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Stock Code: 3324

Auras Technology Co., Ltd.

2019

Annual Report

Published on April 11 2020

The annual report can also be checked on the following website at: (website at: Uhttp://mops.twse.com.twU)

I. The name, title and TEL of the Company’s spokesman:

Name of spokesperson: Yen Pei-Hsu

Title: Accounting Supervisor

TEL: (02)8990-1653

E-mail address: [email protected]

Name of deputy spokesperson: Huang Yi-Ting

Title: Deputy Manager, Treasury Department

TEL: (02)8990-1653

E-mail address: [email protected]

II. Address and telephone number of the Head Office and branches:

Head office address: 3F., No.6, Wuquan 3rd Rd., Xinzhuang Dist., New Taipei City

TEL: (02)8990-1653

III. Name, address, website, and contact number of share administration agency:

(I) Name: Share Administration Department, Taishin International Bank Co., Ltd.

(II) Address: B1F., No.96, Sec. 1, Jianguo N. Rd., Taipei City

(III) TEL: (02)2504-8125

(IV) Website: www.taishinbank.com.tw

IV. Name of CPAs, accounting firm, address, website and TEL for the financial reports of the most recent year.

(I) Name: Hsu Yung-Chien, Wu Han-Chi

(II) Auditor's firm: PwC Taiwan

(III) Address: 27F, No.333, Keelung Road Section I, Taipei City

(IV) TEL: (02)2729-6666

(V) Website: http://www.pwc.com/tw

V. Name of overseas exchange where securities are listed, and the methods for inquiring the foreign-listed securities: None.

VI. Company website: http://www.auras.com.tw

Table of Contents ONE. REPORT TO SHAREHOLDERS ....................................................................................................... 1

TWO. COMPANY PROFILE ........................................................................................................................ 4

THREE. CORPORATE GOVERNANCE .................................................................................................... 7

I. ORGANIZATIONAL STRUCTURE ...................................................................................................... 7

II. BACKGROUND INFORMATION OF DIRECTORS, SUPERVISORS, PRESIDENT, VICE PRESIDENTS, ASSISTANT MANAGERS, AND THE HEADS OF VARIOUS DEPARTMENTS

AND BRANCHES .............................................................................................................................. 10 III. REMUNERATION OF DIRECTORS AND MANAGERS ..................................................................... 15 IV. CORPORATE GOVERNANCE .......................................................................................................... 19 V. DISCLOSURE OF CPAS’ REMUNERATION .................................................................................... 44 VI. CHANGE OF CPA ........................................................................................................................... 45

VII. IF THE COMPANY’S CHAIRMAN, PRESIDENT, AND FINANCE OR ACCOUNTING OFFICER

HAD TAKEN A JOB POSITION WITH THE ATTESTATION CPA FIRM OR ITS AFFILIATED

ENTERPRISES WITHIN ONE YEAR, THE NAME, JOB POSITION, AND THE

EMPLOYMENT PERIOD WITH THE ATTESTATION CPA FIRM OR ITS AFFILIATED

ENTERPRISES SHOULD BE DISCLOSED .......................................................................................... 45

VIII. SHAREHOLDING TRANSFERS AND SHARE COLLATERALIZATION WITHIN THE LATEST YEAR, UP TILL THE PUBLICATION DATE OF THIS ANNUAL REPORT, INITIATED BY DIRECTORS, SUPERVISORS, MANAGERS AND SHAREHOLDERS WITH MORE THAN 10% OWNERSHIP

INTEREST ....................................................................................................................................... 46

IX. RELATIONSHIPS AMONG THE COMPANY’S TOP TEN SHAREHOLDERS INCLUDING SPOUSES, SECOND DEGREE RELATIVES OR CLOSER .................................................................................... 47

X. INVESTMENTS JOINTLY HELD BY THE COMPANY, THE COMPANY’S DIRECTORS, SUPERVISORS, MANAGERS, AND ENTERPRISES DIRECTLY OR INDIRECTLY CONTROLLED BY

THE COMPANY. CALCULATE SHAREHOLDING IN AGGREGATE OF THE ABOVE PARTIES ......... 48

FOUR. FUNDING STATUS ......................................................................................................................... 49

I. THE COMPANY’S CAPITAL STOCK AND STOCK SHARES ............................................................. 49 II. EXECUTION STATUS OF ISSUING CORPORATE BONDS (INCLUDING OVERSEAS BONDS) ............ 54 III. DISCLOSURE RELATING TO PREFERENCE SHARES ...................................................................... 55 IV. DISCLOSURE RELATING TO DEPOSITORY RECEIPTS ................................................................... 55 V. EMPLOYEE STOCK CERTIFICATES ............................................................................................... 56 VI. THE NEW SHARES FROM RESTRICTED EMPLOYEE STOCK OPTION ............................................ 57 VII. DISCLOSURE ON NEW SHARES ISSUED IN EXCHANGE OF OTHER COMPANY SHARES ................ 58 VIII. PROGRESS ON THE USE OF FUNDS ................................................................................................ 58

FIVE. BUSINESS PERFORMANCE .......................................................................................................... 59

I. CONTENT OF BUSINESS ................................................................................................................. 59 II. MARKET AND SALES OVERVIEW .................................................................................................. 66 III. INFORMATION OF EMPLOYEES DURING THE MOST 2 RECENT YEARS ..................................... 71 IV. CONTRIBUTION TO ENVIRONMENTAL PROTECTION .................................................................. 71 V. EMPLOYER AND EMPLOYEE RELATIONSHIPS .............................................................................. 72 VI. MAJOR CONTRACTS ...................................................................................................................... 73

SIX. FINANCIAL SUMMARY .................................................................................................................... 74

I. SUMMARY BALANCE SHEET AND INCOME STATEMENT FOR THE LAST 5 YEARS ...................... 74 II. FINANCIAL ANALYSIS FOR THE LATEST 5 YEARS ........................................................................ 78 III. THE 2019 SUPERVISOR’S REVIEW REPORT. ............................................................................... 81 IV. 2019 INDIVIDUAL FINANCIAL REPORTS AUDITED BY THE CPA ................................................ 81 V. 2019 CONSOLIDATED FINANCIAL REPORTS AUDITED BY THE CPA ......................................... 81

VI. THE FINANCIAL DIFFICULTIES OF THE COMPANY AND ITS AFFILIATES DURING THE MOST

RECENT YEAR AND UP TO THE DATE WHEN THE ANNUAL REPORT WAS PRINTED ................. 81

SEVEN. REVIEW OF FINANCIAL STATUS, BUSINESS PERFORMANCE, AND RISK MANAGEMENT ........................................................................................................................................... 82

I. FINANCIAL STATUS ANALYSIS ...................................................................................................... 82 II. OPERATING RESULTS ANALYSIS ................................................................................................... 83 III. CASH FLOW ANALYSIS .................................................................................................................. 84

IV. MATERIAL CAPITAL EXPENDITURES IN THE LATEST YEAR AND IMPACTS ON

BUSINESS PERFORMANCE.............................................................................................................. 84 V. RE-INVESTMENT POLICIES OF THE MOST RECENT YEAR AND FUTURE INVESTMENT PLANS ... 84 VI. RISK MANAGEMENT ANALYSIS ................................................................................................... 85 VII. OTHER IMPORTANT DISCLOSURES ............................................................................................... 87

EIGHT. SPECIAL REMARKS .................................................................................................................... 88

I. AFFILIATED COMPANIES .............................................................................................................. 88

II. PRIVATE PLACEMENT OF SECURITIES DURING THE LATEST YEAR UP TILL

THE PUBLICATION DATE OF THIS ANNUAL REPORT .................................................................... 94

III. HOLDING OR DISPOSAL OF THE COMPANY’S SHARES BY ITS SUBSIDIARIES DURING

THE LATEST FINANCIAL YEAR, UP TO THE PUBLICATION DATE OF THIS ANNUAL REPORT ...... 94 IV. OTHER SUPPLEMENTARY INFORMATION .................................................................................... 94

V. OCCURRENCES OF EVENTS DEFINED UNDER ARTICLE 36-3-2 OF THE SECURITIES

EXCHANGE ACT IN THE LATEST YEAR UP TILL THE PUBLISHING DATE OF THIS ANNUAL

REPORT THAT SIGNIFICANTLY IMPACTED SHAREHOLDERS' EQUITY OR SECURITY PRICES .... 94

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One. Report to Shareholders Dear shareholders,

Thank you for attending the Company’s 2020 General Shareholders’ Meeting. Here, I represent the Company in appreciating your support and encouragement in the past one year. The following presents the Operating Performance in 2019 and Prospects in 2020.

I. 2019 Business Results

1. Financial income and expense and profitability analysis The net consolidated operating income of the Company for 2019 was NT$10,247,561 thousand;

which increased by 34% compared to the 2018 net consolidated operating income of NT$7,654,265 thousand. The net profit after tax was NT$969,428 thousand. In Year 2019, benefited from the growing demand for 5G smartphones and the launch of new products for servers and display cards, the product mix and production efficiency improved, and the Group's consolidated revenue and gross profit margin grew over Year 2018. The Company will continue sticking to the spirit of innovation and actively engage the expansion of product application range in the upcoming 3-5 years. We will also keep on strengthening the Company’s product competitiveness, hoping to create the greatest benefits for shareholders, customers and employees and enjoy future operation results together.

Consolidated financial statements Unit: NT$ thousand

Item 2018 2019

Revenue and expenses

Operating revenues 7,654,265 10,247,561Operating gross profit 966,978 2,116,501Net income 231,505 969,428

Profitability

Return on assets (%) 4.54 14.92Return on shareholders’ equity (%) 10.27 33.24Operating profits to paid-up capital (%) 21.94 137.45Pre-tax profits to paid-up capital (%) 35.40 140.37Net profit margin (%) 3.02 9.46

Earnings per share ($)

Base earnings per share 2.90 11.71

Diluted earnings per share 2.85 11.39

2. R&D status

(1) Annual R&D expenses for the last 5 years Unit: NT$ thousand

Year Item 2015 2016 2017 2018 2019

Research and Development

expenses 176,065 214,006 219,535 279,699 347,310

Net operating revenue 4,702,015 6,547,230 6,948,786 7,654,265 10,247,561

Percentage to operating revenue 3.74% 3.27% 3.16% 3.65% 3.39%

(2) R&D results

A. Active integrated water cooling module B. Case coolant flow control system host C. Open and closed cabinet water cooling kit and system D. Development of high performance dual loop heat pipe E. Development of thin flat circuit water cooling system F. Development of ultra-thin handheld devices

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G. AI chip high heat dissipation module design H. Closed water-cooled heat dissipation system solution for unmanned autonomous public

transportation’s millisecond artificial intelligence image calculation and logic judgement computer

I. Development of opened water-cooled heat dissipation system for cloud center’s ultra-high-speed artificial image calculation and logic judgement computer

J. Development of closed water-cooled heat dissipation system of cloud center’s ultra-high-speed fiber optic network switch

II. 2020 Business Plan

1. Operation strategies (1) In addition to maintaining the existing markets for desktop computers and notebooks, the

Company will actively expand the market shares in the heat sinking gadgets of products such as the server, communication product, workstation and mobile device, and will continue providing customers with solutions to the needs for heat sinking products.

(2) Continuing enhancing product quality and developing new products to expand operations, and lowering costs and increasing competitiveness via effective internal control and supply chain management.

2. Important production and sales policies

(1) Marketing strategy

A. Strengthening maintaining good cooperation relationship with existing customers, mastering the newest market and striving for the orders of the new-era machine type anytime to increase market share.

B. Developing domestic and overseas new customers, and continuing expanding the potential application market for heat sinking products.

C. Developing multidimensional product lines, and strengthening the new product producing of the existing product line and the development of new products.

(2) Producing and procurement strategy

A. Producing strategy: In response of the expanding market needs, the Company will definitely control the shipment periods and enhance and improve producing ability and quality in order to enhance the productivity of self-owned components and lower production costs.

B. Procurement strategy: Mastering the change of economic condition and market needs, flexibly adjusting the inventory level, and preventing the price fluctuation risk of inactive inventories and raw materials.

(3) Development Strategy

A. Expanding organization scale: Since the Company’s application design of new products is becoming more and more complicated, the Company will continue expanding the human resources of R&D Department and actively cultivate excellent R&D talents in Mainland China, Taiwan and Hong Kong.

B. Accelerating the development of new products: To shorten the product developing period, accelerate introducing new products to the market and enhance the Company’s competitiveness, the Company will continue furnishing R&D activity and expand R&D team.

III. Strategy for Future Development of the Group

In 2020, the global digital transformation will enter the "Transformation 2.0 Generation". In terms of digital transformation of enterprises. we’d like to shift focus from previous "Digital-led" into the current "Data-driven". As 5G technology and applications maturity, the huge amount of data generated by high-speed transmission would be analyzed to drive the rising demand for server computing demand year by year. .

Previously, artificial intelligence operations were primarily could can only perform extremely lightweight AI operations. The main operations were still running in the cloud. Amidst the advancement of

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neural network algorithms, chip heterogeneous integration, and in-memory computing and other technologies concerned, the computing power (Tops / w) of endpoints and devices is expected to rise which would make the terminal device's AI capability significantly leap forward. As expected that in the future, AI will boost significant development in terminal devices, consumer devices, automobiles, smart cities and the like as AI & cloud symbiosis as the very industry worth our serious efforts. Besides, amidst the mounting diversification of mobile phone functions, the 5G commercial transformation is being launched in full swing, driving the increase in overall mobile phone power consumption, and the increasing demand for mobile phone cooling. In the days and years ahead, it is expected that more mobile device and chip system integration manufacturers will gradually attempt to adopt high-performance thermoplate in its heat dissipation plan, which would effectively enhance the penetration rate of the Company's average temperature plates in the field of smart phones.

Auras Technology Co., Ltd. Chairman: Lin Yu-Shen President: Lin Yu-Shen Accounting Supervisor: Yen Pei-Hsu

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Two. Company Profile I. Date of foundation: August 24, 1998

II. Address and telephone number of the Head Office:

Head office address: 3F., No.6, Wuquan 3rd Rd., Xinzhuang Dist., New Taipei City

TEL: (02)8990-1653

III. Corporate history

1998 In August, Auras Technology was established with capital amount of NT$ 5 million.

1999 The Company changed its name into Auras Technology Co., Ltd., and moved to Wugu Industrial District.

The Company formally engages in the field of notebook heat sinking. In November, the capital increased to NT$ 30,000,000.

2000 Passed the certification of ISO-9001.

Passed the certification of Quanta, First International Computer, ACER and SAMSUNG, and became a qualified supplier.

2001 In March, the capital increased to NT$ 50,000,000.

Passed the certification of Compal and DELL and became a qualified supplier.

2002 Reinvested in Auras Electronic Science and Technology Industrial (Kunshan) Co., Ltd.

2003 Passed the 2000 certification of ISO-9000.

In July, retained earnings transferred to capital amounted to NT$ 55,000,000. Paid-in capital reached NT$ 110,000,000.

In August, the public issuance was re-conducted.

2004 In May, retained earnings transferred to capital amounted to NT$ 162,724 thousand. Paid-in capital reached NT$ 272,724 thousand.

In May, the Company went listed on emerging stock market.

In August, the Company formally applied for being listed on OTC market.

2005 In May, the Company’s stock formally went listed on OTC market.

In May, capital increase by cash amounted to NT$ 30,000 thousand. Paid-in capital reached NT$ 302,724 thousand.

In July, retained earnings transferred to capital amounted to NT$ 86,276 thousand. Paid-in capital reached NT$ 389,000 thousand.

2006 In April, the Company re-invested in Ze Hong (Guangzhou) Technology Co., Ltd.

In July, retained earnings transferred to capital amounted to NT$ 48,000,000. Paid-in capital reached NT$ 437,000,000.

2007 The SAP system was introduced and formally went online in July.

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In December, the earnings of Auras Electronic Science and Technology Industrial (Kunshan) Co., Ltd. were transferred back to increase US$ 2 million capital of Ze Hong (Guangzhou) Technology Co., Ltd.

2008 In January, private placement was conducted and capital of NT$ 55,970,150 was issued. Paid-in capital reached NT$ 492,970,150.

In November, the capital of the Guangzho branch increased by US$ 1 million, and a heat pipe factory for main components was established in the Guangzho factory areas.

2009 In February, capital decrease by repurchasing treasury stocks amounted to NT$ 1,460,000. Paid-in capital reached NT$ 491,510,150.

In November, capital decrease by repurchasing treasury stocks amounted to NT$ 5,950,000. Paid-in capital reached NT$ 485,560,150.

2010 In September, capital increase by cash amounted to NT$ 70,000,000. Paid-in capital reached NT$ 555,560,150.

In September, the Company re-invested in Ze Hong (Guangzhou) Technology Co., Ltd. by US$ 2 million.

2011 In August, capital increase by cash amounted to NT$ 70,000,000. Paid-in capital reached NT$ 625,560,150.

In October, treasury stocks retired amounted to NT$ 22,040,000. Paid-in capital reached NT$ 603,520,150.

In November, the Company re-invested in Zafu Technology Co., Ltd.

2012 In March, the Company re-invested in Milk Idea Inc.

In April, the Company re-invested in Chun Hong (Chongqing) Technology Co., Ltd.

In August, the Company re-invested in JCD (Hong Kong) Technology Co., Ltd.

In September, the Company re-invested in Kunshan Jinxi Plastic Co., Ltd.

2013 In January, the Company re-invested in Raijintek Co., Ltd.

In February, the Company re-invested in Pei Hong (Guangzhou) Technology Co., Ltd. by US$ 6 million.

In March, the Company re-invested in Ze Hong (Guangzhou) Technology Co., Ltd. by US$ 3 million.

In March, the Company’s subsidiary, AURAS INTERNATIONAL, INC., was established in the US.

In September, capital increase by cash amounted to NT$ 70 million. Paid-in capital reached NT$ 706,743,860.

2014 In July, corporate bonds converted to shares amounted to NT$ 4,618,590.

Pain-in capital reached NT$ 711,362,450.

In October, the Company re-invested in JCD Optical (Cayman) Co., Ltd.

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In November, the Company re-invested in MKD Technology Inc.

2015 In May, the Company purchased 17% of the outstanding few shares of Pei Hong (Guangzhou) Technology Co., Ltd., which made Pei Hong (Guangzhou) Technology Co., Ltd. become the Company’s 100% held re-invested company.

2016 In May, the second domestic secured convertible bonds were issued, with total amount NT$ 300 million.

In July, capital increase by cash amounted to NT$ 250 million. Paid-in capital reached NT$ 763,112,450.

In November, the Company re-invested in Raijintek Co., Ltd. by NT$ 4 million.

2017 During June ~ August, the Company executed the repurchase of treasury stocks, with total repurchased shares amounted to NT$ 135,533,638.

In September, 55% of the shareholdings of the re-invested company, Zafa Technology Co., Ltd., were possessed. The total transaction amount was NT$ 8,469,807. In December, 27% of the shareholdings of the re-invested company, Kunshan Jinxi Plastic Co., Ltd., were possessed. The total transaction amount was US$ 600,000.

2018 In May, a capital increase of US$5 million in ChunHong Electronic Technology (Chungqing) Co., Ltd. was arranged.

2019 In May, the third domestic unsecured convertible corporate bond were issued, with total amount NT$ 600 million.

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Three. Corporate Governance I. Organizational structure

(I) Organization

Shareholders Meetings

Company governance and sustainability

committee

Growth strategy committee

Board of DirectorsChairman

Legal Affairs Office

Information Management Office

Remuneration Committee

Internal Audit

Chairman Office

President

Global Procurement Center

Human Resource Administration

Division

Financial Division

R&D Department

Business Division

East China Factory

South China Factory

Hefei Factory Southwest Factory

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(2) The responsibilities of various divisions Department Main responsibilities

Internal Audit 1. Establishment, amendment and examination of the internal audit system 2. Auditing on the operation of each department and the execution and promotion of

the Company’s self-evaluation

Chairman Office

1. Responsible for the Group’s engineering integration and development related to product technology

2. Enhancement and development of technical ability and promotion and supervision of product development

R&D Department In addition to taking charge of the affairs related to the Company’s product developing plans, it is responsible for assisting with solving technical problems such as technics, quality and costs from production to sales service

Business Division

Responsible for matters related to marketing plans, domestic and overseas sales, operating and sales activity strategies, promotion of market expansion and sales ensuring, transportation, storage and marketing of products, accounts receivable and payable, and others related to after sales service

Global Procurement Center

Procurement plans for production materials, selection and management of suppliers, production plans, storage management, outsourcing management and the relevant operation matters

Growth strategy committee

1. Based on the analysis and management of the Company's overall operational performance, the expertise of relevant functional departments was combined, and the resources of various business units was integrared to assist the Company in promoting and enhancing the business performance of each business unit to achieve annual goals.

2. Develop and plan medium- and long-term, strategic and investment development plans of the Company’s competitive advantages, and expand the subsidiaries and functional units to lead the Company's overall organizational operations to continuously grow and gain profit.

Company governance and sustainability

committee

The Company takes the shareholders' meeting as the highest authority of the Company and with the Chairman chairing the board of directors, it implements and supervises the business operations. In order to demonstrate the determination to fulfill corporate citizenship responsibilities and implement sustainable business, the Corporate Governance and Sustainability Committee is responsible for implementing the company's sustainable operations.

Legal Affairs Office

Businesses related to the Company’s legal affairs, including domestic and overseas commercial contracts, patents and other intellectual property right management, and litigations

Information Management Office

1. Responsible for analyzing the costs and performance of business computerization 2. Planning and designing software system and writing computer programs 3. Matters such as the hardware characteristics of computer system and solving the

operational problems

Human Resource Administration

Division

1. Responsible for matters related to human resource management, administration and general affairs management

2. Planning, integration and management of the system related to receiving orders, shipments and inventories

3. Responsible for planning, integration and management of the Group’s Document Management Center.

4. Responsible for matters related to human resource management, administration and general affairs management

Financial Division

1. Research, design, promotion and revision of financial management 2. Utilization and dispatching of long and short term funds, and processing of each

investment 3. Processing of financial and cashier matters 4. Planning and execution of matters related to investor relationship, shareholders

service management, shareholders’ meetings and each functional committee

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5. Research, design, promotion and revision of accounting system 6. Analysis and reporting of the summary, control and execution results of annual

budget 7. Processing of accounting and cashier matters

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II. Background information of Directors, Supervisors, President, Vice Presidents, Assistant Managers, and the heads of various departments and branches (I) Background of Directors and Supervisors

1. Background of Directors and Supervisors April 11, 2020; Unit: shares; %

Title Nationality

and Registry

Name Gender Date elected Term Date first elected

Shareholding as of elected date Current shareholding

Shareholdings of spouse and underage

children

Shares held in the names of others Major career (academic)

achievements Current duties in The Company

and in other companies

Spouse or relatives of second degree or closeracting as Directors, Supervisors, or other

department heads Note

Shares Shareholding percentage Shares Shareholding

percentage Shares Shareholding percentage Shares Shareholding

percentage Title Name Relationship

Chairman Republic of China Lin Yu-Shen Male 2018.06.09 3

years 2001.03.15 11,455,686 13.86 11,828,686 13.67 －－－－ MBA, National Taiwan University and Fudan University

Chairman of Auras Technology Co., Ltd. Director of all re-invested companies of Auras Technology Co., Ltd.

Director Representative:

Lin Fang-Ling

Second degree of kinship

(Note)

Director

Republic of China

Jin Hong Investment Co, Ltd.

－ 2018.06.09 3 years 2012.06.25 1,054 0.00 1,054 0.00 －－－－－－－－－

Republic of China

Representative:Lin Fang-Ling Female 2018.06.09 3

years 2012.06.25 －－ 278,304 0.32 －－－－ MBA, National Chengchi University

Chief Corporate Governance of Auras Technology Co., Ltd.

Chairman Lin Yu-Shen


Director Republic of China Lin Tsung-Tan Male 2018.06.09 3

years 2009.06.19 －－－－－－－－

Master of Electrical Engineering, University. of Florida Santa clara University. MBA Vice Chairman of Han-Yuo Entrepreneurship Investment Co., Ltd.

Executive Director of PineBridge Investments Independent Director of KEY WARE Electronic, Corp.

－－－

Independent Director

Republic of China Chang Yu-Yao Male 2018.06.09 3

years 2009.06.19 －－－－－－－－

MBA of National Taiwan University Bachelor’s of Environmental Engineering, National Cheng Kung University Chairman and General Manager of JuJing Engineering Co., Ltd. (Level A Environmental Engineering Construction) Director/Supervisor of Genesys Logic, Inc.

Director of Fengyuan Bus Transportation Co., Ltd. Supervisor of Tonglian International Tour Co., Ltd.

－－－


Republic of China Liu Fu-Han Male 2018.06.09 3

years 2012.06.25 192,399 0.23 136,399 0.16 －－－－

MBA, National Chengchi University Information Management Ph.D., candidate President of Kye Systems Corp.

Director of Integrated Service Technology Inc. Director of Yi Zhan Technology (Yzt) Company Limited Director of E-Century Technical & Industrial Corporation

－－－

Supervisor: Republic of China Cheng Ho-Pin Male 2018.06.09 3

years 2009.06.19 4,563,094 5.52 4,563,094 5.27 －－－－

Master’s Degree, EMBA of Department of Industrial Engineering and Management, National Taipei University of TechnologyGraduated from Taipei University of Technology

President of Pendec Enterprise Co., Ltd. President of PAL Acoustics Technology Ltd. Vice Chairman of Auras Electronic Science and Technology Industrial (Kunshan) Co., Ltd.

－－－

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Title Nationality

and Registry

Name Gender Date elected Term Date first elected

Shareholding as of elected date Current shareholding


children


achievements Current duties in The Company

and in other companies

Spouse or relatives of second degree or closeracting as Directors, Supervisors, or other

department heads Note


percentage Shares Shareholding percentage Shares Shareholding

percentage Title Name Relationship

Supervisor: Republic of China

Chiang Ping-Chu Male 2018.06.09 3

years 2009.06.19 283,000 0.34 250,000 0.29 －－－－ MBA, National Chengchi University

Chairman of Chen Ton Investment Co., Ltd., Top Joint International Co., Ltd., Cheetah Automotive Products Co. Ltd., Cantus Technology Corp. and Ta Chiang Co., Ltd. Director of Denmed International Co., Ltd., Ho Chi Tech Co., Ltd., Gaia Enterprise Co., Ltd. and Taiwan Chi-Ly Chemical Industry Co., Ltd. Director of Sintron Inc. Director of Jingzhun Pintu Co., Ltd

－－－

Supervisor: Republic of China

Chen Yen-Chun Male 2018.06.09 3

years 2012.06.25 －－－－－－－－

Postgraduate study International Businesses, National Taiwan University Chairman and President of Star Comgistic Capital Co., Ltd. Chairman of Star Travel Corp. CRO of Tsannkuen Co., Ltd. Financial Chairman of Tsann Kuen Enterprise Co., Ltd. Vice Chairman of Test Rite Retail Co., LTD. Chief Financial Officer of Test Rite Retail Co., LTD.

Chairman of Junlin Co., Ltd.; chairman and CEO of Tsann Kuen Enterprise Co., Ltd.; chairman, chief investment officer, general manager of Star Comgistic Capital Co., Ltd.; chairman of Star Travel Co., Ltd.; Risk Control Officer of Tsann Kuen Enterprise Co., Ltd.; financial general manager of Tsann Kuen Enterprise Group; Vice Chairman of Test-Rite International Co., Ltd.; CFO of Test-Rite Co., Ltd.; independent director, audit committee member, and remuneration committee member of University Vision Biotechnology; independent director, audit committee member, and remuneration committee member of YC Group; remuneration committee member of Universal Vision Biotechnology; of Yanzhou Co., Ltd., emuneration committee memberof University Optical Technology Co., Ltd., and growth strategy committee member of Auras Technology Co., Ltd.

－－－

Note: If the company’s chairman and general manager or an equivalent position (highest manager) are the same person, are spouses or first-degree, the reasons, rationality and necessity for such an appointment should be explained. Necessary and corresponding measures should be addressed as well (ex. increasing the number of independent directors, more than half of the directors do not serve as employees or managers): The company’s chairman also serves as the general manager to enhance operational efficiency and decision-making execution. This individual possesses professional management skills and professional experience in the company’s industry. With the goal of creating maximum value for the company, it is necessary for the chairman and general manager positions to be held by the same person; this individual will cooperate with the competent authorities to promote and implement relevant policies of corporate governance. An audit committee and the number of independent directors will be increased once the current term of the board of directors and supervisors ends.

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2. Corporate shareholders' main shareholders April 11, 2020

Name of corporate shareholder (Note 1)

Corporate shareholders' main shareholders (Note 2) Shareholding Percentage

Jin Hong Investment Co, Ltd. Lin Yu-Shen (100%) 100%

(1) Input Names of corporate shareholder for directors, supervisors are representatives of corporate shareholder.. (2) Input Names of corporate shareholders’ main shareholder and shareholding percentage.

3. Qualification of Directors and Supervisors Qualification

Name

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Independence Criteria (Note)

Number of Other Public Companies

in Which the Individual is Concurrently

Serving as an


An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company

1 2 3 4 5 6 7 8 9 10 11 12

Lin Yu-Shen －－－－－－－－

Representative of Jin Hong Investment Co, Ltd.: Lin Fang-Ling

－－－－－－－－

Lin Tsung-Tan －－ 1

Chang Yu-Yao －－－

Liu Fu-Han －－－

Cheng Ho-Pin －－－－－

Chiang Ping-Chu －－－

Chen Yen-Chun － 2

Note: place a " " in the box below if the Director or Supervisor met the following conditions during the time of active duty and two years prior to the elected date.

(1) Not employed by the company or any of its affiliated companies. (2) Not a director or supervisor of the Company or any of its affiliates (the same does not apply, however, in cases where the person is an independent

director of the Bank, its parent company, or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary).

(3) Does not hold more than 1% of the company’s outstanding shares in his/her own name or under the name of spouse, underage children, or any other person; nor is any party listed herein one of the ten largest natural person shareholders of the company.

(4) Not a spouse, relative within the second degree of kinship or lineal relative within the third degree of kinship, of any of the managers stated in preceding paragraph (1) or the persons in preceding paragraph (2) and (3).

(5) Not a director, supervisor, or employee (the same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary) of a corporate shareholder that directly holds 5% or more of the total number of issued shares of the Company, is ranked in the top 5 in shareholding, or designates its representative to serve as a director or supervisor of the Company under Article 27, paragraph 1 or 2 of the Company Act.

(6) Not a director, supervisor or employee of other companies that are controlled by the person who also controls the majority of the Company’s director seats or voting shares (the same does not apply, however, in cases where the person is an independent director of the Company, its parent company or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary).

(7) Not a director (or governor), supervisor or person holding an equivalent position of the Company and that person in any of those positions at another company or institution are the same person or are spouses (the same does not apply, however, in cases where the person is an independent director of the Company, its parent company or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary).

(8) Directors, supervisors, managers or shareholders holding more than 5% of shares in specific companies or institutions that do not have financial or business dealings with the company (but individual directors appointed according to local laws and regulations holding other positions in possession of more than 20% and less than 50% of issued shares belonging to specific companies or institutions that are parent, subsidiary, or belonging to the same parent company are not applicable).

(9) Business owners, partners, directors (directors), supervisors (supervisors), managers and their spouses, or professionals, sole proprietorships, partnerships, companies or institutions involved in commercial, legal, financial, accounting services did not provide audits or accumulate NTD$ 500,000 compensation over the past 2 years. Provided that this restriction does not apply to a member of the remuneration Committee, public tender offer review Committee or special Committee for merger/consolidation and acquisition, who exercises powers pursuant to the Securities and Exchanges Act, the Business Mergers and Acquisitions Act, or related law and regulations.

(10) Not a spouse or relative of second degree or closer to any other directors. (11) Does not meet any descriptions stated in Article 30 of the Company Act. (12) Not elected as a government or corporate representative according to Article 27 of The Company Act.

~ 13 ~

(II) Background information of the President, Vice Presidents, Assistant Managers and heads of various departments and branches April 11, 2020; Unit: thousand shares; %

Title Nationality Name Gender Date electedShares held


children


achievements Current positions in the company and

other companies

Spouse or relatives of second degree or closer acting as managers Note


percentage Shares Shareholding percentage Title Name Relationship

Chairman / President

Republic of China Lin Yu-Shen Male 2009.03.31 11,828,686 13.67 －－－－

MBA, National Taiwan University and Fudan University

Director of all re-invested companies of Auras Technology

Co., Ltd.

Chief corporate

governance

Lin Fang-Ling


(Note)

Vice President of Business

Division

Republic of China

Chen Heng-Lung Male 2014.11.02 30,000 0.03 －－－－

Department of Mechanical Engineering, University of California PhD in Engineering, National Chiao Tung University

－－－－


Division

Republic of China Chen Chih-Wei Male 2015.02.01 96,000 0.11 －－－－

College of Management, National Sun Yat-sen University EMBA

－－－－


Division

Republic of China Chang Chih-Hui Male 2015.02.01 20,000 0.02 －－－－

Department of Mechanical Engineering, Minghsin University of Science and Technology

Chairman of Zehong (Guangzhou) Electronic

Technology Co., Ltd. Director of ChunHong Electronic

Technology (Chongqing) Co., Ltd.

Anhui Weihong Electronic Technology Co.,Ltd.

Supervisor:

－－－

Chief corporate

governance (New)

Republic of China Lin Fang-Ling Female 2020.01.16 278,304 0.32 －－－－ MBA, National

Chengchi University － Chairman / President

Lin Yu-Shen


Assistant Manager of

Business Division

Republic of China Lin Po-Hsun Male 2018.04.10 43,000 0.05 －－－－ EMBA of National

Chengchi University －－－－

Assistant Manager of

Business Division

Republic of China

Chiang Jung-Cheng Male 2018.04.10 17,164 0.02 －－－－

Department of Mechanical Engineering, St. John's University

Director and President of ChunHong Electronic

Technology (Chongqing) Co., Ltd.

－－－

~ 14 ~

Title Nationality Name Gender Date electedShares held


children


achievements Current positions in the company and

other companies

Spouse or relatives of second degree or closer acting as managers Note


percentage Shares Shareholding percentage Title Name Relationship

Financial Supervisor

(New)

Republic of China Weng Lin-Sheng Male 2019.08.06 4,000 0.00 －－－－

Graduate Institute of Finance, Yuan Ze University

－－－－

Financial Supervisor (discharge)

Republic of China Huang Yi-Ting Female 2018.11.14 Not

applicableNot

applicable －－－－

Master’s Degree from the Accounting Department, Case Western Reserve University

－－－－

Accounting Supervisor

Republic of China Yen Pei-Hsu Female 2017.08.08 15,000 0.02 －－－－ Master of Accounting,

Soochow University

Supervisor of RAIJINTEK Co., Ltd.

Supervisor of NiuNai Co., Ltd.Supervisor of ChunHong Electronic Technology (Chongqing) Co., Ltd.

Supervisor of ShuangHong (Kunshan) Electronic Technology

Co., Ltd. Supervisor of PeiHong (Guangzhou) Electronic

Technology Industry Co., Ltd.

－－－

Chief Internal Auditor

Republic of China Tsai Chin-Hui Female 2009.12.16 16,100 0.02 －－－－

Department of Business Administration, Tamkang University

－－－－

Note: If the company’s chairman and general manager or an equivalent position (highest manager) are the same person, are spouses or first-degree, the reasons, rationality and necessity for such an appointment should be explained. Necessary and corresponding measures should be addressed as well (ex. increasing the number of independent directors, more than half of the directors do not serve as employees or managers): The company’s chairman also serves as the general manager to enhance operational efficiency and decision-making execution. This individual possesses professional management skills and professional experience in the company’s industry. With the goal of creating maximum value for the company, it is necessary for the chairman and general manager positions to be held by the same person; this individual will cooperate with the competent authorities to promote and implement relevant policies of corporate governance. An audit committee and the number of independent directors will be increased once the current term of the board of directors and supervisors ends.

~ 15 ~

III. Remuneration of Directors and Managers (I) Remuneration to Directors and Independent Directors

December 31, 2019; Unit: NT$ thousand; %

Title Name

Directors' remuneration

The sum of A, B, C, and D as a percentage of after-tax net profit

Remuneration as an employee

The sum of A, B, C, D, E, F and G as a percentage of

after-tax net profit

Remuneration received from the

invested companies other

than the subsidiaries and

the parent company

Remuneration (A) Pension (B) Remuneration to directors(C)

Fees for services rendered (D)

Salaries, bonuses, special allowances etc (E) Pension (F) Remuneration to employees (G)

The Company

All companies

contained in the financial

report

The Company

All companies


report

The Company

All companiescontained in the financial

report

The Company

All companies


report

The Company

All companies


report

The Company

All companies


report

The Company

All companies


report

The Company All companies contained in the financial report The

Company

All companies contained in the financial reportCash amount Stock amount Cash amount Stock amount

Director

Lin Yu-Shen

1,571 1,571 －－ (Note 1) (Note 1) 54 54 0.17% 0.17% 4,726 4,726 －－ (Note 2) － (Note 2) － 0.66% 0.66% None Lin Tsung-Tan

Jin Hong Investment

Co, Ltd.


Chang Yu-Yao

875 875 －－ (Note 1) (Note 1) 114 114 0.10% 0.10% 0 0 －－ (Note 2) － (Note 2) － 0.10% 0.10% None Liu Fu-Han

1. Please state the policy, system, standards and structure of independent directors’ remuneration payment, and describe the relevance to the amount of remuneration according to the responsibilities, risks, time invested, and other factors: The remuneration of the company’s independent directors is reviewed by the remuneration committee based on their participation and contribution to the company’s operations. The reasonable fairness of performance risks will be associated with the rewards received, and recommendations will be made to the board of directors for resolution after referring to the salary levels of the industry.

2. Except for those disclosed in the above table, the remuneration of the Company’s directors by providing services (e.g., serving as the non-employee consultant) to all companies included in the financial report in the most recent year: None.

Note 1: The 2019 remuneration paid to directors and supervisors resolved by the Company’s Board of Directors on March 17, 2020 was NT$ 9,406 thousand in cash. However, it has not been resolved by the general shareholders’ meeting, and will be effective after the resolution of the general shareholders’ meeting on June 9, 2020.

Note 2: The 2019 remuneration paid to employees resolved by the Company’s Board of Directors on March 17, 2020 was NT$ 41,153thousand in cash. However, it has not been resolved by the general shareholders’ meeting, and will be effective after the resolution of the general shareholders’ meeting on June 9, 2020.

Table of salaries scale

Remunerations to individual directors in respective brackets along the salaries scale

Name of director

The total of the aforementioned 4 items (A+B+C+D) The total of the aforementioned 7 items (A+B+C+D+E+F+G)

The Company (Note 8) All companies contained in the financial report (H) The Company (Note 8) Parent company and all invested

businesses (I)

<NT$1,000,000 Lin Yu-Shen, Lin Tsung-Tan, Jin

Hong Investment, Chang Yu-Yao, Liu Fu-Han

Lin Yu-Shen, Lin Tsung-Tan, Jin Hong Investment, Chang

Yu-Yao, Liu Fu-Han

Lin Tsung-Tan, Jin Hong Investment,

Chang Yu-Yao, Liu Fu-Han

Lin Tsung-Tan, Jin Hong Investment,

Chang Yu-Yao, Liu Fu-Han NT$1,000,000 ~ NT$2,000,000 －－－－ NT$2,000,000 ~ NT$3,500,000 －－－－ NT$3,500,000 ~ NT$5,000,000 －－－－ NT$5,000,000 ~ NT$10,000,000 －－ Lin Yu-Shen Lin Yu-Shen NT$10,000,000 ~ NT$15,000,000 －－－－ NT$15,000,000 ~ NT$30,000,000 －－－－ NT$30,000,000 ~ NT$50,000,000 －－－－ NT$50,000,000 ~ NT$100,000,000 －－－－ > NT$100,000,000 －－－－

Total 5 persons 5 persons 5 persons 5 persons

~ 16 ~

(II) Supervisors' remuneration December 31, 2019; Unit: NT$ thousand

Title Name

Supervisors' remuneration The sum of A, B, and C as a percentage of after-tax net

profit

Remuneration received from the invested

companies other than

the subsidiaries

and the parent

company

Remuneration (A) Remuneration (B) Fees for services rendered (C)

The Company

All companies contained in the financial

report

The CompanyAll companies

contained in thefinancial report

The Company


report

The Company


report

Supervisor:

Cheng Ho-Pin

1,313 1,313 (Note) (Note) 63 63 0.14% 0.14% None Chiang Ping-Chu

Chen Yen-Chun

Note: The 2019 remuneration paid to directors and supervisors resolved by the Company’s Board of Directors on March 17, 2020 was NT$ 9,406 thousand in cash. However, it has not been resolved by the general shareholders’ meeting, and will be effective after the resolution of the general shareholders’ meeting on June 9, 2020.


Remunerations to individual supervisors in respective brackets along the salaries scale

Name of Supervisors The total of the aforementioned 3 items (A+B+C)

The Company Parent company and all invested businesses (D)

<NT$1,000,000 Cheng Ho-Pin, Chiang Ping-Chu, Chen Yen-Chun Cheng Ho-Pin, Chiang Ping-Chu, Chen Yen-Chun

NT$1,000,000 ~ NT$2,000,000 －－ NT$2,000,000 ~ NT$3,500,000 －－ NT$3,500,000 ~ NT$5,000,000 －－ NT$5,000,000 ~ NT$10,000,000 －－ NT$10,000,000 ~ NT$15,000,000 －－ NT$15,000,000 ~ NT$30,000,000 －－ NT$30,000,000 ~ NT$50,000,000 －－ NT$50,000,000 ~ NT$100,000,000 －－ > NT$100,000,000 －－ Total 3 persons 3 persons

~ 17 ~

(III) President's and Vice Presidents' remuneration December 31, 2019; Unit: NT$ thousand

Title Name

Salary (A) Pension (B) Bonuses and allowances etc. (C) Remuneration to employees (D) The sum of A, B, C, and D as a

percentage of after-tax net profit (%)Remuneration received from the invested companies

other than the subsidiaries

and the parent company

The Company

All companies contained

in the financial

report

The Company


in the financial

report

The Company


in the financial

report

The Company All companies contained in the financial report

The Company

All companies contained in the financial

report Cash

amount Stock

amountCash

amount Stock

amount

President Lin Yu-Shen

9,872 9,872 －－ 4,108 4,108 (Note ) － (Note ) － 1.44% 1.44% YES

Vice President Chang Chih-Hui

Vice President Chen Chih-Wei

Vice President Chen Heng-Lung

Note : The 2019 remuneration paid to employees resolved by the Company’s Board of Directors on March 17, 2020 was NT$ 41,153 thousand in cash. However, it has not been resolved by the general shareholders’ meeting, and will be effective after the resolution of the general shareholders’ meeting on June 9, 2020.


The brackets of remunerations to all Presidents and Vice Presidents of the CompanyNames of the Presidents and the Vice Presidents

The Company Parent company and all invested businesses (E) <NT$1,000,000 －－

NT$1,000,000 ~ NT$2,000,000 Chang Chih-Hui －

NT$2,000,000 ~ NT$3,500,000 Chen Chih-Wei, Chen Heng-Lung Chen Chih-Wei, Chen Heng-Lung, Chang Chih-Hui

NT$3,500,000 ~ NT$5,000,000 －－

NT$5,000,000 ~ NT$10,000,000 Lin Yu-Shen Lin Yu-Shen

NT$10,000,000 ~ NT$15,000,000 －－

NT$15,000,000 ~ NT$30,000,000 －－

NT$30,000,000 ~ NT$50,000,000 －－

NT$50,000,000 ~ NT$100,000,000 －－

> NT$100,000,000 －－

Total 4 persons 4 persons

~ 18 ~

(IV) Name of the managers received remuneration and the distribution of remuneration December 31, 2019; Unit: thousand shares; NT$ thousand

Title Name Stock amount Cash amount Total As a percentage of net profit after tax (%)

Manager


－ (Note) －－

Vice President of Business Division Chang Chih-Hui Vice President of Business Division Chen Heng-Lung Vice President of Business Division Chen Chih-Wei Assistant Manager of Business Division Lin Po-Hsun Assistant Manager of Business Division Chiang Jung-Cheng Accounting Supervisor Yen Pei-Hsu Financial Supervisor (Start of term in office: August 6, 2019) Weng Lin-Sheng

Financial Supervisor (Date of dismissal: August 6, 2019) Huang Yi-Ting

Chief Internal Auditor Tsai Chin-Hui Note: The 2019 remuneration paid to employees resolved by the Company’s Board of Directors on March 17, 2020 was

NT$ 41,153 thousand in cash. However, it has not been resolved by the general shareholders’ meeting, and will be effective after the resolution of the general shareholders’ meeting on June 9, 2020.

