfinished construction and equipment under acceptance 1,105,451 4,172 - 1,082,125) ( Other 172,229 8,418 - 42,123 5,159,026 128,468 $ 8,179) ($ 81,579 $ Accumulated depreciation Bulidings and structures 574,508) ($ 53,619) ($ 725 $ - $ Machinery and equipment 1,849,311) ( 189,596) ( 7,454 - Office equipment 20,560) ( 252) ( - - Other 141,990) ( 9,697) ( - - 2,586,369) ( 253,164) ($ 8,179 $ - $ 2,572,657 $

Details table 4,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF SHORT-TERM LOANS DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 5

Details table 5
Type of borrowings	Notes Financial institutions borrowings 〝 〝	Balance at December 31,2019 90,000 $ 180,000 200,000 470,000 $	Contract Period	Interest rate range	Financingline	Collateral
Letter of credit borrowings 〝 〝			2019.12.20~2020.1.20 2019.10.31~2020.3.22 2019.12.16~2020.1.15	0.909% 0.88%~0.89% 0.89%~0.90%	180,000 $ 180,000 200,000	None 〝 〝

Details table 5,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF ACCOUNTS PAYABLE DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 6

Details table 6
Suppliers PW001 PW004 PG004 Others	Amount 116,963 $ 92,994 29,394 64,254 303,605 $	Note
		Each item does not exceed 5% of account balance

Details table 6,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF LONG-TERM LOANS DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 7

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Creditor Description Amount Term of Contract Rat(%) Collateral Footnote
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Bank of Taiwan Guaranteed loan 〝 〝	200,000 $ 2018.06.21~2023.06.21 1.1228% Land, Building and Machinery None 200,000 〝 1.123% 〝 〝 400,000 $

Details table 7,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF OPERATING REVENUE FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 8

Item Quantity Amount Note Operating revenue Compound semiconductor wafer product and other items 294,899 (pcs) $ 2,546,057 Less: Sales returns ( 5,976) Less: Sales discounts ( 9,172) $ 2,530,909

Details table 8,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF OPERATING COST FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 9

Details table 9
Items Amount Opening raw materials 156,772 $ Add: Current purchases 1,039,481 Less: Closing raw materials 163,129) ( Cost of sales of raw materials 1,484) ( Transfer expenses 99,742) ( Current used raw materials 931,898 Direct labour 21,477 Production overheads 495,397 Production costs 1,448,772 Add: Opening work in progress 29,708 Less: Closing work in progress 40,510) ( Cost of finished goods 1,437,970 Add: Opening finished goods 239,509 Less: Closing finished goods 176,694) ( Transfer expenses 5,554) ( Current cost of manufacture and sales 1,495,231 Add: Cost of sales of raw materials 1,484 Others 78) ( Cost of goods sold 1,496,637 Scrap loss 499 Loss on decline in market value 499) ( Current operating costs 1,496,637 $	Note

Details table 9,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF MANUFACTURING OVERHEAD FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 10
Item	Summary	Amount	Note
Wages and salaries	$	154,604
Depreciation expense		153,502
Repair and maintenance expense		52,963
Utility fee		45,485
Indirect materials		26,039
Other expenses		62,804	Each item does not
			exceed 5% of
			account balance
	$	495,397

Details table 10,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF SELLING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 11 Item	Summary	Amount 4,247 $ 4,005 2,649 10,901 $	Note Each item does not exceed 5% of account balance
Import/export expense Wages and salaries Other expenses

Details table 11,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 12
Item	Summary	Amount	Note
Wages and salaries	$	73,570
Utility fee		16,236
Other expenses		27,957	Each item does not
			exceed 5% of
			account balance
	$	117,763

Details table 12,Page1

VISUAL PHOTONICS EPITAXY CO., LTD. DETAILS OF RESEARCH AND DEVELOPMENT EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Details table 13 Item Summary Amount Note Depreciation expense $ 99,214 R&D materials 91,548 Wage and salaries 28,800 Repair and maintenance expense 16,252 Other expenses 20,784 Each item does not exceed 5% of account balance $ 256,598

Details table 13,Page1

VISUAL PHOTONICS EPITAXY CO., LTD.

CURRENT EMPLOYEE BENEFITS, DEPRECIATION, AND AMORTISATION EXPENESS SUMMARIZED BY FUNCTION FOR THE YEAR ENDED DECEMBER 31, 2019

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Detail table 14

Detail table 14
By nature By function	Year ended December 31,2019			Year ended December 31,2018
	Operating Costs	Operating Expenses	Total	Operating Costs	Operating Expenses	Total
Employee Benefit Expense
Wages and salaries	176,081 $	81,178 $	257,259 $	147,365 $	72,368 $	219,733 $
Labour and health insurance fees	12,299	4,625	16,924	11,241	4,270	15,511
Pension expense	6,072	2,023	8,095	5,731	1,978	7,709
Directors’remuneration	-	25,197	25,197	-	20,423	20,423
Other employee benefit expense	15,486	3,752	19,238	14,079	2,675	16,754
Depreciation charges on property, plant and equipment	153,502 $	99,662 $	253,164 $	155,813 $	63,645 $	219,458 $
Amortisation	- $	756 $	756 $	- $	669 $	669 $
Depreciation charges on right-of-use	- $	1,709 $	1,709 $	- $	- $	- $

Note:

1. As at December 31, 2019 and 2018, the Company had 251 and 238 employees,including 7 and 6 non-employee directors, respectively.

2. A company whose stock is listed for trading on the stock exchange or over-the-counter securities exchange shall additionally disclose the following information ：

3. (1) Average employee benefit expense in current year $ 1,236.

Average employee benefit expense in previous year $ 1,119.

• (2) Average employees salaries in current year $ 1,054.

Average employees salaries in previous year $ 947.

• (3) Adjustments of average employees salaries 11.30%

Detail table 14,Page1