(V) Comparing and illustrating the analysis on the percentage of total remuneration paid to the

Company’s directors, supervisors, presidents and vice presidents by the Company and all companies included in the consolidated financial statements in the most recent 2 years to after-tax profits, and explaining the remuneration policy, standard and combination, formula of deciding remuneration and its relation with operating performance 1. Percentage of total remuneration paid to the Company’s directors, supervisors, presidents and

vice presidents by the Company and all companies included in the consolidated financial statements in the most recent 2 years to after-tax profits:

Title

2018 2019

Total amount of remunerations (thousand)

Percentage of after-tax net profit (%)

Total amount of remunerations (thousand)

Percentage of after-tax net profit (%)

The Company

All companies included in the consolidated statements

The Company


The Company


The Company


Director 6,567 6,567 2.83% 2.83% 7,340 7,340 0.76% 0.76%

Supervisor 1,511 1,511 0.65% 0.65% 1,376 1,376 0.14% 0.14%

Presidents and the

Vice Presidents 12,293 12,293 5.31% 5.31% 13,980 13,980 1.44% 1.44%

2. Policy of remuneration paid to directors, supervisors, presidents and vice presidents:

The Company’s remuneration policy refers to the wage level for the position in the industry, the position’s range of authorization and duties in the Company, and his or her contribution to the Company’s operating goals. The procedures of setting remuneration are formed based on not only the Company’s overall operating performance but also the individual’s performance achievement rate and contribution to the Company’s performance.

~19~

IV. Corporate governance (I) Operating status of the Board of Directors: In 2019, the board has convened 5 [A] meetings. The

attendance status of directors and supervisors is as follows:

Title Name Actual attendance (B)

Proxy Attendance

Percentage of actual attendance (%) [B/A] Note

Chairman Lin Yu-Shen 5 － 100% Continue the term after the General Shareholders’ Meeting on June 8, 2018

Director Lin Tsung-Tan 5 － 100%

Continue the term after the General Shareholders’ Meeting on June 8, 2018

Director Jin Hong

Investment Co, Ltd.

5 － 100% Continue the term after the General Shareholders’ Meeting on June 8, 2018


Chang Yu-Yao 5 － 100%


Independent Director Liu Fu-Han 5 － 100%


Supervisor Cheng Ho-Pin 5 － 100% Continue the term after the General Shareholders’ Meeting on June 8, 2018

Supervisor Chiang Ping-Chu 5 － 100%


Supervisor Chen Yen-Chun 5 － 100%


Other remarks: (I) For the operation of the Board of Directors in any of the following circumstances, please specify the date, term, the

contents of the proposals, the opinions of all independent directors, and the process of the opinions proposed by the independent directors: 1. Matters listed in Article 14-3 of Securities and Exchange Act: please refer to page 41. 2. Except for the aforementioned matters, the resolutions reached by the Board of Directors with the objections or

reservations of the independent directors documented or declared in writing: Please refer to page 41. (II) With respect to the avoidance of conflicting interest agendas, describe the names of directors, details of the relevant

agendas, reasons for avoiding conflicting interest, and the voting decisions: 1. On January 16, 2019, the Board discussed the 2018 annual bonus for managerial officers. The case was approved

with no objection by the acting chairman, Yu-Yao Chang, after consulting all the Directors except Director Yu-Shen Lin, because he also held a managerial position at the Company, and had been excluded from the resolution for recusal due to conflicts of interest.

2. On August 6, 2019, the Board of Directors discussed about the 2018 Proposal of Remuneration Distributed to Employees. Except for Director Mr. Lin Yu-Shen who did not participate in the resolution due to conflicts of interests, all of the other attending directors did not have disputes and the proposal was passed under the query of the deputy meeting chairman.

(III) The listed OTC company should disclose the evaluation cycle and period, evaluation scope, method and evaluation contents of the board’s self (or peer) evaluation, please refer to page 37.

(IV) Enhancements to the functionality of the Board of Directors in the current and the most recent year (e.g. the establishment of an Audit Committee, improving information transparency etc), and the progress of such enhancements in 2019: Please refer to page 37.

(II) Implementation status of Audit Committee: Not applicable here (the Company adopts the system of supervisors and has not set up an audit committee).

~20~

(III) Supervisors' involvements in Board of Directors meetings Operating status of the Board of Directors: In 2019, the board has convened 5 [A] meetings. The attendance status of supervisors is as follows:

Title Name Actual

attendance (B)

Proxy Attendance

Percentage of actual attendance

(%) [B/A] Note

Supervisor Cheng Ho-Pin 5 － 100%


Supervisor Chiang Ping-Chu 5 － 100%


Supervisor Chen Yen-Chun 5 － 100%


Other remarks: (I) The organization and the duties of the supervisors:

1. Supervisors may attend the board meeting to understand the Company’s implementation status, and may communicate with the attending directors and managers to provide appropriate guidance and supervision.

2. Whenever thought to be necessary, the supervisor may be directly communicate with employees and shareholders.

3. Communication status between supervisors and Chief Internal Auditor: (1) The Chief Internal Auditor reports to the Board of Directors after completing an audit item,

and may contact the CPA whenever necessary. (2) In addition to sending the audit report to the supervisor for reviewing, the Chief Internal

Auditor also reports to the board members on the board meeting regarding important audit findings.

(II) Where the supervisors shall attend the meetings of the Board as observers, and may have opinions, specify the date of the meeting, the term of the Board, the content of the motions, the resolutions of the Board, and the response to the opinions of the supervisors: On May 7, 2019, the supervisor of the board of directors Chen Yen-Chun recommended in hopes that the management units can report the countermeasures and steps for the company’s offshore banking unit (OBU) in the next board of directors meeting. The Ministry of Finance reported on the progress of the Economic Substance Act for offshore banking units in August 2019.

~ 21 ~

(IV) How The Company’s actual governance differs from The Corporate Governance Best-Practice Principles for TSEC/GTSM Listed Companies and why

Evaluation Item

Implementation Status Deviation and causes of deviation from the Corporate

Governance Best-Practice Principles for

TSEC/GTSM Listed Companies

Yes No Abstract Illustration

1. Will the Company based on the “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” set up and disclose the Company’s corporate governance best-practice principles?

V The Company has formulated corporate governance best-practice principles. The Company’s operation is based on corporate governance and adopts measures such as strengthening the role of Board of Directors. In addition, all of the Company’s managers follow the concept of corporate governance, which focuses on business integrity and its implementation and shareholders’ interests, takes care of employees and devotes to public charity, in order to reach the goal of sustainable development.

No significant discrepancy.

2. Shareholding structure and shareholders’ equity (1) Will the Company have the internal procedures regulated to

handle shareholders’ proposals, doubts, disputes, and litigation matters; also, have the procedures implemented accordingly?

(2) Will the Company possess the list of the Company’s major shareholders and the list of the ultimate controllers of the major shareholders?

(3) Will the Company establish and implement the risk control

and firewall mechanisms with the related parties? (4) Will the Company set up internal norms to prohibit insiders

from utilizing the undisclosed information to trade securities?

V

V

V

V

(1) To protect the rights of shareholders, the Company establishes the spokesperson

system to deal with relevant matters in accordance with regulations, and assigns a dedicated person to handle shareholders’ suggestions or disputes and coordinates relevant units of the Company to execute subsequent operations.

(2) Under Article 25 of Securities and Exchange Act, the Company’s financial unit monthly reports to the “MOPS” designated by the FSC regarding the shareholding changes of internal parties (directors, supervisors, managers and large shareholders with over 10% of shareholdings), and periodically examines the major controlling shareholders of the Company and the list of ultimate controllers for the major shareholders.

(3) The Company and its affiliates are clear and independent regarding the personnel, assets and financial management duties. The Company has also set up the “Supervisory System on Subsidiaries,” and obtains management reports of the subsidiaries such as the financial and business reports, in order to implement the risk control mechanism on subsidiaries. In addition to independence operation of each affiliate, the Company has formulated the “Procedures for Transactions Between Related Parties, Specific Companies and Group Businesses”. The Company’s business transactions with each affiliate are all based on the principle of fairness and reasonableness, and are conducted in accordance with the Procedures.

(4) The Company has formulated the “Procedures for Handling Material Inside Information” and “Codes of Ethical Conduct for Directors, Supervisors and Managers,” which regulates all the Company’s directors, supervisors and employees and other personnel who obtain the Company’s internal important information due to identity, vocation or control relation. The Procedures forbid any conducts that may involve insider trading. The Company also periodically conducts internal educational trainings and promotion.


3. The constitution and obligations of the board of directors (1) Will the Board of Directors have diversified policies regulated

and implemented substantively according to the composition of the members?

V

(1) Article 20 of the Company’s “Corporate Governance Best-Practice Principles” (the

overall ability that the board shall be equipped with) has clearly declared that the

(1) No significant

discrepancy

~22~

Evaluation Item





(2) Will the Company, in addition to setting the Remuneration

Committee and Audit Committee lawfully, have other functional committee set up voluntarily?

V

composition of the Board of Directors shall be diversified, and that except that the directors who concurrently serve as the Company’s managers shall not exceed one-third of the directors, the Company shall propose appropriate diversification goals regarding its own operation, business type and development. Among the Company’s 5 directors of the current Board of Directors: 1. General directors: composed of members with degrees of MBA of National

Taiwan University and Fudan University, MBA of National Chengchi University, and Master of Electrical Engineering of University. of Florida

2. Independent directors: composed of members with degrees of bachelor of Department of Environmental Engineering of National Cheng Kung University and MBA of National Chengchi University

3. Supervisors: composed of members with degrees of MBA of National Chengchi University and postgraduate of Department of International Business of National Taiwan University, and members with professional backgrounds of management, science and engineering, accounting and industry management. Board members have diversified knowledge background of the industry and academics, and can provide professional opinions with different perspectives, which may bring much benefit in enhancing the Company’s operating performance and management efficiency.

4. In order to ensure the diversity of the board members and the ability to review and discuss economic, environmental and social issues, the selection of board members shall take the variety of professional backgrounds, international forward-looking views, leadership, industry trends, and different genders of the talented candidates into consideration. The list of candidates shall be disclosed on the annual report and company website when the multicultural implementation policy is implemented each year. Please refer to page 37.

(2) In addition to the establishment of the Compensation Committee according to law, the Company also established a Growth Strategy Committee. The committee consists of three, or more, members of the Company and more than half of them are Independent Directors. The convener and member is appointed by the Board of Directors.

(2) To be in line with the

Company's operational needs, the Company has established a Growth Strategy Committee to coordinate and integrate Company resources to effectively apply them, and promote quality yield, efficiency, improvement,

~23~

Evaluation Item





(3) Has the Company had the rules governing the performance evaluation of the board of directors and evaluation methods stipulated, the performance evaluation performed annually and regularly, the results of the performance evaluations reported to the board of directors, and the evaluation result applied as a reference for individual director’s remuneration and nomination for re-election?

V

(3) Company passed the “Guidelines for Self-assessment or Peer-assessment of the

Board of Directors of Auras Technology Co., Ltd”. The internal board performance evaluation shall be carried out at least once a year. The internal evaluation period of the Board of Directors shall be at the end of each year, and the evaluation shall be carried out at the end of each year based on Article 6 and 7 of the Procedures and assessment indicators. The annual performance of the Board of Directors is evaluated in January of the following year. The evaluation includes the overall operation of the Board of Directors and the performance of individual board members.

optimization of operations, and cost performance to enhance the Company's overall core competitiveness.

(3) According to the

Company’s attitude toward corporate governance, the main responsibility of the Board of Directors is supervision, guidance and evaluating the performance of the management team. All the Company’s board members have rich operating experiences. On the periodical board meeting each quarter, in addition to resolving on each motion, the board discusses operating strategies and future goals with the management team to create the largest interests for shareholders. Based on the Company’s recent operating performance, there is adequate evidence to prove the good performance of the Company’s Board of Directors.

~24~

Evaluation Item





(4) Will the Company have the independence of the public accountant evaluated regularly?

V (4) The Company appoints CPA Hsu Yung-Chien and CPA Wu Han-Chi of PwC Taiwan to serve as the Company’s CPA. They are not stakeholders of the Company, and strictly adhere to independence. Please refer to pages 40.

(4) No significant discrepancy

4. Has the Company had an adequate number of corporate governance personnel with appropriate qualifications, and appointed a chief corporate governance officer to be in charge of corporate governance affairs (including but not limited to furnishing information required for business execution by directors and supervisors, assisting directors and supervisors with legal compliance, handling matters relating to board meetings and shareholders meetings according to law, producing minutes of board meetings and shareholders meetings, etc.)?

V The Company has established Chief corporate governance to ensure the stockholders’ rights and enhance the functionality of the Board. Their responsibilities are to provide Directors and Supervisors with the information to carry out their functions, assist Directors and Supervisors to comply with laws and regulations, and handle matters related to the board meetings and shareholders’ meetings in accordance with the law.


5. Has the Company established a communication channel with the stakeholders (including but not limited to the shareholders, employees, customers, and suppliers), set up a stakeholder section on the Company’s website, and responded appropriately to the important corporate social responsibilities concerned by the stakeholders?

V The Company has set up a section for stakeholders to appropriately respond to the issues that stakeholders focus on, including CSR.


6. Has the Company commissioned a professional stock service agent to handle shareholders affairs?

V The Company has appointed Taishin International Bank's Stock Agency Department to handle affairs of shareholders’ meetings.


7. Disclosure of information (1) Does the Company have a website setup and the financial

business and corporate governance information disclosed? (2) Has the Company adopted other information disclosure

methods (such as, establishing an English website, designating a responsible person for collecting and disclosing information of the Company, substantiating the spokesman system, placing the juristic person seminar program on the Company’s website, etc.)?

(3) Will the company announce and declare the annual financial report within two months after the end of the fiscal year? Will the company announce and declare the Q1, Q2, and Q3 financial reports along with the monthly operating reports before the prescribed deadline?

V

V

V

(1) The Company has set up a website to disclose relevant information anytime, and

has reported the Company’s overview of operation and each financial and business information on the MOPS in accordance with the regulations of the competent authority.

(2) The Company has set up a website and has established a section for the Company’s financial and business information and the execution status of corporate governance for shareholders and the public to refer to. At the same time, the spokesperson system has also been established and is executed in accordance with relevant regulations.

(3) The company announces and declares the relevant information in the financial report before the prescribed deadline.


8. Are there any other important information (including but not limited to the interests of employees, employee care, investor relations, supplier relations, the rights of stakeholders, the advanced study of directors and supervisors, the

V (1) Employees’ rights: 1. The Company has always focused on employees’ rights, and has regarded

government laws and regulations such as Labor Standards Act, Act of Gender Equality in Employment, and Sexual Harassment Prevention Act, etc., as the


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Evaluation Item





implementation of risk management policies and risk measurement standards, the execution of customer policy, the purchase of liability insurance for the Company’s directors and supervisors) that are helpful in understanding the corporate governance operation of the Company?

Company’s lowest standards in formulating articles for human resource management, in order to protect employees’ rights. In addition to publishing the articles, the Company periodically convenes labor-employer meetings for efficient communication.

2. Pension system: The Company periodically appropriates the pension fund by month under the regulations of Labor Standards Act. The fund is stored in the labor retirement pension account of Central Trust of China. In addition, 6% is appropriated to the employees’ individual accounts to follow the new rules for retirement.

(2) Care for the employees:

The Company cares for and pays attention to employees’ benefits. Based on the spirit of caring and respecting employees, the Company actively maintains its harmonious relationship with employees. In addition to focusing on employees’ benefits and health, the Company has formulated complete benefit measures to protect employees’ basic rights and enhance the coherence of employees. The Company purchases labor insurance and national health insurance, and appropriates labor pension fund in accordance with laws. It also provides group accident insurance, periodic health checks, business travel subsidies, employee meals, year-end festivals, year-end bonuses, and rewards for senior employees. The Employee Benefit Committee appropriates the benefit fund in accordance with laws, and manages each benefit business and the promotion, such as holding employee travel activities, meal gatherings, preparing holiday gifts, birthday gifts, subsidies for weddings and funerals, and signing contracts with specific firms.

(3) Investor relations:

The Company fully discloses information on the MOPS to let investors understand the Company’s operating condition, and communicates with investors via shareholders’ meetings and spokespersons.

(4) Supplier relations:

1. Green procurement: The Company asks the materials suppliers to sign agreements for not using harmful substances to ensure that the products do not contain forbidden substances that are harmful to the environment and to ensure that the products satisfy the laws and requirements of customers and EU on Restriction of Hazardous Substances (RoHS), and periodically conducts supplier evaluation every year.

2. Corporate Social Responsibility

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Evaluation Item





The Company has formulated the “Supplier Code of Conduct,” which stresses 5 big aspects of labor, health and safety, environment, management system and ethical rules. Suppliers must adhere to the “Supplier Code of Conduct.” Meanwhile, the Company also asks suppliers to fill in and report the “Survey Table of CSR,” hoping that the suppliers may precisely adhere to the regulations and implement them.

3. Ethical Corporate Management

On the basis of good corporate governance, the Company sticks to operation transparency and will ask suppliers to sign the “Honest Agreement ”. Meanwhile, there will be an email address for suppliers to send responses to report conflicts of interests: [email protected]

(5) Rights of stakeholders:

The Company has disclosed the spokesperson, employee section, and the email and TEL for suppliers to send responses on the company website, established a communication channel with customers, employees, shareholders and suppliers, and respects the legal rights that they deserve to own.

(6) Continued education of directors and supervisors:

The Company’s directors and supervisors implement continued education in accordance with laws every year. For the detailed information of the courses, please refer to the MOPS/Corporate Governance/Attendance and Continued Education of Directors and Supervisors and the Current Positions, Experiences and Concurrent Positions of Independent Directors

(7) Risk management policies and risk assessment standards:

The Company formulates each internal article in accordance with laws, and engages in each risk management and evaluation.

(8) Execution status of customer policies:

The Company maintains stable and good relationship with customers. In addition to creating profits, the Company sets up dedicated units to handle customers’ complaints.

(9) Status of the Company’s purchase of liability insurance for directors and

supervisors: To implement corporate governance, in addition to establishing effective internal control system, the Company introduces the system of independent director which heavily depends on the professional experiences of independent directors and

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Evaluation Item





supervisors. The Company has also formulated the “Rules of Procedure for Board of Directors Meetings” with details in accordance with laws. Currently, the Company has purchased liability insurance for directors and supervisors as resolved by the Board of Directors on Nov. 10, 2017. The contents of resolution include the insurance amount, range and premium rate, etc.

9. Please describe the improvement performed according to the corporate governance evaluation results published by the Corporate Governance Center of Taiwan Stock Exchange in recent years, and propose the matters with priority for improvement and the respective measures:

Items that have been improved among the 6th Corporate Governance Evaluation Indicators

Number Indicators Improvement method

1.9 Does the Company simultaneously upload the English version of the General Shareholders’ Meeting Notice 30 days before the meeting?

The Company simultaneously upload the English version of the General Shareholders’ Meeting Notice 30 days before the meeting.

1.10 Does the Company upload the English version of the General Shareholders’ Meeting Manual and supplementary information 21 days before the meeting?

The Company has uploaded the English version of the General Shareholders’ Meeting Manual and supplementary information 21 days before the meeting in 2019.

1.11 Does the Company upload the English version of the Annual Report 7 days before the General Shareholders’ Meeting?

The Company has simultaneously uploaded the English version of the Annual Report 7 days before the General Shareholders’ Meeting in 2019.

3.2 Does the company simultaneously report English material information? The company has simultaneously report English material information in 2019.

3.20 Is the Company invited to (Does the Company convene) at least 2 institutional investor conferences, where the first and last institutional investor conferences in the same fiscal year for evaluation are at least 3 months apart?

The Company has convened 2 institutional investor conferences in 2019, and these two institutional investor conferences will be at least 3 months apart.

Items that have not been improved but will be strengthened with first priority among the 6th Corporate Governance Evaluation Indicators

Number Indicators Improvement method

2.21 Did the company set up a corporate governance supervisor that is responsible for corporate governance related matters, and explain the terms of reference, business execution priorities and further training on the company’s website and annual report?

The company established a corporate governance supervisor in 2020 to be responsible for corporate governance related matters, and explained the functions and powers, business execution priorities and further training on the company’s website and annual report.

4.11 Has the company disclosed annual emission readings of carbon dioxide or other greenhouse gases over the past two years?

The company has disclosed the annual carbon dioxide emission readings of the past two years.

4.12 Has the company formulated policies for reducing the amount of emitted carbon dioxide and greenhouse gases, use of water or other waste management policies?

The company has disclosed energy conservation and carbon reduction management policies on the company website and along with their actual implementation statuses.

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Evaluation Item





4.17 Did the company website or CSR report disclose the established supplier management policies, requiring suppliers to follow relevant standards on environmental protection, safety or health issues and explain the implementation status?

The company has disclosed the established supplier management policies on the company website.

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(V) Remuneration Committee 1. Information on the members of the Remuneration Committee

Identity

Qualificatio

n Name

Meet One of the Following Professional Qualification Requirements, Together with

at Least Five Years Work Experience Independence Criteria (Note)

Number of other public

companies where the members

are also the members

of the remunerati

on committee

of these companies

Note

An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Commercial, legal, financial, accounting or other work experiences required to perform the assigned duties

1 2 3 4 5 6 7 8 9 10


Chang Yu-Yao －－－－

Independent Director Liu Fu-Han －－－－

Others Hsieh Jung-Yuan －－－－

Note: place a " " in the box below if the member met the following conditions during the time of active duty and two years prior to the elected date. (1) Not employed by the company or any of its affiliated companies. (2) Not a director or supervisor of the Company or any of its affiliates (the same does not apply, however, in cases where the

person is an independent director of the Bank, its parent company, or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary).

(3) Does not hold more than 1% of the company’s outstanding shares in his/her own name or under the name of spouse, underage children, or any other person; nor is any party listed herein one of the ten largest natural person shareholders of the company.

(4) Not a spouse, relative within the second degree of kinship or lineal relative within the third degree of kinship, of any of the managers stated in preceding paragraph (1) or the persons in preceding paragraph (2) and (3).

(5) Not a director, supervisor, or employee (the same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary) of a corporate shareholder that directly holds 5% or more of the total number of issued shares of the Company, is ranked in the top 5 in shareholding, or designates its representative to serve as a director or supervisor of the Company under Article 27, paragraph 1 or 2 of the Company Act.

(6) Not a director, supervisor or employee of other companies that are controlled by the person who also controls the majority of the Company’s director seats or voting shares (the same does not apply, however, in cases where the person is an independent director of the Company, its parent company or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary).

(7) Not a director (or governor), supervisor or person holding an equivalent position of the Company and that person in any of those positions at another company or institution are the same person or are spouses (the same does not apply, however, in cases where the person is an independent director of the Company, its parent company or any subsidiary, as appointed in accordance with the Act or with the law of the country of the parent or subsidiary).。

(8) Directors, supervisors, managers or shareholders holding more than 5% of shares in specific companies or institutions that do not have financial or business dealings with the company (but individual directors appointed according to local laws and regulations holding other positions in possession of more than 20% and less than 50% of issued shares belonging to specific companies or institutions that are parent, subsidiary, or belonging to the same parent company are not applicable).

(9) Business owners, partners, directors (directors), supervisors (supervisors), managers and their spouses, or professionals, sole proprietorships, partnerships, companies or institutions involved in commercial, legal, financial, accounting services did not provide audits or accumulate NTD$ 500,000 compensation over the past 2 years. Provided that this restriction does not apply to a member of the remuneration Committee, public tender offer review Committee or special Committee for merger/consolidation and acquisition, who exercises powers pursuant to the Securities and Exchanges Act, the Business Mergers and Acquisitions Act, or related law and regulations.。

(10) Does not meet any descriptions stated in Article 30 of the Company Act.

~30~

2. Information on the operation of the Remuneration Committee (1) The Remuneration Committee of the Company is consisted of 3 persons. (2) The term in office of the members: from June 25, 2018 to June 7, 2021. The Remuneration

Committee convened 3 [A] meetings in 2019. The qualification of members and their attendance status are as follows:

Title Name Actual

attendance (B)

Proxy Attendance

Actual attendance (%) (B/A) (Note) Note

Convener Chang Yu-Yao 3 － 100% Assumed from the board on

June 25, 2018

Members Liu Fu-Han 3 － 100% Assumed from the board on

June 25, 2018

Members Hsieh Jung-Yuan 3 － 100% Assumed from the board on

June 25, 2018 Other remarks: (I) The Board may not accept the recommendations of the Remuneration Committee, or revise the

recommendations, specify the date of the Board meeting, the term, the content of the motion, the resolution of the Board, and the response of the Board towards the opinions of the Remuneration Committee (e.g., the remuneration package passed by the Board is superior to the recommendation of the Remuneration Committee, specify the difference and the reasons): Please refer to page 43.

(II) If any of the members of the Remuneration Committee hold adverse opinion or qualified opinions with record or in written declaration against the resolutions of the committee, specify the date and the sessionof the committee meeting, the content of the motion, the opinions of all members and the response to the opinions of the members: Please refer to pages 43.

~ 31 ~

(VI) Fulfillment of social responsibilities:

Evaluation Item

Implementation Status Deviation and causes of deviation from the Corporate Social

Responsibility Best Practice Principles for

TWSE/GTSM-Listed Companies


1. Does the Company conduct risk assessments of environmental, social and corporate governance issues related to the company’s operations in accordance with the materiality principle, and formulate relevant risk management policies or strategies?

V The company has formulated risk assessments on environmental, social and corporate governance issues related to the company’s operations in the relevant company measures and has reported them to the board of directors.

The Company will report to the Board of Directors about the processing status whenever needed.

2. Does the Company have a specific (or part-time) unit set up to promote corporate social responsibility, have the management been authorized by the Board of Directors to handle matters and report the processing results to the Board of Directors?

V The Company’s dedicated departments in charge of social responsibility all conduct relevant matters based on their duties. All operating activities are held in accordance with relevant laws and regulations. The Company shall avoid engaging in behavior violating fair competition, definitely fulfill its obligation of tax paying, act against bribes and corruption, and establish appropriate management system to satisfy internal control.

The Company will report to the Board of Directors about the processing status whenever needed.

3. Environmental issues (1) Does the Company have an appropriate environmental management

system established in accordance with its industrial character? (2) Is the Company committed to enhance the utilization efficiency of

resources and use renewable materials that are with low impact on the environmental?

(3) Does the Company assess the potential risks and opportunities of climate change for companies now and in the future, and take measures to address climate-related issues?

V

V

V

(1) The company is fulfilling its social responsibility to protect the global

environment based on the industry’s characteristics, and doesn’t use hazardous substances during production or research and development. In addition to asking suppliers to sign guarantees of not using hazardous substances, the company has also required suppliers to provide raw materials that are environmentally friendly.

(2) The Company’s environmental safety policies are “Environmental protection is the source for the society’s sustainable development,” and “Safety is the protection for employees’ happiness and growth.” To the Company and its subsidiaries (hereafter “the Company”), they aim at developing the business of design, producing, and sales of high-quality heat sinking module. The Company has always focused on environmental protection. In order to implement pollution prevention, integrate each environmental protection management resource and continue enhancing the Company’s performance in environmental protection, the Company will devote itself in the establishment, execution and maintenance of environmental protection management system under the requirement of international standard of ISO14001/OHSAS 18001. In doing so, the company is committed to improving the utilization efficiency of various resources and uses recycled materials that have a low impact on the environmental load.

(3) The company has assessed the potential risks and opportunities impacted by climate change, and has referred to the requirements of ISO14064-1 and ISO14064-3 to remain committed to promoting energy conservation, to increasing the effectiveness of energy conservation and the reduction of carbon emissions.

(4) The company has collected data on greenhouse gas emissions, water


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Evaluation Item





(4) Does the Company count greenhouse gas emissions, water consumption, and total weight of waste over the last two years, and formulate policies for energy conservation and carbon reduction, greenhouse gas reduction, water consumption reduction, or other waste management?

V

consumption and total weight of waste over the past two years, and has formulated policies to reduce emissions of carbon dioxide, greenhouse gases, water usage and other waste management policies.

4. Social issues (1) Does the Company have the relevant management policies and

procedures stipulated in accordance with the relevant laws and regulations and international conventions on human rights?

(2) Has the Company formulated and implemented reasonable employee

benefits measures (including remuneration, vacation and other benefits, etc.), and appropriately reflect operating performance or results in employee remuneration?

(3) Does the Company provide employees with a safe and healthy work environment, and provide safety and health education to employees regularly?

(4) Does the company have an effective career capacity development training program established for the employees?

(5) Regarding customer health and safety, customer privacy, marketing, and labeling of products and services, does the Company comply with relevant regulations and international standards, and formulate relevant consumer protection policies and appeal procedures?

(6) Has the Company formulated a supplier management policy that required suppliers to follow relevant norms on specific issues, such as, environmental protection, occupational safety and health, or labor rights, and their implementation?

V

V

V

V

V

V

(1) (The Company is pursuant to “Human Rights Protection Policy”,

abides by the “Labor Standard Law”, “Employment Services Act”, “Gender Equality in Employment Act” and other relevant laws and regulations to reinforce the principles of labor rights and protect the employees’ legal rights.

(2) The company has formulated and implemented employee welfare measures (including compensation, vacations and other benefits), and has appropriately reflected operating performance or achievements in employee compensation.

(3) The Company has provided employees with a safe and healthy work environment, and provided safety and health education to employees regularly.

(4) The Company regards employees as important assets, focuses on the cultivation of talents, and executes internal and external educational trainings every year based on the annual educational training plan. The Company has established an effective professional training program to strengthen employees’ career development ability.

(5) The company has established specialists and mailbox liaisons in accordance with laws, international standards, relevant consumer protection policies and appeal procedures to handle consumer rights issues, and ensure that these issues can be dealt with as soon as possible.

(6) The Company has formulated the “Supplier Code of Conduct,” which stresses 5 big aspects of labor, health and safety, environment, management system and ethical rules. Suppliers must adhere to the “Supplier Code of Conduct.” Meanwhile, the Company also asks suppliers to fill in and report the “Survey Table of CSR,” hoping that the suppliers may precisely adhere to the regulations and implement them. On the basis of good corporate governance, the Company sticks to operation transparency and will ask suppliers to sign the “Honest and Secret Agreement”. Meanwhile, there will be an email address for suppliers to send responses to report conflicts of interests:


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Evaluation Item





[email protected] 5. Does the Company refer to international criteria or guidelines for the

preparation of reports, and compile reports on corporate non-financial information, such as, corporate social responsibility reports? Did the aforementioned reports obtain the assurance or guarantee opinion of a third-party verification institute?

V The Company has not prepared the CSR Report. The Company has not prepared the CSR Report.

6. For companies who had established corporate responsibility code of conducts in accordance with the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM-Listed Companies”, please describe the current practice and any deviations from the code of conduct: The company has formulated the “Corporate Social Responsibility Code,” and abides by various human resources, environmental protection, and safety operation standards. Its operating conditions are not significantly different from the prescribed codes, and have been implemented normally.

7. Other important information that help understand the CSR operation: (1) Environmental protection measures

In order to fulfill the social responsibility of protecting the Earth environment, the Company does not use harmful substances during the production and R&D processes, and signs the Warranty Letter of the Non-Use Hazardous Substance with customers. The Company puts the EICC (Electronic Industry Citizenship Coalition) declaration on the company website (www.auras.com.tw), and devotes to many aspects such as environmental protection, safety and hygiene, and labor rights to fulfill social responsibility. Meanwhile, the Company asks the suppliers to provide raw materials that meet the requirement of environmental protection.

(2) Assisting the disadvantaged The Company routinely donates 200kg of rice to Hung Hua Tung Hsin Charity Association every year.

~ 34 ~

(VII) Proper enforcement of business integrity

Evaluation Item

Implementation Status Variation from the Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies

and the reasons Yes No Abstract Illustration

1. Business Integrity Policy and action plans (1) Has the Company formulated an ethical corporate management policy that

was approved by the board of directors, and clearly specified in the rules and external document the ethical corporate management policies and strategies and the commitment by the board of directors and senior management on rigorous and thorough implementation of the policies in internal management and in commercial activities?

(2) Has the Company had established a risk assessment mechanism against

unethical conduct, regularly analyzed and assessed business activities within the business scope which were at a higher risk of being involved in unethical conduct and established prevention programs accordingly that at least included the preventive measures against the conducts specified in Article 7, paragraph 2 of the “Ethical Corporate Management Best-Practice Principles for TWSE/GTSM Listed Companies?”

(3) Has the Company specified the operating procedures, guidelines for conducts punishment and appeal system for violations in the prevention programs, have they been implemented accordingly and regularly reviewed and revised the aforementioned programs?

V

V

V

(1) The Company has formulated the “Ethical Corporate

Management and Complaints Reporting Best Practice Principles”. Meanwhile, the “Rules of Procedure for Board of Directors Meetings” has defined the system of avoiding conflicts of interests for directors. In addition, the “Work Rules” have listed that employees shall not receive gifts. The Company’s suppliers shall all sign the “Honesty and Secret Agreement”. The Board of Directors and the management level shall all sign the “Statement of Not Violating the Ethical Corporate Management Principle,” which serves as the basis for implementing ethical corporate management.

(2) The company has stipulated the “Code of Ethical Conduct for Directors, Supervisors and Managers,” “Letter of Commitment to Confidentiality and Integrity,” and the suggestion mailbox [email protected], and has covered “Code of Integrity Management of Listed OTC Companies” Article 7, paragraph 2’s precautionary measures.

(3) The company has established the “Integrity Management Code

and Report/Appeal Measures,” and “Directors, Supervisors and Managers’ Code of Ethical Conduct,” and strictly requires the company’s employees and management personnel to abide by corporate ethics, uphold business ethics and integrity, establish clear report/appeal operational procedures, behavior guidelines, disciplinary penalties and grievance systems, and implement regular reviews.


2. Proper enforcement of business integrity (1) Does the company have the integrity of the trade counterparty assessed and

with the code of integrity expressed in the contract signed? (2) Does the Company set up a unit dedicated to promoting ethical corporate

management under the board of directors, and regularly (at least once a year) report to the board of directors its ethical corporate management policies and unethical conduct preventive action and the implementation of

V

V

(1) Before the Company engages in formal commercial activities

with its commercial partners, it conducts each type of evaluation including the ethical conducts. After ensuring the cooperation, the Company would ask the counter parties to sign agreements to present their loyalty in obeying the regulations related to ethical conducts set up by the Company.

(2) The senior manager of each of the Company’s departments is responsible for the policy of ethical corporate management and the formulating, supervision and execution of the prevention programs. The audit unit is responsible of supervising the


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Evaluation Item



supervision? (3) Does the company have developed policies to prevent conflicts of interest,

provided adequate channel for communication, and substantiated the policies?

(4) Does the Company have established an effective accounting system and

internal control system for the implementation of ethical corporate management, and the internal audit unit based on the assessed risk of unethical conduct to formulate relevant audit plans, and check the compliance with the unethical conduct preventive action or commission an accountant to perform the check?

(5) Has the Company organized corporate management internal and external education and training programs on a regular basis?

V

V

V

Company in implementing the operation and audit of ethical corporate management.

(3) The Company has formulated the “Rules of Procedure for Board of Directors Meetings” in accordance with laws, and dealt with conflict of interest matters of the directors. It also irregularly propagates to the employees to inform their senior managers in advance and avoid afterwards if there are conflicts of interests in the business.

(4) The Company has formulated relevant accounting system and internal control system, which are both controlled according to the requirements of accounting and internal audit laws, in order to ensure that the Company’s daily operation can meet the principles for ethical corporate management. The audit personnel periodically audits on the execution status and reports to the Board of Directors.

(5) The Company irregularly propagates to the Group members to obey the regulations of ethical corporate management.

3. The operations of the Company’s Report System (1) Does the company have a specific report and reward system stipulated, a

convenient report channel established and a responsible staff designated to handle the individual being reported?

(2) Has the Company established standard operating procedures for

investigating reported events, follow-up measures to be taken after the investigation was completed, and related confidentiality mechanisms?

(3) Has the company taken proper measures to protect the whistle-blowers

from suffering any consequence of reporting an incident?

V

V

V

(1) The Company has formulated the “Ethical Corporate

Management and Complaints Reporting Best Practice Principles,” and has TEL and email address set aside to receive complaint reporting. Regarding the violations of the ethical principles, employees can report to the human resource administration unit or the management level via telephone and email.

(2) The Company has formulated the “Ethical Corporate Management and Complaints Reporting Best Practice Principles,” which state the regulations of secret keeping of the complainer identity and the content of complaint, and are considered into the management articles for implementation.

(3) The Company has formulated the “Ethical Corporate Management and Complaints Reporting Best Practice Principles,” which state the measures for protecting the complainer from being inappropriately treated due to the reporting, and are considered into the management articles for implementation.


4. Enhanced information disclosure Does the company have the contents of ethical corporate management and

V The Company has uploaded company information to the MOPS in accordance with laws and regulations.


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Evaluation Item



its implementation disclosed on the website and MOPS? 5. Where the company may have established its own business integrity best-practice principles in accordance with the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed

Companies”, and shall elaborate the practice of business integrity and the variations from the aforementioned regulation: The Company has formulated the “Codes of Ethical Conduct for Directors, Supervisors and Managers,” “Work Rules”, “Honesty and Secret Agreement,” and “Statement of Conflicts of Interests,” which are updated according to the Company’s actual operation and the revisions to the laws and regulations. The Company also irregularly propagates to the Group members to obey the regulations. The operating status of the rules and regulations has no significant discrepancy with the principles that it formulated, and are normally executed.

6. Other vital information that helps to understand the practice of business integrity of the company (e.g., the review and revision of the best-practice principles of the Company in business integrity) (1) The Company obeys the articles and laws related to TWSE/GTSM Listed Companies for the basis of implementing ethical corporate management. (2) The Company’s “Procedures for Handling Material Inside Information” have defined good processing procedures for material inside information and the disclosure mechanism, in order to avoid

inappropriate disclosure of information and ensure the consistency and correctness of the information that is published outside. (3) The Company’s “Ethical Corporate Management and Complaints Reporting Best Practice Principles” state that the management articles have defined the policy for ethical corporate management, which

is fully executed in internal management and commercial activities.

~ 37 ~

(VIII) If the company has formulated corporate governance principles and related articles, it shall disclose the way of inquiry: Until now, the Company has formulated articles and regulations such as the “Articles of Incorporation,” “Rules of Procedure for Shareholders’ Meetings,” “Rules of Procedure for Board of Directors Meetings,” “Articles of Association of Remuneration Committee,” “Regulations Governing the Acquisition or Disposal of Assets Regulations Governing the Acquisition or Disposal of Assets,” “Operational Procedures for Fund Lending and Endorsement and Guarantees,” “Procedures for Handling Material Inside Information,” “Corporate Governance Best-Practice Principles,” “Ethical Corporate Management Best Practice Principles,” and “Suppliers Behavior Principles,” etc., which can be inquired from the company website (http://www.auras.com.tw), the MOPS or the annual reports.

(IX) Other important information which can enhance the understanding of the operation of corporate governance shall be disclosed together: 1. Implementation status of Director diversification:

Items Name of director

Gender Operation and judgment

ability

Accounting and

financial analysis

Management capability

Crisis management capabilities

Industry knowledge

International market

viewpoint

Leadership Decision-making ability

Lin Yu-Shen Male V V V V V V V V Lin Tsung-Tan Male V V V V V V V V Jin Hong Investment Co, Ltd. (Representative: Lin Fang-Ling)

Female V V V V V V V V

Chang Yu-Yao Male V V V V V V V V Liu Fu-Han Male V V V V V V V V

2. The implementation status of board evaluations:

Evaluation cycle

Evaluation period

Evaluation scope

Evaluation method Evaluation content

Evaluation performed once a year

Evaluation of performance of January 1, 2019 – December 31,

2019

Board of Directors

Self-evaluation of board members

1. Mastery of the company’s goals and tasks

2. Understanding of directors’ responsibilities

3. Level of involvement in the Company’s operation

4. Management and communication of internal relationships

5. Professional and continuous education of directors

6. Internal Control

~38~

3. Training hours of directors and supervisors in 2019: Title Name Training date Organizer Course name Training

hours

Director Lin Yu-Shen

2019/08/28 Taiwan Academy of Banking and Finance (TABF)

Workshop on Corporate Governance and Business Sustainability 3

2019/09/18 Taiwan Listed Companies Association Urban Governance and Corporate Governance 2

2019/12/23 Taiwan Listed Companies Association Domestic and International Economic Outlook in 2020 2

Director Lin Fang-Ling



2019/10/16 Corporate Governance Association in Taiwan

Directors’ and Supervisors’ Responsibility and Corporate Governance Practice Seminar

3

Director Lin Tsung-Tan

2019/12/03 Securities and Futures Institute The impact of the latest tax law changes on business operations 3

2019/12/05 Securities and Futures Institute The Principle and Applications of Blockchain 3

Independent Director Liu Fu-Han


Directors must dictate company’s responses towards a rapidly changing technology environment

3




Chang Yu-Yao





3

Supervisor: Cheng Ho-Pin




Lectures on Corporate Governance – Analysis of Important Practice Judgments of Corporate Governance

3

Supervisor: Chiang Ping-Chu





3

Supervisor: Chen Yen-Chun



2019/10/02 Securities and Futures Institute

Practical case analysis on an established case in breach of trust or particular breach of trust with the board of directors

3

2019/10/15 Securities and Futures Institute Operational Practice of Remuneration Committee and Growth Strategy Committee

3

~39~

(X) Internal control 1. Declaration of Internal Control Policies:

Auras Technology Co., Ltd. Declaration of Internal Control Policies

Date: March 17, 2020 The following declaration is based on the 2019 self-audit over the Company’s internal control policies: 1. The Company is aware that the establishment, execution, and maintenance of its internal control

policies are the responsibilities The Company’s board of directors and managers. These policies were implemented throughout The Company. The purpose is to provide reasonable assurance on the achievement of operating effectiveness and efficiency (including profits, performance, and assets safeguarding), reporting matters with reliability, timeliness, and transparency, and compliance with the relevant law and regulations.

2. Internal control policies are prone to limitations. No matter how robustly designed, effective internal control policies merely provide reasonable assurance to the achievements of the three goals above. Furthermore, environmental and situational changes may affect the effectiveness of internal control policies. However, self-supervision measures were implemented within The Company’s internal control policies to facilitate immediate rectification once procedural flaws have been identified.

3. The Company has based on the criteria of the internal control system effectiveness in the “Regulations Governing the Establishment of Internal Control System by Public Companies” (referred to as the Regulations” hereinafter) to determine the effectiveness of the internal control system design and implementation. The criteria introduced by “The Governing Principles” consisted of five major elements, each representing a different stage of internal control: 1. Control environment, 2. Risk evaluation and response, 3. Procedural control, 4. Information and communication, 5. Supervision. Each element further contains several items. Please refer to “The Governing Principles” for details.

4. The Company adopted the abovementioned criteria to evaluate the effectiveness of its policy design and execution.

5. The Company, according to the aforementioned assessment results, thinks the Company’s internal control system (including the supervision and management over the subsidiaries) on December 31, 2019, including understanding the effectiveness and efficiency of operations, reporting the internal control design and implementation with effectiveness, timeliness, transparency, and compliance with the relevant requirements and regulations and laws; therefore, a reasonable assurance on the achievement of the aforementioned goals is provided.

6. This declaration forms part of the main contents of the company’s annual report and prospectus, and shall be disclosed to the public. Any illegal misrepresentation or non-disclosure relating to the public statement above are subject to the legal consequences under Articles 20, 32, 171, and 174 of the Securities and Exchange Act.

7. This declaration was approved by The Company’s Board of Directors in the meeting dated March 17, 2020. None of the 5 directors present to the meeting held any objections, and had unanimously agreed to the contents of this declaration.


Chairman: Lin Yu-Shen

President: Lin Yu-Shen 2. If the internal control policy was reviewed by an external auditor, the report of such a review

must be disclosed: Not applicable.

~40~

(XI) Table for CPA’s Audit and Evaluation: Company name: Auras Technology Co., Ltd. Auditor's firm: PwC Taiwan CPA: Hsu Yung-Chien, Wu Han-Chi Evaluation year: 2019

Item CPA Hsu

Yung-Chien CPA Wu Han-Chi Note

(The impacts of self benefits on independence are obtaining financial gains from audit customers or the conflicts of interests with audit customers due to other interest relations.) Circumstances that may cause the impacts) 1. There is no direct or significantly indirect financial interest relation with audit customers. 2. The accounting firm does not heavily depend on a single customer’s remuneration. 3. There is no significantly close commercial relationship with audit customers. 4. There is no possibility to consider the loss of customers. 5. There is no potential employer-employee relationship with audit customers. 6. There are no contingent fees related to audit cases. 7. There is no evidence showing significant mistakes in the professional service reports previously

provided by other members of the accounting firm.

Yes

Yes Yes Yes Yes Yes Yes

Yes

YesYesYesYesYesYes

(The impacts of self benefits on independence are that the reports or judgements made by the CPA when auditing on the non-audit cases are important reference for audit results during the audit on financial information or the audit process, or that any member of the audit service team once served as the director or supervisor of the audit customer or once served in the position that has direct and significant impact the audit case. Circumstances that may cause the impacts) 1. The accounting firm provides the assurance engagement report that it designs or helps the

financial information system operate efficiently. 2. The original documents prepared by the accounting firm are used in significant or important

matters of assurance engagement. 3. There is no member of the audit service team who serves as the director, supervisor, manager or

in the position that has significant impact on the audit case of the audit customer currently or during the most recent 2 years.

4. There are no important items of the audit case that will directly affect the non-audit service provided by the audit customer.

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

(The impact of defense on independence is that the member of the audit service team becomes the defender for the audit customer’s standpoint or opinion and thus causes its independence to be suspected. Circumstances that may cause the impacts) 1. There are no promotion or intermediation of the stocks or other securities of the audit customer. 2. Except the businesses permitted by laws, there are no representation for the audit customer and

the legal cases of the third party or defenses for other disputes.

Yes

Yes

Yes

Yes

(The impact of familiarity on independence is that the relationship of serving as the audit customer’s director, supervisor or manager makes the CPA or the member of the audit service team focus more or give emphasis on the gains of the audit customer. Circumstances that may cause the impacts) 1. There is no member of the audit service team who has relative relationship with the directors,

supervisors, managers or personnel with positions having no significant impact on the audit case of the audit customer.

2. There is no CPA who once provided service together and left the position within one year serving as the audit customer’s director, supervisor, manager or serving in the position that has significant impact on the audit case.

3. The CPA does not receive valuable gifts or special offers from the audit customer or its directors, supervisors and managers.

Yes

Yes

Yes

Yes

Yes

Yes

(The impact of coercion on independence is that a member of the audit service team undertakes or feels threat from the audit customer, which prevents him or her from keeping objectivity and making professional doubts clear. Circumstances that may cause the impacts) 1. There is no threat for raising litigations. 2. There is no threat for cancelling the commission of non-audit cases and forcing the accounting

firm to accept specific transaction items or select inappropriate accounting policies. 3. There is no threat for cancelling the commission or assumption of the audit case. 4. There is no threat for lowering the audit fees or putting pressure on the CPA, making him or her

inappropriately reduce the audit work that shall be conducted. 5. The audit customer does not suppress the audit personnel with the attitude of a specialist to make

him or her accept the professional judgement on a certain disputing item.

Yes Yes

Yes Yes

Yes

YesYes

YesYes

Yes

The Company’s officer: Yen Pei-Hsu Date: 2019.12.25

~41~

(XII) Recent annual report and till published date of latest report, any insiders been punished by law, or the Company process internal procedures on punishing insiders for breaking the Company principles, and the reaults may have major impacts on shareholder equity and to reveal the casue, content and improvement procedures accordingly.: None.

(XIII) Major resolutions of the General Meeting of shareholders and the Board in the most recent year to the date this report was printed: 1. Resolutions and implementation of the shareholders’ meeting

Time / Meeting Resolution Matters Resolution results / Implementation status

2019.06.05 General Meeting of shareholders

1. Adoption of the 2018 Business Report and Financial Statements.

The proposal has been passed by voting. The financial statements have been disclosed on the MOPS.

2. Adoption of the Proposal for 2018 Earnings Distribution.

This case was passed based on the vote for the amendment.

1. June 5, 2019, the chairman set the ex-dividend date as July 10th, 2019, and adjusted the dividend payout ratio of cash dividends to NTD$ 1.52453525, which was published in the major announcements.

2. On July 31, 2019, cash dividends were distributed.

3. Approval of amendments to the “Articles of Incorporation”.

The case was approved by vote, and a letter of approval from the Ministry of Economy was obtained on June 12, 2019 and operations were carried out in accordance with the revised operating procedures.

4. Approval of amendments to the “Procedures for Election of Directors and Supervisors”.

The case was approved by vote, and operations were carried out in accordance with the revised operating procedures.

5. Approval of revising the “Regulations Governing the Acquisition or Disposal of Assets”.

The case was approved by vote, and operations were carried out in accordance with the revised operating procedures.

2. Resolutions of the Board of Directors

Board of Directors Resolution Matters

Items listed in Article 14-3 of Securities and Exchange Act

Independent directors

opposed or reserved their

opinion

The 8th meeting for the 8th term (May 7, 2019)

1. In Q2 of 2019, the company implemented the “2014 First Stock Option Certificate” and “2014 Second Stock Option Certificate” issuance of new shares case.

－ None

2. In Q2 of 2019 Proposal of issuing new shares converted from “The 2nd Domestic Secured Convertible Bond”. － None

3. Amendments to the “Regulations Governing of Fund Lending to Other”. None

4. Amendments to the “Regulations Governing of Endorsements/Guarantees”. None

5. The proposal of continued application for financing credit comprehensive quota from Citibank Taiwan, Ltd. (hereafter “Citibank”) was approved.

－ None

6. Approved the addition of Mega International Commercial Bank Co., Ltd. Commercial Paper Facilities. － None

7. Passed the increased CTBC Bank factoring quota case. － None 8. The continued application for financing credit quota from

Bank SinoPac was approved. － None

9. The continued application for the Company’s endorsement and guarantees quota of US$ 3 million to the 100% held subsidiary, Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

None

10. The continued application for the Company’s endorsement and guarantees quota of US$ 3 million to the 100% held subsidiary, Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

None

~42~





opinion 11. The continued application for the Company’s endorsement

and guarantees quota of US$ 2 million to the 100% held subsidiary, Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

None

The 9th meeting for the 8th term

(August 6, 2019)

1. Reviewing on the 2018 Proposal for Distributing Remuneration to Directors and Supervisors None

2. Review on the managers’ distribution of remuneration to employees in 2018. None

3. Formulate the “Standard Operating Procedures for Handling Directors’ Requests.” － None

4. The proposal for changing the Chief Financial Officer. None 5. The change of spokesperson. None 6. The change of deputy spokesperson. None 7. Passed the financial institution (HSBC Bank, First

Commercial Bank, Mega International Commercial Bank, DBS Bank) finance limit case.

－ None

The 10th meeting for the

8th term (November 7,

2019)

1. In Q4 of 2019, the company implemented the “2014 First Stock Option Certificate” and “2014 Second Stock Option Certificate” issuance of new shares case.

－ None

2. In Q4 of 2019, proposal of issuing new shares converted from “The third domestic unsecured convertible corporate bond”.

－ None

3. Formulated the “Procedure for Repurchasing Treasury Stocks.” － None

4. The Company’s “2020 Audit plans” was approved. － None 5. The continued application for the Company’s endorsement

and guarantees quota of US$ 2 million to the Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

None

6. The application for the Company’s endorsement and guarantees quota of US$ 3 million to the Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

None

7. Passed the financial institution (E. Sun Commercial Bank, Mega International Commercial Bank, Chang Hwa Bank, China Bills Finance Corporation, KGI Bank) finance limit case.

－ None

The 11th meeting for the

8th term (January 06,

2020)

1. Submitted the company’s 2020 operation plans. － None 2. The proposal for evaluating the independence of the

Company’s CPA. None

3. The Company’s proposal of 2019 Year-End Bonuses Distributed to Managers. None

4. The Company’s proposal of 2017 Treasury Stocks Transferred to Managers. None

5. The proposal for amending the Company’s “Ethical Corporate Management and Complaints Reporting Best Practice Principles”.

－ None

6. Corporate Governance Supervisor Designations. None 7. The Company’s endorsement and guarantee quota of US$ 3

million to the Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

None

8. Planned approval of financial institutions (Taiwan Shin Kong Commercial Bank, Cathay United Bank, CTBC Bank, Citibank) finance limit case.

－ None

The 12th meeting for the 8th term (March

17, 2020)

1. The Company’s proposal of 2019 Remuneration to Employees. None

2. The Company’s proposal of 2019 Remuneration to Directors and Supervisors. None

3. The Company’s 2019 business report and financial statements. － None

~43~





opinion

4. The Company’s 2019 Earnings Distribution. None

5. The Company's 2019 "Declaration of Internal Control Policies". None

6. In Q1 of 2020, implemented “2014 Second Stock Option Certificate” issuance of new shares cases. － None

7. In Q1 of 2020, proposal of issuing new shares converted from “The third domestic unsecured convertible corporate bond”.

－ None

8. Amendments to the “Articles of Incorporation”. None 9. Amendment to the “Rules of Procedure for Shareholder

Meetings”. － None

10. Amendments to the “Guidelines for Self-assessment or Peer-assessment of the Board of Directors”. － None

11. Added “Standard Operating Procedures for Handling Directors’ Requests” case. － None

12. Amendments to the “Regulations Governing of Fund Lending to Other”. None

13. Amendments to the “Regulations Governing of Endorsements/Guarantees”. None

14. Amendments to the “Regulations Governing the Acquisition or Disposal of Assets”. None

15. The proposal for formulating the matters related to the Company’s 2020 General Shareholders’ Meeting. － None

16. Passed the financial institutions (Taishin International Bank, Bank SinoPac, Taiwan Shin Kong Commercial Bank, Land Bank of Taiwan, Fubon Bank, CTBC Bank) finance limit case.

－ None

(XIV) Resolutions of the Remuneration Committee up to the most recent year and publication date of the latest annual report:

Remuneration Committee Resolution Matters Resolution results

The handling of the Company's opinion towards

compensation committee members.


(August 6, 2019)

1. Approved the appropriation of the Company’s 2018 Director and Supervisor remuneration.

Approved by all attending committee members without

objections.

Submitted to the board meeting and approved by all

attending Directors. 2. Review on the managers’

distribution of remuneration to employees in 2018.


objections.

Submitted to the board meeting and approved by all attending Directors.


(January 6, 2020)

1. Reviewed the 2019 annual bonus appropriation to managerial officers.


objections.


2. Reviewed the 2017 transfer of treasury shares to managerial officers.


objections.



(March 17, 2020)

1. Approved the appropriation of the Company’s 2019 Director and Supervisor remuneration.


objections.


2. The Company’s proposal of 2019 Remuneration to Employees was approved.


objections.


~44~

(XV) Documented opinions or declarations made by Directors or Supervisors against Board of Directors resolutions in the most recent year, up until the publishing date of this annual report: None.

(XVI) Resignation or discharge of persons related (including the Chairman, President, Chief Accounting Officer, Chief Financial Officer, Chief Internal Auditor, Chief Corporate Governance and Chief F&D Officer) in the most recent year to the date this report was printed:

Title Name Date on board Date of discharge Reason for resignation or

discharge Chief Financial Officer Huang Yi-Ting 2018.11.14 2019.08.06 Rotation of duties

V. Disclosure of CPAs’ remuneration

(I) For those whose percentage of the non-audit fees paid to the CPA, accounting firm of the CPA and its affiliates to the total audit fees reaches above one-fourth, the amount of the audit fees and non-audit fees and the content of the non-audit service shall be disclosed:

Unit: NTD thousand

Auditor's firm Name of CPA Audit remuneration

Non-audit remuneration CPA auditing period Note

Policy design

License registration

Human resource Others Subtotal

PwC Taiwan

Hsu Yung-Chien

3,020 thousand dollars －－－ 1,520 1,520 2019.01.01

~2019.12.31

Transfer Pricing Report: $1,460 thousand and

Corporate Bond report $60 thousand.

Wu Han-Chi

(II) If a change in accounting firm resulted in a lower audit remuneration for that year compared to the previous year, the amount, percentage, and reason of the reduction must be disclosed: none.

(III) If the audit remuneration was reduced by more than 15% from the previous year, the amount, percentage, and reasons for the reduction must be disclosed: None.

~45~

VI. Change of CPA (I) Information relating to the former CPA:

Date of reappointment March 31, 2019

Reason for reappointment Due to PwC Taiwan’s internal rotation, the CPAs are changed.

Was the termination of audit services initiated by the principal or

by the CPA

ParticipantsSituation CPA Principal

Service terminated by Service no longer accepted (continued) by

Reasons for issuing opinions other than unqualified opinions in the

recent 2 years None

Disagreements with the issuer

Yes

Accounting policy or practice Financial statement disclosure Audit coverage or procedures Others

None

Notes

Other disclosures None

(II) Information relating to the succeeding CPA:

Name of firm PwC Taiwan

Name of CPA CPA Hsu Yung-Chien, CPA Wu Han-Chi

Date of reappointment March 31, 2019 Inquiries and replies relating to the accounting practices or accounting

principles of certain transactions, or any audit opinions the auditors were likely to

issue and counseling results on the financial reports prior to reappointment.

None

Written disagreements from the succeeding auditor against the opinions

made by the former CPA None

VII. If the Company’s Chairman, President, and Finance or Accounting Officer had taken a job

position with the attestation CPA Firm or its affiliated enterprises within one year, the name, job position, and the employment period with the attestation CPA Firm or its affiliated enterprises should be disclosed None.

~46~

VIII. Shareholding transfers and share collateralization within the latest year, up till the publication date of this annual report, initiated by directors, supervisors, managers and shareholders with more than 10% ownership interest (I) Shareholding changes of directors, supervisors, managers and shareholders with shareholding

exceeding 10%: Unit: shares

Title Name

2019 Up till April 11, 2020 Increase

(decrease) in shares held

Increase (decrease) in

shares collateralized

Increase (decrease) in shares held

Increase (decrease) in

shares collateralized

Chairman / President Lin Yu-Shen 97,000 － 26,000 －

Director Lin Tsung-Tan －－ 0 －

Director Jin Hong Investment Co, Ltd. －－ 0 －

Director representative Lin Fang-Ling 28,000 － 10,000 －

Independent Director Liu Fu-Han (81,000) － 5,000 －

Independent Director Chang Yu-Yao －－ 0 －

Supervisor: Cheng Ho-Pin －－ 0 －

Supervisor: Chiang Ping-Chu (9,000) － (24,000) －

Supervisor: Chen Yen-Chun －－ 0 －

Vice President Chen Heng-Lung (25,000) － 20,000 －

Vice President Chen Chih-Wei (8,000) － 25,000 －

Vice President Chang Chih-Hui (35,000) － (20,000) －

Chief corporate governance

Lin Fang-Ling (Date of new term: January 6, 2020)

Not applicable

Not applicable 10,000 －

Accounting Supervisor Yen Pei-Hsu 3,000 － 12,000 －

Chief Internal Auditor Tsai Chin-Hui (15,000) － 7,000 －

Chief Financial Officer

Huang Yi-Ting (Date of dismissal: August 6, 2019) －－ Not

applicable Not

applicableChief Financial Officer Weng Lin-Sheng －－ 4,000 －

Assistant Manager Lin Po-Hsun 9,000 － 15,000 －

Assistant Manager Chiang Jung-Cheng 22,000 － (20,000) －

10% Major Shareholders Lin Yu-Shen 97,000 － 26,000 －

(II) Transfer of shareholding: None. (III) Pledge of shareholding: The counter parties of the pledged shares are not related parties.

~47~

IX. Relationships among The Company’s top ten shareholders including spouses, second degree relatives or closer

April 11, 2020

Name Shares Held In Own Name

Shareholdings of spouse and

underage children

Shares Held In The Names Of Others

Among the top 10 shareholders, there are related parties, spouse

to each other, and kindred within the 2nd

tier under the Civil Code, and the name and affiliation, if applicable.

Note


percentage Shares Shareholding percentage Name Relationship

Lin Yu-Shen 11,828,686 13.67% －－－－ Lin Yu-Hsien


－

Cheng Ho-Pin 4,563,094 5.27% －－－－－－－

Chang Chih-Chun 2,307,000 2.68% －－－－－－－

Chang Chih-Yuan 1,233,000 1.42% －－－－－－－

American JPMorgan Chase Bank Taipei Branch was entrusted with the custody of PGIA’s Advanced Integrated International Stock Index Fund Series Investment account

1,103,000 1.27% －－－－－－－

Lin Yu-Hsien 1,048,956 1.21% －－－－ Lin Yu-Shen


－

The American branch of JPMorgan Chase Bank Taipei was entrusted with the custody of Vanguard’s emerging market stock index fund investment account

898,000 1.04% －－－－－－－

Citi entrusted with Citi Global Market-Asia Pacific Integrated Equity Finance

884,000 1.02% －－－－－－－

Li Liang-Ping 851,000 0.98% －－－－－－－

Tan Ching-Jung 553,000 0.64% －－－－－－－

~48~

X. Investments jointly held by The Company, The Company’s directors, supervisors, managers, and enterprises directly or indirectly controlled by The Company. Calculate shareholding in aggregate of the above parties

December 31, 2019; NT$ thousand; thousand shares

Invested businesses (Note 1)

Invested by The Company

Held by directors, supervisors, managers, and directly or

indirectly controlled enterprises Aggregate investment


percentage Shares Shareholding percentage

LI-HORNG TECHNOLOGY CO., LTD. 36,510 100% －－ 36,510 100%

PRO JUMP CO., LTD. 254 15% 353 21% 607 36%

HAO HORNG TECHNOLOGY CO., LTD. 50 100% －－ 50 100%

Milk Idea Inc. 400 20% 1,000 50% 1,400 70%

Raijintek Co., Ltd. 1,120 56% 120 6% 1,240 62%

AURAS INTERNATIONAL, INC. 500 100% －－ 500 100%

SHUANG HORNG TECHNOLOGY CO., LTD. －－ 5,000 100% 5,000 100%

ZE HONG TECHNOLOGY CO., LTD. －－ 18,000 100% 18,000 100%

PEL HORNG TECHNOLOGY CO., LTD. －－ 2,100 100% 2,100 100%

ZHEN HORNG TECHNOLOGY CO., LTD. －－ 10,000 100% 10,000 100%

SHIH HORNG TECHNOLOGY CO., LTD. －－ 184 100% 184 100%

JCD OPTICAL CO., LTD. (Cayman) －－ 8,840 35% 8,840 35%

Auras Electronic Science and Technology Industrial (Kunshan) Co., Ltd.

－－ (Note 2) 100% (Note 2) 100%

Ze Hong (Guangzhou) Technology Co., Ltd. －－ (Note 2) 100% (Note 2) 100%

Pei Hong (Guangzhou) Technology Co., Ltd. －－ (Note 2) 100% (Note 2) 100%

Chun Hong (Chongqing) Technology Co., Ltd. －－ (Note 2) 100% (Note 2) 100%

Anhui Weihong Electronic Technology Co., Ltd. －－ (Note 2) 60% (Note 2) 60%

JCD (Guangzhou) Technology Co., Ltd. －－ (Note 2) 35% (Note 2) 35%

Note 1: The Company’s long-term investment in the equity method. Note 2: The invested Company does not issue stocks, thus no shareholding issue.

~49~

Four. Funding Status I. The Company’s capital stock and stock shares

(I) Source of capital 1. Share category April 11, 2020; Unit: shares

Share category Authorized capital

Note Outstanding shares Unissued shares Total

Ordinary shares 86,545,313 33,454,687 120,000,000 OTC stocks

2. Source of capital Unit: Shares; NT$

Year / month

Issue price

Authorized capital Paid-up capital Note

Shares Amount Shares Amount Source of capital

Paid in properties other than

cash Others

2019.06 10 120,000,000 1,200,000,000 83,732,340 837,323,400

Employee shares converted to

ordinary shares CB converted to ordinary shares

None Approved under Notice No.

Jin-Shou-Shan-Tze 10801060100 dated June 12,

2019

2019.12 10 120,000,000 1,200,000,000 85,097,748 850,977,480




Jin-Shou-Shan-Tze 10801169960 dated December 4, 2019

2020.04 10 120,000,000 1,200,000,000 86,545,313 865,453,130




Jin-Shou-Shan-Tze 10901054150 dated April 9,

2020

Note 1: The Company was a limited company when founded and did not issue any shares.

3. Relevant information of Shelf Registration System: Not applicable.

(II) Shareholders structure April 11, 2020; Unit: shares

Shareholders structure

Volume

Government institutions

Financial institutions

Other corporations Individuals

Foreign institutions

and foreigners

Total

Number of person (persons) 3 23 203 25,293 96 25,618

Number of shares held (shares) 632,000 1,818,714 1,756,578 76,032,129 6,305,892 86,545,313

Shareholding percentage (%) 0.73% 2.10% 2.03% 87.85% 7.29% 100.00%

~50~

(III) Ownership diversification April 11, 2020; Unit: shares; %

Shareholding rank Number of shareholders Number of shares held Shareholding

percentage 1 to 999 10,888 242,206 0.29%

1,000 to 5,000 12,849 23,022,391 26.60%5,001 to 10,000 1,059 8,288,514 9.58%

10,001 to 15,000 287 3,689,691 4.26%15,001 to 20,000 187 3,479,689 4.02%20,001 to 30,000 124 3,220,326 3.72%30,001 to 40,000 62 2,262,734 2.61%40,001 to 50,000 44 2,089,814 2.41%50,001 to 100,000 56 4,044,363 4.67%

100,001 to 200,000 35 4,993,317 5.77%200,001 to 400,000 11 2,811,447 3.25%400,001 to 600,000 6 2,950,085 3.41%600,001 to 800,000 1 734,000 0.85%800,001 to 1,000,000 3 2,633,000 3.04%

1,000,001 and above 6 22,083,736 25.52%Total 25,618 86,545,313 100.00%

(IV) List of major shareholders: shareholders with shareholding exceeding 5% or shareholders with top 10 shareholding percentages

April 11, 2020

Rank Name of major shareholder Shares held Shareholding percentage1 Lin Yu-Shen 11,828,686 13.67% 2 Cheng Ho-Pin 4,563,094 5.27% 3 Chang Chih-Chun 2,307,000 2.68% 4 Chang Chih-Yuan 1,233,000 1.42%

5

American JPMorgan Chase Bank Taipei Branch was entrusted with the custody of PGIA’s Advanced Integrated International Stock Index Fund Series Investment account

1,103,000 1.27%

6 Lin Yu-Hsien 1,048,956 1.21%

7

The American branch of JPMorgan Chase Bank Taipei was entrusted with the custody of Vanguard’s emerging market stock index fund investment account

898,000 1.04%

8 Citi entrusted with Citi Global Market-Asia Pacific Integrated Equity Finance

884,000 1.02%

9 Li Liang-Ping 851,000 0.98% 10 Tan Ching-Jung 553,000 0.64%

~51~

(V) Market price, net worth, earnings, and dividends per share, and other relevant information for the last two years

Unit: NT$/ thousand shares Year

Item 2018 2019 Up till March 31,

2020

Market price per share

Highest 100.50 242.50 224.50 Lowest 45.00 94.10 101.00 Average 77.70 162.58 151.19

Net worth per share

Before dividend distribution 28.75 42.79 － After dividend distribution 27.25 (Note 4) －

Earnings per share

Weighted average shares (in thousands shares) 80,312 82,354 －

Earnings per share

Before adjustment 2.90 11.71 － After adjustment 2.85 11.39 －

Dividends per share

Cash dividend 2.00 5.00 －

Stock dividends

From earnings －－－ From capital

reserves －－－

Retained Dividends －－－

Analysis of investment returns

P/E ratio (Note 1) 26.79 13.88 － Price to dividends ratio (Note

2) 51.80 32.52 －

Cash dividend yield (Note 3) 1.93% 3.08% － Note 1: P/E ratio = Average closing price per share for the year / earnings per share. Note 2: Price to dividend ratio = Average closing price per share for the year / cash dividends per share. Note 3: Cash dividend yield = Cash dividend per share / average closing price per share for the current year. Note 4: In 2019, the dividends had not been distributed under the approval of the shareholders’ meeting. Note 5: As of the date on which the annual report was printed, there was not financial data for 2020 Q1 that has been audited

by CPAs.

(VI) The company's dividend policies and execution 1. Dividend policies stated in The Company's Articles of Incorporation:

If the Company’s annual resolution, they shall be first used in tax payment in accordance with laws, compensation for accumulated losses, and then appropriated as legal reserve with 10%. However, if the legal reserve has reached the Company’s paid-in capital, there is no need for recognition. The remaining amount is then recognized or reversed as special reserve in accordance with laws. If there is still remaining amount, along with the accumulated undistributed earnings, the Board of Directors shall prepare the earnings distribution proposal and submit it to the shareholders’ meeting for resolution on distributing shareholder bonuses. The Company’s dividend policy is made by the Board of Directors based on factors such as current and future developing plans, investment environment, funding needs, domestic and overseas competition, and shareholders’ interests, etc. The shareholder bonuses may be distributed in cash or shares, among which cash dividends shall not be fewer than 10% of total dividends.

2. Cash dividends of NT$ 432,726,565 are proposed to be distributed to the shareholders this

year (as approved by the Board of Directors on March 17, 2020): In the distribution of dividends, if the dividend rate changes due to the impact of capital change on outstanding shares, the Company may propose to the general shareholders’ meeting in authorizing the Chairman to handle the related matters. The share dividends distributed are calculated in the way of rounding digit numbers below one NT dollar to the total amount of stock dividends. The Chairman are authorized to set up the ex-dividend date and distribution date after the proposal is passed by the general shareholders’ meeting.

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(VII) Impacts on business performance and earnings per share if the stock dividend proposal is approved during the annual general meeting: Not applicable.

(VIII) Remuneration for directors and supervisors 1. The remuneration to employees, directors and supervisors defined in the Articles of

Incorporation: If the Company has profits (i.e., pre-tax income minus remuneration distributed to employees, directors and supervisors), it shall appropriate 3% ~ 15% as remuneration to employees, and the remuneration shall be distributed either in stocks or cash as resolved by the Board of Directors. The parties to be distributed include the employees of the affiliates who satisfy a certain criterion. Less than 1.5% of the above profits of the Company may be appropriated as remuneration distributed to directors and supervisors as resolved by the Board of Directors. The proposal for distributing the remuneration to employees, directors and supervisors shall be submitted to the shareholders’ meeting. However, if the Company still as accumulated losses, the amount shall be retained for compensation, and then appropriated as remuneration to employees, directors and supervisors based on the percentages mentioned above.

2. The estimation basis of remuneration to employees, directors and supervisors for the current period, and the accounting process when there is discrepancy between the calculation basis and actual distribution amount of employee remuneration distributed by shares and the estimated value: If there is discrepancy between the actual distribution amount and the estimated value, then it will be recognized as income or loss for the current period according to the accounting process for estimation changes.

3. Approving status of remuneration distribution by the Board of Directors: (1) On March 17, 2020, the Board of Directors proposed to distribute NT$ 41,152,920 as the

employee remuneration in 2019 and NT$ 9,406,382 as the remuneration to directors and supervisors, which are all distributed by cash. The above-mentioned numbers have no difference with the recognized expense in 2019.

(2) Percentage of the amount of employee remuneration distributed by shares to the summation of current after-tax profits and total employee remuneration: Not applicable.

4. Actual status of distributing remuneration to employees, directors and supervisors in the previous year (including the number of shares distributed, amount and share price), difference number, reasons and process status if there is discrepancy between the actual amount and the amount recognized: The remunerations to the Company’s employees, directors and supervisors in 2018 approved to be distributed by 2019 General Shareholders’ Meeting are as follows, and are all distributed by cash and have no discrepancy with the estimated value. (1) Employee bonus: NT$ 10,155,025. (2) Remuneration for directors and supervisors: NT$ 2,321,149.

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(IX) Shares repurchased by The Company:

The Company’s stock shares repurchased (transaction completed) April 11, 2020

Period No. 4th 5th

Purpose of repurchase Transferring stocks to employees

Transferring stocks to employees

Price range for repurchase 80.30 – 82.70 66.48 – 71.00 Type and amount of the repurchased

shares 1,658,000 ordinary

shares 734,000 ordinary shares

Amount of the repurchased shares NT$ 135,533,638 NT$ 49,939,189

The ratio of the repurchased quantity to the quantity of anticipated repurchase

(%) 55.27% 24.47%

Shareholdings that have been cancelled and transferred

1,658,000 shares are transferred. 0

Accumulated shareholdings of the Company 734,000 shares

Ratio of accumulated shareholdings of the Company to total issued shares 0.85%

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II. Execution status of issuing corporate bonds (including overseas bonds) (I) Corporate bond information

Bond type The third domestic unsecured convertible corporate bond

Issue date May 29, 2019 Face Value NT$ 100 thousand

Place of Issue and Trading Taipei Exchange Issue price NT$ 100 thousand

Total NT$ 600,000 thousand Interest rate Coupon rate:

Maturity 5 years, matured on May 29, 2024 Guarantee Institution None

Trustee Taishin International Bank Consignee Taishin Securities Co., Ltd.

Certified Lawyer Handsome Attorneys-at-Law: Lawyer Peng Yi Cheng

Certified CPA PwC Taiwan: CPA Hsu Sheng-Chung, CPA Wu Han-Chi

Repayment Methods

Except for the bondholders who converted their bonds to ordinary shares of the company in accordance with Article 10, or exercised their right to sell-back bonds in accordance with Article 19, or the company redeemed the bond in advance in accordance with Article 18 or wrote off the bond after having been purchased by the securities firm’s business office. In addition to write-offs, investors can sell the bond back to the company or acquire the bond’s face value in cash when the bond expires at the company at the bond’s face value after it has been issued for three years plus the sell-back return rate [Interest compensation for three years is 2.27% of the bond’s face value (Actual return rate is 0.75%)].

Unpaid principal NT$ 238,500,000 (Up till April 11, 2020) Redemption or earlier redemption

limitation Article See the procedures for issuance

Restrictive clauses None Name of the credit rating agency,

rating date, and rating results None

Other equity attached

The amount of the bonds that have been

converted into ordinary shares (either by

exchange or purchase), GDRs or other

securities

As of April 11, 2020, a denomination of NTD$ 361,500,000 has been applied for conversion to 2,717,973 ordinary shares.

Rules for issuing and conversion (either by exchange or purchase)

See the procedures for issuance

Rules for issuing, conversion, exchange or purchase, possible

dilutions of equity from the issuing conditions, and the impacts on the rights of the existing shareholders

Based on the current conversion price, it is expected that the shares that can be further converted are about 2.072% of the total outstanding shares. The most possible dilution effect on equity is limited and does not have large impact on the rights of the existing shareholders.

Custody Agency Name for the Exchange Target None

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(II) Status of convertible bonds

Bond type The third domestic unsecured convertible corporate bond

Year Item

2019 As of March 31, 2020

Market price of the

convertible bond

Highest 181.00 166.00

Lowest 107.30 109.00

Average 130.37 135.08

Conversion price 133.00 133.00

Issue date and conversion price

Issued on May 29, 2019. The conversion price was NT$ 133.00 on the issue date.

Ways of fulfilling conversion obligation Issuance of new shares

III. Disclosure relating to preference shares

None.

IV. Disclosure relating to depository receipts None.

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V. Employee stock certificates (I) Status of employee stock certificates

December 28, 2019

Type of employee stock certificates The 1st employee stock certificates in 2013

The 1st employee stock certificates in 2014

The 2nd employee stock certificates in 2014

Effective date 2013.12.13 2014.08.05 2014.12.05

Issue date 2014.01.02 2014.08.26 2014.12.29

Issue unit 500 2,000 500

Ratio of shares that can be purchased when issued to total issued shares 0.70747% 2.81150% 0.70288%

Duration for share purchase 5 years 5 years 5 years

Method for fulfilling the obligation Paid with the Company’s issuance of new shares

Paid with the Company’s issuance of new shares

Paid with the Company’s issuance of new shares

Restricted share purchase period and percentage (%)

Highest cumulative exercisable stock option percentage during the certificate period Over 2 yrs (i.e., from the 3rd yr) 50% Over 3 yrs (i.e., from the 4th yr) 75% Over 4 yrs (i.e., from the 5th yr) 100%



Shares that have been obtained 490,000 1,430,000 482,000

Share amount that has been purchased 10,528,400 28,264,800 8,546,900

Shares that have not been purchased 0 (Note 1) 0 (Note 2) 0 (Note 3)

The exercise price per share for those who have not exercised the purchase 20.2 18.9 17.0

Ratio of shares not bought to total issued shares (%) 0% 0% 0%

Impacts to shareholders' equity

The dilution effect on equity is still limited and thus it has no significant impact on the rights of the existing shareholders.



Note 1: The cumulative number of expired stock options for this issue has been reduced by 10,000 shares; the employee stock option certificate expired on January 1, 2019.

Note 2: The cumulative number of expired stock options for this issue has been reduced by 570,000 shares; the employee stock option certificate expired on August 25, 2019.

Note 3: The cumulative number of expired stock options for this issue has been reduced by 18,000 shares; the employee stock option certificate expired on December 28, 2019.

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(II) Names and status of obtaining and purchasing of the managers who obtain employee stock option certificates and the top 10 shareholders with the most buyable shares of stock option certificates

Unit: thousand shares/ NT$ thousand

Title Name Shares obtained

Ratio of shares

obtained to total issued shares

(Note 4)

Exercised Not exercised

Shares bought

Share price

Share amount

Ratio of shares bought to total issued shares

(Note 4)

Shares bought

Share price

Share amount

Ratio of shares bought to total issued shares

(Note 4)

Manager


1,466 1.72% 1,052 (Note 2) 16,457(Note 3) 1.23% 0 (Note 2) (Note 3) 0.00%

Vice President Chang Chih-Hui

Vice President Chen Heng-Lung

Vice President Chen Chih-Wei

Assistant Manager of Business Division

Lin Po-Hsun

Assistant Manager of Business Division

Chiang Jung-Cheng

Accounting Supervisor Yen Pei-Hsu

Chief Internal Auditor

Tsai Chin-Hui

Employee

Senior Managers

Huang Ju-Mao

547 0.64% 431 (Note 2) 6,542(Note 3) 0.50% 0 (Note 2) (Note 3) 0.00%

Special Assistant

Lin Fang-Ling

Managers, Liu Kuan-Chun

Deputy Manager

Lin Yi-Chang

Deputy Manager

Kuo Che-Wei

Section Manager

Lin Wei-Cheng

Section Manager Liu Yen-Ling

Note 1: As of December 28, 2019, the employee stock options have expired on January 1, 2019, and December 28, 2019 respectively. Note 2: Please refer to the price at which the employees bought each time. Note 3: Calculated from the price at which the employees bought each time. Note 4: The issued shares were approved by letter No. 10801169960 on December 4, 2019, and the total number of shares was 85,097,748 shares.

VI. The new shares from restricted employee stock option

(I) For the new restricted employee shares that have not fully met the vesting conditions, the company shall disclose the execution status as of the date when the annual report was printed and its impact on shareholders’ equity: None.

(II) Names and status of obtaining of the managers who obtain new restricted employee shares accumulated up to the date when the annual report was printed and the top 10 shareholders with the most shares bought: None.

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VII. Disclosure on new shares issued in exchange of other company shares None.

VIII. Progress on the use of funds Fund raising

Use of funds Method Amount of

funding raised

Payment collection date

Purpose of fundraising

Targets of fundraising

The third domestic unsecured convertible corporate bond

NT$ 600,000 thousand

May 27, 2019 Repayment of bank borrowings

100% public offerings

All bank loans repaid in 2019 Q2

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Five. Business performance

I. Content of business (I) Business scope

1. Principal business activities: A. Software Design Services. B. Retail Sale of Electronic Materials. C. Retail sale of Computing and Business Machinery Equipment. D. Computing Equipment Installation Construction. E. Office Machines Manufacturing. F. Data Storage Media Units Manufacturing G. Electronic Parts and Components Manufacturing. H. All business items that are not prohibited or restricted by law, except those that are subject

to special approval

2. Main product type and its operating percentage: Unit: NTD thousand; %

Main products 2018 2019

Operating revenues

Business weightage

Operating revenues

Business weightage

Cooling module 7,654,265 100.00% 10,247,561 100.00%

Total 7,654,265 100.00% 10,247,561 100.00%

3. The Company's current products and services:

Main products Product usage

Cooling module

Combined from elements such as fan, heat sinking plate, and heat pipe, and is an indispensable key component for desktop and small and thin electronic products in the function of stable operation with equal temperature and heat sinking.

4. Planned developments for new products and services:

Descriptions of R&D 1. Develop thinner heat pipes and vapor chambers for high-end thin products. 2. R&D of high-efficacy innovative pump-free water-cooling heat sinking system 3. Development of High-efficacy qual temperature plate, for broad application on products with

high wattage need (VGA, Gaming, Server). 4. Developed a water-cooled heat dissipation system for the ultra-high-speed fiber optic network

switch in the cloud center

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(II) Industry overview 1. Industry condition and development

The heat dissipation technology used by computer heat dissipation modules currently on the market are mainly based on active and passive hybrid heat dissipation technology containing heat pipe technology. Heat pipe heat dissipation modules refer to heat dissipation solutions that combine fans, heat sinks, heat pipes and other components. The solution can be installed inside a computer to make the internal electronic components maintain a level temperature, have a heat-dissipated operating environment, also make the computer more stable during operation, and extend the service life. However, the electronic products are moving toward two big direction of development: one is to be thin and small, and the other is to have high efficacy and multiple functions. Thus, under the circumstance of vastly increasing functions of the original chip without significant increase of the area, there shall be more transistors contained inside and the gradually increasing heat shall be effectively emitted. As the heat of chip increases, the volume shrinks, and the speed of clock rate vastly increases, the heat-generating density also increases sharply. Since the Company shall prevent the product’s performance and reliability from being affected by the environment of high temperature and high heat and prevent the usage time period from being shortened, the importance of heat sinking management to the whole 3C industry gradually increases. The technology of heat sinking products was mainly the active-passive blend of heat sinking management (offset-strip fin+fan). In recent years, as the downstream final electronic products are designed to have multiple function and thinness, the firms of heat sinking module the turn to designing the heat sinking project focusing mainly on equal-heat plate and heat pipe.

According to Qualcomm data, 5G will increase the actual global GDP from 2020 to 2035 by a total of 3 trillion US dollars. According to the 5G mobile network standard timetable IMT-2020 formulated by the International Telecommunication Union (ITU), 2019 is the starting point for 5G commercialization, and after 2020, 5G will break out and be applied internationally as Auras has already set up the company in advance for 5G cooling applications.

Even though the PC industry has generally declined in recent years, the promotion of the e-Sports industry has made the PC industry move towards non-traditional information computing, thus generating more computing information and data and creating higher heat dissipation requirements. Therefore, the design of the model is also based on the heat dissipation solution using a vapor chamber. In addition, with the introduction of Internet of Things (IoT) and 5G mobile broadband services as well as the progress made with artificial intelligence (AI) technology and applications, the demand for accumulated volume of server computing data will continuously increase year by year. DIGITIMES Research estimates that from 2019 to 2024 the output of global servers will have a compound annual growth rate of 6.5%. In addition, Qualcomm estimates that the amount of 5G mobile phones will reach 300 million in 2020, and the next two years will have a growth rate of nearly 40%. With the improvement of smartphone performance, the heat dissipation demands for power-consuming 5G chips increased and vapor chambers have become an indispensable key component for heat dissipation in 5G mobile phones.

Under the existing industrial structure and policy environment, Taiwan is expected to create a total output value of US$ 134 billion in goods and services and create 510,000 job opportunities by 2035. Auras will also continue to develop and provide compatible heat dissipation solutions for different generations of products based on global technology development trends.

2. Association between upstream, midstream, and downstream industry participants

The main product of the Company is the heat sinking module, which belongs to the industry of electronic components. The industry’s upstream raw materials include heat pipe, fan, thermal pad, and aluminum or copper plates. The DT heat sinking module is combined from copper cube, thermal pad, and fan. The NB heat sinking module is combined from heat pipe, fan and copper heat sinking offset-strip fin. The relation between the heat sinking module,

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main upstream raw materials of the Company’s products, and the downstream application field is summarized in the following graph:

(1) Supply of main upstream raw materials

Currently, part of the Company’s heat sinking pipes and heat sinking offset-strip fins are self-produced by the grandson company, Ze Hong (Guangzhou). Besides, the self-producing rate is increasing by year. Since there are many raw material suppliers now, and the number of suppliers that the Company cooperates with in the long run is over 3, the source and price of the Company’s main raw materials are stable.

(2) Application field of downstream products The current traditional system cooling solution mode mainly uses the heat generated

by high-heat-generating components such as CPU or VGA to discharge heat to the heat sinking gadget (such as fan, and heat sinking plate, etc.) through the mechanism of heat pipe by first guiding the heat to the heat sinking plate or the metal block with high heat transfer characteristics through the surface of the package. However, when the chip size is finer and functionally integrated, the heat energy generated by each unit of area can be quickly spread over the entire plate through a heat pipe with the high heat transfer characteristics, so as to be evenly dispersed and transmitted to the heat sinking plate it contacts, minimizing the component instability caused by local hot spots, then it can effectively enhance the reliability and life of the components.

Under the market trend of thinner and smaller and more multifunctional electronic products, more and more new products have to be accompanied with customized design for heat sinking gadget to effectively lower the temperature. Thus, heat sinking module has become an indispensable main component. In addition to existing computer products, thinner and more multifunctional smartphones have faced the challenge of easily becoming overheated under the circumstance that graphite or copper foil cannot effectively exclude waste heat, which is the potential great commercial opportunities for heat sinking module firms. In the field of automobile lighting, although the LED headlights that are gradually becoming more and more popular have the advantages of power saving, high efficiency and long life compared with traditional halogen lamps and xenon headlamps, they have the disadvantages of poor luminous efficiency or even failure in high temperature. Because the headlights are often installed in environments with high temperatures (adjacent to the engine room) and small spaces (difficult to install fans), heat sinking has become a tough problem for car manufacturers, but it is also a niche market for heat sinking module firms. In summary, it is foreseeable that the application of heat sinking module will not be limited to the traditional concept of "PC", but will gradually become indispensable in various products with the advancement of technology and the deepening of human life.

(3) Developing trend and competitiveness of products

A. Developing trend of products The technology of heat sinking products was mainly the active-passive blend of

heat sinking management (offset-strip fin+fan). In recent years, as the downstream final electronic products are designed to have multiple function and thinness, the firms

Heat pipe Upstream - main materials

Fan Thermal pad

(TIM) Aluminum/

copper Stamping

Heat sinking gadget/heat sinking module/heat sinking pipe

NB/PC

Middle stream

Downstream - product application IA product Communication

product Serve

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of heat sinking module the turn to designing the heat sinking project focusing mainly on equal-heat plate and heat pipe. Smartphones that use graphite sheets or copper foils for qual temperature plate and heat sinking are increasingly demanding heat sinking due to the improved performance. in the future, heat pipe heat sinking technology is expected to penetrate the smartphone market, and the increasing adoption of qual temperature plate heat pipes by high-end NBs will bring revenue growth to manufacturers of this technology.

In addition, in response to the demand for thin NB, smartphones, tablet PCs, etc. and due to the limited heat sinking area and space, heat sinking module manufacturers are developing thin heat sinking components (ultra-thin heat pipes and ultra-thin plates with equal temperature). In the future, it is also expected that the ultra-thin heat sinking components will expand their application level, bringing a new wave of niches to relevant manufacturers.

In addition, due to the rise of cloud computing, Big Data and IoT and the trend of energy-saving and high-efficiency LED heads becoming the trend for automobile lighting, heat sinking modules are driven to higher specifications to meet the stringent requirements of heat sinking and stability for server and automobile manufacturer customers.

B. Competition of products The Company's main product is heat sinking module. At present, the competitors

are mainly listed companies such as Asia Vital Components, CCI Group, and Forcecon. But the Company can provide product design, quality assurance and delivery accuracy in response to customers’ different product specifications, with excellent product design capabilities, production flexibility and technology. Therefore, we have won the trust and recognition of our customers for a long time. Even if the domestic and international economy is sluggish in recent years and the electronics industry is not prosperous, the Company can still obtain orders domestically and abroad, showing that the Company's products have certain competitiveness.

(3) Technological research and development

1. Technology level of business Since its establishment, the Company has been adhering to the philosophy of "satisfying

customers" and constantly pursuing technological innovation and excellence. It is aiming at guiding the market R&D direction with technology and mastering the trend of researching and developing new generation products. The Company's business product is heat sinking module. Under the alternate generations, the traditional countermeasures of producing only extruded heat sinking plate will be gradually eliminated, and heat pipe has become an essential component. In order to cope with the vertical upstream and downstream integration trend of the heat sinking module, in addition to continuous research and development of heat pipe production improvement and yield improvement, the Company plans to enter into the field of self-made fans. The Company's product development technology sources are based on self-development. The main work is to provide solutions to customer needs, and pass relevant safety certifications.

2. Research and development Knowing that R&D is the foundation of product, the Company established the R&D

Department in October 1999, which is responsible for the research and development of new products and technology. Since its establishment, the R&D Department has successfully developed compatible heat sinking measures for different generations of Intel, AMD and Nvidia; in the future, it will expand the scale of R&D personnel, related fields and the development of new technologies, so that the pace of research and development will be extended to diversified product lines. Based on long-term professional R&D design and manufacturing experience, the company has established a “product design” operation mode for product functions and diversification in the R&D and design procedures, enabling R&D technical capabilities and new product development speed to be improved to meet the needs of different specification requirements of products by the client.

3. Education and work experiences of the R&D Department personnel of the Company and its subsidiaries

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Table of education and work experiences of the R&D Department in the most recent 3 years Year

Item

2017 2018 2019

Head count Percentage (%) Head count Percentage

(%) Head count Percentage (%)

Educ

atio

n Doctoral Degree 2 1.67% 3 1.80% 2 0.55%

Master’s Degree 40 33.33% 46 27.54% 98 27.00%

University 50 41.67% 75 44.91% 171 47.11% College 26 21.67% 39 23.35% 84 23.14%

Senior High School (Including below) 2 1.67% 4 2.40% 8 2.20%

Total 120 100% 167 100% 363 100% Average Years of Service 4.1 3.8 3.6

4. Annual R&D expenses for the last 5 years

Unit: NT$ thousand Year

Item 2015 2016 2017 2018 2019

Research and Development expenses 176,065 214,006 219,535 279,699 347,310

Net operating revenue 4,702,015 6,547,230 6,948,786 7,654,265 10,247,561Percentage to operating

revenue 3.74% 3.27% 3.16% 3.65% 3.39%

Since the Company set up the R&D Department, it has actively devoted to the work of research and development and strengthening the ability of the R&D team. Overall, it is expected that the R&D expense will continue to increase with the Company’s business growth and the multidimensional development of the product line.

5. Successfully developed technologies or products Successfully developed technologies or products for the last 5 years

Year R&D results

2015 1. Super-thin heat pipe with high efficacy 2. Environmentally friendly heat sinking gadget with no stannum welding 3. Heat sinking system with cloud computing

2016

1. Development of super-thin heat pipe applied in high-level mobile device 2. Development of high-efficacy innovative pump-free water cooling heat sinking

system 3. Development of high-efficacy heat sinking module of the laptop designed for

international electronic competition 4. Development of weight-cutting technology and efficacy enhancing of heat sinking

plate 5. 350W super-high wattage air cooling heat sinking technology

2017

1. Development of loop heat pipe 2. Development of pivot heat sinking gadget 3. Development of water cooling and emission system 4. Development of IPFM offset-strip fins heat sinking gadget 5. Development of Infinity Mirror

2018

1. Active integrated water-cooling module 2. Case coolant flow control system host 3. Open and closed cabinet water cooling kit and system 4. Development of high-performance dual loop heat pipe 5. Development of thin flat circuit water cooling system 6. Development of ultra-thin handheld devices 7. AI chip high heat dissipation module design

2019

1. Fanless high-power and looped water-cooling system 2. Development of high-end commercial laptop vapor chamber heat sink module 3. Multifunctional water-cooling solution 4. Edge computing water-cooled workstation 5. High-performance e-Sports graphics card cooling solution

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(IV) Long- and short-term business development plans

In order to respond to future industry development and the trend of the overall economic environment, the Company plans for future operating direction by proposing each long- and short-term plan and thus increase its competitiveness. The Company’s long-term and short-term plans are summarized below: 1. Short term development

(1) Marketing strategy A. Strengthening maintaining good cooperation relationship with existing customers,

mastering the newest market and striving for the orders of the new-era machine type anytime to increase market share.

B. Developing multidimensional product lines: strengthening the new product producing of the existing product line and the development of new products, and continuously increasing the self-producing rate of components.

(2) Producing and procurement strategy A. Producing strategy: In response of the expanding market needs, the Company will

definitely control the shipment periods and enhance and improve producing ability and quality in order to enhance the productivity of self-owned components and lower production costs.

B. Procurement strategy: Mastering the change of economic condition and market needs, flexibly adjusting the inventory level, and preventing the price fluctuation risk of inactive inventories and raw materials.

(3) Development Strategy A. Expanding the management team, arranging core products, establishing the

Company’s own key technics and patents, and continuously devoting to the R&D of new-generation products to pursue head leading in technology.

B. Increasing the ability to design products, establishing the developing technology of standardization and modulization, decreasing the time period and cost in developing, and increasing the time with which new products are sent on the market and the price competitiveness.

(4) Operating management and financial correspondence A. Establishing solid management system, implementing the corporate operating concept

in Mainland China, Taiwan and Hong Kong, building excellent corporate culture, and realizing the vision of corporate sustainable operation.

B. With a variety of financing channels on the capital market, strengthening financial structure and corporate operating condition, and cultivating the ability for long-term development. In addition, following the Company’s step in the growth of operating scale, enriching the management team and enhancing the Company’s reputation and image, and actively establishing the global operating management center.

2. Long term development

(1) Marketing strategy A. In the long run, cultivating professional talents, collecting information of future

development trend, obtaining information of competitors and market new entrants, grasping new opportunities on the market, and adjusting product combination, in order to gradually increase market share and gross profit rate.

B. Remaining good relationship with downstream firms, obtaining information of the market anytime, and shifting the production and R&D progress earlier to maintain the Company’s competitiveness.

(2) Producing and procurement strategy A. Production strategy: Expanding the production spots in Mainland China, in order to

follow the production supply chain of relevant cooperative customers and firms, lower transportation costs and increase efficiency.

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B. Procurement strategy: Remaining long-term good interaction with the main upstream suppliers to obtain stable source of supply and the room for bargaining and maintain the competitive advantage of procurement costs.

(3) Development Strategy A. Expanding the management team, arranging core products, establishing the

Company’s own key technics and patents, and continuously devoting to the R&D of new-generation products to pursue head leading in technology.

B. Increasing the ability to design products, establishing the developing technology of standardization and modulization, decreasing the time period and cost in developing, and increasing the time with which new products are sent on the market and the price competitiveness.

(4) Operating management and financial planning A. Establishing solid management system, implementing the corporate operating concept

in Mainland China, Taiwan and Hong Kong, building excellent corporate culture, and realizing the vision of corporate sustainable operation.

B. With a variety of financing channels on the capital market, strengthening financial structure and corporate operating condition, and cultivating the ability for long-term development. In addition, following the Company’s step in the growth of operating scale, enriching the management team and enhancing the Company’s reputation and image, and actively establishing the global operating management center.

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II. Market and sales overview (I) Market analysis

1. Sales (provide) areas of main products (service) Unit: NT$ thousand

Year/Sales area 2018 2019 Amount Percentage (%) Amount Percentage (%)

Exports

Asia 4,933,736 64.46% 6,031,467 58.86%Europe 130,788 1.71% 125,510 1.22%

America 303,356 3.96% 293,791 2.87%Subtotal 5,367,880 70.13% 6,450,768 62.95%

Domestic sales 2,286,385 29.87% 3,796,793 37.05%Total 7,654,265 100.00% 10,247,561 100.00%

The Company’s main product is the heat sinking module, of which the main application is on notebooks and desktops, mobile device and graphics card.

2. Market share The Company's PC (NB and DT) thermal module shipments account for approximately

25% of the global market. In 2019, the Company's PC (NB+DT) heat sinking modules accounted for approximately 30% of revenue; non-PC products included Server, VGA, and Smartphone, etc., which account for approximately 70% of revenue. With the growing need for high-end graphics cards, Gaming, servers and Communication product and the adjustment of operational strategies in 2020, the proportion of PC heat sinking modules will remain below 35%, and the proportion of heat sinking module shipments in other application areas is expected to increase.

3. Future market supply/demand and growth potentials

(1) Supply In recent years, due to the rapid change of the industry, coupled with the diversified

application of customers' technology products, the highly customized characteristic of heat sinking module is becoming more and more obvious. Taiwan's heat sinking module firms have a high degree of mastery of customers and technology. At present, the main domestic competitors of heat sinking modules are listed companies such as Asia Vital Components, CCI Group and Foxconn. In terms of the key success factor of heat sinking module manufacturer in the desktop computer, because the CPU needs to be accompanied with different specifications of heat sinking module, the development of heat sinking module needs to match the CPU specifications. Through partnership, the Company can obtain the designed specifications of the new generation CPU to seize market opportunities. The notebook heat sinking module needs to be installed with heat sinking plate and fan in a smaller space. The heat transfer efficiency also increases with heat pipe installed to form a complete CPU heat sinking module. Since there is need to cooperate with the design of the notebook computer, the Company has a good relationship with the notebook manufacturer. It can be seen from the above that the heat sinking module needs to be developed in cooperation with the system manufacturer for a long time, and the key success factor is the mastery of customer and technology.

(2) Demand and growth In 2020, 5G will enter a stage of large-scale commercial use. The notable features of

5G networks are high speed, low latency, and large capacity. 3GPP has defined three major technologies and applications of 5G: Enhanced Mobile Broadband (eMBB) for 3D/ultra-high-definition video and VR/AR; Massive Machine Type Communication (mMTC) primarily for IoT applications such as smart wearables, smart home appliances, smart cities, IoT vehicles and industrial IoT; and Ultra-Reliable and Low-Latency Communication (uRLLC) for high-reliability key applications such as autonomous driving, industrial automation, and mobile medicare. With the progressive development of 5G technology and the large-scale commercial deployment of 5G networks, artificial

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intelligence (AI), big data and cloud computing technologies will be introduced into emerging areas such as video games, VR/AR, AIoT, autonomous driving, smart cities, the development and popularization of application areas such as Industry 4.0 and medical imaging.

Qualcomm Inc., the world’s largest mobile phone chip supplier and the first company to propel large-scale output of 5G mobile phones, has predicted that the output volume of 5G mobile phones will increase from 175 million to 225 million units in 2020, and the global output volume of 5G smartphones is estimated to reach 450 million units in 2021. Qualcomm has estimated that there will be a 125% growth of 5G mobile phones in mid-2020.

5G technology has also promoted the development of Industry 4.0, industrial IoT, and industrial big data, and has accelerated the implementation of Internet of Vehicles (IoV), ADAS and autonomous driving. As data center operators close out inventory and 5G environments and applications become more and more developed, there has been an increasing demand for digital transformation of Asian companies. According to research agencies, the overall server market output is expected to grow by 4% in 2020. The growth rate of ODM direct sales businesses related to the expansion of data center operators is better than the average amount as it will return to a double-digit growth rate. The motivation comes from the data center industry’s focus on making developments to meet the digital transformation needs of Asian enterprises, the gradual establishment of 5G environments, and growth in cloud service demands. The company has also made advance setups for the application of 5G technology products, and will continue to increase its revenue as 5G starts being commercialized.

4. Competitive advantage

(1) Professional R&D team: The Company has a professional and strong R&D team with many years of practical

experiences. Sticking to the concept of “satisfying customers” and with long-term professional R&D design and manufacturing experiences, we have established “product design” for product functions and diversification in the R&D product design procedures. This enables our R&D technical capabilities and speed of developing new products to be improved, letting us meet the product specification needs of different clients. We constantly pursue technological innovation and excellence, aiming at guiding the market in R&D with technology, and mastering the trend of R&D in new generation products, in order to increase competitiveness.

(2) Stable customer base and complete after-sales service: The Company has the characteristics of fast product developing time, flexible

delivery points, high-standard quality strategies and high production capacity, and has established a complete customer consultation system and after-sales service to provide customers with immediate technical support. This helps the Company keep good interaction with its customer base, and also contributes to the expansion of the Company's new products and the development of new customers.

(3) Product function and price competitiveness: The Company actively expand its Mainland production bases to reduce production

costs through economic scale of production, and maintain long-term and good interaction interaction with major upstream suppliers. It also maintains a competitive advantage in procurement costs. The product price is extremely competitive. The Company has a strong and professional R&D team to master the trend of research and development. Product features can also meet the needs of different customers.

5. Favorable and unfavorable factors and response policy of development vision

(1) Favorable factors A. The market demand continues growing:

The Company's current NB heat sinking module accounts for about 30% of revenue, and high-end graphics card VGA accounts for about 27%. The sales of NB benefits from the recovery of European and American economies, which is expected

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to slow down the NB market shrinkage. Besides, as the E-sports NB market is rapidly expanding and the high-end graphics card of E-sports NB also has heat sinking demand, the Company is expected to further boost its revenue with the continuous improvement of growth momentum. In addition, servers and smartphones also have a certain degree of pulling power. In the future, the server and smartphone market will continue to grow, which is a huge market that the Company can grow on at present.

B. CPU efficiency and heat sinking problems: The CPU operation efficiency and clock rate are continuously improving, and the

CPU power consumption/heat generation is proportional to the calculation efficiency, which increases power consumption and heat generation and derives the demand for heat sinking. The latest module is able to dissipate TDP of 300W meeting customer needs. Thus the stability of the system depends on the solution of heat dissipation. In addition, due to the developing trend of thin electronic products, the demand for thinness and lightness and the heat sinking wattages for personal computers and smartphones will increase in the future. Therefore, in the future, the designing and manufacturing ability of heat pipes, equal temperature plate and fans will be even more significantly important for heat sinking module firms. As mentioned above, the effectively processed demand for heat sinking problems will increase. Therefore, benefiting from the increasingly sophisticated technology, the demand for the Company's products is becoming more and more important.

C. Professional division of labor satisfies the trend and needs of the industry: The notebook heat sinking module is more customized than the general

components. Based on cost saving and considering that the products provided by professional heat sinking module firms are of high efficiency, good quality and fast speed. Passing the certification of big manufacturers, having stable partnership and the ability to build key components have become important entry barriers for the operation of heat sinking manufacturers. The Company has a strong R&D team and aims at satisfying customers’ needs in terms of quality and service. It is well received by domestic and foreign manufacturers and has good relationship with them.

(2) Unfavorable factors A. Eager needs for talents:

The Company is a R&D-oriented industry. In order to satisfy the needs of customers, provide good service and higher quality products, the demand for talents with profession is increasing. In recent years, the demand for thermal application management talents has increased significantly. System and the brand manufacturers actively recruited professional talents in related fields. On the contrary, the attractiveness of talents of the Company is relatively insufficient. Response measures: providing more complete welfare program, and arranging

relevant employee bonus and stock option programs to lower employee turnover rate and increase employee cohesiveness.

B. Fierce product competition: Due to the increasingly fierce competition in electronic products, the pressure on

component manufacturers to be required to cut prices is increasing day by day. Besides, as product life cycle is shorter and there are lots of competitors, the pressure of peer competition is increasing. Response measures: Strengthening the mastery of market trends, actively

improving R&D design capabilities and production management, enhancing product competitiveness and grabbing market opportunities to achieve higher-margin niche products. Dispersing assembly operations to collaborative plants, using overseas low-cost labor, and reducing labor costs and expanding production scale to achieve economies of scale.

C. The industry is moving out: Under the trend of electronic products developing toward lower cost, and the

price cut pressure from domestic and foreign customers, the gross profit of electronic products is declining day by day. The trend of electronic manufacturers moving out to

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low labor cost regions is imminent. Many manufacturers are extending west to Mainland China or south to Southeast Asia. Response measures: In addition to strengthening customer service and following

the trend of mid-stream and downstream manufacturers going to Mainland China, we have set up bases in Guangdong, Kunshan, Chongqing and Anhui, in order to provide service, get better control over problems and provide customers with high-efficiency solutions.

D. Demand for fund is increasing: In order to meet the different requirements of customers and expand production

capacity to achieve economies of scale, our demand for precision equipment is increasing. Furthermore, since the cost of such equipment is higher, the demand for funds is increasing. Response measures: In addition to strengthening the relationship of mutual trust

and interaction with financial institutions, we have obtained funds of relatively low interest rate and obtained sufficient and low-cost funds through the capital market.

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(2) Main product purpose and production process: not applicable 1. Purpose of main products:

Product Purpose

Cooling module Mainly used in NBs, desktops, pads and workstations, servers, and high-end graphic cards, etc., in heat sinking with equal temperature.

2. Production process of main products:

(III) Supply of main materials of the Company and subsidiaries

The Company's main production areas have been transferred to the re-invested companies in Mainland China, so the Company's purchases are mostly the subsidiaries' finished goods, which are the source of sales. The Company also assists some subsidiaries to purchase key raw materials. However, the required materials are generally purchased by the subsidiaries themselves, and their sources of procurement are in good cooperative relationship with the Group. The supply is stable and sufficient, and the source of raw materials for production is not scarce.

(IV) List of major sales and purchasing customer: 1. Information of the main suppliers with over 10% of percentage to total purchase amount in any

year of the most recent two years: Unit: NTD thousand; %

2018 2019

Item Name AmountPercentage to net purchase for the whole year (%)

Relationship with the issuer Name Amount

Percentage to net purchase for the whole year (%)

Relationship with the issuer

1 E 355,104 6.19% － D 437,724 6.30% －

2 Others 5,377,594 93.81% － Others 6,508,173 93.70% －

Net purchase amount 5,732,698 100.00% － Net purchase

amount 6,945,897 100.00% －

Reasons for the increase or decease: The increase of the Group’s sales and the increasing need for equal temperature plate cause the percentage and amount of the purchase from Firm D to increase.

2. Information of the main customers with over 10% of percentage to total sales amount in any year of the most recent two years:

Gluing parts

Assembly

Baking

Attachment

Final good

Assembly of heat sinking module

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Unit: NTD thousand; %

Item

2018 2019

Name Amount Percentage to net

sales for the whole year (%)

Relationship with the issuer Name Amount

Percentage to net sales for the

whole year (%)

Relationship with the issuer

1 C 1,240,235 16.20% Non-related parties C 1,518,064 14.81% Non-related

parties

2 B 1,181,656 15.44% Non-related parties F 1,421,983 13.88% Non-related

parties

3 Others 5,232,374 68.36% Non-related parties Others 7,307,514 71.31% Non-related

parties

Net sales amount 7,654,265 100.00% － Net sales

amount 10,247,561 100.00% －

Reasons for the increase or decrease: The needs for Smartphone thermal products increase, and thus cause the percentage of sales amount to Company F to increase in 2019.

(V) Production volume and value in the last two years:

Unit: NT$ thousand; thousand sets Year

Production volume and value Main products

2018 2019

Production capacity

Production volume

Production value

Production capacity

Production volume

Production value

Cooling module 234,000 99,033 7,796,123 270,000 165,007 11,497,226Total 234,000 99,033 7,796,123 270,000 165,007 11,497,226

(VI) Sales volume and value in the last two years:

Unit: NT$ thousand; thousand sets Year

Sales Volume/Value Main products

2018 2019 Domestic sales Exports Domestic sales Exports

Volume Value Volume Value Volume Value Volume Value

Cooling module 17,392 2,286,385 76,296 5,367,880 34,911 3,796,793 74,468 6,450,768Total 17,392 2,286,385 76,296 5,367,880 34,911 3,796,793 74,468 6,450,768

III. Information of Employees During the Most 2 Recent Years

Unit: person; year; %

Year 2018 2019 Up till March 31, 2020

Number of employees

Indirect labor 805 907 928 Direct labor 573 968 1,135

Total 1,378 1,875 2,063 Average age 30.5 30 31

Average years of service 3.3 3.0 2.9

Academic qualification

Doctoral Degree 0.22% 0.10% 0.10% Master’s Degree 4.50% 3.79% 3.58%

University/College 26.63% 23.73% 22.10% Senior High School 27.36% 30.35% 25.50% Below high school 41.29% 42.03% 48.72%

Note: Only includes the formal employees of the Company and the subsidiaries in consolidated financial statements.

IV. Contribution to Environmental Protection (I) As required by law, the Company shall apply for the licensing of anti-pollution facilities and

installation or emission of pollutants, or payment of anti-pollution fee, or establishment of the position of environmental protection officer. Explain in detail the application, payment of fee, or the installation: Not applicable. 1. Contamination facility setting and pollutant discharge permit: Since 2009, the Company has

become the operation and planning center of the Group. The production and manufacturing are all commissioned by Mainland China. There is no production and manufacturing behavior for

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the Company itself, so there is no pollution prevention problem. 2. Pollution prevention fees to be paid: Not applicable. 3. The establishment status for those that shall set ep dedicated unit and personnel for

environmental protection: Not applicable. (II) List the investment, main purpose and possible benefits of the company’s major equipment

regarding environmental pollution prevention: Not applicable. (III) The effort of the Company in the improvement of the environment from pollution in the last 2

years to the date this report was printed. If there is dispute concerning pollution, specify the process of responding to the situation: Not applicable.

(IV) The damage inflicted on the Company due to pollution of the environment and the total amount involved in the punishment. Disclose the plan (including corrective action plans) to cope with the situation, possible expenditures (including possible loss deriving from the failure to take appropriate response, the punishment, and the amount of indemnity. If estimation cannot be reasonable made, specify the fact that estimation cannot be reasonably made): None.

(V) The current status of pollution and corrective action plans, the effect on corporate earnings, competitive position, and capital spending, and major capital spending on environmental protection in 2 years ahead: None.

V. Employer and employee relationships (I) The implementation of employee welfare policy, continuing education and training, and

retirement system, and labor-management coordination, and the protection of the rights of the employees: 1. Employee Benefit Program and Implementation Status

The Company's employee benefit measures are handled in accordance with the Labor Standards Act, Labor Insurance Act and related laws and regulations. In terms of insurance, there is group insurance in addition to labor and health insurance. Based on the Labor Standards Act and relevant government laws and regulations, the Company formulates the employee management rules, which clearly define the rights and obligations of employees; at the same time, in order to provide a more complete welfare system, the Company set up the Employee Benefit Committee in accordance with law, in which employees take charge of employee benefits and holding various activities.

2. Implementation of continued education and trainings In order to improve work efficiency and develop professional knowledge, educational

trainings are regularly conducted. 3. Implementation of the retirement system

The retirement schemes for employees of the Company and its domestic subsidiaries cover all formal employees. Since July 1, 2005, the defined employee retirement scheme has been adopted based on the “Labor Pension Act”, under which 6% of wage is appropriated to the employee’s personal account in the Bureau of Labor Insurance every month.

In terms of the pension insurance system of the subsidiaries in Mainland regulated by the government of the People's Republic of China, pension insurance premiums based on a certain percentage of the total salary of local employees are appropriated every month. The ratio is 18% to 20% respectively. The pension of each employee is arranged by the government. The Group has no further obligations other than appropriating the pension each month.

4. Negotiation between labor and employer The rights and obligations of employers and employees are handled in accordance with

the provisions of the Company’s Work Rules. The Company's labor-employer relation is harmonious, and there are no labor disputes and losses.

5. Employee right maintenance measures The personnel management regulations and workbooks of the Company and its

subsidiaries are formulated based on the Labor Standards Act and the Labor Contract Law, and are approved by the relevant competent authority for the compliance of all employees.

(2) In the past two years up to the date when the annual report was printed, if the losses suffered by the Company due to labor disputes and the disclosure of the estimated amount and corresponding measures that may occur in the current and future cannot be reasonably estimated, the Company should explain the fact that they cannot be reasonably estimated: In the past two years up to the date when the annual report was printed, the Company's labor-employer relation is harmonious,

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and there has not been any loss due to labor disputes. It is expected that there will be no such losses in the future.

VI. Major contracts

Contract nature Participants Contract start and end dates Main contents Restrictive

clauses

Lease agreement

Yi-Ping Construction Material Co. Ltd

March 2019 to February 2020

Rent of plants in Taipei None

Software contract SAP January 2018 to December

2020 SAP software system None

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Six. Financial summary

I. Summary balance sheet and income statement for the last 5 years (I) Summary balance sheet- International Financial Reporting Standards (Consolidated financial

statements)


Item

Financial information for the latest 5 years (Note 1)

2015 2016 2017 2018 2019

Current assets 2,352,243 3,348,102 3,784,385 4,314,034 5,507,579Property , plant, and

equipment 824,926 945,380 996,170 1,029,504 1,498,594

Intangible assets －－－－－ Other assets 378,559 390,748 378,407 436,375 517,400Total assets 3,555,728 4,684,230 5,158,962 5,779,913 7,523,573

Current Liabilities

Before dividend

distribution 2,084,914 2,217,670 2,957,041 3,471,314 3,732,292

After dividend

distribution 2,156,050 2,496,242 3,119,702 3,596,540 (Note 2)

Non-current liabilities 40,322 174,157 －－ 267,633

Liabilities Total

Before dividend

distribution 2,125,236 2,391,827 2,957,041 3,471,314 3,999,925

After dividend


Attributable to owners of the parent company 1,405,672 2,270,046 2,188,822 2,297,172 3,507,291

Capital 711,362 791,381 807,163 831,431 864,498Capital reserve 215,401 549,219 597,311 686,920 1,038,174

Retained earnings

Before dividend

distribution 344,483 893,615 905,190 975,516 1,813,181

After dividend

distribution 273,347 615,043 742,529 850,290 (Note 2)

Other equity 134,426 35,831 14,692 (11,222) (88,489)Treasury stock －－ (135,534) (185,473) (120,073)

non-controlling interests 24,820 22,357 13,099 11,427 16,357

Total equity

Before dividend

distribution 1,430,492 2,292,403 2,201,921 2,308,599 3,523,648

After dividend


Note 1: Consolidated financial reports prepared with the IFRS and audited by CPAs of year 2015~2019. Note 2: In 2019, the dividends had not been distributed under the approval of the shareholders’ meeting. Note 3: As of the date on which the annual report was printed, there was not financial data for 2020 Q1 that has been

audited by CPAs.

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(II) Summary comprehensive income statements Information- International Financial Reporting Standards (Consolidated financial statements)

Unit: NT$ thousand

Year Item


2015 2016 2017 2018 2019

Operating revenues 4,702,015 6,547,230 6,948,786 7,654,265 10,247,561Operating gross profit 735,516 1,338,185 1,015,959 966,978 2,116,501

Operating gains and losses 183,999 690,716 362,619 182,386 1,188,268Non-operating revenues and

expenses 67,723 42,524 677 111,916 25,257

Earnings before tax 251,722 733,240 363,296 294,302 1,213,525Current net profits from continuing operations 182,684 622,958 294,720 231,505 969,428

gain(loss) from discontinued operations －－－－－

Net income (loss) 182,684 622,958 294,720 231,505 969,428Other comprehensive income for the period

(post-tax profit or loss) (4,625) (100,064 ) (21,374) (26,104) (77,794)

Total comprehensive income for the period 178,059 522,894 273,346 205,401 891,634

Net income attributable to owners of the parent

company 172,428 620,268 290,147 232,987 963,971

Net income attributable to non-controlling interests 10,256 2,690 4,573 (1,482) 5,457

Total comprehensive income attributable to owners of the parent

company

167,694 521,673 269,008 207,073 886,704

Total comprehensive income attributable to

non-controlling interests 10,365 1,221 4,338 (1,672) 4,930

Earnings per share 2.42 8.36 3.66 2.90 11.71Note 1: Consolidated financial reports prepared with the IFRS and audited by CPAs of year 2015~2019 Note 2: As of the date on which the annual report was printed, there was not financial data for 2020 Q1 that has been

audited by CPAs.

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(III) Summary balance sheet- International Financial Reporting Standards (Individual financial statements)

Unit: NT$ thousand

Year Item


2015 2016 2017 2018 2019

Current assets 1,379,510 2,255,207 2,291,674 2,894,808 3,821,558Property, plant, and

equipment 18,604 11,999 13,462 11,406 11,732

Intangible assets －－－－－ Other assets 1,075,625 1,373,969 1,622,525 1,735,688 2,108,144Total assets 2,473,739 3,641,175 3,927,661 4,641,902 5,941,434

Current Liabilities

Before dividend

distribution 1,027,990 1,197,213 1,738,839 2,344,730 2,189,159

After dividend


Non-current liabilities 40,077 173,916 －－ 244,984

Liabilities Total

Before dividend

distribution 1,068,067 1,371,129 1,738,839 2,344,730 2,434,143

After dividend


Attributable to owners of the parent company 1,405,672 2,270,046 2,188,822 2,297,172 3,507,291

Capital 711,362 791,381 807,163 831,431 864,498Capital reserve 215,401 549,219 597,311 686,920 1,038,174

Retained earnings

Before dividend

distribution 344,483 893,615 905,190 975,516 1,813,181

After dividend

distribution 273,347 615,043 742,529 850,290 (Note 2)

Other equity 134,426 35,831 14,692 (11,222) (88,489)Treasury stock －－ (135,534) (185,473) (120,073)

non-controlling interests －－－－－

Total equity

Before dividend

distribution 1,405,672 2,270,046 2,188,822 2,297,172 3,507,291

After dividend


Note 1: Individual financial reports prepared with the IFRS and audited by CPAs of year 2015~2019. Note 2: In 2019, the dividends had not been distributed under the approval of the shareholders’ meeting. Note 3: As of the date on which the annual report was printed, there was not financial data for 2020 Q1 that has been

audited by CPAs.

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(IV) Summary comprehensive income statements Information- International Financial Reporting Standards (Individual financial statements)

Unit: NT$ thousand

Year Item


2015 2016 2017 2018 2019

Operating revenues 3,777,152 5,321,397 5,596,372 6,976,955 9,160,345Operating gross profit 350,386 606,446 463,470 496,650 1,272,965

Operating gains and losses 79,053 255,672 92,266 87,904 781,982Non-operating revenues and

expenses 125,712 412,339 229,529 189,763 343,257

Earnings before tax 204,765 668,011 321,795 277,667 1,125,239Current net profits from continuing operations 172,428 620,268 290,147 232,987 963,971

gain(loss) from discontinued operations －－－－－

Net income (loss) 172,428 620,268 290,147 232,987 963,971Other comprehensive income for the period

(post-tax profit or loss) (4,734) (98,595) (21,139) (25,914) (77,267)

Total comprehensive income for the period 167,694 521,673 269,008 207,073 886,704

Net income attributable to owners of the parent

company 172,428 620,268 290,147 232,987 963,971

Net income attributable to non-controlling interests －－－－－

Total comprehensive income attributable to owners of the

parent company 167,694 521,673 269,008 207,073 886,704

Total comprehensive income attributable to

non-controlling interests －－－－－

Earnings per share 2.42 8.36 3.66 2.90 11.71Note 1: Individual financial reports prepared with the IFRS and audited by CPAs of year 2015~2019. Note 2: As of the date on which the annual report was printed, there was not financial data for 2020 Q1 that has been

audited by CPAs.

(V) Names of financial statement auditors in the last 5 years, and their audit opinions 1. Names of financial statement auditors in the last 5 years, and their audit opinions:

Year Auditor's firm Name of auditor Audit opinion

2015 PwC Taiwan Hsu Sheng-Chung, Hsu Yung-Chien Modified unqualified opinion

2016 PwC Taiwan Hsu Sheng-Chung, Hsu Yung-Chien Unqualified opinion 2017 PwC Taiwan Hsu Sheng-Chung, Wu Han-Chi Unqualified opinion 2018 PwC Taiwan Hsu Sheng-Chung, Wu Han-Chi Unqualified opinion 2019 PwC Taiwan Hsu Yung-Chien, Wu Han-Chi Unqualified opinion

2. If there is any change of accountant in the past five years, the reasons for the replacement provided by the Company, the predecessor and the successor accountants should be listed: The change of CPAs of the Company was caused by the internal business scheduling of PwC Taiwan. There was no major abnormal situation.

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II. Financial analysis for the latest 5 years (I) International Financial Reporting Standards (Consolidated financial statements)

Year Items of analysis

Financial analysis for the latest 5 years (Note 1)

2015 2016 2017 2018 2019

Financial structure

Debt to assets ratio (%) 59.77 51.06 57.32 60.06 53.17 Ratio of long-term capital to property, plant and equipment (%) 178.30 260.91 221.04 224.24

252.99

Solvency Current ratio (%) 112.82 150.97 127.98 124.28 147.57 Liquid ratio (%) 85.54 120.43 92.59 85.68 109.11 Interest coverage ratio 15.79 59.39 54.89 17.25 50.08

Operating efficiency

Account receivable turnover (times) 3.77 3.82 3.15 3.19 3.42 Average collection days 97 96 116 114 107 Inventory turnover (times) 8.44 9.56 7.72 6.13 6.48 Account payable turnover (times) 2.92 3.31 3.11 3.14 3.49 Average days in sales 43 38 47 60 56 Property, plant, and equipment turnover (times) 5.77 7.40 7.16 7.56 8.11

Total assets turnover (times) 1.36 1.59 1.41 1.40 1.54

Profitability

Return on assets (%) 5.70 15.37 6.1 4.54 14.92 Return on equity (%) 13.57 33.47 13.12 10.27 33.24

As a percentage of paid up capital (%)

Operating profit 25.87 87.28 44.93 21.94 137.45

Pre-tax net profit 35.39 92.65 45.01 35.40 140.37

Net profit margin (%) 3.89 9.51 4.24 3.02 9.46 Earnings per share ($) 2.42 8.36 3.66 2.90 11.71

Cash flow Cash flow ratio (%) 16.11 13.42 11.84 3.26 20.81 Cash flow adequacy ratio (%) 65.83 84.41 76.58 60.03 62.3 Cash flow reinvestment ratio (%) 15.30 7.22 2.39 (1.60) 14.23

Leverage Operating leverage 4.51 3.15 3.48 6.57 2.06 Financial leverage 1.10 1.02 1.02 1.13 1.02

Please describe the reasons for the changes in the financial ratios over the last two years (If the increase or decrease is less than 20%, an analysis is exempted) Below provides the analysis of financial ratios changing over 20% during 2019 and 2018: 1. The quick ratio increased by 27% due to the increase in trade receivables in 2019, resulting in an increase in current

assets. 2. The interest protection multiplier increased by 190% due to the increase in profitability in 2019. 3. The return on assets (%) increased by 229% due to the improvement of profitability in 2019. 4. The return on equity (%) increased by 224% due to the increase in profitability in 2019. 5. The ratio of operating profit to paid-in capital (%) increased by 526% due to the increase in profitability in 2019. 6. The ratio of net profit before tax to paid-in capital (%) increased by 297% due to the increase in profitability in

2019. 7. The net profit margin increased by 213%, due to 2019’s revenue and improved profitability. 8. Earnings per share (NTD) increased by 304%, due to the increase in profitability in 2019. 9. The cash flow ratio (%) increased by 538% due to the increase in revenue in 2019, which resulted in an increase in

the amount of cash receivables. 10. The cash reinvestment ratio (%) increased by 989% due to the increase in revenue in 2019, which resulted in an

increase in the amount of cash receivables. 11.Operating leverage decreased by 69% due to the increase in profitability in 2019.

Note 1: The financial reports for year 2015~2019 have been audited by CPAs. As of the date on which the annual report was printed, there was not financial data for 2020 Q1 that has been audited by CPAs.

Note 2: The formula for calculation is as follows: 1. Financial structure

(1) The ratio of total liabilities to total assets = total liabilities / total assets (2) Ratio of long-term capital to property, plant and equipment = (Total equities + noncurrent liabilities) /

property, plant and equipment.

2. Solvency (1) Current ratio = current assets / current liabilities. (2) Quick ratio = (current assets – inventories - prepaid expense) / current liabilities. (3) Interest coverage ratio = net profit before interest and tax / interest expenses for the current period.

3. Operating efficiency (1) Accounts receivable turnover (including accounts receivable and notes receivable resulting from

business operations) = Net sales / Average accounts receivable in various periods (including accounts receivable and notes receivable resulting from business operations)

(2) Average collection days = 365 / Accounts receivable turnover

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(3) Inventory turnover = Cost of goods sold / Average inventory value (4) Accounts payable turnover (including accounts payable and notes payable resulting from business

operations) = Cost of goods sold / Average accounts payable in various periods (including accounts payable and notes payable resulting from business operations)

(5) Average days in sales = 365 / Inventory turnover (6) Property, plant and equipment turnover rate = Net sales /Net average property, plant and equipment (7) Total assets turnover = Net sales / Total assets

4. Profitability (1) Return on assets = (after tax net profit + interest expenses x (1- tax rate)) / average asset balance. (2) Return on shareholders' equity = after tax net profit/ total average equity. (3) Profit ratio = net income / net sales. (4) Earnings per share = (profits or loss attributable to owners of the parent company- preferred stock

dividend) / weighted average stock shares issued 5. Cash flow

(1) Net cash flow ratio = Net cash flow from operating activities / Current liability (2) Cash flow adequacy ratio = net cash flow from operating activities within five years/(capital

expenditure + inventory increase + cash dividend) within five years (3) Cash re-investment ratio = (net cash flow from operating activity-cash dividend) /(gross property , plant,

and equipment + long-term investment + other noncurrent assets + working capital) 6. Leverage:

(1) Operating leverage = (Net operating revenue-variable operating costs and expenses)/Operating profit (2) Financial leverage= Operating profit / (Operating profit -Interest expense)

~80~

(2) International Financial Reporting Standards (Individual financial statements) Year

Items of analysis

Financial analysis for the latest 5 years (Note 1)

2015 2016 2017 2018 2019

Financial structure

Debt to assets ratio (%) 43.18 37.66 44.27 50.51 40.97 Ratio of long-term capital to property, plant and equipment (%) 7,771.17 20,368.05 16,259.21 20,140.03 31,983.25

Solvency Current ratio (%) 134.19 188.37 131.79 123.46 174.57 Liquid ratio (%) 116.71 174.34 113.82 104.26 147.38 Interest coverage ratio 19.12 90.56 56.67 20.51 71.05

Operating efficiency

Account receivable turnover (times) 4.20 4.24 3.39 3.49 3.56 Average collection days 87 86 108 105 102 Inventory turnover (times) 21.83 31.04 23.93 18.47 16.12 Account payable turnover (times) 4.23 4.91 4.51 4.44 4.51 Average days in sales 17 12 15 20 22 Property, plant, and equipment turnover (times) 140.40 347.77 439.60 561.12 791.80

Total assets turnover (times) 1.57 1.74 1.48 1.63 1.73

Profitability

Return on assets (%) 7.58 20.58 7.79 5.73 18.5 Return on equity (%) 13.01 33.90 13.01 10.39 33.21

As a percentage of paid up capital (%)

Operating profit 11.11 32.31 11.43 10.57 90.46

Pre-tax net profit 28.78 84.41 39.87 33.40 130.16

Net profit margin (%) 4.57 11.66 5.18 3.34 10.52 Earnings per share ($) 2.42 8.36 3.66 2.90 11.71

Cash flow Cash flow ratio (%) 21.24 (20.78) (0.76) 0.6 8.76 Cash flow adequacy ratio (%) 196.21 208.30 37.73 13.09 14.80 Cash flow reinvestment ratio (%) 13.38 (12.76) (13.01) (6.30) 1.76

Leverage Operating leverage 11.40 1.09 3.01 3.29 1.33 Financial leverage 1.17 1.03 1.07 1.21 1.02

Please describe the reasons for the changes in the financial ratios over the last two years (If the increase or decrease is less than 20%, an analysis is exempted) Below provides the analysis of financial ratios changing over 20% during 2019 and 2018: 1. The ratio of long-term funds to fixed assets increased by 59%, due to the increase in shareholder equity, the issuance

of convertible corporate bonds, and the transfer of treasury shares to employees in 2019. 2. The current ratio (%) increased by 41%, due to the increase in accounts receivable in 2019, resulting in an increase

in current assets. 3. The quick ratio (%) increased by 41%, due to the increase in accounts receivable in 2019, resulting in an increase in

current assets. 4. The interest protection multiplier increased by 246% due to the increase in profitability in 2019. 5. The fixed asset turnover rate increased by 41% due to the increase in operating income in 2019. 6. The return on assets increased by 223%, due to the improvement of profitability in 2019. 7. The return on shareholders’ equity increased by 220%, which was due to the increase in profitability in 2019. The

issuance of convertible corporate bonds and treasury shares to employees, and the increase in shareholders’ equity also contributed to the increase in return.

8. The ratio of operating profit to paid-in capital (%) increased by 756% due to the increase in profitability in 2019. 9. The ratio of net profit before tax to paid-in capital (%) increased by 290% due to the increase in profitability in

2019. 10. The net profit margin (%) increased by 215% due to the increase in profitability in 2019. 11. Earnings per share increased by 304% due to the increase in profitability in 2019. 12. The cash flow ratio increased by 1368% due to the increase in operating income in 2019, which resulted in an

increase in the number of accounts receivable. 13. The cash reinvestment ratio increased by 128% due to the increase in operating income in 2019, which resulted in an

increase in the number of accounts receivable. 14. Operating leverage decreased by 60% due to the increase in profitability in 2019.

Note 1: The financial reports for year 2015~2019 have been audited by CPAs. As of the date on which the annual report was printed, there was not financial data for 2020 Q1 that has been audited by CPAs.

Note 2: The formula for calculation is as follows: 1. Financial structure

(1) The ratio of total liabilities to total assets = total liabilities / total assets (2) Ratio of long-term capital to property, plant and equipment = (Total equities + noncurrent liabilities) /

property, plant and equipment. 2. Solvency

(1) Current ratio = current assets / current liabilities. (2) Quick ratio = (current assets – inventories - prepaid expense) / current liabilities. (3) Interest coverage ratio = net profit before interest and tax / interest expenses for the current period.

3. Operating efficiency

~81~

(1) Accounts receivable turnover (including accounts receivable and notes receivable resulting from business operations) = Net sales / Average accounts receivable in various periods (including accounts receivable and notes receivable resulting from business operations)

(2) Average collection days = 365 / Accounts receivable turnover (3) Inventory turnover = Cost of goods sold / Average inventory value (4) Accounts payable turnover (including accounts payable and notes payable resulting from business

operations) = Cost of goods sold / Average accounts payable in various periods (including accounts payable and notes payable resulting from business operations)

(5) Average days in sales = 365 / Inventory turnover (6) Property, plant and equipment turnover rate = Net sales /Net average property, plant and equipment (7) Total assets turnover = Net sales / Total assets

4. Profitability (1) Return on assets = (after tax net profit + interest expenses x (1- tax rate)) / average asset balance. (2) Return on shareholders' equity = after tax net profit/ total average equity. (3) Profit ratio = net income / net sales. (4) Earnings per share = (profits or loss attributable to owners of the parent company- preferred stock

dividend) / weighted average stock shares issued 5. Cash flow

(1) Net cash flow ratio = Net cash flow from operating activities / Current liability (2) Cash flow adequacy ratio = net cash flow from operating activities within five years/(capital

expenditure + inventory increase + cash dividend) within five years (3) Cash re-investment ratio = (net cash flow from operating activity-cash dividend) /(gross property , plant,

and equipment + long-term investment + other noncurrent assets + working capital) 6. Leverage:

(1) Operating leverage = (Net operating revenue-variable operating costs and expenses)/Operating profit (2) Financial leverage= Operating profit / (Operating profit -Interest expense)

III. The 2019 Supervisor’s Review Report.

Please refer to pages 95-97 IV. 2019 Individual Financial Reports Audited by the CPA

Please refer to pages 98-178 V. 2019 Consolidated Financial Reports Audited by the CPA

Please refer to pages 179-252 VI. The Financial Difficulties of the Company and its Affiliates During the Most Recent Year and up

to the Date When the Annual Report was Printed None.

~82~

Seven. Review of financial status, business performance, and risk management

I. Financial status analysis Table of Comparative Analysis of Financial Conditions

Unit: NTD thousand; % Year

Item 2018 2019 Difference Amount %

Current assets 4,314,034 5,507,579 1,193,545 28%property , plant, and investment 1,029,504 1,498,594 469,090 46%Intangible assets －－－－ Other assets 436,375 517,400 81,025 19%Total assets 5,779,913 7,523,573 1,743,660 30%Current liabilities 3,471,314 3,732,292 260,978 8%Non-current liabilities － 267,633 －－ Total liabilities 3,471,314 3,999,925 528,611 15%Capital 831,431 864,498 33,067 4%Capital reserve 686,920 1,038,174 351,254 51%Retained earnings 975,516 1,813,181 837,665 86%Other equity (11,222) (88,489) (77,267) 689%Non-controlling interests 11,427 16,357 4,930 43%Treasury stock (185,473) (120,073) 65,400 (35%)Total shareholders' equity 2,308,599 3,523,648 1,215,049 53%1. The main reasons for those changing over 20% and the change amount reaching NT$ 10,000,000 in

the most recent two years are as follows: (1) Current assets are due to the increase in accounts receivable in 2019. (2) Real estate, factory and investments have increased capital expenditure due to the expansion of

operating scale. (3) The capital surplus is due to the issuance of convertible corporate bonds in 2019. (4) The retention of surplus is due to the improvement of profitability in 2019. (5) The treasury stocks decreased due to it’s transferred to employees in 2019.

2. The impacts and future response plan: The changes mentioned above did not have significant adverse effects on the Comapny, and the Company’s overall performance was not significantly abnormal. Thus, there is no need to propose response plans.

~83~

II. Operating results analysis Table of Comparative Analysis of Operating Results

Unit: NTD thousand; % Year

Item 2018 2019 Difference Amount %

Net operating revenue 7,654,265 10,247,561 2,593,296 34%Operating cost 6,687,287 8,131,060 1,443,773 22%Operating gross profit 966,978 2,116,501 1,149,523 119%Operating expenses 784,592 928,233 143,641 18%Operating profit 182,386 1,188,268 1,005,882 552%Non-operating revenues and expenses 111,916 25,257 (86,659) (77%)

Earnings before tax 294,302 1,213,525 919,223 312%Income tax expense 62,797 244,097 181,300 289%Current period net profit 231,505 969,428 737,923 319%1. The main reasons for those changing over 20% and the change amount reaching NT$ 10,000,000 in

the most recent two years are as follows: (1) Net operating income increased by 34%, due to the increase in the average mobile phone

shipments in 2019. (2) The operating costs increased by 22% due to the increase in revenue in 2019, therefore resulting

in a relative increase in costs. (3) Operating gross profit increased by 119%, due to the increase in profitability in 2019. (4) Operating profit increased by 552%, due to the increase in profitability in 2019 and the increase

in revenue. (5) Non-operating income and expenses decreased by 77%, due to the decrease in exchange benefits

from exchange rate fluctuations. (6) Pre-tax net profit increased by 312%, due to the increase in profitability in 2019. (7) Income tax expense increased by 289% due to the increase in net profit before tax in 2019. (8) Net profit increased by 319% during this period due to the improvement of profitability in 2019.

2. Expected sales and the basis of estimation, the likely impacts on The Company's future financial position, and responsive plans: The company has actively expanded non-NB-type cooling module products in recent years. The proportion of non-NB-type cooling module products in 2019 was approximately 76%. In order to achieve a balanced distribution of revenues on the global market, the Company provides global solutions to customers in Asia, North America and Europe, continuously improves the production and sales processes, and aims at providing customers with comprehensive services and corporate growth.

~84~

III. Cash flow analysis (I) Liquidity analysis for the last 2 years:


Item 2018 2019 Increase (decrease) Variation (%)

Net cash inflow (outflow) from operating activities 113,055 776,621 663,566 587%

Net cash inflow (outflow) from investing activities (285,580) (775,595) (490,015) 172%

Net cash inflow (outflow) from financing activities 292,729 38,315 (254,414) (87%)

Notes to percentage changes: (1) Increase in net cash inflow from operating activities: due to increased revenue growth and profit. (2) Decrease in net cash outflow from investment activities: to expand production capacity. (3) Increase in net cash outflows from financing activities: due to the issuance of convertible corporate

bonds and repayment of short loans.

(II) Liquidity analysis for the next year: Unit: NT$ thousand

Beginning of year cash balance

Expected net cash flow from operating

activities for the year

Expected cash outflow for the

year

Cash surplus (deficit)

Financing of cash deficits Investment

plans Financing

plans 459,026 1,427,660 (1,286,559) 600,128 －－

(1) Cash flow analysis for the next year A. Business activities: due to continuous growth in revenue and increased profits, and improved days

of accounts receivable. B. Investment activities: investing in equipment for expanding production capacity and issuing cash

dividends to make cash outflow. C. Financing activities: bank loans will be increased to meet the needs of business activities.

(2) Responsive measures and liquidity analysis on cash flow deficits: None.

IV. Material capital expenditures in the latest year and impacts on business performance

None. V. Re-investment policies of the most recent year and future investment plans

December 31, 2019; Unit: NT$ thousand Notes

Item Investment gains/ loss Policies Main causes of profit or loss Corrective

plans

Other future investment

plans

LI-HORNG TECHNOLOGY CO., LTD.

322,520 Overseas shareholdings

Mainly due to profits of subsidiaries; Kunshan Plant: Profit in 2019. Ze Hong (Guangzhou): Profit in 2019. Chun Hong (Chongqing): Profit in 2019. Pei Hong (Guangzhou): Profit in 2019.

－ None

HAO HORNG TECHNOLOGY CO., LTD.

(8,057) Overseas shareholdings The re-invested company had losses. － None

Raijintek Co., Ltd. 536 Sales of computer heat sinking modules Profit in 2019. － None

AURAS INTERNATIONAL, INC.

401 Sales of computer heat sinking modules Profit in 2019. － None

~85~

VI. Risk Management Analysis (I) Impacts of interest rates, exchange rates, and inflation to The Company’s earnings, and the

responsive measures: 1. Impacts of interest rate to The Company's profit and loss, and responsive measures in the

future Unit: NTD thousand; %

Item/ Year 2018 2019 Interest expense (A) 21,238 28,900 Net operating revenue (B) 7,654,265 10,247,561 Operating gains (C) 182,386 1,188,268 Interest expense / operating revenue (A)/(B) 0.28% 0.28% Interest expense / operating gains (A)/(C) 11.64% 2.43%

The company continues to keep up with the trends and information regarding the interest

rates in the financial market, making dynamic adjustments on the loan structure combination, and extracting the advantages of banks to obtain preferential loan conditions. Meanwhile, the company is controlling overall accounts receivable, inventory and days of accounts receivable, and strengthening the speed and intensity of cash inflow. Interest rate risk comes from floating interest rate loans that support operating and investment activities. The company is committed to minimizing the impact of interest rate fluctuations on cash flow to save interest expenses. The Finance Department is paying attention to the development situation of the global economy and has maintained close contact with financial institutions. The allocation of capital is based on the principle of conservatism, stability and liquidity, and the company is adjusting to the negative impacts of interest rate fluctuations in a positive manner.

2. Impacts of exchange rate fluctuation on the Company’s revenue and profits and the Company’s concrete measures in response of exchange rate fluctuation

Unit: NT$ thousand Item/ Year 2018 2019

Net exchange gain (loss) 25,467 (16,933) Net operating revenue 7,654,265 10,247,561 Operating gains 182,386 1,188,268 Exchange gains to net operating revenues 0.33% (0.17%) Exchange gains to operating gains (%) 13.96% (1.43%)

The sales of the Company and its subsidiaries are mainly exporting and based on US dollar quotation. The purchase of goods also uses US dollars as the main quotation currency. After offsetting each other, there are the net assets of the US dollar and a small part of the RMB assets for the whole year. Looking back at the overall international currency market policies and exchange rate trends in 2019, the exchange rate of the New Taiwan Dollar (NTD) against the US Dollar (USD) has appreciated, and the Renminbi (RMB) has depreciated against the USD. The company’s net asset position is the USD; therefore, the exchange losses has reached NTD$ 16,933,000. The Finance Department continues to dynamically adjust foreign currency assets and liabilities according to future working capital requirements and the trends of major international currencies such as the USD and RMB to reduce the possible impact of exchange rate fluctuations on the company’s profits and losses.

3. Inflation: Most of the products of the Company and its subsidiaries are exported, and thus domestic

inflation has not much impact on the profit and loss of the Company. However, if inflation occurs on the global market, it will affect the purchasing power and willingness of consumers and reduce the demand for consumption products, which will have a negative impact on the Company's overall revenue and profit and loss. Nonetheless, the impact of international inflation is comprehensive. It’s effect is not restricted to individual companies. The government of each country should have the capability to respond. However, the Company will work on the R&D and sales of niche products, reduction of production costs, and maintain the Company's revenue with a product price that can stimulate consumers' demand, in order to reduce the negative impact of inflation on the Company's profit and loss. The Company has not been significantly influenced due to inflation.

~86~

(II) Policies on high risk and highly leveraged investments, loans to others, endorsements / guarantees,

and the trading of derivative instruments; describe the main causes of profit or loss and responsive measures in the future: 1. Investments and derivative products of high risk and high leverage:

The company focuses on its own business operations and adopts natural hedging methods for foreign currency positions. So far, the company has not been engaged in high-risk, high-leverage investments, and operations of financial derivatives.

2. Lending to others and endorsement and guarantee: The Company’s operational procedures for lending to others and endorsement and

guarantee are prudently conducted in accordance with regulations such as “Operational Procedures for Endorsement and Guarantees” and “Operational Procedures for Fund Lending to Others”.

3. Future research and development plans, and the projected expenses: The Company will continue to expand its R&D team, enhance its product design

capabilities, establish standardized and modular development technologies, increase the time to market and price competitiveness of new products. Meanwhile, it will also establish the Company’s own key technologies and patents, and continue to devote to the R&D of new generation products in order to be the leader in technology.

4. The effect of major changes in policies and legal practices, whether domestic or foreign, to the company’s financial and business performance, and the responsive actions: None.

5. Effects of technological and industrial changes to the company's financial and business performance, and the responsive actions:

The Company keeps abreast of the changing trends and applications of the global 3C industry and heat sinking related technologies anytime, grasps the market trend and evaluates its impact on the Company's operations, and actively explores the core research and development capabilities of the industry. So far, there have not been any matters that significantly affect the financial operation of the Company.

6. Impacts of changes in corporate image to the company's crisis management, and the responsive measures:

There has been no significant change in the corporate image of the Company, and there have been no adverse negative reports on the market.

7. The expected benefits of M&As and possible risk and response measures: The Company has no M&A plans currently.

8. The expected benefits of expanding plants and possible risk and response measures: The Company has no plans for expanding plants currently.

9. Risks of concentrated purchases or sales, and responsive measures to such risks: (1) Sales: The main product is the heat sinking module, and the Group's sales mode is

based on the parent company's orders. The customers are mainly internationally renowned EMS and foundries. The customers are diversified and highly stable, and thus there is no risk of sales concentration.

(2) Purchase: Due to the production cost and the consideration of servicing the nearest customers, the production lines of the Company have been transferred to Mainland subsidiaries. Therefore, the purchase content of the Company is mainly purchasing the finished goods of the subsidiary as the source of sales, resulting in the purchase from related parties accounts for 80% to 90% of the total purchase amount. In terms of the overall perspective of the Group, the raw materials are mainly heat pipe, fan, stamping, die-casting part, copper pipe and aluminum extruded heat sinking plate. Most of the procurement sources are long-term cooperation manufacturers, and there are more than three qualified suppliers for the main raw materials. Purchases from single suppliers also accounted for less than 20% of the total amount, and there is no risk of sales concentration.

10. The risks and impacts of significant shareholding transfers by directors, supervisors, or major shareholders with more than 10% ownership interest, and the responsive measures to such risks: None.

11. The impacts of the change in operating right on the Company and response measures: None.

~87~

12. Litigation and non-contentious cases (1) For any litigations, non-litigious or administrative disputes (whether concluded or

pending for judgment) in the last 2 years up till the publishing date of this annual report that may produce material impacts to shareholders' equity or securities prices, information regarding the underlying facts, amounts, starting date, parties involved and the current progress must be disclosed: None.

(2) For any litigations, non-litigious or administrative disputes (whether concluded or pending for judgment) of the Company’s directors, supervisors, presidents, actual representative, and large shareholders with shareholding over 10% and their subordinate companies in the last 2 years up till the publishing date of this annual report that may produce material impacts to shareholders' equity or securities prices, information regarding the underlying facts, amounts, starting date, parties involved and the current progress must be disclosed: None.

(3) Matters defined in Article 157 of Securities and Exchange Act occurring to the Company’s directors, supervisors, managers and large shareholders with shareholding exceeding 10% during the most recent 2 years and up to the date when the annual report was printed and the Company’s execution status: None.

13. Other significant risks and responsive measures: None.

VII. Other important disclosures

None.

~ 88 ~

Eight. Special remarks

I. Affiliated companies (I) Organization chart for affiliates


100%

Milk Idea Inc. 20%

15%

Pei Hong (Guangzhou)

Technology Co., Ltd.

100%

Kunshan jinxi plastic co., ltd

13%

ChunHong Electronic Technology (Chongqing) Co., Ltd.

100%

PEL HORNG TECHNOLOGY

Co., Ltd (Mauritius)

100%

ZHEN HORNG TECHNOLOGY CO., LTD (Mauritius)

SHIH HORNG TECHNOLOGY

CO., LTD. (Samoa)

100% 100%26.47 %

American subsidiary (California)AURAS INTERNATIONAL,

INC.

100%100 %

ZE HONG TECHNOLOGY Co., Ltd (Mauritius)

Raijintek Co., Ltd. 56%

100%

Ze Hong (Guangzhou) Technology Co., Ltd.

SHUANG HORNG TECHNOLOGY Co., Ltd (Mauritius)

100%


60%

Anhui Weihong Electronic Technology Co.,Ltd.

100 %

HAO HORNG TECHNOLOGY CO., LTD.

(Belis)

PRO JUMP CO., LTD. (Mauritius)

20.9 %

JCD Optical (Cayman) Co., Ltd.

8.83%

100%

JCD (Guangzhou) Technology Co., Ltd.

JCD Optical Co., Ltd. (Hong Kong)

100%

LI-HORNG TECHNOLOGY Co., Ltd (Belis)

100%

JCD Optical International Co., Ltd.

100%

Seychelles JCD Technology Co., Ltd. - Taiwan Branch

PRO JUMP CO., LTD. (Mauritius)

100%

~89~

(II) Investment in affiliates

December 31, 2019 Unit: NTD thousand; thousand shares

Name of affiliated enterprises Shares Percentage (%) Investment amount Relationship with The Company

LI-HORNG TECHNOLOGY CO., LTD. 36,510 100% NTD 1,109,003 Subsidiaries evaluated with Equity Method

PRO JUMP CO., LTD. (Note 1) 607 36% NTD 17,763 Invested companies evaluated with Equity Method

HAO HORNG TECHNOLOGY CO., LTD. 50 100% NTD 29,551 Subsidiaries evaluated with Equity Method

AURAS INTERNATIONAL, INC. 500 100% NTD 14,810 Subsidiaries evaluated with Equity Method

Raijintek Co., Ltd. 1,120 56% NTD 11,200 Subsidiaries evaluated with Equity Method

Milk Idea Inc. 400 20% NTD 4,000 Invested companies evaluated with Equity Method

SHUANG HORNG TECHNOLOGY CO., LTD. 5,000 100% NTD 151,375 Subsidiaries of subsidiaries evaluated with

Equity Method

ZE HONG TECHNOLOGY CO., LTD 18,000 100% NTD 542,985 Subsidiaries of subsidiaries evaluated with Equity Method

PEL HORNG TECHNOLOGY CO., LTD 2,100 100% NTD 49,592 Subsidiaries of subsidiaries evaluated with

Equity Method

ZHEN HORNG TECHNOLOGY CO., LTD 10,000 100% NTD 303,545 Subsidiaries of subsidiaries evaluated with

Equity Method

SHIH HORNG TECHNOLOGY CO., LTD 185 100% NTD 5,644 Subsidiaries of subsidiaries evaluated with

Equity Method

JCD OPTICAL (Cayman) CO., LTD 8,840 35% (Note 2) NTD 111,420 Invested companies of subsidiaries evaluated

with Equity Method Auras Electronic Science and Technology Industrial (Kunshan) Co., Ltd.

(Note 3) 100% NTD 149,900 Subsidiaries of subsidiaries of subsidiaries evaluated with Equity Method

Ze Hong (Guangzhou) Technology Co., Ltd. (Note 3) 100% NTD 479,680 Subsidiaries of subsidiaries of subsidiaries

evaluated with Equity Method

Pei Hong (Guangzhou) Technology Co., Ltd. (Note 3) 100% NTD 53,855 Subsidiaries of subsidiaries of subsidiaries


Chun Hong (Chongqing) Technology Co., Ltd. (Note 3) 100% NTD 299,800 Subsidiaries of subsidiaries of subsidiaries


JCD (Guangzhou) Technology Co., Ltd. (Note 3) 35% NTD 4,727 Subsidiaries of subsidiaries of subsidiaries of subsidiaries evaluated with Equity Method

Note 1: Including the 15% shareholding by the Company and the 21% shareholding by the subsidiary, LI-HORNG TECHNOLOGY CO., LTD. Note 2: Including the 26% shareholding by the subsidiary, LI-HORNG TECHNOLOGY CO., LTD., and the 9% shareholding by the subsidiary,

HAO HORNG TECHNOLOGY CO., LTD. Note 3: The invested company has not issued any shares, and thus does not hold any shares.

~90~

(III) Basic information of affiliates December 31, 2019 Unit: NT$ thousand

Name of enterprise Date of foundation Address Paid-up Capital Main business activities or

products LI-HORNG TECHNOLOGY Co., LTD. 2003/01/16 60 Market Square,PO Box 364,Belize

City,Belize NTD 1,108,684 Holdings

PRO JUMP CO., LTD. 2008/07/16 Level3,Alexander House,35 Cybercity,Ebene Maruitius NTD 50,656 Holdings

Milk Idea Inc. 2011/09/09 9F.-5, No.45, Sec. 1, Zhongxiao W. Rd., Zhongzheng Dist., Taipei City NTD 20,000 Development of mobile apps

AURAS INTERNATIONAL, INC. 2013/02/27 10430 S DE ANZA BLVD STE 280 NTD 14,990 Sales of computer heat sinking modules

Raijintek Co., Ltd. 2013/01/16 9F., No.671, Bannan Rd., Zhonghe Dist., New Taipei City NTD 20,000 Sales of computer heat sinking

modules HAO HORNG TECHNOLOGY Co., LTD. 2012/07/17 60 Market Square,P.O. Box 364,Belize

City NTD 29,551 Sales of computer heat sinking modules

SHUANG HORNG TECHNOLOGY Co., LTD. 2002/07/08 Suite 802,St James Court St Denis

Street,Port Louis,Maruitius NTD 205,907 Holdings

ZE HONG TECHNOLOGY CO.,LTD 2005/11/17 Suite 802,St James Court St Denis

Street,Port Louis,Maruitius NTD 583,318 Holdings

PEL HORNG TECHNOLOGY Co., LTD. 2010/12/09 Level 3, Alexander House,35 Cybercity,

Ebene, Mauritius NTD 63,982 Holdings

ZHEN HORNG TECHNOLOGY Co., LTD. 2011/08/15 Level 3, Alexander House,35 Cybercity,

Ebene, Mauritius NTD 303,545 Holdings

SHIH HORNG TECHNOLOGY Co., LTD. 2012/08/14 Offshore Chambers,P.O. Box217, Apia,

Samoa NTD 5,644 Holdings

JCD OPTICAL (Cayman) CO., LTD 2013/11/28

Floor 4, Willow House, Cricket Square, P O Box 2804 Grand Caiman KY1-1112, Cayman Islands

NTD 250,820 Holdings

Anhui Weihong Electronic Technology Co.,Ltd. 2013/05/02

Plant 3#-C, North Furong Road, Furong Road, Economic Technology Development Area, Hefei City, Anhui Province

NTD 21,525 Computer heat sinking modules


2002/09/16 No. 46, Central Avenue, Export Processing District, Kunshan, Jiangsu Province

NTD 149,900 Electronic Parts and Components Manufacturing

Ze Hong (Guangzhou) Technology Co., Ltd. 2006/01/13

No. 202, Kezhu Road, Science City of New Technology Industry Development Area of Guangzhou, Guangzhou City


Pei Hong (Guangzhou) Technology Co., Ltd. 2011/03/04

2F, No. 202, Kezhu Road, Science City of New Technology Industry Development Area of Guangzhou, Guangzhou City


Chun Hong (Chongqing) Technology Co., Ltd. 2012/03/13 No. 108, Jinfeng Road, Jiulongpo

District, Chongqing City NTD 299,800 Production and sales of computer heat sinking modules

JCD (Guangzhou) Technology Co., Ltd. 2011/08/29

2F, No. 202, Kezhu Road, Science City of New Technology Industry Development Area of Guangzhou, Guangzhou City; Plant of Ze Hong (Guangzhou) Technology Co., Ltd.

NTD 122,918 Production and sales of materials and elements for optoelectronics

~91~

(IV) The same shareholder information inferred to having the relationship of controller and subordinate: None.

(V) Businesses of and the mutual relationship between affiliates

Industry type Name of affiliated enterprises Relationship with the businesses of other affiliates

Manufacturer Auras Electronic Science and Technology Industrial (Kunshan) Co., Ltd. None

Manufacturer Ze Hong (Guangzhou) Technology Co., Ltd. None

Manufacturer Pei Hong (Guangzhou) Technology Co., Ltd. None

Manufacturer Chun Hong (Chongqing) Technology Co., Ltd. None

Investment LI-HORNG TECHNOLOGY CO., LTD. None

Investment SHUANG HORNG TECHNOLOGY CO., LTD. None

Investment ZE HONG TECHNOLOGY CO., LTD None

Investment JCD OPTICAL (Cayman) CO., LTD None

Investment PEL HORNG TECHNOLOGY CO., LTD None

Investment HAO HORNG TECHNOLOGY CO., LTD. None

Sales Raijintek Co., Ltd. None Computer software Milk Idea Inc. None

Investment PRO JUMP CO., LTD. None

Investment ZHEN HORNG TECHNOLOGY CO., LTD None

Investment SHIH HORNG TECHNOLOGY CO., LTD None

Sales AURAS INTERNATIONAL, INC. None

Manufacturer JCD (Guangzhou) Technology Co., Ltd. None

Manufacturer Anhui Weihong Electronic Technology Co., Ltd. None

~92~

(VI) Directors, supervisors, and general managers of affiliated enterprises December 31, 2019

Name of enterprise Title Name or the representative person

Shares held Shares

(Thousand Shares)

Shareholding percentage

LI-HORNG TECHNOLOGY CO., LTD. Director Lin Yu-Shen －－ HAO HORNG TECHNOLOGY CO., LTD. Director Lin Yu-Shen －－

SHUANG HORNG TECHNOLOGY CO., LTD. Director Lin Yu-Shen －－


Director Lin Yu-Shen －－ Director Chou Yeh-Chi －－

Supervisor Yen Pei-Hsu －－ ZE HONG TECHNOLOGY CO., LTD Director Lin Yu-Shen －－

Ze Hong (Guangzhou) Technology Co., Ltd. Chairman Chang Chih-Hui －－ Director Lin Yu-Shen －－

PEL HORNG TECHNOLOGY CO., LTD Director Lin Yu-Shen －－ Pei Hong (Guangzhou) Technology Co., Ltd. Supervisor Yen Pei-Hsu －－ ZHEN HORNG TECHNOLOGY CO., LTD Director Lin Yu-Shen －－

Chun Hong (Chongqing) Technology Co., Ltd.

Chairman Lin Yu-Shen －－ Director Chiang Jung-Cheng －－ Director Chang Chih-Hui －－

Supervisor Yen Pei-Hsu －－ SHIH HORNG TECHNOLOGY CO., LTD Director Lin Yu-Shen －－

PRO JUMP CO., LTD.

Director Auras Technology Co., Ltd. Representative: Lin Yu-Shen 253 15%

Director LI-HORNG TECHNOLOGY

CO., LTD. Representative: Lin Yu-Shen

353 21%

AURAS INTERNATIONAL, INC. Director Lin Yu-Shen －－

JCD OPTICAL (Cayman) CO., LTD Director Li Jung-Chou －－ Director Lin Yu-Shen －－

Milk Idea Inc. Director Lin Yu-Shen 950 48%

Supervisor Yen Pei-Hsu －－

Raijintek Co., Ltd. Director Auras Technology Co., Ltd.

Representative: Lin Yu-Shen 1,120 56%

Supervisor Yen Pei-Hsu －－ JCD (Guangzhou) Technology Co., Ltd. Director Lin Yu-Shen －－

Anhui Weihong Electronic Technology Co., Ltd. Chairman Lin Yu-Shen －－ Director Chou Yeh-Chi －－

Supervisor Chang Chih-Hui －－

~93~

(VII) Business Performance of Affiliated Enterprises December 31, 2019 Unit: NT$ thousand

Name of enterprise(Note 1) Share capital Total assets Total

liabilities Net value Operating revenues

Operating profit

Current period profit

(after tax)

Earnings per share ($)

(After tax)

LI-HORNG TECHNOLOGY CO., LTD. 1,108,684 1,984,460 228 1,984,232 0 (0) 343,149 Not

applicableSHUANG HORNG TECHNOLOGY CO., LTD. 205,907 320,096 0 320,096 0 0 68,450 Not

applicableAuras Electronic Science and Technology Industrial (Kunshan) Co., Ltd.

149,900 1,101,514 781,777 319,737 2,157,206 67,394 68,444 (Note 2)

ZE HONG TECHNOLOGY CO., LTD. 583,318 1,104,023 0 1,104,023 0 0 272,398 Not

applicableZe Hong (Guangzhou) Technology Co., Ltd. 539,640 3,237,596 2,133,592 1,104,004 5,648,238 216,646 272,398 (Note 2)

PRO JUMP CO., LTD. 50,656 218,521 172,636 45,885 0 (79) (18,412) Not applicable

PEL HORNG TECHNOLOGY CO., LTD. 63,982 35,973 0 35,973 0 0 13,675 Not

applicable

Pei Hong (Guangzhou) Technology Co., Ltd. 62,958 170,390 134,418 35,972 858,790 30,191 13,675 (Note 2)

ZHEN HORNG TECHNOLOGY CO. LTD. 303,545 438,041 0 438,041 0 (2) 14,956 Not

applicableChun Hong (Chongqing) Technology Co., Ltd. 299,800 971,603 533,535 438,068 1,544,761 11,240 14,986 (Note 2)

SHIH HORNG TECHNOLOGY CO., LTD. 5,644 13,753 0 13,753 0 0 1,152 Not

applicable

Raijintek Co., Ltd. 20,000 17,260 10,979 6,281 55,242 596 956 0.48

AURAS INTERNATIONAL, INC. 14,990 12,663 532 12,131 8,930 425 401 Not

applicable

HAO HORNG TECHNOLOGY CO. LTD. 29,551 24,906 4 24,902 0 0 (8,057) Not

applicable

Anhui Weihong Electronic Technology Co.,Ltd. 21,525 119,908 85,921 33,987 192,527 11,792 12,592 (Note 2)

JCD OPTICAL (Cayman) CO., LTD 250,820 262,025 13,940 248,085 0 (8,958) (86,005) Not

applicable

JCD (Guangzhou) Technology Co., Ltd. 122,918 312,780 152,933 159,847 256,327 (78,706) (72,920) (Note 2)

Note 1: On December 31, 2019, the period-end USD/NTD = 29.98; RMB/NTD = 4.305. Note 2: Unissued shares.

~94~

(VIII) Consolidated financial reports of affiliates: please refer to page 179 to page 252. (IX) Report on relationship with affiliates: According to Article 369-12 of Company Act, the

Company is not an affiliate of a non-public listed company, and thus does not need to prepare the report on relationship with affiliates.

II. Private placement of securities during the latest year up till the publication date of this

annual report None.

III. Holding or disposal of the company’s shares by its subsidiaries during the latest financial

year, up to the publication date of this annual report None.

IV. Other supplementary information

None.

V. Occurrences of events defined under Article 36-3-2 of the Securities Exchange Act in the latest year up till the publishing date of this annual report that significantly impacted shareholders' equity or security prices None.

~95~

Auras Technology Co., Ltd. Supervisor’s Review Report

The Board of Directors produces and submits the Company’s 2019 Financial Reports, which have been

audited and certified by CPA Hsu Yung-Chien and CPA Wu Han-Chi of PwC Taiwan and the audit report has been prepared. We have also audited on the Financial Reports along with Business Report and Proposal for Earnings Distribution. We judge that there are no matters not satisfying what are stated in these reports and thus submit them for presentation in accordance with Article 219 of Company’s Act. Please review the information.

Sincerely yours, Auras Technology Co., Ltd. 2020 General Shareholders’ Meeting

Supervisors Cheng Ho-Pin

March 17, 2020

~96~





Supervisors Chiang Ping-Chu

March 17, 2020

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Supervisor, Chen Yen-Chun

March 17, 2020

~98~

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of Auras Technology Co., Ltd.

Opinion We have audited the accompanying parent company only balance sheets of Auras Technology Co., Ltd. as at December 31, 2019 and 2018, and the related parent company only 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 parent company only financial statements present fairly, in all material respects, the financial position of Auras Technology 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 Preparation of Financial Reports by Securities Issuers”.

Basis for opinion We conducted our audit of the financial statements as of and for the year ended December 31, 2019 in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants”, "Rule No. Financial-Supervisory-Securities-Auditing-1090360805 issued by the Financial Supervisory Commission on February 25, 2020” and generally accepted auditing standards in the Republic of China (ROC GAAS); and in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS) for our audit of the financial statements as of and for the year ended December 31, 2018. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the 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 (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits, 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 judgment, were of most significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and,

~99~

in forming our opinion thereon, we do not provide a separate opinion on these matters.

The most significant key audit matters in our audit of the parent company only financial statements of the current period are as follows:

Cutoff of warehouse sales revenue Description The Company’s sales revenue mainly arises from warehouse sales revenue, which is recognised when the merchandises are delivered to customers (when control of the products is transferred). For the accounting policies on revenue recognition, refer to Note 4(26). The supporting documents of revenue recognition include reports or other information provided by warehouse custodians and inventory movement record of warehouse. The Company has several warehouses around the world and each warehouse has its own custodian. Further, the frequency and contents of statements provided by custodians are different and involves manual processes which may cause improper revenue recognition. As there are numerous daily sales transactions from the distribution warehouse and the transaction amounts before and after the balance sheet date are significant to the financial statements, we consider the cutoff of sales revenue from distribution warehouse a key audit matter.

How our audit addressed the matter We performed the following audit procedures in respect of the above key audit matter: 1. Inspected the sales revenue, verified corroboration of sales revenue recognition, and assessed the

timing of revenue recognition based on trade terms to ensure the appropriateness of sales revenue recognition.

2. Assessed and checked the appropriateness of cutoff of sales revenue around the balance sheet date, and verified the statements provided by the warehouse custodian.

3. Confirmed the inventory quantities with warehouse custodian and agreed the results to accounting records. In addition, inspected the reason for the difference between the confirmation replies and accounting records and tested the reconciling items made by the Company in order to confirm whether the significant differences have been adjusted.

Assessment of allowance for inventory valuation losses Description Refer to Note 4(10) for the accounting policies on inventory valuation, Note 5(2) for the uncertainty of

~100~

accounting estimates and assumptions in relation to inventory valuation and Note 6(5) for the details of inventory. The Company is primarily engaged in the sales of heat dissipation modules and its components of computer and mobile device, which are manufactured by subsidiaries. Due to the short life cycle of electronic products and fluctuating electronics prices, there is higher risk of incurring losses on inventory valuation or inventory obsolescence. The Company measures inventory at the lower of cost and net realisable value. Allowance for inventory valuation loss mainly arises from obsolete or damaged inventories, and its net realisable value is estimated based on historical experience in accounting for obsolete inventories. The calculation of net realisable value for obsolete or damaged inventory involves manual judgement since the Company and its subsidiaries have a wide range of inventory items and the inventory amount is significant. Thus, we consider the estimation of allowance for inventory valuation losses a key audit matter.

How our audit addressed the matter We performed the following audit procedures in respect of the above key audit matter: 1. Ascertained whether the policies on allowance for inventory valuation losses were reasonable and

consistently applied in all the periods. 2. Verified whether the systematic logic used in the Company’s inventory aging report is appropriate

and in accordance with the Company’s accounting policy; and 3. Discussed with the management the net realisable value of inventories that were individually

identified as obsolete and damaged and obtained supporting documents to determine the reasonableness of allowance for inventory valuation losses.

Appropriateness of manual journal entries

Description

The amounts in the financial statements represent the Company’s transactions recorded through journal

entries, which had been posted, accumulated and classified. The journal entries are either

system-generated or manually prepared. For system-generated journal entries, the Company uses

front-end subsystem (i.e. sales, purchasing and inventory systems) to process the original transactions

and its approval procedures, which are then summarized and recorded through a journal entry

automatically generated by the system. Manually prepared journal entries are those which are prepared,

~101~

approved and recorded manually.

~102~

Because of the diversity and complexity of the Company’s operations and manual journal entries are

subject to management judgement, an inappropriate manual journal entry may be processed which

would lead to misstatements in the financial statements. Thus, we consider the appropriateness of

manual journal entries a key audit matter.

How our audit addressed the matter We performed the following audit procedures in respect of the above key audit matter: 1. Obtained an understanding and assessed the nature of manual journal entries, the procedures in

relation to generating the entries, the efficiency of control and the proper segregation of duties. 2. Inspected the adequacy of related supporting documents and entries, and checked whether the

accounting entries were made and approved by authorised personnel.

Responsibilities of management and those charged with governance for the parent company only financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the parent company only 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 Supervisors, are responsible for overseeing the Company’s financial reporting process.

Independent accountant’s responsibilities for the audit of the parent company only financial statements Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a 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

~103~

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 parent company only financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the parent company only financial

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

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

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 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 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.

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities of the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

~104~

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our 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. Hsu, Yung-Chien Wu, Han-Chi

For and on behalf of PricewaterhouseCoopers, Taiwan March 17, 2020 -------------------------------------------------------------------------------------------------------------------------------------------------The accompanying parent company only 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 parent company only 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.

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS

DECEMBER 31, 2019 AND 2018 (Expressed in thousands of New Taiwan dollars)

~105~

December 31, 2019 December 31, 2018 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 257,320 4 $ 142,692 3

1110 Financial assets at fair value through

profit or loss - current

6(2)

- - 11 -

1170 Accounts receivable, net 6(3) 2,928,562 49 2,224,566 48

1200 Other receivables 6(4) 30,542 1 73,578 1

130X Inventory 6(5) 560,918 9 417,755 9

1470 Other current assets 8 44,216 1 36,206 1

11XX Total current assets 3,821,558 64 2,894,808 62

Non-current assets


profit or loss - non-current

6(2)

1,909 - - -

1550 Investments accounted for under

equity method

6(6)

1,984,231 34 1,638,775 36

1600 Property, plant and equipment 6(7) 11,732 - 11,406 -

1755 Right-of-use assets 6(8) 19,580 - - -

1840 Deferred income tax assets 6(23) 11,567 - 2,576 -

1900 Other non-current assets 6(9) 90,857 2 94,337 2

15XX Total non-current assets 2,119,876 36 1,747,094 38

1XXX Total assets $ 5,941,434 100 $ 4,641,902 100

(Continued)

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS


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

~106~

December 31, 2019 December 31, 2018 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities

2100 Short-term borrowings 6(10) $ 16,898 - $ 437,331 9

2110 Short-term notes and bills payable - - 50,000 1

2170 Accounts payable 7,697 - 11,851 -

2180 Accounts payable - related parties 7 1,810,500 31 1,667,345 36

2200 Other payables 6(11) 178,491 3 120,345 3

2230 Current income tax liabilities 6(23) 157,747 3 28,193 1

2280 Current lease liabilities 9,151 - - -

2320 Long-term liabilities, current portion 6(12) - - 26,675 1

2399 Other current liabilities 8,675 - 2,990 -

21XX Total current liabilities 2,189,159 37 2,344,730 51

Non-current liabilities

2530 Bonds payable 6(12) 235,217 4 - -

2580 Non-current lease liabilities 9,767 - - -

25XX Total non-current liabilities 244,984 4 - -

2XXX Total liabilities 2,434,143 41 2,344,730 51

Equity

Share capital 6(15)

3110 Share capital - common stock 850,977 14 830,116 18

3130 Certificates of bond-to-stock

conversion

13,421 - 815 -

3140 Advance receipts for share capital 100 - 500 -

Capital surplus 6(16)

3200 Capital surplus 1,038,174 17 686,920 14

Retained earnings 6(17)

3310 Legal reserve 167,638 3 144,339 3

3320 Special reserve 11,222 - - -

3350 Unappropriated retained earnings 1,634,321 28 831,177 18

Other equity interest

3400 Other equity interest ( 88,489) ( 1) ( 11,222) -

3500 Treasury stocks 6(15) ( 120,073) ( 2) ( 185,473) ( 4)

3XXX Total equity 3,507,291 59 2,297,172 49

Significant contingent liabilities and

unrecognised contract commitments 9

Significant events after the balance

sheet date 11

3X2X Total liabilities and equity $ 5,941,434 100 $ 4,641,902 100

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY 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 amounts)


~107~

For the years ended December 31 2019 2018

Items Notes AMOUNT % AMOUNT % 4000 Operating revenue 6(18) $ 9,160,345 100 $ 6,976,955 1005000 Operating costs 6(5) and 7 ( 7,887,380) ( 86 ) ( 6,480,305) ( 93)

5900 Net operating margin 1,272,965 14 496,650 7

Operating expenses 6(22) 6100 Selling expenses ( 154,356) ( 1 ) ( 136,757) ( 2)6200 General and administrative expenses ( 161,956) ( 2 ) ( 118,462) ( 2)6300 Research and development expenses ( 173,649) ( 2 ) ( 153,527) ( 2)6450 Expected credit loss 12(2) ( 1,022) - - -

6000 Total operating expenses ( 490,983) ( 5 ) ( 408,746) ( 6)

6900 Operating profit 781,982 9 87,904 1

Non-operating income and expenses 7010 Other income 6(19) 71,080 1 72,070 17020 Other gains and losses 6(20) ( 21,450) - 23,395 -7050 Finance costs 6(21) ( 19,029) - ( 15,539) -7070 Share of profit of subsidiaries,

associates and joint ventures accounted for under equity method

6(6)

312,656 3 109,837 2

7000 Total non-operating income and expenses

343,257 4 189,763 3

7900 Profit before income tax 1,125,239 13 277,667 47950 Income tax expense 6(23) ( 161,268) ( 2 ) ( 44,680) ( 1)

8200 Profit for the year $ 963,971 11 $ 232,987 3

Other comprehensive income Components of other comprehensive

income that will not be reclassified to profit or loss

8330 Share of other comprehensive

income of subsidiaries, associates and joint ventures accounted for using equity method

$ 744 - $ 2,092 -

Components of other comprehensive income that will be reclassified to profit or loss

8361 Financial statements translation

differences of foreign operations

( 74,658) ( 1 ) ( 29,149) -8380 Share of other comprehensive (loss)

income of subsidiaries, associates and joint ventures accounted for under equity method

( 3,353) - 1,143 -

8360 Other comprehensive loss that will be reclassified to profit or loss

( 78,011) ( 1 ) ( 28,006) -

8300 Other comprehensive loss - net ($ 77,267) ( 1 ) ($ 25,914) -

8500 Total comprehensive income for the year

$ 886,704 10 $ 207,073 3

Earnings per share 6(24) 9750 Basic earnings per share $ 11.71 $ 2.90

9850 Diluted earnings per share $ 11.39 $ 2.85

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (Expressed in thousands of New Taiwan dollars)

Share Capital Retained Earnings Other Equity Interest

Notes

Share capital - common stock

Certificates of bond-to-stock

conversion

Advance receipts for share capital Capital surplus Legal reserve

Special reserveUnappropriated

retained earnings

Financial statements translation


Unrealised gains from financial

assets measured at fair value through

other comprehensive

income Treasury stocks

Total equity


~108~

For the year ended December 31, 2018 Balance at January 1, 2018 $ 807,033 $ - $ 130 $ 597,311 $ 115,324 $ - $ 789,866 $ 14,692 $ - ($ 135,534 ) $ 2,188,822 Profit for the year - - - - - - 232,987 - - - 232,987 Other comprehensive income (loss) for the year - - - - - - - ( 28,006 ) 2,092 - ( 25,914 ) Total comprehensive income (loss) - - - - - - 232,987 ( 28,006 ) 2,092 - 207,073 Appropriations of 2017 earnings 6(17) Legal reserve - - - - 29,015 - ( 29,015 ) - - - - Cash dividends - - - - - - ( 162,661 ) - - - ( 162,661 )Conversion of convertible bonds 6(12) 16,843 815 - 78,511 - - - - - - 96,169 Employee share options 6(14) 6,240 - 370 6,013 - - - - - - 12,623 Compensation cost of share-based payment 6(14) - - - 5,085 - - - - - - 5,085 Acquisition of treasury shares 6(15) - - - - - - - - - ( 49,939 ) ( 49,939 )Balance at December 31, 2018 $ 830,116 $ 815 $ 500 $ 686,920 $ 144,339 $ - $ 831,177 ($ 13,314 ) $ 2,092 ($ 185,473 ) $ 2,297,172 For the year ended December 31, 2019 Balance at January 1, 2019 $ 830,116 $ 815 $ 500 $ 686,920 $ 144,339 $ - $ 831,177 ($ 13,314 ) $ 2,092 ($ 185,473 ) $ 2,297,172 Profit for the year - - - - - - 963,971 - - - 963,971 Other comprehensive income (loss) for the year - - - - - - - ( 78,011 ) 744 - ( 77,267 ) Total comprehensive income (loss) - - - - - - 963,971 ( 78,011 ) 744 - 886,704 Appropriations of 2018 earnings 6(17) Legal reserve - - - - 23,299 - ( 23,299 ) - - - - Special reserve - - - - - 11,222 ( 11,222 ) - - - - Cash dividends - - - - - - ( 125,226 ) - - - ( 125,226 )Convertible bonds issued 6(12) - - - 31,340 - - - - - - 31,340 Conversion of convertible bonds 6(12) 18,581 12,606 - 319,746 - - - - - - 350,933 Employee share options 6(14) 2,280 - ( 400 ) 1,456 - - - - - - 3,336 Treasury shares transferred to employees - - - ( 1,288 ) - - ( 1,080 ) - - 65,400 63,032 Balance at December 31, 2019 $ 850,977 $ 13,421 $ 100 $ 1,038,174 $ 167,638 $ 11,222 $ 1,634,321 ($ 91,325 ) $ 2,836 ($ 120,073 ) $ 3,507,291

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS


For the years ended December 31 Notes 2019 2018

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CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax $ 1,125,239 $ 277,667

Adjustments Adjustments to reconcile profit (loss) Depreciation 6(22) 13,299 6,163

Amortisation 6(22) 21,090 17,583

Expected credit loss 12(2) 1,022 -

Interest expense (including accounts receivable factoring expenses)

6(21) 19,029 15,539

Interest income ( 723 ) ( 512 )

Net (gain) loss on financial assets and liabilities at fair value through profit or loss

6(20) ( 10,243 ) 24

Share of profit of subsidiaries, associates accounted for using equity method

6(6) ( 312,656 ) ( 109,837 )

Compensation cost of share-based payments 6(14) - 5,085

Changes in operating assets and liabilities Changes in operating assets Accounts receivable ( 705,018 ) ( 455,684 )

Other receivables 43,036 ( 7,917 )

Inventories ( 143,163 ) ( 133,617 )

Prepayments ( 1,813 ) ( 4,057 )

Other current assets ( 197 ) -

Changes in operating liabilities Accounts payable ( 4,154 ) 4,412

Accounts payable - related parties 143,155 434,264

Other payables 54,366 12,821

Other current liabilities 5,685 948

Cash inflow generated from operations 247,954 62,882

Interest received 723 512

Interest paid ( 16,106 ) ( 14,293 )

Income tax paid ( 40,705 ) ( 35,106 )

Net cash flows from operating activities 191,866 13,995

(Continued)

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS


For the years ended December 31 Notes 2019 2018


~110~

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment 6(25) ($ 5,838 ) ($ 3,909 )

(Increase) decrease in other financial assets 8 ( 6,000 ) 774

Increase in other non-current assets ( 10,754 ) ( 19,962 )

Acquisition of investments accounted for using equity method - associates

( 2,000 ) -

Increase in prepayments for business facilities ( 6,967 ) ( 1,663 )

Net cash flows used in investing activities ( 31,559 ) ( 24,760 )

CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term borrowings ( 420,433 ) 192,331

Cash dividends paid 6(17) ( 125,226 ) ( 162,661 )

Acquisition of investments accounted for using equity method - subsidiaries

( 108,067 ) ( 46,125 )

Dividends received from subsidiaries - 17,670

(Decrease) increase in short-term notes and bills payable

( 50,000 ) 50,000

Repayment of the principal portion of lease liabilities ( 8,321 ) -

Proceeds from issuing bonds 600,000 -

Acquisition of treasury shares 6(14) - ( 49,939 )

Exercise of employee share options 3,336 12,623

Treasury shares transferred to employees 63,032 -

Net cash flows (used in) from financing activities

( 45,679 ) 13,899

Net increase in cash and cash equivalents 114,628 3,134

Cash and cash equivalents at beginning of year 142,692 139,558

Cash and cash equivalents at end of year $ 257,320 $ 142,692

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AURAS TECHNOLOGY CO., LTD. NOTES TO THE PARENT COMPANY ONLY 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 ORGANISATION

Auras Technology Co., Ltd. (the “Company”) was established as a company limited by shares as approved by the Ministry of Economic Affairs on August 24, 1998, and listed on the Taipei Exchange in May 2005. The Company is primarily engaged in heat flow consulting service and manufacturing, processing and retail of electronic materials, computer heat dissipation modules and other related products.

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

These financial statements were authorised for issuance by the Board of Directors on March 17, 2020.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

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

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

New Standards, Interpretations and Amendments

Effective date byInternational Accounting

Standards BoardAmendments to IFRS 9,‘Prepayment features with negativecompensation’

January 1, 2019

IFRS 16, ‘Leases’ January 1, 2019Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019Amendments to IAS 28, ‘Long-term interests in associates and jointventures’

January 1, 2019

IFRIC 23,‘Uncertainty over income tax treatments’ January 1, 2019Annual improvements to IFRSs 2015-2017 cycle January 1, 2019

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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 ‘right-of-use asset’ by $2,664 and increased ‘lease liability’ by $2,664 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 exclusion of initial direct costs for the measurement of ‘right-of-use asset’. (d) The use of hindsight in determining the lease term where the contract contains options to

extend or terminate the lease.

D. The Company calculated the present value of lease liabilities by using the weighted average incremental borrowing interest rate of 1.06%.

E. The Company recognised lease liabilities which had previously been classified as ‘operating leases’ under the principles of IAS 17, ‘Leases’. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application. The amount of aforementioned present values is the same as the amount of lease liabilities recognised on January 1, 2019.

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


The above standards and interpretations have no significant impact to the Company’s financial



Standards BoardAmendments to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition ofMaterial’

January 1, 2020

Amendments to IFRS 3, ‘Definition of a business’ January 1, 2020Amendments to IFRS 9, IAS 39 and IFRS 7, ‘Interest rate benchmarkreform’

January 1, 2020

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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:

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 Company have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

(2) Basis of preparation

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

Financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 5.

(3) Foreign currency translation

A. The financial statements are presented in New Taiwan dollars, which is the Company’s functional



Standards BoardAmendments to IFRS 10 and IAS 28, ‘Sale or contribution of assetsbetween an investor and its associate or joint venture’

To be determined byInternational Accounting

Standards BoardIFRS 17, ‘Insurance contracts’ January 1, 2021Amendments to IAS 1, ‘Classification of liabilities as current ornoncurrent’

January 1, 2022

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and the Company’s presentation currency.

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B. 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 re-translated 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) The foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains and losses’.

C. Translation of foreign operations

The operating results and financial position of all the Company entities and associates that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(a) Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

(b) Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and

(c) All resulting exchange differences are recognised in other comprehensive income.

(d) When the foreign operation partially disposed of or sold is an associate or joint arrangement, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Company retains partial interest in the former foreign associate or joint arrangements after losing significant influence over the former foreign associate, or losing joint control of the former joint arrangements, such transactions should be accounted for as disposal of all interest in these foreign operations.

(e) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange

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differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, if the Company retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(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 paid off within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

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

(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 profit or loss

A. Financial assets at fair value through profit or loss are financial assets that are not measured at amortised cost or fair value through other comprehensive income.

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

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C. At initial recognition, the Company measures the financial liabilities at fair value. All related transaction costs are recognised in profit or loss. The Company subsequently measures these financial liabilities at fair value with any gain or loss recognised in profit or loss.

D. The Company recognises the dividend income 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 and notes receivable entitle the Company a legal right to receive consideration in exchange for transferred goods or rendered services.

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

C. The Company’s operating pattern of accounts receivable that are expected to be factored is for the purpose of receiving contract cash flow and selling, and the accounts receivable are subsequently measured at fair value, with any changes in fair value recognised in other comprehensive income.

(8) Impairment of financial assets

For accounts receivable that have a significant financing component, 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 one of the following conditions is met:

A. The contractual rights to receive the cash flows from the financial asset expire.

B. The contractual rights to receive cash flows of the financial asset have been transferred and the Company has transferred substantially all risks and rewards of ownership of the financial asset.

C. The contractual rights to receive cash flows of the financial asset have been transferred and the Company has not retained control of the financial asset.

(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 process comprises raw materials, direct labour, other direct costs and related production overheads (allocated based on

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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) Investments accounted for using equity method / subsidiaries and associates

A. Subsidiaries are all entities controlled by the Company (including structured entities). The Company controls an entity when the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

B. Unrealised gains or losses arising from transactions between the Company and subsidiaries are eliminated. Accounting policies of the subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Company.

C. The Company’s share of its subsidiaries’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Company’s share of losses in a subsidiary equals or exceeds its interest in the subsidiary, the Company continues to recognise losses proportionate to its ownership.

D. Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Difference of adjustment of non-controlling interest and fair value of consideration paid or received is recognised in equity.

E. When the Company loses control of a subsidiary, the Company remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. If the Company loses significant influence over the subsidiary, the amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of.

F. Associates are all entities over which the Company has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 per cent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost.

G. The Company’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Company’s share of losses in an

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associate equals or exceeds its interest in the associate (including any other unsecured receivables), the Company does not recognise further losses, unless it has incurred statutory/constructive obligations or made payments on behalf of the associate.

H. When changes in an associate’s equity do not arise from profit or loss or other comprehensive income of the associate and such changes do not affect the Company’s ownership percentage of the associate, the Company recognises change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.

I. Unrealised gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Company.

J. In the case that an associate issues new shares and the Company does not subscribe or acquire new shares proportionately, which results in a change in the Company’s ownership percentage of the associate but maintains significant influence on the associate, then ‘capital surplus’ and ‘investments accounted for under the equity method’ shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Company’s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.

K. Pursuant to the “Regulations Governing the Preparation of Financial Reports by Securities Issuers,” profit (loss) of the current period and other comprehensive income in the non-consolidated financial statements shall equal to the amount attributable to owners of the parent in the financial statements prepared with basis for consolidation. Owners’ equity in the non-consolidated financial statements shall equal to equity attributable to owners of the parent in the financial statements prepared with basis for consolidation.

(12) 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

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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 12 ~20 years Machinery and equipment 3 ~10 years Leasehold improvements 3 years Other assets 3 ~10 years

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

Effective 2019

A. Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the 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.

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:

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(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.

(14) 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.

(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 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 raw materials, 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) Financial liabilities at fair value through profit or loss

A. Financial liabilities are classified in this category of held for trading if acquired principally for

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the purpose of repurchasing in the short-term. Derivatives are also categorised as financial liabilities held for trading unless they are designated as hedges.

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B. At initial recognition, the Company measures the financial liabilities at fair value. All related transaction costs are recognised in profit or loss. The Company subsequently measures these financial liabilities at fair value with any gain or loss recognised in profit or loss.

(19) Derecognition of financial liabilities

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

(20) Convertible bonds payable

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

A. The embedded call options and put options are recognised initially at net fair value as ‘financial assets or financial liabilities at fair value through profit or loss’. They are subsequently remeasured and stated at fair value on each balance sheet date; the gain or loss is recognised as ‘gain or loss on valuation of financial assets or financial liabilities at fair value through profit or loss’.

B. The host contracts of bonds are initially recognised at fair value. Any difference between the initial recognition and the redemption value is accounted for as the premium or discount on bonds payable and subsequently is amortised in profit or loss as an adjustment to ‘finance costs’ over the period of circulation using the effective interest method.

C. The embedded conversion options which meet the definition of an equity instrument are initially recognised in ‘capital surplus—share options’ at the residual amount of total issue price less the amount of financial assets or financial liabilities at fair value through profit or loss and bonds payable as stated above. Conversion options are not subsequently remeasured.

D. Any transaction costs directly attributable to the issuance are allocated to each liability or equity component in proportion to the initial carrying amount of each abovementioned item.

E. When bondholders exercise conversion options, the liability component of the bonds (including ‘bonds payable’ and ‘financial assets or financial liabilities at fair value through profit or loss’) is remeasured on the conversion date. The book value of common shares issued due to the conversion is based on the adjusted book value of the abovementioned liability component plus the book value of capital surplus - share options.

F. If bondholders could exercise the put option in the next year, the corporate bonds payable should be reclassified as current liabilities; otherwise, when the put option exceeds its exercise period, the corporate bonds payable with unexercised put option should be reversed as non-current liabilities.

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(21) Employee benefits

A. Short-term employee benefits

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

B. Pensions

Defined contribution plan

For defined contribution plan, the contributions are recognised as pension expenses 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.

C. Employees’ compensation and directors’ and supervisors’ remuneration

Employees’ compensation and directors’ and supervisors’ remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated.

(22) Employee share-based payment

For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

(23) 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 and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

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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 goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is 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.

E. A deferred tax asset shall be recognised for the carryforward of unused tax credits to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

(24) Treasury shares

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.

(25) Dividends

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

(26) Revenue recognition

A. The Company manufactures and sells heat dissipation module products. Sales are recognised when control of the products has transferred, being when the products are delivered to the customers, the customers has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customers’ 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 customers, and either the customers has

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accepted the products in accordance with the sales contract, or the Company has objective evidence that all criteria for acceptance have been satisfied.

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

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

The critical judgements and estimates in applying the Company’s accounting policies when the Company prepared these parent company only financial statements are as follows:

(1) Critical judgements in applying the Company’s accounting policies The Company has no accounting policy which involves significant judgement and has material impact on recognition amount.

(2) Critical accounting estimates and assumptions

The Company makes accounting estimates in applying reasonable expectation concerning future events. However, assumptions and estimates may differ from the actual results. 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:

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 $560,918.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

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.

December 31, 2019 December 31, 2018Cash on hand and revolving funds 60$ 60$

Checking accounts and demand deposits 257,260 142,632

257,320$ 142,692$

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B. For the Company’s cash in bank pledged to others, please refer to Note 8.


A. As of December 31, 2019, the Company has no financial assets at fair value through profit or loss pledged to others.

B. The Company recognised net gain (loss) on financial assets and liabilities at fair value through profit or loss as part of ‘other gains and losses’, and the related amount is shown in Note 6 (20).

C. Information relating to credit risk of financial assets and liabilities at fair value through profit or loss is provided in Note 12(2).

Assets items December 31, 2019 December 31, 2018Current items: Financial assets mandatorily measured at fair value through profit or loss Put and call options of secured convertible bonds -$ 2,171$

Valuation adjustment - 2,160)(

-$ 11$

Assets items December 31, 2019 December 31, 2018Non-current items: Financial assets mandatorily measured at fair value through profit or loss Put and call options of unsecured convertible bonds -$ -$

Valuation adjustment 1,909 -

1,909$ -$

Liabilities items December 31, 2019 December 31, 2018Non-current items: Financial liabilities held for trading Put and call options of unsecured convertible bonds 6,480$ -$

Valuation adjustment 6,480)( -

-$ -$

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(3) Accounts receivable, net

A. The ageing analysis of accounts receivable that were past due but not impaired is as follows:

The above ageing analysis was based on past due date.

B. As of December 31, 2019 and 2018, accounts receivable and notes receivable were all from contracts with customers. As of January 1, 2018, the balance of receivables from contracts with customers amounted to $1,773,786.

C. The Company does not hold any collateral as security.

D. On December 31, 2019 and 2018, the Company had accounts receivable classified as financial assets at fair value through other comprehensive income in the amounts of $853,654 and $326,784, respectively. Please refer to Note 6(4) for information on transfer of financial assets.

E. Information relating to credit risk of accounts receivable is provided in Note 12(2).

(4) Transfer of financial assets

Transferred financial assets that are derecognised in their entirety

The Company entered into a factoring agreement with a bank to sell its accounts receivable. Under the agreement, the Company is not obligated to bear the default risk of the transferred accounts receivable, but is liable for the losses incurred on any business dispute, which meet the derecognition criteria of financial assets. Further, the Company does not have any continuing involvement in the transferred accounts receivable. Thus, the Company derecognised the transferred accounts receivable, and the related information is as follows:

December 31, 2019 December 31, 2018Notes receivable -$ 23$

Accounts receivable 2,934,524 2,229,605

2,934,524 2,229,628

Less: Allowance for bad debts 5,962)( 5,062)(

2,928,562$ 2,224,566$

December 31, 2019 December 31, 2018Not past due 2,864,833$ 2,176,196$

1 to 90 days 56,561 46,813

91 to 180 days 4,119 1,571

Over 180 days 9,011 5,048

2,934,524$ 2,229,628$

~129~

A. As of December 31, 2019 and 2018, the Company had retention for the factoring of accounts receivable (shown as "Other receivables") in the amounts of $10,638 and $46,057, respectively.

B. Expense arising from accounts receivable factoring is accounted as ‘financial cost’, and the related amount is shown in Note 6(21).

(5) Inventories

The cost of inventories recognised as expense for the year:

Purchaserof accountsreceivable

Accountsreceivabletransferred

Amountderecognised

Amountadvanced

Amountavailable for

advance

Interest rateof amountadvanced

MegaInternationalCommercialBank, etc. 106,385$ 106,385$ 83,245$ 12,502$ 2.57%~2.73%



Amountderecognised

Amountadvanced

Amountavailable for

advance


TaishinInternationalBank, etc. 460,568$ 460,568$ 392,546$ 21,965$ 3.35%~3.99%

December 31, 2019

December 31, 2018

Allowance forCost valuation loss Book value

Finished goods 577,197$ 16,279)($ 560,918$


Finished goods 422,206$ 4,451)($ 417,755$

December 31, 2019

December 31, 2018

2019 2018Cost of goods sold 7,875,660$ 6,489,082$

Loss (gain) on reversal of market value decline of inventories 11,828 8,135)(

Sale of scraps 108)( 642)(

7,887,380$ 6,480,305$

For the years ended December 31,

~130~

Certain obsolete inventories were disposed or scrapped resulting to a gain on reversal of decline in market value for the year ended December 31, 2018.

(6) Investments accounted for using equity method

A. Subsidiaries:

The Company invested in Auras Technology (Kunshan) Co., Ltd., Ze Hong (Guangzhou) Technology Co., Ltd., Pel Horng (Guangzhou) Technology Co., Ltd. and Auras Technology (Chongqing) Co., Ltd. through Li-Horng Technology Co., Ltd. in order to manufacture and sell the computer heat dissipation module. Related information is provided in Note 4(3) of the Company’s consolidated financial statements as of and for the year ended December 31, 2019.

B. Associates

(a) For the years ended December 31, 2019 and 2018, the Company has no significant associates as the associates do not comprise above 1% of total assets.

(b) The carrying amount of the Company’s interests in all individually immaterial associates and the Company’s share of the operating results are summarised below:

As of December 31, 2019 and 2018, the carrying amount of the Company’s individually immaterial associates amounted to $5,299 and $6,181, respectively. The operating results are summarised below:

C. For the years ended December 31, 2019 and 2018, investment income accounted for using equity

method amounted to $312,656 and $109,837, respectively, of which unrealised investment income (loss) arising from upstream transactions between the Company and the indirectly invested subsidiaries amounted to $20,629 and ($4,693), respectively.

Company name Amount % Amount %Subsidiaries: Li-Horng Technology Co., Ltd. 1,938,382$ 100 1,583,868$ 100

Hao-Horng Technology Co., Ltd. 24,902 100 33,714 100

Auras Technology Inc. 12,131 100 12,030 100

Raijintek Co., Ltd. 3,517 56 2,982 56

Associates: MILK IDEA INC. 2,992 20 974 20

Pro Jump Co., Ltd. 2,307 15 5,207 15

1,984,231$ 1,638,775$

December 31, 2019 December 31, 2018

2019 2018Loss from continuing operations 18,323)($ 12,435)($


~131~


The Company did not have property, plant and equipment pledged as collateral.

Machineryand equipment

Transportationequipment

Officeequipment

Leaseholdimprovements

Otherfacilities Total

At January 1, 2019Cost 27,522$ 713$ 1,083$ 2,500$ 46,509$ 78,327$

Accumulated depreciation 27,486)( 713)( 248)( 2,177)( 36,297)( 66,921)(

36$ -$ 835$ 323$ 10,212$ 11,406$

2019Opening net book amount as at January 1 36$ -$ 835$ 323$ 10,212$ 11,406$

Additions - 646 - 248 4,961 5,855

Transfers - - - - 111 111

Depreciation charge 36)( 27)( 217)( 213)( 5,147)( 5,640)(

Closing net book amount as at December 31 -$ 619$ 618$ 358$ 10,137$ 11,732$

At December 31, 2019Cost 27,522$ 1,359$ 1,083$ 2,748$ 51,581$ 84,293$


-$ 619$ 618$ 358$ 10,137$ 11,732$


Transportationequipment

Officeequipment

Leaseholdimprovements

Otherfacilities Total

At January 1, 2018Cost 27,522$ 713$ 604$ 2,190$ 43,191$ 74,220$


712$ -$ 494$ 262$ 11,994$ 13,462$

2018Opening net book amount as at January 1 712$ -$ 494$ 262$ 11,994$ 13,462$

Additions - - 80 310 3,717 4,107

Transfers - - 399 - 399)( -

Depreciation charge 676)( - 138)( 249)( 5,100)( 6,163)(

Closing net book amount as at December 31 36$ -$ 835$ 323$ 10,212$ 11,406$

At December 31, 2018Cost 27,522$ 713$ 1,083$ 2,500$ 46,509$ 78,327$


36$ -$ 835$ 323$ 10,212$ 11,406$

~132~

(8) Leasing arrangements－lessee

Effective 2019

A. The Company leases various assets including buildings, machinery and equipment and business vehicles. The lease period of 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 lease period of certain warehouse and business vehicles is less than 12 months.

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

D. For the year ended December 31, 2019, the additions to right-of-use assets was $24,575.

E. Information on profit or loss in relation to lease contracts is as follows:

F. For the year ended December 31, 2019, the Company’s total cash outflow for leases was $8,970.

(9) Other non-current assets

For the year endedDecember 31, 2019 December 31, 2019

Book value Depreciation expenseBuildings 15,138$ 6,570$

Transportation equipment (Business vehicles) 3,305 789

Machinery and equipment 1,137 300

19,580$ 7,659$

For the year ended December 31, 2019

Items affecting profit or lossInterest expense on lease liabilities 184$

Expense on short-term lease contracts 465

December 31, 2019 December 31, 2018Computer software cost 74,355$ 82,424$

Prepayments for business facilities 6,967 1,663

Guarantee deposits paid 6,120 5,779

Others 3,415 4,471

90,857$ 94,337$

~133~

(10) Short-term borrowings

(11) Other payables

(12) Bonds payable

A. The terms of the second domestic secured convertible bonds are as follows:

The Company issued $300,000, 0%, second domestic secured convertible bonds as approved by the regulatory authority. The bonds mature three years from the issue date (May 17, 2016 ~May 17, 2019). The bonds were listed on the Taipei Exchange on May 17, 2016, and were all converted to common stocks due to maturity in May 2019.

B. The terms of the third domestic unsecured convertible bonds are as follows:

(a) The Company issued $600,000, 0%, third domestic unsecured convertible bonds as approved by the regulatory authority. The bonds mature five years from the issue date (May 29, 2019 ~May 29, 2024). The bonds were listed on the Taipei Exchange on May 29, 2019.

(b) The conversion price of the bonds is set up based on the pricing model. As of December 31, 2019, the bonds payable totaling $348,800 had been converted into 2,622,489 shares of common stock, of which 1,342,081 shares were recognised as ‘Certificates of bond-to-stock conversion’. If a violation of anti-dilution provision occurred, the conversion price would

Type of borrowings December 31, 2019 Interest rate range CollateralBank borrowings Unsecured borrowings 16,898$ 2.6956% None

Type of borrowings December 31, 2018 Interest rate range CollateralBank borrowings Unsecured borrowings 437,331$ 1.036%~3.594% None

December 31, 2019 December 31, 2018Bonus and salary payable 89,375$ 50,397$

Accrued commission 25,899 15,741

Processing fees payable 22,122 16,755

Payables for freight and warehouse charge 13,024 11,147


178,491$ 120,345$

December 31, 2019 December 31, 2018Bonds payable 251,200$ 26,800$

Less: Discount on bonds payable 15,983)( 125)( Less: Current portion (shown as “long-term liabilities, current portion”) - 26,675)(

Bonds payable - non-current 235,217$ -$

~134~

be subsequently adjusted in accordance with the pricing model as specified in the terms of conversion. The conversion price was $133 (in dollars) per share upon issuance.

(c) The bondholders have the right to require the Company to redeem any bonds at the price of the bonds’ face value plus 2.27% of the face value as interest upon three years from the issuance date.

(d) The Company may repurchase all the bonds outstanding in cash at the bonds’ face value at any time after the following events occur: (i) the closing price of the Company’s common shares is above the then conversion price by 30% for 30 consecutive trading days during the period from the date after three months of the bonds issue to 40 days before the maturity date, or (ii) the outstanding balance of the bonds is less than 10% of total initial issue amount during the period from the date after three months of the bonds issue to 40 days before the maturity date.

(e) Under the terms of the bonds, all bonds redeemed (including bonds repurchased from the Taipei Exchange), matured and converted are retired and not to be re-issued; all rights and obligations attached to the bonds are also extinguished.

C. Regarding the issuance of the third domestic unsecured convertible bonds, the equity conversion options amounting to $31,340 were separated from the liability component and were recognised in ‘capital surplus—share options’ in accordance with IAS 32. The call options and put options embedded in bonds payable were separated from their host contracts and were recognised in ‘financial assets or liabilities at fair value through profit or loss’ in net amount in accordance with IAS 39 because the economic characteristics and risks of the embedded derivatives were not closely related to those of the host contracts. The effective interest rate of the bonds payable after such separation was 1.4912%.

(13) Pensions

Defined contribution plan

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 the defined contribution pension plan of the Company for the years ended December 31, 2019 and 2018 were $6,282 and $5,922, respectively.

~135~

(14) Share-based payment

A. For the years ended December 31, 2019 and 2018, the Company’s share-based payment arrangements were as follows:

Note: According to the employees’ continuance in office (1 to 4 years), the employees can exercise their employee stock options in batch at the ratio of 50%, 25% and 25%.

B. Employee stock options are evaluated using the Binomial lattice model. Relevant information is as follows:

C. The details of the employee stock option plan for the years ended December 31, 2019 and 2018 are as follows:

Type of arrangement Grant date

Quantitygranted

(thousands)

Contractperiod(years)

Vestingconditions

Employee stock options January 2, 2014 490 5 NoteEmployee stock options August 26, 2014 1,430 5 NoteEmployee stock options December 29, 2014 482 5 NoteTreasury shares reissued to employees

November 15, 2018 734 - Immediately

Treasury shares reissued to employees

December 6, 2018 1,658 - Immediately

Stock Exercise Expected Expected Risk-free Fair valueprice price price Expected dividend interest per unit

Grant date (dollars) (dollars) volatility option life yield rate (%) (dollars)January 2,2014

22.10$ 20.20$ 38.67% January 3, 2014~January 2, 2019

5.3050% 1.14% $4.58~4.97

August 26,2014

20.80 18.90 35.18% August 27, 2014~August 26, 2019

1.9560% 1.15% 5.04~5.19

December29, 2014

18.70 17.00 41.64% December 30, 2014~December 29, 2019

1.9560% 1.0952% 5.44~5.57

~136~

D. In 2019 and 2018, the Company issued 188 and 661 thousand shares of ordinary shares relative to the exercise of employee share options in accordance with the employee share options plan, respectively. As of December 31, 2019 and 2018, there are 10 and 50 thousand shares which have not yet completed the registration, and was accounted as advance receipts for share capital amounting to $100 and $500, respectively.

Weighted Weighted Weighted average average Range of average stock price of

Quantity exercise exercise remaining stock options (in thousand price price vesting at exercise

Stock options units) (in dollars) (in dollars) year date (in dollars)Outstanding options at the beginning of the year 188 17.75$ $17.0~20.2 71.50$

Options exercised 188)( -

Outstanding options at the end of the year - - - 0 year 163.16

Exercisable options at the end of the year -

2019




Options forfeited 22)( -


Outstanding options at the end of the year 188 17.75 17.0~20.2

0 year~1 year 71.50

Exercisable options at the end of the year 188

2018

~137~

E. For the years ended December 31, 2019 and 2018, the Company recognised expenses on share-based payment transaction (equity settlement) and the cost of treasury shares reissued to employees’ compensation was $0 and $5,085, respectively.

(15) Share capital

A. As of December 31, 2019, the Company’s authorised capital was $1,200,000, and the paid-in capital was $850,977, consisting of 85,097,748 shares, 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 (including advance receipts for share capital and certificates of bond-to-stock conversion) outstanding are as follows:

B. Treasury shares

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

(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 five years from the reacquisition date and shares not reissued within the five-year period are to be retired.

2019 2018Ordinary shares Ordinary shares

At January 1 80,751,054 79,058,285

Employee stock options exercised 188,000 661,000

Conversion of convertible bonds 3,118,775 1,765,769

Acquisition of treasury shares - 734,000)(


At December 31 84,857,829 80,751,054

Name of company holding the shares Reason for reacquisition Number of shares Carrying amount

The Company To be reissued to employees 1,592 $ 120,073



December 31, 2019

December 31, 2018

~138~

(16) Capital surplus

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

Difference between

considerationand carryingamount of

subsidiaries EmployeeShare acquired stock Stock

premium or disposed options warrants TotalAt January 1 654,122$ 4,050$ 25,145$ 3,603$ 686,920$ Issue of convertible bond - - - 31,340 31,340

Conversion of corporate bonds payable 338,927 - - 19,181)( 319,746 Employee stock options exercised 2,711 - 1,255)( - 1,456 Treasury shares transferred to employees - - 1,288)( - 1,288)(

At December 31 995,760$ 4,050$ 22,602$ 15,762$ 1,038,174$

2019

Difference between



premium or disposed options warrants TotalAt January 1 562,936$ 4,050$ 23,205$ 7,120$ 597,311$ Conversion of corporate bonds payable 82,028 - - 3,517)( 78,511 Employee stock options exercised 9,158 - 3,145)( - 6,013 Compensation cost of share-based payments - - 5,085 - 5,085

At December 31 654,122$ 4,050$ 25,145$ 3,603$ 686,920$

2018

~139~

issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalised mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

(17) Retained earnings

A. If the Company has any profit for the current year, it shall first be used to pay all taxes and offset prior year's operating losses, then 10% of the remaining amount shall be set aside as legal reserve until the legal reserve equals the total capital stock balance. In accordance with the regulations, the Company shall set aside or reverse special reserve. The remaining amount plus prior year's unappropriated earnings is the distributable retained earnings which can be distributed through the proposal of the Board of Directors and resolved by the shareholders.

B. The dividend policies of the Company are established by the Board of Directors based on the Company’s operating plan, investment schedule, capital budget and internal and external environment, etc. Retained earnings can be distributed in form of cash or shares and cash dividends shall not be lower than 10% of total dividends distributed.

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 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 appropriations of earnings for the years ended December 31, 2018 and 2017 resolved by the shareholders during their meeting in June 2019 and 2018, respectively, are as follows:

Dividends per Dividends per Amount share (in dollars) Amount share (in dollars)

Legal reserve 23,299$ 29,015$

Special reserve 11,222 -

Cash dividends 125,226 1.50$ 162,661 2.00$ 159,747$ 191,676$

For the years ended December 31,2018 2017

~140~

Note: Changes in the number of outstanding shares were affected by the exercise of employee share options, the conversion from convertible bonds to common shares, and capital increase by cash. Due to the resolution adopted by the Board of Directors, the Company adjusted the shareholder yield based on the actual number of outstanding shares.

F. On March 17, 2020, the Board of Directors proposed for the distribution of dividends from 2019 earnings in the amount of $432,727 at $5 (in dollars) per share.

G. For the information relating to employees’ compensation (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(22).

(18) Operating revenue

Disaggregation of revenue from contracts with customers

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

(19) Other income

2019 2018Revenue from contracts with customers 9,160,345$ 6,976,955$


2019 2018China 3,666,349$ 3,488,149$

Taiwan 2,745,916 2,020,548

Korea 1,426,732 516,982

Ireland 656,516 454,153

Others 664,832 497,123

9,160,345$ 6,976,955$


2019 2018Sample revenue 64,830$ 49,352$

Tool reimbursement 3,247 16,563

Others 3,003 6,155

71,080$ 72,070$


~141~

(20) Other gains and losses

(21) Finance costs

(22) Employee benefit expense, depreciation and amortisation

A. For the years ended December 31, 2019 and 2018, the Company had an average of 174 and 163 employees, which included 3 non-employee directors for both years, respectively. (a) Average employee benefit expense for the years ended December 31, 2019 and 2018 were

$1,223 and $962, respectively. (b) Average wages and salaries for the years ended December 31, 2019 and 2018 were $1,067

and $814, respectively. (c) The average wages and salaries increased by 31.08% compared to prior year.

B. A ratio of profit of the current year distributable (profit before tax, employees’ compensation and directors’ and supervisors’ remuneration), shall be distributed as employees’ compensation

2019 2018(Losses) gains on foreign currency exchange 31,693)($ 23,419$

Gains (losses) on financial assets (liabilities)at fair value through profit or loss 10,243 24)(

21,450)($ 23,395$


2019 2018Accounts receivable factoring expenses 8,730$ 9,952$

Interest expense:Bank borrowings 5,692 4,905

Convertible bonds 4,423 682

Interest expense on lease liabilities 184 -

Finance costs 19,029$ 15,539$


2019 2018Employee benefit expense Wages and salaries 182,467$ 130,279$

Labour and health insurance fees 12,765 11,352

Pension costs 6,282 5,922

Directors' compensation 6,767 2,221

Other personnel expenses 7,575 6,439

215,856$ 156,213$

Depreciation 13,299$ 6,163$

Amortisation 21,090$ 17,583$


~142~

and directors’ and supervisors’ remuneration. The ratio shall not be lower than 3%~15% for employees’ compensation and shall not be higher than 1.5% for directors’ and supervisors’ remuneration. The appropriation for employees’ compensation and directors’ and supervisors’ remuneration should be reported to shareholders during their meeting. If the Company has accumulated deficit, earnings should be reserved to cover losses and then be appropriated as employees’ compensation and directors’ and supervisors’ remuneration based on the abovementioned ratios.

C. For the years ended December 31, 2019 and 2018, employees’ compensation was accrued at $41,153 and $10,155, respectively; while directors’ and supervisors’ remuneration was accrued at $9,406 and $2,321, respectively. The aforementioned amounts were recognised as expenses.

The employees’ compensation and directors’ and supervisors’ remuneration were estimated and accrued based on 3.5% and 0.8% of profit of current year distributable as of the end of reporting period.

Employees’ compensation and directors’ and supervisors’ remuneration for 2018 as resolved by the Board of Directors were in agreement with those amounts recognised in the 2018 financial statements. The aforementioned amounts will be distributed in the form of cash.

Information about employees’ compensation and directors’ and supervisors’ 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.

(23) Income tax

A. Components of income tax expense:

2019 2018Current tax:Current tax on profits for the year 174,798$ 39,247$

Prior year income tax (over) under estimation 4,539)( 2,177

Total current tax 170,259$ 41,424$

Deferred tax:Origination and reversal of temporary differences 8,991)( 4,285

Impact of change in tax rate - 1,029)(

Income tax expense 161,268$ 44,680$


~143~

B. Reconciliation between income tax expense and accounting profit:

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

D. The amounts of deductible temporary differences that were not recognised as deferred tax assets and liabilities are as follows:

The above deductible temporary difference is a temporary difference between the carrying amount and taxable amount of long-term equity investments in overseas subsidiaries. Since the

2019 2018Income tax calculated by applying statutory rate to the profit before tax 225,048$ 55,533$

Effect from permanent differences of income tax 62,903)( 21,848)(

Prior year income tax (over) under estimation 4,539)( 2,177


Additional tax on undistributed surplus earnings 3,662 9,847



January 1

Recognisedin profitor loss

Recognisedin other

comprehensiveincome

Recognisedin equity December 31

Deferred tax assets: Unused compensated absences 1,005$ 40)($ -$ -$ 965$

Unrealised exchange loss 680 6,666 - - 7,346

Others 891 2,365 - - 3,256

2,576$ 8,991$ -$ -$ 11,567$

2019

January 1


Recognisedin other

comprehensiveincome


Deferred tax assets: Unused compensated absences 497$ 508$ -$ -$ 1,005$

Unrealised exchange loss 1,886 1,206)( - - 680

Impairment loss on assets 1,309 1,309)( - - -

Others 2,140 1,249)( - - 891

5,832$ 3,256)($ -$ -$ 2,576$

2018

December 31, 2019 December 31, 2018Deductible temporary difference-Assets 12,521$ 5,073$

Taxable temporary differences-Liabilities 829,379)($ 569,426)($

~144~

Company will neither dispose these subsidiaries nor remit the earnings in foreseeable future, no deferred tax assets and liabilities was recognised. In addition, the temporary difference arising from certain overseas subsidiaries will not be reversed in foreseeable future.

E. The Company’s income tax returns through 2017 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% and the undistributed surplus earnings rate was reduced from 10% to 5%, effective from January 1, 2018. The Company has assessed the impact of the change in income tax rate.

(24) Earnings per share

Amount after tax

Weighted averagenumber of ordinaryshares outstanding

(shares in thousands)

Earnings pershare

(in dollars)Basic earnings per share Profit attributable to ordinary shareholders of the parent 963,971$ 82,354 11.71$

Diluted earnings per share Profit attributable to ordinary shareholders of the parent 963,971$ 82,354 Assumed conversion of all dilutive potential ordinary shares

Employee stock options - 62

Employees’ compensation - 205

Convertible bonds 4,423 2,388

Shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 968,394$ 85,009 11.39$


~145~

(25) Supplemental cash flow information

Investing activities with partial cash payments

(26) Change in liabilities from financing activities

For the years ended December 31, 2019 and 2018, liabilities from financing activities include short-term borrowings, short-term notes and bills payable as well as bonds payable. Changes in those items result from cash flows from financing activities, discount amortisation and bonds converted to common stocks. The summarised amounts are as follows and other information is provided in the statements of cash flows.

Amount after tax



Earnings pershare





Convertible bonds 545 921



2019 2018Purchase of property, plant and equipment 5,855$ 4,107$

Add: Opening balance of payable on equipment 991 793

Less: Ending balance of payable on equipment 1,008)( 991)(

Cash paid during the year 5,838$ 3,909$


2019 2018At January 1 514,006$ 367,640$

Changes in cash flows from financing activities 129,567 242,331

Changes in other non-cash items 391,458)( 95,965)(

At December 31 252,115$ 514,006$

~146~

7. RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship

(2) Significant related party transactions

A. Purchases

Purchases from subsidiaries are based on normal commercial terms and conditions.

B. Accounts payable

The payables to related parties arise mainly from purchase transactions and are due 3 to 4 months after the date of purchase. The payables bear no interest.

C. Endorsements and guarantee made by related parties

Names of related parties Relationship with the GroupAuras Technology (Kunshan) Co., Ltd. (Auras Kunshan) SubsidiaryZe Hong (Guangzhou) Technology Co., Ltd. (Ze Hong Guangzhou) SubsidiaryAuras Technology (Chongqing) Co., Ltd. (Auras Chongqing) Subsidiary

2019 2018Purchases of goods: - Subsidiaries Ze Hong Guangzhou 4,399,199$ 3,114,631$

Auras Kunshan 2,154,955 1,906,267

Auras Chongqing 1,451,700 1,575,086

8,005,854$ 6,595,984$


December 31, 2019 December 31, 2018Accounts payable: - Subsidiaries Auras Kunshan 825,951$ 597,201$

Ze Hong Guangzhou 729,206 741,402

Auras Chongqing 255,343 328,742

1,810,500$ 1,667,345$

December 31, 2019 December 31, 2018Ze Hong Guangzhou 479,680$ 245,720$

Auras Chongqing 89,940 -

569,620$ 245,720$

~147~

(3) Key management compensation

8. PLEDGED ASSETS

The Company’s assets pledged as collateral, mortgaged or restricted are as follows:

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS

(1) Contingencies

None.

(2) Commitments A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

B. Operating lease agreements

The Company leases plant and office under operating lease agreements. Most of the lease agreements can be renewed at the end of the lease period based on market price.

The future aggregate minimum lease payments under the operating leases are as follows:

10. SIGNIFICANT DISASTER LOSS

None.

2019 2018Salaries and other short-term employee benefits 13,499$ 14,039$


Pledged asset December 31, 2019 December 31, 2018 PurposeOther current assets Customs guarantee and - time deposits 7,406$ 1,406$ foreign tax guarantee

Book value

December 31, 2019 December 31, 2018Property, plant and equipment -$ 848$

December 31, 2018Not later than one year 1,536$ Later than one year but not later than five years 1,166

Over five years -

2,702$

~148~

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

The appropriation of earnings for 2019 had been proposed and resolved by the Board of Directors on March 17, 2020. Details are provided in Note 6(17).

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 accounts receivable factoring, 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.

(2) Financial instruments

A. Financial instruments by category

Note: Financial assets at amortised cost include cash, accounts and notes receivable that are not measured at fair value through other comprehensive income and other receivables; financial liabilities at amortised cost include short-term borrowings, short-term notes and bills payable, accounts and notes payable, other payables and bonds payable (including current portion).

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. The Company’s financial policy tends toward conservatism principle, therefore the Company does not operate the high-risk and complex derivative financial instruments.

December 31, 2019 December 31, 2018Financial assets Financial assets at fair value through profit or loss 1,909$ 11$

Financial assets at fair value through other comprehensive income Accounts receivable to be factored 853,654 326,784

Financial assets at amortised cost 2,362,770 2,114,052

3,218,333$ 2,440,847$

Financial liabilities Financial liabilities at amortised cost 2,248,803$ 2,313,547$

Lease liability 18,918 -

2,267,721$ 2,313,547$

~149~

(b) Risk management is carried out by a central treasury department (Company treasury) under policies approved by the Board of Directors. Company treasury identifies, evaluates and hedges financial risks in close cooperation 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 operates internationally and is exposed to foreign exchange risk arising from different functional currency used by the Company, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.

ii. Management has set up a policy to require the Company to manage its foreign exchange risk against its functional currency. The Company’s purchases and sales were calculated by USD, the fair value will be changed along with the market exchange. However, the Company offset the foreign exchange risk through holding assets and liabilities denominated in foreign currencies, collection period and payment period.

iii. The Company has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

iv. The Company’s businesses involve some non-functional currency operations (the Company’s functional currency: 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:

~150~

v. For the years ended December 31, 2019 and 2018, the total amount of exchange (loss) gain were ($31,693) and $23,419 (including realised and unrealised), arising from significant foreign exchange variation on the monetary items held by the Company, respectively.

Foreign currency Degree Effect amount Exchange Book value of on profit

(In thousands) rate (NTD) variation or loss (Foreign currency: functional currency)Financial assets Monetary items USD:NTD 100,077$ 29.98 3,000,308$ 1% 30,003$

Non-monetary items Foreign operations USD:NTD 3,280$ 29.98 98,334$

RMB:NTD 448,726 4.305 1,931,765

Financial liabilities Monetary items USD:NTD 62,631$ 29.98 1,877,677$ 1% 18,777$

December 31, 2019 Sensitivity analysis




RMB:NTD 339,285 4.472 1,517,283



~151~

Price risk

The Company is not exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company.

Cash flow and fair value interest rate risk

i. The Company’s interest rate risk arises from short-term borrowings and long-term borrowings. 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. During the years ended December 31, 2019 and 2018, the Company’s borrowings at variable rate were denominated in the NTD and USD.

ii. At December 31, 2019 and 2018, if interest rates on USD-denominated and NTD-denominated borrowings had been 0.1% higher/lower with all other variables held constant, there will be no significant impact on post-tax profit for the years ended December 31, 2019 and 2018.

(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. The Company’s receivables mostly are computer companies which have good credit records and well-known worldwide. They have no critical bad debts recently, and the Company assesses the adequacy of allowance for bad debts regularly. There is no significant credit risk through assessment.

iii. Other accounts receivable mainly arise from the retention of accounts receivable factoring and unadvanced proceeds. The counterparties are financial institutions with high credit quality.

iv. If the contract payments are past due over 30 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition. If the contract payments are past due over 90 days based on the terms, the default occurs.

v. The Company applies the following approaches to assess the expected credit losses (ECLs) of accounts receivable:

(i) Assess the ECLs on an individual basis if a significant default has occurred to certain customers.

(ii) The remaining receivables are grouped in accordance with the Company’s credit ratings of its customers. Different loss rates are applied to the different groups when estimating expected credit losses;

~152~

(iii) Loss rates, calculated from historical and current information, are adjusted according to forward-looking information such as the business indicators published by the National Development Council and Basel Committee on Banking Supervision.

(iv) As of December 31, 2019 and 2018, loss allowances of accounts receivable and notes receivable calculated from individual assessment or using the loss rate methodology are as follows:

Group A: Rated as grade A based on the Company’s Credit Quality Control Policy.

Group B: Rated as grade B or C based on the Company’s Credit Quality Control Policy.

Group C: Rated as grade CC based on the Company’s Credit Quality Control Policy.

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

December 31, 2019 Individual Group A Group B Group C TotalExpected loss rate 100% 0.03% 0.07% 0.20%Total book value 4,940$ 2,701,931$ 187,946$ 39,707$ 2,934,524$

Loss allowance 4,940$ 811$ 132$ 79$ 5,962$

December 31, 2018 Individual Group A Group B Group C TotalExpected loss rate 100% 0.03% 0.07% 0.20%Total book value 5,062$ 1,985,871$ 211,008$ 27,687$ 2,229,628$

Loss allowance 5,062$ -$ -$ -$ 5,062$

2019Accounts receivable

At January 1_IFRS 9 5,062$

Provision for impairment 1,022

Effect of exchange rate changes 122)(

As of December 31 5,962$


At January 1_IAS 39 4,904$

Adjustments under new standards -

At January 1_IFRS 9 4,904

Effect of exchange rate changes 158


~153~

(c) Liquidity risk

i. Cash flow forecasting is performed in the operating entities of the Company and aggregated by Company treasury. Company treasury monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Company’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets.

ii. Company treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts.

iii. The table below analyses the Company’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date.

Except for the following, maturity dates of the Company’s non-derivative financial liabilities (including short-term borrowings, accounts payable (including related parties), other payables and bonds payable) are lower than 360 days as of December 31, 2019 and 2018.

(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. The fair value of the Company’s investment in derivative instruments is included in Level 2.

Less than Between 1 Between 31 year and 2 years and 5 years Total

Non-derivative financial liabilities Lease liabilities 9,299$ 9,589$ 243$ 19,131$

Bonds payable - - 235,217 235,217

9,299$ 9,589$ 235,460$ 254,348$

~154~

Level 3: Unobservable inputs for the asset or liability. The fair value of the Company’s investment in equity investment without active market is included in Level 3.

B. The carrying amounts of the Company’s financial instruments not measured at fair value (including cash and cash equivalents, notes and accounts receivable that are not measured at fair value through other comprehensive income, other receivables, short-term borrowings, notes payable, accounts payable, other payables and bonds payable) are approximate to their fair values.

C. The related information of financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities are as follows:

D. The methods and assumptions the Company used to measure fair value are as follows:

The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate. Structured interest derivative instruments are measured by using appropriate option pricing models (i.e. Black-Scholes model) or other valuation methods, such as Monte Carlo simulation.

E. For the years ended December 31, 2019 and 2018, there was no transfer between Level 1 and Level 2.

F. For the years ended December 31, 2019 and 2018, there was no transfer into or out from Level 3.

December 31, 2019 Level 1 Level 2 Level 3 Total AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss - Derivative instruments -$ 1,909$ -$ 1,909$

Financial assets at fair value through other comprehensive income - Accounts receivable to be factored -$ 853,654$ -$ 853,654$

December 31, 2018 Level 1 Level 2 Level 3 Total AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss - Derivative instruments -$ 11$ -$ 11$

Financial assets at fair value through other comprehensive income - Accounts receivable to be factored -$ 326,784$ -$ 326,784$

~155~

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.

B. Provision of endorsements and guarantees to others: Please refer to table 2.

C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.

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 paid-in capital or more: None.

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

G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid in capital or more: Please refer to table 4.

H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 5.

I. Derivative financial instrument transactions: Please refer to Notes 6(2) and 12.

J. Significant inter-company transactions during the reporting periods: Please refer to table 6.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

(3) Information on investments in Mainland China

A. Basic information: Please refer to table 8.

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

14. SEGMENT INFORMATION

Not applicable.

AURAS TECHNOLOGY CO., LTD. DETAILS OF CASH AND CASH EQUIVALENTS

DECEMBER 31, 2019 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Table 1

~158~

Items Summary AmountPetty cash 60$ Demand deposits NTD 44,414 thousand 44,414

USD 7,100 thousand at exchange rate of 29.98 212,846

257,320$

AURAS TECHNOLOGY CO., LTD. DETAILS OF ACCOUNTS RECEIVABLE


Table 2

~159~

Customer name Summary Amount NotesA customer 519,387$ B customer 198,688 C customer 185,963 D customer 169,720 E customer 168,985 F customer 156,547 Others 1,535,234 Balance of each

customer has notexceeded 5% of total

accounts receivable2,934,524

Less: Allowance for bad debts 5,962)(

2,928,562$

AURAS TECHNOLOGY CO., LTD. DETAILS OF INVENTORIES


Table 3

~160~

Cost Market priceFinished goods 577,197$ 649,073$ Use the net

realisable value tobe the market price

Less: Allowance forinventory valuationlosses 16,279)(

560,918$

Items SummaryAmount

Notes

AURAS TECHNOLOGY CO., LTD. DETAILS OF INVESTMENT ACCOUNTED FOR USING EQUITY METHOD

FOR THE YEAR ENDED DECEMBER 31, 2019 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Table 4

~161~

Number ofshares

(per share) Amount

Number ofshares

(per share) Amount

Number ofshares

(per share) Amount

Number ofshares

(per share)Percentage of

Ownership Amount

Price(in

dollar) Total AmountLi-Horng Technology Equity

Co., Ltd. 32,952,870 1,583,868$ 3,558,058 431,332$ - 76,818)($ 36,510,928 100 1,938,382$ - 1,984,232$ None methodPro Jump Co., Ltd. 253,447 5,207 - - - 2,900)( 253,447 15 2,307 - 2,307 〞〞

Hao-Horng TechnologyCo., Ltd. 50,000 33,714 - - - 8,812)( 50,000 100 24,902 - 24,902 〞〞

Milk Idea Inc 200,000 974 200,000 2,018 - - 400,000 20 2,992 - 2,992 〞〞

Raijintek Co., Ltd. 1,120,000 2,982 - 535 - - 1,120,000 56 3,517 - 3,517 〞〞

Auras International Inc. 500,000 12,030 - 401 - 300)( 500,000 100 12,131 - 12,131 〞〞

1,638,775$ 434,286$ 88,830)($ 1,984,231$ 2,030,081$

Note 1: Additions contain capital increase, investment income accounted for using equity method, cumulative translation adjustment, and unrealised gains or losses on valuation of investments in equity instruments measured at fair value through other comprehensive income.Note 2: Reductions contain investment loss accounted for using equity method and cumulative translation adjustment.

Pledged toothers ascollateral

ValuationbasisName

Beginning of the year Additions (Note 1) Reductions (Note 2) Balance at December 31, 2019Market price or value per

share

AURAS TECHNOLOGY CO., LTD. DETAILS OF SHORT-TERM BORROWINGS


Table 5

~162~

Type of borrowings Explanation

Balance atDecember 31,

2019 Contract period Interest rate Financing line CollateralUnsecured borrowings First Commercial Bank 16,898$ 2019/11/14~2020/2/12 2.6956% NT$100,000 None

US$2,500〞

AURAS TECHNOLOGY CO., LTD. DETAILS OF OPERATING REVENUE


Table 6

~163~

Items Quantity Amount NotesHeat dissipation modules

Smartphone, servers, notebooks and desktop computers 88,960 thousand sets 9,244,669$

Less: Sales returns anddiscounts 84,324)(

9,160,345$

AURAS TECHNOLOGY CO., LTD. DETAILS OF OPERATING COST


Table 7

~164~

Items TotalFinished goods at beginning of the year 422,206$ Add：Purchased 8,030,651 Less：Finished goods at the end of the year 577,197)(

Cost of goods sold 7,875,660 Revenue from sale of scraps 108)( Inventory valuation loss 11,828

7,887,380$

AURAS TECHNOLOGY CO., LTD. DETAILS OF SELLING EXPENSES


Table 8

~165~

Items Summary Amount NotesCommissions expense 40,958$ Wages and salaries 26,535 Export expense 24,556 Transportation and

warehouse expense 11,898 Sample expense 9,528 Service expense 8,933 Entertainment expense 7,858 Others 24,090 Balance of each

expense accounthas not exceeded5% of the total

selling expenses154,356$

AURAS TECHNOLOGY CO., LTD. DETAILS OF ADMINISTRATIVE EXPENSES


Table 9

~166~

Items Summary Amount NotesWages and salaries 63,223$ Amortisation expense 19,531 Labour expenses 10,696 Depreciation 9,381 Others 59,125 Balance of each

expense accounthas not exceeded5% of the totaladministrative

expenses161,956$

AURAS TECHNOLOGY CO., LTD. DETAILS OF RESEARCH AND DEVELOPMENT EXPENSES


Table 10

~167~

Items Summary Amount NotesWages and salaries 92,709$ Sample cost 51,090 Others 29,850 Balance of each

expense accounthas not exceeded5% of the totalresearch anddevelopment

expenses173,649$

AURAS TECHNOLOGY CO., LTD. CURRENT EMPLOYEE BENEFITS, DEPRECIATION, AND AMORTISATION EXPENSES

SUMMARIZED BY FUNCTION FOR THE YEAR ENDED DECEMBER 31, 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Table 11

~168~

Information on employee benefits, depreciation, and amortisation expenses is provided in Note 6(22).

Item Value0 Auras

Technology Co.,Ltd.

AurasTechnology(Chongqing) Co.,Ltd.

Otherreceivables-relatedparties

Yes 100,000$ -$ -$ 2 1 1,451,700$ - -$ - -$ 1,402,916$ 1,402,916$

0 AurasTechnology Co.,Ltd.

Ze Hong(Guangzhou)Technology Co.,Ltd.


Yes 250,000 - - 2 1 4,399,199 - - - - 1,402,916 1,402,916$

1 Ze Hong(Guangzhou)Technology Co.,Ltd.

Pel Horng(Guangzhou)Technology Co.,Ltd.


Yes 46,860 - - 2 1 832,828 - - - - 1,104,004 1,104,004

Note 1: The numbers filled in for the loans provided by the Company or subsidiaries are as follows: (1) The Company is ‘0’. (2) The subsidiaries are numbered in order starting from ‘1’.Note 2: 1.Business transaction. 2. Short-term financingNote 3: For the companies having business relationship with the Company, financial limit on loans granted to a single party shall not exceed the 40% of the net assets of the Company. Loans granted to a single party shall not exceed the amount of business transactions occurred between the creditor and borrower. The amount of business transactions refers to the higher of purchase or sales between both parties, or processing cost.Note 4: To maintain the normal operations of the Comapny's 100% indirect invested subsidiary. The short-term loans to individual company limit to 30% of the net assets of the Company's latest financial statements that were audited by independent accountant.Note 5: The foreign subsidiary that was directly or indirectly wholly owned by the Company was not limited by above restriction.

Allowancefor

doubtfulaccounts

Collateral

Limit onloans granted

to a singleparty

Ceiling ontotal loans

granted Footnote

Reason forshort-termfinancing

No.(Note 1) Creditor Borrower

Generalledger

account

Is arelatedparty

Maximumoutstanding

balance duringthe year endedDecember 31,

2019

Balance atDecember31, 2019

Actualamount

drawn downInterest

rate

Nature ofloan

(Note 2)

Amount oftransactions

with theborrower


Loans to others


Table 1 Expressed in thousands of NTD

(Except as otherwise indicated)

~169~

Company name

Relationshipwith the

endorser /guarantor

0 AurasTechnologyCo., Ltd.

AurasTechnology(Chongqing)Co., Ltd.

A subsidiaryof theCompany

1,753,646$ 94,800$ 89,940$ -$ - 2.56 1,753,646$ Y N Y




1,753,646 488,000 479,680 239,840 - 13.68 1,753,646 Y N Y

Note : Limit on total endorsements granted by the Company is 50% of the company's net assets based on the latest audited financial statements, limit on total endorsements to a single party is 20% of the Company's net assets based on the latest audited financial statements, companies that are 50% controlled by the Company are not subject to the limit on total endorsements to a single party.

Amount ofendorsements/ guaranteessecured with

collateral

Ratio ofaccumulated

endorsement /guarantee amountto net asset value

of theendorser/guaranto

r company

Ceiling on totalamount of

endorsements /guaranteesprovided

Provision ofendorsements/ guarantees

by parentcompany tosubsidiary

Provision ofendorsements/ guaranteesby subsidiary

to parentcompany

Outstandingendorsement /

guaranteeamount at

December 31,2019


Provision of endorsements and guarantees to others




No.(Note 1)

Endorser/guarantor

Party beingendorsed/guaranteed

Limit onendorsements /

guaranteesprovided for a

single party

Maximumoutstanding

endorsement /guarantee

amount as ofDecember 31,

2019


to the party inMainland

China Footnote

Actualamount

drawn down

~170~

Securities held by Marketable securitiesRelationship with the

securities issuerGeneral

ledger account Contributed amount Book value Ownership (%) Fair value FootnoteSHIH HORNG TECHNOLOGYCO., LTD. (SHHT)

KUNSHAN JINXIPLASTIC CO., LTD.

None Financial assets at fair value throughother comprehensive income - equity

2,708$ 11,484$ 13 11,484$

As of December 31, 2019



Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)



~171~

Purchases(sales) Amount

Percentage oftotal purchases

(sales) Credit term Unit price Credit term Balance

Percentage of totalnotes/accounts

receivable (payable)Auras Technology Co., Ltd. AURAS TECHNOLOGY

(KUNSHAN) CO., LTD.Indirect subsidiary Purchases 2,154,955$ 27 3~4 months Did not purchase

from othersuppliers

As generalsuppliers

825,951)($ 45

Auras Technology Co., Ltd. AURAS TECHNOLOGY(CHONGQING) CO., LTD.

Indirect subsidiary Purchases 1,451,700 18 3~4 months Did not purchasefrom othersuppliers

As generalsuppliers

255,343)( 14

Auras Technology Co., Ltd. Ze Hong (Guangzhou)Technology Co., Ltd.


As generalsuppliers

729,206)( 40

Ze Hong (Guangzhou)Technology Co., Ltd.

AURAS TECHNOLOGY(KUNSHAN) CO., LTD.

Indirect subsidiary Sales RMB 49,824 4 3~4 months As generalcustomers

As generalcustomers

RMB 6,437 2


AURAS TECHNOLOGY(CHONGQING) CO., LTD.


As generalcustomers

RMB 8,417 3

FootnotePurchaser/seller CounterpartyRelationship withthe counterparty

TransactionDifferences in transaction terms

compared to third party transactions Notes/accounts receivable (payable)



Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more



~172~

Amount Action takenAURAS TECHNOLOGY(KUNSHAN) CO., LTD.

Auras Technology Co., Ltd. Indirect subsidiary RMB 193,291 2.94 (times) RMB - RMB 46,131 RMB -

AURAS TECHNOLOGY(CHONGQING) CO., LTD



Auras Technology Co., Ltd. Indirect subsidiary RMB 169,688 5.86 (times) RMB - RMB - RMB -

Amount collectedsubsequent to thebalance sheet date

Allowance fordoubtful accountsCreditor Counterparty

Relationship with thecounterparty

Balance as at December31, 2019 (thousand

dollars) Turnover rate

Overdue receivables


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

December 31, 2019

Expressed in thousands of NTD


Table 5

~173~

General ledger account Amount (Note 3)Transaction

terms

Percentage of consolidated totaloperating revenues or total assets

(Note 4)0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 1 Purchases 2,154,955$ Note 5 21.03%

0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 1 Accounts payable 825,951 Note 5 10.98%

0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Purchases 1,451,700 Note 5 14.17%

0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Accounts payable 255,343 Note 5 3.39%

0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Purchases 4,399,199 Note 5 42.93%

0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Accounts payable 729,206 Note 5 9.69%

1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 3 Sales RMB 49,824 Note 6 2.17%

1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 3 Sales RMB 29,618 Note 6 1.29%

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

(1) Parent company is ‘0’.

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

Note 2: Relationship between transaction company and counterparty is classified into the following three categories:

(1) Parent company to subsidiary.

(2) Subsidiary to parent company.

(3) Subsidiary to subsidiary.

Note 3: Disclosure standard of transactions is related parties account for at least $100 million or 20% of actual capital. Relative related are not disclosed.

Note 4: The percentage of consolidated total assets is computed with the consolidated total assets divided by period-end balance of balance sheet accounts while the consolidated total operating revenues is computed with consolidated

total operating revenues divided by interim accumulated amount of income statement accounts.

However, aforementioned related party transaction has been written off when preparing the consolidated financial statements.

Note 5: The Company did not purchase from other suppliers, and the credit terms are the same with general suppliers. The credit term for general suppliers is 3-4 months.

Note 6: The credit condition of sales is three to four months, and is three to five months for general customers.

Transaction



Significant inter-company transactions during the reporting period



Number(Note 1) Company name Counterparty

Relationship(Note 2)

~174~

Balance as atDecember 31,

2019


2018Number of

sharesOwnership

(%) Book valueAuras Technology Co., Ltd. LI-HORNG

TECHNOLOGY CO., LTD.Belize Investment

holdings $ 1,109,003 $ 1,000,935 36,510,928 100 $ 1,938,382 $ 343,149 $ 322,520

Auras Technology Co., Ltd. PRO JUMP CO., LTD.(PRO JUMP)

Mauritius Investmentholdings

7,500 7,500 253,447 15 2,307 ( 18,412) ( 2,762)

Auras Technology Co., Ltd. HAO HORNGTECHNOLOGY CO., LTD.

Belize Engaged in sale ofcomputer heatdissipation module

29,551 29,551 50,000 100 24,902 ( 8,057) ( 8,057)

Auras Technology Co., Ltd. MILK IDEA INC. Taiwan Development ofmobile appication

4,000 2,000 400,000 20 2,992 89 18

Auras Technology Co., Ltd. RAIJINTEK CO., LTD. Taiwan Engaged in sale ofcomputer heatdissipation module

11,200 11,200 1,120,000 56 3,517 956 536

Auras Technology Co., Ltd. AURAS International Inc. U.S.A Engaged in sale ofcomputer heatdissipation module

14,810 14,810 500,000 100 12,131 401 401

LI-HORNGTECHNOLOGY CO., LTD.

SHUANG HORNGTECHNOLOGY CO., LTD.(SHT)


151,375 151,375 5,000,000 100 320,096 68,450 68,450


ZE HONGTECHNOLOGY CO., LTD.(ZHT)


542,985 542,985 18,000,000 100 1,104,023 272,398 272,398


PEL HORNGTECHNOLOGY CO., LTD.(PHT)


49,592 49,592 2,100,000 100 35,973 13,675 13,675


ZHEN HORNGTECHNOLOGY CO., LTD.(ZEHT)


303,545 195,477 10,000,000 100 438,041 14,956 14,956


SHIH HORNGTECHNOLOGY CO., LTD.(SHHT)

Samoa Investmentholdings

5,644 5,644 184,709 100 13,753 1,152 1,152

Information on investees





Net profit (loss) ofthe investee for the

year endedDecember 31, 2019

Investment income(loss) recognised bythe Company for the

year endedDecember 31, 2019 FootnoteInvestor Investee Location

Main businessactivities

Initial investment amount Shares held as at December 31, 2019

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2019


2018Number of

sharesOwnership

(%) Book value








PRO JUMP CO., LTD.(PRO JUMP)


$ 10,263 $ 10,263 353,136 21 $ 3,298 ($ 18,412) ($ 3,848)


JCD OPTICAL CO., LTD.(Cayman)

Cayman Investmentholdings

83,565 83,565 6,629,473 26 67,904 ( 86,005) ( 23,638)

HAO HORNGTECHNOLOGY CO., LTD.



27,855 27,855 2,210,922 9 23,002 ( 86,005) ( 8,017)

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Remitted toMainland

China

Remittedback toTaiwan

Auras Technology(Kunshan) Co., Ltd.

Production andsales of computerheat dissipationmodule

$ 149,900 (1) $ 149,900 $ - $ - $ 149,900 $ 68,444 100 $ 68,444 $ 319,737 $ -



539,640 (1) 479,680 - - 479,680 272,398 100 272,398 1,104,004 -

Pel Horng(Guangzhou)Technology Co., Ltd.


62,958 (1) 53,855 - - 53,855 13,675 100 13,675 35,972 -

Auras Technology(Chongqing) Co., Ltd.


299,800 (1) 194,870 104,930 - 299,800 14,986 100 14,986 438,068 -

Anhui Wei-hongElectronic TechnologyCo., Ltd.


21,525 (2) - - - - 12,592 60 7,555 20,392 - Note 4

JCD (Guangzhou)Optical Corporation

Production andsales of light andelectronic materialand components

122,918 (2) 4,727 - - 4,727 ( 72,920) 35 ( 25,340) 55,547 -


Information on investments in Mainland China



Investee inMainland China


Book value ofinvestments in

Mainland Chinaas of December

31, 2019

Accumulatedamount ofinvestment

income remittedback to Taiwan asof December 31,

2019

Table 8

FootnoteMain business

activities Paid-in capital

Investmentmethod(Note 1)

Accumulatedamount of

remittance fromTaiwan to

Mainland China asof January 1, 2019




31, 2019

Ownershipheld by theCompany(direct orindirect)

Investmentincome (loss)

recognised by theCompany for the

year endedDecember 31,2019 (Note 2)

Net income ofinvestee for the

year endedDecember 31,

2019

Amount remitted fromTaiwan to Mainland China /

Amount remitted back toTaiwan for the year ended

December 31, 2019

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Company name


Note 1: (1) Through investing in LI-HORNG TECHNOLOGY CO., LTD. in the third area, which then invested in the investee in Mainland China.

(2) Through investing in an existing company in the third area, which then invested in the investee in Mainland China

Note 2: The financial statements were audited and attested by R.O.C. parent company’s CPA.

Accumulated amount ofremittance from Taiwan to

Mainland China as ofDecember 31, 2019

$ 987,962

Investment amount approved bythe Investment Commission of the

Ministry of Economic Affairs(MOEA)

Ceiling on investments inMainland China imposed by the

Investment Commission ofMOEA

$ 1,066,658 Note 3

Note 3: In accordance with Gong-Zi No. 10820416020 letter of Industrial Development Bureau, Ministry of Economic Affairs on June 20, 2019, the Company acquired operating certificate document of operating

Note 4: The Company reinvested in the China investee company, Anhui Wei-hong Electronic Technology Co,.Ltd., through the investing business in Mainland China, Auras Technology (Kunshan) Co., Ltd., Since the

head office, the effective period was from June 17, 2019 to June 16, 2022, thus the Company was not restricted to the accumulated amounts of direct or indirect investment in Mainland China.

investing business in Mainland China is not a controlling company, there was no need to apply the reinvestment to Investment Commission.

~178~

~179~

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of Auras Technology Co., Ltd.

Opinion We have audited the accompanying consolidated balance sheets of Auras Technology Co., Ltd. and its subsidiaries (the “Group”) as at December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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

Basis for opinion We conducted our audit of the consolidated financial statements as of and for the year ended December 31, 2019 in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants”, "Rule No. Financial-Supervisory-Securities-Auditing-1090360805 issued by the Financial Supervisory Commission on February 25, 2020” and generally accepted auditing standards in the Republic of China (ROC GAAS); and in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS) for our audit of the consolidated financial statements as of and for the year ended December 31, 2018. Our responsibilities under those standards are further described in the Independent Accountant’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in

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the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

The most significant key audit matters in our audit of the consolidated financial statements of the current period are as follows:

Cutoff of warehouse sales revenue

Description

The Group’s sales revenue mainly arises from warehouse sales revenue, which is recognised when the merchandises are delivered to customers (when control of the product is transferred). For the accounting policies on revenue recognition, refer to Note 4(28).

The supporting documents of revenue recognition include reports or other information provided by warehouse custodians and inventory movement records of warehouse.

The Group has several warehouses around the world and each warehouse has its own custodian. Further, the frequency and contents of statements provided by custodians are different and involves manual processes which may cause improper revenue recognition.

As there are numerous daily sales transactions from the distribution warehouse and the transaction amounts before and after the balance sheet date are significant to the financial statements, we consider the cutoff of sales revenue from distribution warehouse a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

1. Inspected the sales revenue, verified corroboration of sales revenue recognition, and assessed the timing of revenue recognition based on trade terms to ensure the appropriateness of sales revenue recognition.

2. Assessed and checked the appropriateness of cutoff of sales revenue around the balance sheet date, and verified the statements provided by the warehouse custodian.

3. Confirmed the inventory quantities with warehouse custodian and agreed the results to accounting records. In addition, inspected the reason for the difference between the confirmation replies and accounting records and tested the reconciling items made by the Group in order to confirm whether the significant differences have been adjusted.

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Assessment of allowance for inventory valuation losses

Description

Refer to Note 4(12) for the accounting policies on inventory valuation, Note 5(2) for the uncertainty of accounting estimates and assumptions in relation to inventory valuation and Note 6(6) for the details of inventory. As of December 31, 2019, the balance of inventories and allowance for inventory valuation losses amounted to NT$1,345,923 thousand and NT$85,026 thousand, respectively.

The Group is primarily engaged in the sales of heat dissipation modules and its components of computer and mobile device, which are manufactured by subsidiaries. Due to the short life cycle of electronic products and fluctuating electronics prices, there is higher risk of incurring losses on inventory valuation or inventory obsolescence. The Group measures inventory at the lower of cost and net realisable value. Allowance for inventory valuation loss mainly arises from obsolete or damaged inventories, and its net realisable value is estimated based on historical experience in accounting for obsolete inventories. The calculation of net realisable value for obsolete or damaged inventory involves manual judgement since the Group has a wide range of inventory items and the inventory amount is significant. Thus, we consider the estimation of allowance for inventory valuation losses a key audit matter.



1. Ascertained whether the policies on allowance for inventory valuation losses were reasonable and consistently applied in all the periods.

2. Verified whether the systematic logic used in the Group’s inventory aging report is appropriate and in accordance with the Group’s accounting policy; and

3. Discussed with the management the net realisable value of inventories that were individually identified as obsolete and damaged and obtained supporting documents to determine the reasonableness of allowance for inventory valuation losses.

Appropriateness of manual journal entries

Description

The amounts in the financial statements represent the Group’s transactions recorded through journal entries, which had been posted, accumulated and classified. The journal entries are either system-generated or manually prepared. For system-generated journal entries, the Group uses

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front-end subsystem (i.e. sales, purchasing and inventory systems) to process the original transactions and its approval procedures, which are then summarized and recorded through a journal entry automatically generated by the system. Manually prepared journal entries are those which are prepared, approved and recorded manually.

Because of the diversity and complexity of the Company’s operations and manual journal entries are subject to management judgement, an inappropriate manual journal entry may be processed which would lead to misstatements in the financial statements. Thus, we consider the appropriateness of manual journal entries a key audit matter.



1. Obtained an understanding and assessed the nature of manual journal entries, the procedures in relation to generating the entries, the efficiency of control and the proper segregation of duties.

2. Inspected the adequacy of related supporting documents and entries, and checked whether the accounting entries were made and approved by authorised personnel.

Other matter – Parent company only financial reports We have audited and expressed an unqualified opinion on the parent company only financial statements of Auras Technology Co., Ltd. as at and for the years ended December 31, 2019 and 2018.

Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, 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 Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including Supervisors, are responsible for overseeing the Group’s financial reporting process.

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Independent accountant’s responsibilities for the audit of the consolidated 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 a 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. As part of an audit in accordance with ROC GAAS, we exercise professional judgment 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 controls.

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

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

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our 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 report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events

~184~

in a manner that achieves fair presentation.

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

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

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

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

Hsu, Yung-Chien Wu, Han-Chi

For and on behalf of PricewaterhouseCoopers, Taiwan March 17, 2020

-------------------------------------------------------------------------------------------------------------------------------------------------The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS


~185~

December 31, 2019 December 31, 2018 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 459,026 6 $ 421,322 7


profit or loss - current

6(2)

- - 11 -

1170 Accounts receivable, net 6(4) 3,544,853 47 2,450,208 42

1200 Other receivables 6(5) and 7 48,042 1 89,330 2

130X Inventory 6(6) 1,260,897 17 1,247,865 22

1470 Other current assets 6(7) and 8 194,761 2 105,298 2

11XX Total current assets 5,507,579 73 4,314,034 75

Non-current assets


profit or loss - non-current

6(2)

1,909 - - -

1517 Non-current financial assets at fair

value through other comprehensive

income

6(3)

11,484 - 10,740 -

1550 Investments accounted for under

equity method

6(8)

99,503 2 139,103 2

1600 Property, plant and equipment 6(9) 1,498,594 20 1,029,504 18

1755 Right-of-use assets 6(10) 144,505 2 - -

1840 Deferred income tax assets 6(25) 11,567 - 2,576 -

1900 Other non-current assets 6(11) 248,432 3 283,956 5

15XX Total non-current assets 2,015,994 27 1,465,879 25

1XXX Total assets $ 7,523,573 100 $ 5,779,913 100

(Continued)

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS


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

~186~

December 31, 2019 December 31, 2018 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities 2100 Short-term borrowings 6(12) $ 257,158 3 $ 682,869 12

2110 Short-term notes and bills payable - - 50,000 1

2170 Accounts payable 2,489,231 33 2,142,801 37

2180 Accounts payable - related parties 7 8,690 - 19,512 -

2200 Other payables 6(13) and 7 745,869 10 509,941 9

2230 Current income tax liabilities 186,968 3 34,514 1

2280 Current lease liabilities 32,995 1 - -

2320 Long-term liabilities, current portion 6(14) - - 26,675 -

2399 Other current liabilities 11,381 - 5,002 -

21XX Total current liabilities 3,732,292 50 3,471,314 60

Non-current liabilities 2530 Bonds payable 6(14) 235,217 3 - -

2580 Non-current lease liabilities 32,416 - - -

25XX Total non-current liabilities 267,633 3 - -

2XXX Total liabilities 3,999,925 53 3,471,314 60

Equity Equity attributable to owners of

parent

Share capital 6(17) 3110 Share capital - common stock 850,977 12 830,116 14

3130 Certificates of bond-to-stock conversion

13,421 - 815 -

3140 Advance receipts for share capital 100 - 500 -

Capital surplus 6(18) 3200 Capital surplus 1,038,174 13 686,920 12

Retained earnings 6(19) 3310 Legal reserve 167,638 2 144,339 3

3320 Special reserve 11,222 - - -

3350 Unappropriated retained earnings 1,634,321 22 831,177 14

Other equity interest 3400 Other equity interest ( 88,489) ( 1) ( 11,222) -

3500 Treasury stocks 6(17) ( 120,073) ( 1) ( 185,473) ( 3)

31XX Equity attributable to owners of the parent

3,507,291 47 2,297,172 40

36XX Non-controlling interest 16,357 - 11,427 -

3XXX Total equity 3,523,648 47 2,308,599 40

Significant contingent liabilities and unrecognised contract commitments

9

Significant events after the balance sheet date

11

3X2X Total liabilities and equity $ 7,523,573 100 $ 5,779,913 100

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


~187~


Items Notes AMOUNT % AMOUNT %

4000 Operating revenue 6(20) and 14 $ 10,247,561 100 $ 7,654,265 100

5000 Operating costs 6(6) and 7 ( 8,131,060)( 79 ) ( 6,687,287)( 88)

5900 Net operating margin 2,116,501 21 966,978 12

Operating expenses 6(24)

6100 Selling expenses ( 289,531)( 3 ) ( 265,689)( 3)

6200 General and administrative

expenses

( 289,939)( 3 ) ( 239,204)( 3)

6300 Research and development

expenses

( 347,310)( 3 ) ( 279,699)( 4)

6450 Expected credit loss 12(2) ( 1,453) - - -

6000 Total operating expenses ( 928,233)( 9 ) ( 784,592)( 10)

6900 Operating profit 1,188,268 12 182,386 2

Non-operating income and

expenses

7010 Other income 6(21) and 7 106,206 1 148,072 2

7020 Other gains and losses 6(22) ( 13,802) - 15,243 -

7050 Finance costs 6(23) ( 28,900) - ( 21,238) -

7060 Share of profit/(loss) of

associates and joint ventures

accounted for under equity

method

6(8)

( 38,247)( 1 ) ( 30,161) -

7000 Total non-operating income

and expenses

25,257 - 111,916 2

7900 Profit before income tax 1,213,525 12 294,302 4

7950 Income tax expense 6(25) ( 244,097)( 2 ) ( 62,797)( 1)

8200 Profit for the year $ 969,428 10 $ 231,505 3

(Continued)

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



~188~


Items Notes AMOUNT % AMOUNT %

Other comprehensive income

Components of other comprehensive income that will not be reclassified to profit or loss

8316 Unrealised gains on financial assets at fair value through other comprehensive income

6(3)

$ 744 - $ 2,092 -

Components of other comprehensive income that will be reclassified to profit or loss

8361 Financial statements translation differences of foreign operations

( 75,185)( 1 ) ( 28,006) -

8370 Share of other comprehensive loss of associates and joint ventures accounted for under equity method

( 3,353) - ( 190) -

8360 Other comprehensive loss that will be reclassified to profit or loss

( 78,538)( 1 ) ( 28,196) -

8300 Other comprehensive loss - net ($ 77,794)( 1 ) ($ 26,104) -

8500 Total comprehensive income for the year

$ 891,634 9 $ 205,401 3

Profit (loss) attributable to:

8610 Owners of the parent $ 963,971 10 $ 232,987 3

8620 Non-controlling interest 5,457 - ( 1,482) -

$ 969,428 10 $ 231,505 3

Comprehensive income (loss) attributable to:

8710 Owners of the parent $ 886,704 9 $ 207,073 3

8720 Non-controlling interest 4,930 - ( 1,672) -

$ 891,634 9 $ 205,401 3

Earnings per share 6(26)

9750 Basic earnings per share $ 11.71 $ 2.90

9850 Diluted earnings per share $ 11.39 $ 2.85

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars) Equity attributable to owners of the parent Capital Retained Earnings Other Equity Interest

Notes

Share capital - common stock

Certificates of

bond-to-stock conversion

Advance receipts for share capital Capital surplus Legal reserve Special reserve

Unappropriated retained earnings

Financial statements translation


Unrealised gains from financial

assets measured at fair value through

other comprehensive

income Treasury stocks Total Non-controlling

interest

Total equity


~189~

For the year ended December 31, 2018 Balance at January 1, 2018 $ 807,033 $ - $ 130 $ 597,311 $ 115,324 $ - $ 789,866 $ 14,692 $ - ($ 135,534) $ 2,188,822 $ 13,099 $ 2,201,921

Profit (loss) for the year - - - - - - 232,987 - - - 232,987 ( 1,482) 231,505

Other comprehensive income (loss) for the year - - - - - - - ( 28,006) 2,092 - ( 25,914) ( 190) ( 26,104)

Total comprehensive income (loss) - - - - - - 232,987 ( 28,006) 2,092 - 207,073 ( 1,672) 205,401

Appropriation and distribution of 2017 retained earnings 6(19) Legal reserve - - - - 29,015 - ( 29,015) - - - - - -

Cash dividends - - - - - - ( 162,661) - - - ( 162,661) - ( 162,661)

Conversion of convertible bonds 6(14) 16,843 815 - 78,511 - - - - - - 96,169 - 96,169

Employee share options 6(16) 6,240 - 370 6,013 - - - - - - 12,623 - 12,623

Compensation cost of share-based payments 6(16) - - - 5,085 - - - - - - 5,085 - 5,085

Acquisition of treasury shares 6(17) - - - - - - - - - ( 49,939) ( 49,939) - ( 49,939)

Balance at December 31, 2018 $ 830,116 $ 815 $ 500 $ 686,920 $ 144,339 $ - $ 831,177 ($ 13,314) $ 2,092 ($ 185,473) $ 2,297,172 $ 11,427 $ 2,308,599

For the year ended December 31, 2019 Balance at January 1, 2019 $ 830,116 $ 815 $ 500 $ 686,920 $ 144,339 $ - $ 831,177 ($ 13,314) $ 2,092 ($ 185,473) $ 2,297,172 $ 11,427 $ 2,308,599

Profit for the year - - - - - - 963,971 - - - 963,971 5,457 969,428

Other comprehensive income (loss) for the year - - - - - - - ( 78,011) 744 - ( 77,267) ( 527) ( 77,794)

Total comprehensive income (loss) - - - - - - 963,971 ( 78,011) 744 - 886,704 4,930 891,634

Appropriation and distribution of 2018 retained earnings 6(19) Legal reserve - - - - 23,299 - ( 23,299) - - - - - -

Special reserve - - - - - 11,222 ( 11,222) - - - - - -

Cash dividends - - - - - - ( 125,226) - - - ( 125,226) - ( 125,226)

Convertible bonds issued 6(14) - - - 31,340 - - - - - - 31,340 - 31,340

Conversion of bonds payable 6(14) 18,581 12,606 - 319,746 - - - - - - 350,933 - 350,933

Employee share options 6(16) 2,280 - ( 400) 1,456 - - - - - - 3,336 - 3,336

Treasury shares transferred to employees - - - ( 1,288) - - ( 1,080) - - 65,400 63,032 - 63,032

Balance at December 31, 2019 $ 850,977 $ 13,421 $ 100 $ 1,038,174 $ 167,638 $ 11,222 $ 1,634,321 ($ 91,325) $ 2,836 ($ 120,073) $ 3,507,291 $ 16,357 $ 3,523,648

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


For the years ended December 31, Notes 2019 2018


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CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax $ 1,213,525 $ 294,302 Adjustments Adjustments to reconcile profit (loss) Depreciation 6(24) 253,647 138,706 Amortisation 6(24) 23,230 21,670 Expected credit loss 12(2) 1,453 - Interest expense (including accounts receivable factoring

expenses) 6(23)

28,900 21,238 Interest income ( 1,431 ) ( 1,099 ) Share of loss of associates accounted for using equity method 38,247 30,161 Loss on disposal of property, plant and equipment 6(22) 6,235 6,298 Net (gain) loss on financial assets and liabilities at fair value

through profit or loss 6(22)

( 10,243 ) 24 Compensation cost of share-based payments 6(16) - 5,085 Changes in operating assets and liabilities Changes in operating assets Accounts receivable ( 1,206,632 ) ( 151,082 ) Other receivables 39,919 ( 9,267 ) Inventories ( 42,155 ) ( 332,298 ) Prepayments ( 88,016 ) 20,311 Other current assets ( 1,096 ) ( 4,520 ) Changes in operating liabilities Accounts payable 442,521 111,137 Accounts payable - related parties ( 5,578 ) ( 4,513 ) Other payables 201,729 40,161 Other current liabilities 6,379 1,937 Cash inflow generated from operations 900,634 188,251 Interest received 1,431 1,099 Interest paid ( 24,810 ) ( 18,290 ) Income tax paid ( 100,634 ) ( 58,005 ) Net cash flows from operating activities 776,621 113,055CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment 6(27) ( 612,316 ) ( 159,302 ) Proceeds from disposal of property, plant and equipment 53 745 Increase in other non-current assets ( 8,508 ) ( 42,494 ) Increase in other financial assets 8 ( 6,000 ) - Acquisition of investments accounted for using equity method ( 2,000 ) - Increase in prepayments for business facilities ( 146,824 ) ( 84,529 ) Net cash flows used in investing activities ( 775,595 ) ( 285,580 )CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term borrowings 6(28) ( 416,391 ) 442,706 (Decrease) increase in short-term notes and bills payable 6(28) ( 50,000 ) 50,000 Proceeds from issuing bonds 6(28) 600,000 - Exercise of employee share options 3,336 12,623 Repayment of the principal portion of lease liabilities ( 36,436 ) - Cash dividends paid ( 125,226 ) ( 162,661 ) Acquisition of treasury shares 6(16) - ( 49,939 ) Treasury shares transferred to employees 63,032 - Net cash flows from financing activities 38,315 292,729Effect of changes in foreign currency exchange ( 1,637 ) ( 807 )Net increase in cash and cash equivalents 37,704 119,397Cash and cash equivalents at beginning of year 421,322 301,925Cash and cash equivalents at end of year $ 459,026 $ 421,322

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AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED 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 ORGANISATION

Auras Technology Co., Ltd. (the “Company”) was established as a company limited by shares as approved by the Ministry of Economic Affairs on August 24, 1998, and listed on the Taipei Exchange in May 2005. The Company and its subsidiaries (collectively referred herein as the “Group”) are primarily engaged in heat flow consulting service and manufacturing, processing and retail of electronic materials, computer heat dissipation modules and other related products.

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

These consolidated financial statements were authorised for issuance by the Board of Directors on March 17, 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 as endorsed by the FSC effective from 2019 are as follows:

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

IFRS 16, ‘Leases’

A. IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a ‘right-of-use asset’ and a lease liability (except for those leases



Standards BoardAmendments to IFRS 9, ‘Prepayment features with negativecompensation’

January 1, 2019

IFRS 16, ‘Leases’ January 1, 2019Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019Amendments to IAS 28, ‘Long-term interests in associates and jointventures’

January 1, 2019

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019Annual improvements to IFRSs 2015-2017 cycle January 1, 2019

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with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

B. The Group has elected to apply IFRS 16 by not restating the comparative information (referred herein as the ‘modified retrospective approach’) when applying “IFRSs” effective in 2019 as endorsed by the FSC. Accordingly, the Group increased ‘right-of-use asset’ by $26,146 and increased ‘lease liability’ by $26,146 with respect to the lease contracts of lessees on January 1, 2019. The Company increased ‘right-of-use asset’ by $84,514 and decreased other non-current liabilities by $84,514 with respect to the land use right contract.

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

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

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

(c) The accounting for operating leases whose period will end before December 31, 2019 as short-term leases and accordingly, rent expense of $1,157 was recognised for the year ended December 31, 2019.

(d) The exclusion of initial direct costs for the measurement of ‘right-of-use asset’. (e) The use of hindsight in determining the lease term where the contract contains options to

extend or terminate the lease.

D. The Group calculated the present value of lease liabilities by using weighted average incremental borrowing interest rate ranging from 1.06% to 4.46%.

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

Operating lease commitments disclosed by applying IAS 17 as atDecember 31, 2018 28,809$

Less: Short-term leases 1,157)(

Total lease contracts amount recognised as lease liabilities by applyingIFRS 16 on January 1, 2019 27,652$

Incremental borrowing interest rate at the date of initial application 1.06%~4.46%

Lease liabilities recognised as at January 1, 2019 by applying IFRS 16 26,146$

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


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

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

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

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

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

(1) Compliance statement

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



Standards BoardAmendments to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition ofMaterial’

January 1, 2020

Amendments to IFRS 3, ‘Definition of a business’ January 1, 2020Amendments to IFRS 9, IAS 39 and IFRS 7, ‘Interest rate benchmarkreform’

January 1, 2020



Standards BoardAmendments to IFRS 10 and IAS 28, ‘Sale or contribution of assetsbetween an investor and its associate or joint venture’

To be determined byInternational Accounting

Standards BoardIFRS 17, ‘Insurance contracts’ January 1, 2021Amendments to IAS 1, ‘Classification of liabilities as current ornoncurrent’

January 1, 2022

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(2) Basis of preparation

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

(a) Financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

(b) Financial assets at fair value through other comprehersive income.

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 judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements:

(a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.

(b) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

(c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

(d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.

(e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the

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subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

B. Subsidiaries included in the consolidated financial statements:

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MainName of Name of business December 31, December 31,investor subsidiary activities 2019 2018 Description

AURASTechnologyCo., Ltd.

LI-HORNGTechnology Co.,Ltd.

Holdingcompany

100 100


RAIJINTEK Co.,Ltd.

Subsidiary 56 56


AURASInternational Inc.

Subsidiary 100 100


HAO-HORNGTechnology Co.,Ltd.

Subsidiary 100 100

LI-HORNGTechnologyCo., Ltd.

SHUANGHORNGTechnology Co.,Ltd.

Holdingcompany

100 100


ZE HORNGTechnology Co.,Ltd.

Holdingcompany

100 100


PEL HORNGTechnology Co.,Ltd.

Holdingcompany

100 100


ZHEN HORNGTechnology Co.,Ltd.

Holdingcompany

100 100


SHIH HORNGTechnology Co.,Ltd.

Holdingcompany

100 100

SHUANGHORNGTechnologyCo., Ltd.

AURASTechnology(KUNSHAN)Co., Ltd.

Manufacturingcompany

100 100

Ownership (%)

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C. Subsidiaries included in the consolidated financial statements and movements of the periods were as follows: For the years ended December 31, 2019 and 2018, the financial statements and related information of subsidiaries included in the consolidated financial statements were all audited by independent accountants.

D. Subsidiaries not included in the consolidated financial statements: None. E. Adjustments for subsidiaries with different balance sheet dates: None. F. Significant restrictions: None. G. Subsidiaries that have non-controlling interests that are material to the Group: None.

(4) Foreign currency translation

A. The consolidated financial statements are presented in New Taiwan dollars, which is the Company’s functional and the Group’s presentation currency.

B. 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.

MainName of Name of business December 31, December 31,investor subsidiary activities 2019 2018 Description

Ownership (%)

ZE HONGTechnologyCo., Ltd.



100 100

PEL HORNGTechnologyCo., Ltd.



100 100

ZHENHORNGTechnologyCo., Ltd.

AURASTechnology(CHONGQING)Co., Ltd.


100 100

AURASTechnology(KUNSHAN)Co., Ltd.

Anhui Wei-hongElectronicTechnology Co.,Ltd.


60 60

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(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 re-translated 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) The foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains and losses’.

C. Translation of foreign operations

The operating results and financial position of all the group entities and associates that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(a) Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

(b) Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and

(c) All resulting exchange differences are recognised in other comprehensive income. (d) When the foreign operation partially disposed of or sold is an associate or joint arrangement,

exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Group retains partial interest in the former foreign associate or joint arrangements after losing significant influence over the former foreign associate, or losing joint control of the former joint arrangements, such transactions should be accounted for as disposal of all interest in these foreign operations.

(e) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, if the Group retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(5) Classification of current and non-current items

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

(a) Assets arising from operating activities that are expected to be realised, or are intended to be

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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 paid off within the normal operating cycle; (b) Liabilities arising mainly from trading activities; (c) Liabilities that are to be paid off within twelve months from the balance sheet date; (d) Liabilities for which the repayment date cannot be extended unconditionally to more than

twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(6) 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.


A. Financial assets at fair value through profit or loss are financial assets that are not measured at amortised cost or fair value through other comprehensive income.

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

C. At initial recognition, the Group measures the financial liabilities at fair value. All related transaction costs are recognised in profit or loss. The Group subsequently measures these financial liabilities at fair value with any gain or loss recognised in profit or loss.

D. The Group recognises the dividend income when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

(8) 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 Group has made an irrevocable election at initial recognition to recognise changes in fair value in other comprehensive income and debt instruments which meet all of the following criteria:

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(a) The objective of the Group’s business model is achieved both by collecting contractual cash flows and selling financial assets; and

(b) The assets’ contractual cash flows represent solely payments of principal and interest. B. On a regular way purchase or sale basis, financial assets at fair value through other

comprehensive income are recognised and derecognised using trade date accounting.

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

(a) 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 Group and the amount of the dividend can be measured reliably.

(b) Except for the recognition of impairment loss, interest income and gain or loss on foreign exchange which are recognised in profit or loss, the changes in fair value of debt instruments are taken through other comprehensive income. When the financial asset is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss.

(9) Accounts and notes receivable

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

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

C. The Group’s operating pattern of accounts receivable that are expected to be factored is for the purpose of receiving contract cash flow and selling, and the accounts receivable are subsequently measured at fair value, with any changes in fair value recognised in other comprehensive income.

(10) Impairment of financial assets

For accounts receivable that have a significant financing component, at each reporting date, the Group 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 Group recognises the impairment provision for lifetime ECLs.

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(11) Derecognition of financial assets

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

A. The contractual rights to receive the cash flows from the financial asset expire.

B. The contractual rights to receive cash flows of the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.

C. The contractual rights to receive cash flows of the financial asset have been transferred and the Group has not retained control of the financial asset.

(12) 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 process 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.

(13) Investments accounted for using equity method / associates

A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 per cent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost.

B. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

C. When changes in an associate’s equity do not arise from profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognises change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.

D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

E. In the case that an associate issues new shares and the Group does not subscribe or acquire new

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shares proportionately, which results in a change in the Group’s ownership percentage of the associate but maintains significant influence on the associate, then ‘capital surplus’ and ‘investments accounted for under the equity method’ shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group’s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.

F. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognised in profit or loss.

G. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate, are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of.


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 Group 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 12 ~20 years Machinery and equipment 3 ~10 years

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Leasehold improvements 3 years Other assets 3 ~10 years

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

Effective 2019

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

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

(a) Fixed payments, less any lease incentives receivable; (b) Variable lease payments that depend on an index or a rate; (c) Amounts expected to be payable by the lessee under residual value guarantees; (d) The exercise price of a purchase option, if the lessee is reasonably certain to exercise that

option; and (e) Payments of penalties for terminating the lease, if the lease term reflects the lessee

exercising that option.

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

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

(a) The amount of the initial measurement of lease liability; (b) Any lease payments made at or before the commencement date; (c) Any initial direct costs incurred by the lessee; 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.

(16) 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.

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(17) Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is 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 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.

(18) 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.

(19) Notes and accounts payable

A. Accounts payable are liabilities for purchases of raw materials, 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.

(20) Financial liabilities at fair value through profit or loss

A. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorised as financial liabilities held for trading unless they are designated as hedges.

B. At initial recognition, the Group measures the financial liabilities at fair value. All related transaction costs are recognised in profit or loss. The Group subsequently measures these financial liabilities at fair value with any gain or loss recognised in profit or loss.

(21) Derecognition of financial liabilities

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

(22) Convertible bonds payable

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

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equity instrument in accordance with the substance of the contractual arrangement. A. The embedded call options and put options are recognised initially at net fair value as ‘financial

assets or financial liabilities at fair value through profit or loss’. They are subsequently remeasured and stated at fair value on each balance sheet date; the gain or loss is recognised as ‘gain or loss on valuation of financial assets or financial liabilities at fair value through profit or loss’.

B. The host contracts of bonds are initially recognised at fair value. Any difference between the initial recognition and the redemption value is accounted for as the premium or discount on bonds payable and subsequently is amortised in profit or loss as an adjustment to ‘finance costs’ over the period of circulation using the effective interest method.

C. The embedded conversion options which meet the definition of an equity instrument are initially recognised in ‘capital surplus-share options’ at the residual amount of total issue price less the amount of financial assets or financial liabilities at fair value through profit or loss and bonds payable as stated above. Conversion options are not subsequently remeasured.

D. Any transaction costs directly attributable to the issuance are allocated to each liability or equity component in proportion to the initial carrying amount of each abovementioned item.

E. When bondholders exercise conversion options, the liability component of the bonds (including ‘bonds payable’ and ‘financial assets or financial liabilities at fair value through profit or loss’) is remeasured on the conversion date. The book value of common shares issued due to the conversion is based on the adjusted book value of the abovementioned liability component plus the book value of capital surplus - share options.

F. If bondholders could exercise the put option in the next year, the corporate bonds payable should be reclassified as current liabilities; otherwise, when the put option exceeds its exercise period, the corporate bonds payable with unexercised put option should be reversed as non-current liabilities.

(23) 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 expenses in that period when the employees render service.

B. Pensions Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expenses 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.

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C. Employees’ compensation and directors’ and supervisors’ remuneration Employees’ compensation and directors’ and supervisors’ remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated.

(24) Employee share-based payment

For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

(25) 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 and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

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 consolidated balance sheet. However, the deferred tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

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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.

E. A deferred tax asset shall be recognised for the carryforward of unused tax credits to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

(26) Treasury shares

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.

(27) Dividends

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

(28) Revenue recognition

A. The Group manufactures and sells heat dissipation module products. Sales are recognised when control of the products has transferred, being when the products are delivered to the customers, the customers has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customers’ 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 customers, and either the customers has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria for acceptance have been satisfied.

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

(29) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments.

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

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

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

The Group has no accounting policy which involves significant judgement and has material impact on recognition amount.

(2) Critical accounting estimates and assumptions

The Group makes accounting estimates in applying reasonable expectation concerning future events. However, assumptions and estimates may differ from the actual results. 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:

Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net 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 $1,260,897.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

A. The Group transacts with a variety of financial institutions all with high credit quality to disperse

credit risk, so it expects that the probability of counterparty default is remote.

B. For the Group’s cash in bank pledged to others, please refer to Note 8.

December 31, 2019 December 31, 2018Cash on hand and revolving funds 2,141$ 1,987$

Checking accounts and demand deposits 456,885 419,335

Time deposits 459,026$ 421,322$

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(2) Financial assets and liabilities at fair value through profit or loss

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

others.

B. The Group recognised net gain (loss) on financial assets and liabilities at fair value through profit or loss as part of ‘other gains and losses’, and the related amount is shown in Note 6 (22).

C. Information relating to credit risk of financial assets and liabilities at fair value through profit or loss is provided in Note 12(2).

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

A. The Group has no financial assets at fair value through other comprehensive income pledged to

others.

B. For the years ended December 31, 2019 and 2018, the amounts of fair value changes recognised in other comprehensive income were $744 and $2,092, respectively, for the financial assets at fair value through other comprehensive income.

Assets items December 31, 2019 December 31, 2018Current items:

Financial assets mandatorily measured at fair valuethrough profit or loss

Put and call options of secured convertible bonds -$ 2,171$

Valuation adjustment - 2,160)(

-$ 11$

Assets items December 31, 2019 December 31, 2018Non-current items:

Financial assets mandatorily measured at fair valuethrough profit or loss

Put and call options of unsecured convertible bonds -$ -$

Valuation adjustment 1,909 -

1,909$ -$

Liabilities items December 31, 2019 December 31, 2018Non-current items:

Financial liabilities held for tradingPut and call options of unsecured convertible bonds 6,480$ -$

Valuation adjustment 6,480)( -

-$ -$

Items December 31, 2019 December 31, 2018Non-current items: Unlisted stocks 8,648$ 8,648$

Valuation adjustment 2,836 2,092

11,484$ 10,740$

~211~

C. Information relating to credit risk of financial assets at fair value through other comprehensive income is provided in Note 12(2).

(4) Accounts receivable, net

A. The ageing analysis of accounts receivable that were past due but not impaired is as follows

The above ageing analysis was based on past due date.

B. As of December 31, 2019 and 2018, accounts receivable and notes receivable were all from contracts with customers. As of January 1, 2018, the balance of receivables from contracts with customers amounted to $2,350,509.

C. The Group does not hold any collateral as security.

D. On December 31, 2019 and 2018, the Group had accounts receivable classified as financial assets at fair value through other comprehensive income in the amounts of $853,654 and $326,784, respectively. Please refer to Note 6(5) for information on transfer of financial assets.

E. Information relating to credit risk of accounts receivable is provided in Note 12(2).

(5) Transfer of financial assets

The Group entered into a factoring agreement with a bank to sell its accounts receivable. Under the agreement, the Group is not obligated to bear the default risk of the transferred accounts receivable, but is liable for the losses incurred on any business dispute, which meet the derecognition criteria of financial assets. Further, the Group does not have any continuing involvement in the transferred accounts receivable. Thus, the Group derecognised the transferred accounts receivable, and the related information is as follows:

December 31, 2019 December 31, 2018Notes receivable 188,577$ 7,115$

Accounts receivable 3,362,654 2,448,155

Less: Allowance for bad debts 6,378)( 5,062)(

3,544,853$ 2,450,208$

December 31, 2019 December 31, 2018Not past due 3,472,499$ 2,398,101$

1 to 90 days 64,228 50,102

91 to 180 days 5,118 1,741

Over 180 days 9,386 5,326

3,551,231$ 2,455,270$

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A. As of December 31, 2019 and 2018, the Group had retention for the factoring of accounts receivable (shown as "Other receivables") in the amounts of $10,638 and $46,057, respectively.

B. Expense arising from accounts receivable factoring is accounted as ‘financial cost’, and the related amount is shown in Note 6 (23).

(6) Inventories



Amountderecognised

Amountadvanced

Amountavailable for

advance


MegaInternationalCommercialBank, etc. 106,385$ 106,385$ 83,245$ 12,502$ 2.57%~2.73%

December 31, 2019



Amountderecognised

Amountadvanced

Amountavailable for

advance


TaishinInternationalBank, etc. 460,568$ 460,568$ 392,546$ 21,965$ 3.35%~3.99%

December 31, 2018


Raw materials 208,286$ 17,337)($ 190,949$

Work in progress 464,095 30,606)( 433,489

Finished goods 667,202 36,220)( 630,982

Merchandise 6,340 863)( 5,477

1,345,923$ 85,026)($ 1,260,897$

December 31, 2019


Raw materials 258,875$ 4,275)($ 254,600$

Work in progress 408,232 15,597)( 392,635

Finished goods 603,214 6,854)( 596,360

Merchandise 6,192 1,922)( 4,270

1,276,513$ 28,648)($ 1,247,865$

December 31, 2018

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The cost of inventories recognised as expense for the year:

(7) Other current assets

(8) Investments accounted for using equity method

A. Associates

(a) On December 31, 2019 and 2018, the basic information of the associate that is material to the Group and comprise above 1% of total assets is as follows:

Note: Owns more than 20% of voting rights

(b) The summarised financial information of the associate that is material to the Group is shown below:

2019 2018Cost of goods sold 7,982,911$ 6,610,500$

Loss on market value decline of inventories 112,731 35,546

Loss on scrapping inventory 65,359 61,349

(Gain) loss on physical inventory 2,532)( 1,726

Sale of scraps 27,409)( 21,834)(

8,131,060$ 6,687,287$


December 31, 2019 December 31, 2018Business tax paid 159,515$ 84,567$

Prepaid expenses 14,888 7,248

Pledged time deposits 7,509 1,513

Others 12,849 11,970

194,761$ 105,298$

Company name Amount % Amount %JCD OPTICAL (CAYMAN) CO., LTD.

(JCD CAYMAN) 90,906$ 34.75 125,582$ 34.75

PRO JUMP CO., LTD. 5,605 36.00 12,547 36.00

MILK IDEA INC. 2,992 20.00 974 20.00

99,503$ 139,103$

December 31, 2019 December 31, 2018

Principal

Company Registered place of December December Nature of Method of

name country business 31, 2019 31, 2018 relationship measurementJCD CAYMAN Cayman China 34.75% 34.75% Note Equity method

Shareholding ratio

~214~

Balance sheet

Statement of comprehensive income

(c) The carrying amount of the Group’s interests in all individually immaterial associates and the

Group’s share of the operating results are summarised below:

As of December 31, 2019 and 2018, the carrying amount of the Group’s individually immaterial associates amounted to $8,597 and $13,521, respectively. The operating results were as follows:

B. The balances of aforementioned loss on investments accounted for using equity method for the

years ended December 31, 2019 and 2018 were $38,247 and $30,161, respectively.

December 31, 2019 December 31, 2018Current assets 286,140$ 329,459$

Non-current assets 144,542 145,261

Current liabilities 152,633)( 113,332)(

Non-current liabilities 16,448)( -

Total net assets 261,601$ 361,388$

Share in associate’s net assets 90,906$ 125,582$

Carrying amount of the associate 90,906$ 125,582$

JCD CAYMAN

2019 2018Revenue 256,418$ 304,350$

Loss for the year from continuing operations 86,005)( 68,773)(

Other comprehensive loss, net of tax 3,183)( 13,905)(

Total comprehensive loss 89,188)($ 82,678)($

JCD CAYMANFor the years ended December 31,

2019 2018Loss from continuing operations 18,323)($ 12,435)($


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Buildings andstructures


Leaseholdimprovements Others Total

At January 1, 2019Cost 672,246$ 849,308$ 74,191$ 243,386$ 1,839,131$

Accumulated depreciation 271,571)( 345,181)( 55,302)( 137,573)( 809,627)(

400,675$ 504,127$ 18,889$ 105,813$ 1,029,504$

2019Opening net book amount as at January 1 400,675$ 504,127$ 18,889$ 105,813$ 1,029,504$

Additions 41,380 445,985 14,689 168,852 670,906

Disposals - 4,380)( 19)( 1,889)( 6,288)(

Transfers 1,891 71,498 1,891)( 5,616 77,114

Depreciation charge 45,341)( 150,607)( 3,723)( 15,163)( 214,834)( Net exchange differences 14,886)( 32,379)( 1,030)( 9,513)( 57,808)(

Closing net book amount as at December 31 383,719$ 834,244$ 26,915$ 253,716$ 1,498,594$

At December 31, 2019Cost 689,091$ 1,295,202$ 82,759$ 387,700$ 2,454,752$


383,719$ 834,244$ 26,915$ 253,716$ 1,498,594$

~216~

(10) Leasing arrangements－lessee

Effective 2019

A. The Group leases various assets including land use right, buildings, machinery and equipment and business vehicles. Except for the lease period of land use right of 50 years, remaining 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 lease period of certain dormitories is less than 12 months.

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

Buildings andstructures


Leaseholdimprovements Others Total

At January 1, 2018Cost 578,272$ 748,997$ 75,668$ 394,551$ 1,797,488$


338,784$ 460,961$ 17,782$ 178,643$ 996,170$

2018Opening net book amount as at January 1 338,784$ 460,961$ 17,782$ 178,643$ 996,170$

Additions - 105,912 310 80,602 186,824

Disposals 47)( 5,425)( - 1,571)( 7,043)(

Transfers 108,096 38,141 5,029 137,896)( 13,370

Depreciation charge 37,901)( 85,037)( 3,847)( 11,921)( 138,706)( Net exchange differences 8,257)( 10,425)( 385)( 2,044)( 21,111)(

Closing net book amount as at December 31 400,675$ 504,127$ 18,889$ 105,813$ 1,029,504$

At December 31, 2018Cost 672,246$ 849,308$ 74,191$ 243,386$ 1,839,131$


400,675$ 504,127$ 18,889$ 105,813$ 1,029,504$

~217~

D. For the year ended December 31, 2019, the additions to right-of-use assets was $78,073.

E. Information on profit or loss in relation to lease contracts is as follows:

F. For the year ended December 31, 2019, the Group’s total cash outflow for leases was $70,456.

(11) Other non-current assets

The Group entered into land use rights contracts with the government of People’s Republic of China, and recognised rental expenses of $2,116 for the year ended December 31, 2018. Abovementioned land use right was reclassified to right-of-use assets starting from January 1, 2019. The lease period is 50 years.

For the year endedDecember 31, 2019 December 31, 2019

Book value Depreciation expenseLand 79,361$ 2,075$

Buildings 60,702 35,649

Transportation equipment (Business vehicles) 3,305 789

Machinery and equipment 1,137 300

144,505$ 38,813$

For the year endedItems affecting profit or loss December 31, 2019Interest expense on lease liabilities 2,696$

Expense on short-term lease contracts 31,324

December 31, 2019 December 31, 2018Prepayments for business facilities 145,802$ 84,453$

Computer software cost 77,300 86,271

Guarantee deposits paid 18,119 19,893

Land use right - 84,514

Others 7,211 8,825

248,432$ 283,956$

~218~

(12) Short-term borrowings

Note: The Company is the guarantor without collateral for the secured borrowings of a subsidiary.

Information in relation to the interest expense recognised in profit or loss for the years ended December 31, 2019 and 2018 is provided in Note 6(23).

(13) Other payables (including related parties)

(14) Bonds payable

A. The terms of the second domestic secured convertible bonds are as follows:

The Company issued $300,000, 0%, second domestic secured convertible bonds as approved by the regulatory authority. The bonds mature three years from the issue date (May 17, 2016 ~May 17, 2019). The bonds were listed on the Taipei Exchange on May 17, 2016, and were all converted to common stocks due to maturity in May 2019.

Type of borrowings December 31, 2019 Interest rate range CollateralBank borrowings Unsecured borrowings 16,898$ 2.6956% None Secured borrowings 240,260 3.1506%~3.2374% Note

257,158$

Type of borrowings December 31, 2018 Interest rate range CollateralBank borrowings Unsecured borrowings 437,331$ 1.04%~3.59% None Secured borrowings 245,538 3.6863%~3.8646% Note

682,869$

December 31, 2019 December 31, 2018Bonus and salary payable 189,921$ 130,724$

Processing fees payable 179,069 119,738

Payable for equipment 88,242 29,652

Payable for service fees 75,066 44,897

Payables for freight and warehouse charge 38,029 37,431

Payables for miscellaneous purchases 28,588 31,738


745,869$ 509,941$

December 31, 2019 December 31, 2018Bonds payable 251,200$ 26,800$

Less: Discount on bonds payable 15,983)( 125)(

235,217 26,675

Less: Current portion (shown as“long-term liabilities, current portion”) - 26,675)(

Bonds payable - non-current 235,217$ -$

~219~

B. The terms of the third domestic unsecured convertible bonds are as follows:

(a) The Company issued $600,000, 0%, third domestic unsecured convertible bonds as approved by the regulatory authority. The bonds mature five years from the issue date (May 29, 2019 ~May 29, 2024). The bonds were listed on the Taipei Exchange on May 29, 2019.

(b) The conversion price of the bonds is set up based on the pricing model. As of December 31, 2019, the bonds payable totaling $348,800 had been converted into 2,622,489 shares of common stock, of which 1,342,081 shares were recognised as ‘Certificates of bond-to-stock conversion’. If a violation of anti-dilution provision occurred, the conversion price would be subsequently adjusted in accordance with the pricing model as specified in the terms of conversion. The conversion price was $133 (in dollars) per share upon issuance.

(c) The bondholders have the right to require the Company to redeem any bonds at the price of the bonds’ face value plus 2.27% of the face value as interest upon three years from the issuance date.

(d) The Company may repurchase all the bonds outstanding in cash at the bonds’ face value at any time after the following events occur: (i) the closing price of the Company’s common shares is above the then conversion price by 30% for 30 consecutive trading days during the period from the date after three months of the bonds issue to 40 days before the maturity date, or (ii) the outstanding balance of the bonds is less than 10% of total initial issue amount during the period from the date after three months of the bonds issue to 40 days before the maturity date.

(e) Under the terms of the bonds, all bonds redeemed (including bonds repurchased from the Taipei Exchange), matured and converted are retired and not to be re-issued; all rights and obligations attached to the bonds are also extinguished.

C. Regarding the issuance of the third domestic unsecured convertible bonds, the equity conversion options amounting to $31,340 were separated from the liability component and were recognised in ‘capital surplus—share options’ in accordance with IAS 32. The call options and put options embedded in bonds payable were separated from their host contracts and were recognised in ‘financial assets or liabilities at fair value through profit or loss’ in net amount in accordance with IAS 39 because the economic characteristics and risks of the embedded derivatives were not closely related to those of the host contracts. The effective interest rate of the bonds payable after such separation was 1.4912%.

(15) Pensions

Defined contribution plans

A. Effective July 1, 2005, the Company and its domestic subsidiaries have 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 and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly

~220~

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 Group’s mainland subsidiaries have a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC.) are based on certain percentage of employees’ monthly salaries and wages. The contribution percentage for the years ended December 31, 2019 and 2018 was 18% ~ 20%. Other than the monthly contributions, the Group has no further obligations.

C. The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2019 and 2018 were $55,425 and $37,986, respectively.

(16) Share-based payment

A. For the years ended December 31, 2019 and 2018, the Group’s share-based payment arrangements were as follows:

Note: According to the employees’ continuance in office (1 to 4 years), the employees can

exercise their employee stock options in batch at the ratio of 50%, 25% and 25%.

B. Employee stock options are evaluated using the Binomial lattice model. Relevant information is as follows:

C. The details of the employee stock option plan for the years ended December 31, 2019 and 2018

Type of arrangement Grant date

Quantitygranted

(thousands)

Contractperiod(years)

Vestingconditions

Employee stock options January 2, 2014 490 5 NoteEmployee stock options August 26, 2014 1,430 5 NoteEmployee stock options December 29, 2014 482 5 NoteTreasury shares reissued to employees

November 15, 2018 734 - Immediately

Treasury shares reissued to employees

December 6, 2018 1,658 - Immediately

Stock Exercise Expected Expected Risk-free Fair valueprice price price Expected dividend interest per unit

Grant date (dollars) (dollars) volatility option life yield rate (%) (dollars)January 2,2014

22.10$ 20.20$ 38.67% January 3, 2014~January 2, 2019

5.3050% 1.14% $4.58~4.97

August 26,2014

20.80 18.90 35.18% August 27, 2014~August 26, 2019

1.9560% 1.15% 5.04~5.19

December29, 2014

18.70 17.00 41.64% December 30, 2014~December 29, 2019

1.9560% 1.0952% 5.44~5.57

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are as follows:

D. For the years ended December 31, 2019 and 2018, the Company issued 188 thousand and 661

thousand shares of ordinary shares relative to the exercise of employee share options in accordance with the employee share options plan, respectively. As of December 31, 2019 and 2018, there are 10 thousand and 50 thousand shares which have not yet completed the registration, and were accounted as advance receipts for share capital amounting to $100 and





Outstanding options at the end of the year - - - 0 year 163.16

Exercisable options at the end of the year -

2019




Options granted 22)( -

Options forfeited 661)( -

Outstanding options at the end of the year 188 17.75 17.0~20.2

0 year~1 year 71.50

Exercisable options at the end of the year 188

2018

~222~

$500, respectively. E. For the years ended December 31, 2019 and 2018, the Group recognised expenses on

share-based payment transaction (equity settlement) and the cost of treasury shares reissued as employees’ compensation was $0 and $5,085, respectively.

(17) Share capital A. As of December 31, 2019, the Company’s authorised capital was $1,200,000, and the paid-in

capital was $850,977, consisting of 85,097,748 shares, 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 (including advance receipts for share capital and certificates of bond-to-stock conversion) outstanding are as follows:

B. Treasury shares

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

(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 five years from the reacquisition date and shares not reissued within the five-year period are to be retired.

2019 2018Ordinary shares Ordinary shares

At January 1 80,751,054 79,058,285

Employee stock options exercised 188,000 661,000

Conversion of convertible bonds 3,118,775 1,765,769

Acquisition of treasury shares - 734,000)(


At December 31 84,857,829 80,751,054





December 31, 2019

December 31, 2018

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(18) Capital surplus

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

Difference between



premium or disposed options warrants TotalAt January 1 654,122$ 4,050$ 25,145$ 3,603$ 686,920$ Issue of convertible bonds - - - 31,340 31,340

Conversion of corporate bonds payable 338,927 - - 19,181)( 319,746

Employee stock options exercised 2,711 - 1,255)( - 1,456

Treasury stock transferred to employees - - 1,288)( - 1,288)(

At December 31 995,760$ 4,050$ 22,602$ 15,762$ 1,038,174$

2019

Difference between



premium or disposed options warrants TotalAt January 1 562,936$ 4,050$ 23,205$ 7,120$ 597,311$

Conversion of corporate bonds payable 82,028 - - 3,517)( 78,511

Employee stock options exercised 9,158 - 3,145)( - 6,013

Compensation cost of share-based payments - - 5,085 - 5,085

At December 31 654,122$ 4,050$ 25,145$ 3,603$ 686,920$

2018

~224~

issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalised mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

(19) Retained earnings

A. If the Company has any profit for the current year, it shall first be used to pay all taxes and offset prior year's operating losses, then 10% of the remaining amount shall be set aside as legal reserve until the legal reserve equals the total capital stock balance. In accordance with the regulations, the Company shall set aside or reverse special reserve. The remaining amount plus prior year's unappropriated earnings is the distributable retained earnings which can be distributed through the proposal of the Board of Directors and resolved by the shareholders.

B. The dividend policies of the Group are established by the Board of Directors based on the Group’s operating plan, investment schedule, capital budget and internal and external environment, etc. Retained earnings can be distributed in form of cash or shares and cash dividends shall not be lower than 10% of total dividends distributed.

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 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 appropriations of earnings for the years ended December 31, 2018 and 2017 resolved by the shareholders during their meeting in June 2019 and 2018, respectively, are as follows:

Note: Changes in the number of outstanding shares were affected by the exercise of employee

share options, the conversion from convertible bonds to common shares, and capital

Dividends per Dividends per Amount share (in dollars) Amount share (in dollars)

Legal reserve 23,299$ 29,015$

Special reserve 11,222 -

Cash dividends 125,226 1.50$ 162,661 2.00$ 159,747$ 191,676$

For the years ended December 31,2018 2017

~225~

increase by cash. Due to the resolution adopted by the Board of Directors, the Group adjusted the shareholder yield based on the actual number of outstanding shares.

F. On March 17, 2020, the Board of Directors proposed for the distribution of dividends from 2019 earnings in the amount of $432,727 at $5 (in dollars) per share.

G. For the information relating to employees’compensation (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(24).

(20) Operating revenue

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. For information on the operating revenue by geographical regions, please refer to Note 14(3).

(21) Other income

(22) Other gains and losses

2019 2018Revenue from contracts with customers 10,247,561$ 7,654,265$


2019 2018Sample revenue 78,700$ 52,181$

Government grant revenues 10,561 11,807

Rent income 6,806 55,913

Mold income 3,749 16,718

Others 6,390 11,453

106,206$ 148,072$


2019 2018(Losses) gains on foreign currency exchange 16,933)($ 25,467$

Losses on disposal of property, plant and equipment 6,235)( 6,298)(

Gains (losses) on financial assets (liabilities) at fair value through profit or loss 10,243 24)(

Other losses 877)( 3,902)(

13,802)($ 15,243$


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(23) Finance costs

(24) Employee benefit expense, depreciation and amortisation

A. A ratio of profit of the current year distributable (profit before tax, employees’ compensation

and directors’ and supervisors’ remuneration), shall be distributed as employees’ compensation and directors’ and supervisors’ remuneration. The ratio shall not be lower than 3%~15% for employees’ compensation and shall not be higher than 1.5% for directors’ and supervisors’ remuneration. The appropriation for employees’ compensation and directors’ and supervisors’ remuneration should be reported to shareholders during their meeting. If the Company has accumulated deficit, earnings should be reserved to cover losses and then be appropriated as employees’ compensation and directors’ and supervisors’ remuneration based on the abovementioned ratios.

B. For the years ended December 31, 2019 and 2018, employees’ compensation was accrued at $41,153 and $10,155, respectively; while directors’ and supervisors’ remuneration was accrued at $9,406 and $2,321, respectively. The aforementioned amounts were recognised as expenses. The employees’ compensation and directors’ and supervisors’ remuneration were estimated and accrued based on 3.5% and 0.8% of profit of current year distributable as of the end of reporting period. Employees’ compensation and directors’ and supervisors’ remuneration for 2018 as resolved by the Board of Directors were in agreement with those amounts recognised in the 2018 financial statements. The aforementioned amounts will be distributed in the form of cash.

2019 2018Interest expense:

Bank borrowings 13,051$ 10,604$

Convertible bonds 4,423 682

Accounts receivable factoring expenses 8,730 9,952

Interest expense on lease liabilities 2,696 -

Finance costs 28,900$ 21,238$


2019 2018Employee benefit expense Wages and salaries 1,496,262$ 1,148,811$

Labour and health insurance fees 45,339 32,865

Pension costs 55,425 37,986

Other personnel expenses 82,902 69,962

1,679,928$ 1,289,624$

Depreciation 253,647$ 138,706$

Amortisation 23,230$ 21,670$


~227~

Information about employees’ compensation and directors’ and supervisors’ 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.

(25) Income tax

A. Components of income tax expense:

B. Reconciliation between income tax expense and accounting profit:

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

2019 2018Current tax:Current tax on profits for the year 247,433$ 44,951$

Tax on undistributed surplus earnings 3,662 9,847

Prior year income tax underestimation 1,993 4,743

Total current tax 253,088$ 59,541$

Deferred tax:Origination and reversal of temporary differences 8,991)( 4,285




2019 2018Income tax calculated by applying statutory rate to the profit before tax 301,345$ 71,084$

Effect from permanent differences of income tax 62,903)( 21,848)(


Additional tax on undistributed surplus earnings 3,662 9,847

Prior year income tax underestimation 1,993 4,743



January 1


Recognisedin other

comprehensiveincome


Deferred tax assets: Unused compensated absences 1,005$ 40)($ -$ -$ 965$

Unrealised exchange loss 680 6,666 - - 7,346

Others 891 2,365 - - 3,256

2,576$ 8,991$ -$ -$ 11,567$

2019

~228~

D. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets are as follows:

E. The amounts of deductible temporary differences that were not recognised as deferred tax

assets and liabilities are as follows:

The above deductible temporary difference is a temporary difference between the carrying amount and taxable amount of long-term equity investments in overseas subsidiaries. Since the Company will neither dispose these subsidiaries nor remit the earnings in foreseeable future, no deferred tax assets and liabilities was recognised. In addition, the temporary difference arising from certain overseas subsidiaries will not be reversed in foreseeable future.

January 1


Recognisedin other

comprehensiveincome


Deferred tax assets: Unused compensated absences 497$ 508$ -$ -$ 1,005$

Impairment loss on assets 1,309 1,309)( - - -

Unrealised exchange loss 1,886 1,206)( - - 680

Others 2,140 1,249)( - - 891

5,832$ 3,256)($ -$ -$ 2,576$

2018

Year incurred Amount filed/

assessed Unused amount Unrecognised

deferred tax assets Expiry year2016 6,693$ 6,693$ 6,693$ 20262018 305 305 305 20282019 199 199 199 2029

7,197$ 7,197$ 7,197$

December 31, 2019

Year incurred Amount filed/

assessed Unused amount Unrecognised

deferred tax assets Expiry year2016 6,693$ 6,693$ 6,693$ 20262018 305 305 305 2028

6,998$ 6,998$ 6,998$

December 31, 2018

December 31, 2019 December 31, 2018Deductible temporary difference-Assets 12,521$ 5,073$

Taxable temporary differences-Liabilities 829,379)($ 569,426)($

~229~

F. The applicable income tax rate of the Company’s indirectly invested Mainland China subsidiaries, Auras Technology (Kunshan) Co., Ltd. and Ze Hong (Guangzhou) Technology Co., Ltd., is 15%~25%.

G. The Company’s income tax returns through 2017 have been assessed and approved by the Tax Authority.

H. 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% and the undistributed surplus earnings rate was reduced from 10% to 5%, effective from January 1, 2018. The Company has assessed the impact of the change in income tax rate.

(26) Earnings per share

Amount after tax



Earnings pershare


Diluted earnings per share Profit attributable to ordinary shareholders of the parent 963,971$ 82,354

Assumed conversion of all dilutive potential ordinary shares



Convertible bonds 4,423 2,388



~230~

(27) Supplemental cash flow information

Investing activities with partial cash payments

(28) Change in liabilities from financing activities

For the years ended December 31, 2019 and 2018, liabilities from financing activities include short-term borrowings, short-term notes and bills payable as well as bonds payable. Changes in those items result from cash flows from financing activities, discount amortisation, bonds converted to common stocks and changes in exchange rate. The summarised amounts are as follows and other information is provided in the consolidated statements of cash flows.

Amount after tax



Earnings pershare





Convertible bonds 545 921



2019 2018Purchase of property, plant and equipment 670,906$ 186,824$

Add: Opening balance of payable on equipment 29,652 2,130

Less: Ending balance of payable on equipment 88,242)( 29,652)(

Cash paid during the year 612,316$ 159,302$


2019 2018At January 1 759,544$ 367,640$ Changes in cash flows from financing activities 133,609 492,706 Changes in other non-cash items 391,458)( 95,965)(

Impact of changes in foreign exchange rate 9,320)( 4,837)(

At December 31 492,375$ 759,544$

~231~

7. RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship

(2) Significant related party transactions

A. Purchases

Purchases from related enterprises are based on normal commercial terms and conditions.

B. Other income

The Group leased plant to related parties. The price was based on mutual agreement, and the rent is payable monthly.

C. Other receivables from related parties:

D. Payables to related parties

The payables to related parties arise mainly from purchase transactions, and the credit term was 3 to 4 months which is the same with general suppliers.

Names of related parties Relationship with the GroupZONG HONG (KUNSHAN) CO., LTD. AssociateJCD OPTICAL (CAYMAN) CO., LTD. AssociateJCD OPTICAL CO., LTD. AssociateJCD (GUANGZHOU) OPTICAL CORPORATION AssociateJCD OPTICAL INTERNATIONAL CO., LTD. (Taiwan Branch) Associate

2019 2018Purchases of goods: Associates 31,975$ 74,126$


2019 2018Rent income: JCD (Guangzhou) 6,325$ 11,514$

Associates - 42

Other income: Associates 1,161 1,385

7,486$ 12,941$


December 31, 2019 December 31, 2018Other receivables: Associates 3,167$ 4,481$

December 31, 2019 December 31, 2018Accounts payable: Associates 8,690$ 19,512$

~232~

(3) Key management compensation

8. PLEDGED ASSETS

The Group’s assets pledged as collateral, mortgaged or restricted are as follows:

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT COMMITMENTS

(1) Contingencies

None.

(2) Commitments

A. Capital expenditures contracted for at the balance sheet date but not yet incurred are as follows:

B. Operating lease agreements

The Group leases plant and office under operating lease agreements. Most of the lease agreements can be renewed at the end of the lease period based on market price.

The future aggregate minimum lease payments under the operating leases are as follows:

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

The appropriation of earnings for 2019 had been proposed and resolved by the Board of Directors on March 17, 2020. Details are provided in Note 6(19).

2019 2018Salaries and other short-term employee benefits 13,499$ 14,039$


Pledged asset December 31, 2019 December 31, 2018 PurposeOther current assets Customs guarantee and - time deposits 7,509$ 1,513$ foreign tax guarantee

Book value

December 31, 2019 December 31, 2018Property, plant and equipment 432,885$ 195,626$

December 31, 2018Not later than one year 17,152$

Later than one year but not later than five years 11,657

Over five years -

28,809$

~233~

12. OTHERS

(1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust accounts receivable factoring, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital.

(2) Financial instruments

A. Financial instruments by category

Note: Financial assets at amortised cost include cash, accounts and notes receivable that are not measured at fair value through other comprehensive income and other receivables; financial liabilities at amortised cost include short-term borrowings, short-term notes and bills payable, accounts and notes payable, other payables and bonds payable (including current portion).

B. Financial risk management policies

(a) The Group’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. The Group’s financial policy tends toward conservatism principle, therefore the Group does not operate the high-risk and complex derivative financial instruments.

December 31, 2019 December 31, 2018Financial assets

Financial assets at fair value throughprofit or loss 1,909$ 11$

Financial assets at fair value throughother comprehensive incomeDesignation of equity instruments 11,484 10,740

Accounts receivable to be factored 853,654 326,784

Financial assets at amortised cost 3,198,267 2,634,076

4,065,314$ 2,971,611$

Financial liabilitiesFinancial liabilities at amortised cost 3,736,165$ 3,431,798$

Lease liability 65,411 -

3,801,576$ 3,431,798$

~234~

(b) Risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board of Directors. Group treasury identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as 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 Group operates internationally and is exposed to foreign exchange risk arising from different functional currency used by the Company and its subsidiaries, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities.

ii. Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The Group’s purchases and sales were calculated by USD, the fair value will be changed along with the market exchange. However, the Group offset the foreign exchange risk through holding assets and liabilities denominated in foreign currencies, collection period and payment period.

iii. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.

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

~235~



USD:RMB 70,879 6.9762 2,124,952 1% 21,250


RMB:NTD 448,726 4.305 1,931,765


USD:RMB 50,103 6.9762 1,502,088 1% 15,021




USD:RMB 60,153 6.8632 1,847,599 1% 18,476


RMB:NTD 339,285 4.472 1,517,283


USD:RMB 38,987 6.8632 1,197,486 1% 11,975


~236~

v. For the years ended December 31, 2019 and 2018, the total amount of exchange (loss) gain were ($16,933) and $25,467 (including realised and unrealised), arising from significant foreign exchange variation on the monetary items held by the Group, respectively.

Price risk

The Group is not exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.

Cash flow and fair value interest rate risk

i. The Group’s interest rate risk arises from short-term borrowings and long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. During the years ended December 31, 2019 and 2018, the Group’s borrowings at variable rate were denominated in the NTD and USD.

ii. At December 31, 2019 and 2018, if interest rates on USD-denominated and NTD-denominated borrowings had been 0.1% higher/lower with all other variables held constant, there will be no significant impact on post-tax profit for the years ended December 31, 2019 and 2018.

(b) Credit risk

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

ii. The Group’s receivables mostly are computer companies which have good credit records and well-known worldwide. They have no critical bad debts recently, and the Group assesses the adequacy of allowance for bad debts regularly. There is no significant credit risk through assessment.

iii. Other accounts receivable mainly arise from the retention of accounts receivable factoring and unadvanced proceeds. The counterparties are financial institutions with high credit quality.

iv. If the contract payments are past due over 30 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition. If the contract payments are past due over 90 days based on the terms, the default occurs.

v. The Group applies the following approaches to assess the expected credit losses (ECLs) of accounts receivable:

~237~

(i) Assess the ECLs on an individual basis if a significant default has occurred to certain customers.

(ii) The remaining receivables are grouped in accordance with the Group’s credit ratings of its customers. Different loss rates are applied to the different groups when estimating expected credit losses;

(iii) Loss rates, calculated from historical and current information, are adjusted according to forward-looking information such as the business indicators published by the National Development Council and Basel Committee on Banking Supervision.

(iv) As of December 31, 2019 and 2018, loss allowances of accounts receivable and notes receivable calculated from individual assessment or using the loss rate methodology are as follows:

Group A: Rated as grade A based on the Group’s Credit Quality Control Policy.

Group B: Rated as grade B or C based on the Group’s Credit Quality Control Policy.

Group C: Rated as grade CC based on the Group’s Credit Quality Control Policy.

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

December 31, 2019 Individual Group A Group B Group C TotalExpected loss rate 100.00% 0.03% 0.07% 0.20%

Total book value 4,940$ 2,842,525$ 633,063$ 70,703$ 3,551,231$

Loss allowance 4,940$ 853$ 443$ 142$ 6,378$

December 31, 2018 Individual Group A Group B Group C TotalExpected loss rate 100.00% 0.03% 0.07% 0.20%

Total book value 5,062$ 2,079,705$ 338,054$ 32,449$ 2,455,270$

Loss allowance 5,062$ -$ -$ -$ 5,062$


At January 1 5,062$

Provision for impairment 1,453

Effect of exchange rate changes 137)(



At January 1_IAS 39 4,904$

Adjustments under new standards -

At January 1_IFRS 9 4,904

Effect of exchange rate changes 158


~238~

(c) Liquidity risk i. Cash flow forecasting is performed in the operating entities of the Group and aggregated

by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets.

ii. Group treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts.

iii. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative 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 and to the expected maturity date for derivative financial liabilities.

Except for the following, maturity dates of the Group’s non-derivative financial liabilities (including short-term borrowings, accounts payable (including related parties), other payables and bonds payable) are lower than 360 days as of December 31, 2019 and 2018.

(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. The fair value of the Group’s investment

Less than Between 1 Between 31 year and 2 years and 5 years Total

Non-derivativefinancial liabilitiesLease liability 35,463$ 32,695$ 243$ 68,401$

Bonds payable - - 235,217 235,217

35,463$ 32,695$ 235,460$ 303,618$

~239~

in derivative instruments is included in Level 2.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s investment in equity investment without active market is included in Level 3.

B. The carrying amounts of the Group’s financial instruments not measured at fair value (including cash and cash equivalents, notes and accounts receivable that are not measured at fair value through other comprehensive income, other receivables, short-term borrowings, notes payable, accounts payable, other payables and bonds payable) are approximate to their fair values.

C. The related information of financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities are as follows:

D. The methods and assumptions the Group used to measure fair value are as follows: The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward

December 31, 2019 Level 1 Level 2 Level 3 Total AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss - Derivative instruments -$ 1,909$ -$ 1,909$

Financial assets at fair value through other comprehensive income - Equity securities - - 11,484 11,484

- Accounts receivable to be factored - 853,654 - 853,654

-$ 855,563$ 11,484$ 867,047$

December 31, 2018 Level 1 Level 2 Level 3 Total AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss - Derivative instruments -$ 11$ -$ 11$

Financial assets at fair value through other comprehensive income - Equity securities - - 10,740 10,740

- Accounts receivable to be factored - 326,784 - 326,784

-$ 326,795$ 10,740$ 337,535$

~240~

exchange contracts are usually valued based on the current forward exchange rate. Structured interest derivative instruments are measured by using appropriate option pricing models (i.e. Black-Scholes model) or other valuation methods, such as Monte Carlo simulation.

E. For the years ended December 31, 2019 and 2018, there was no transfer between Level 1 and Level 2.

F. For the years ended December 31, 2019 and 2018, there was no transfer into or out from Level 3.

G. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

H. The Group has carefully assessed the valuation models and assumptions used to measure fair

value. However, use of different valuation models or assumptions may result in different measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:

Fair value Significant Range Decemebr Valuation unobservable (weighted Relationship of31, 2019 technique input average) inputs to fair value

Non-derivative equity instrument:Unlisted shares 11,484$ Discounted

cash flowLong-termrevenuegrowth rate

3% The higher the long-termrevenue growth rate andlong-term pre-taxoperating margin, thehigher the fair value

Fair value Significant Range RelationshipDecemebr Valuation unobservable (weighted of inputs31, 2018 technique input average) to fair value

Non-derivative equity instrument:Unlisted shares 10,740$ Discounted

cash flowLong-termrevenuegrowth rate

3% The higher the long-termrevenue growth rate andlong-term pre-taxoperating margin, thehigher the fair value

~241~

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.

B. Provision of endorsements and guarantees to others: Please refer to table 2.

C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.

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 paid-in capital or more: None.

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

G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid in capital or more: Please refer to table 4.

H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 5.

I. Derivative financial instrument transactions: Please refer to Notes 6(2) and 12.

J. Significant inter-company transactions during the reporting periods: Please refer to table 6.

(2) Information on investees Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

(3) Information on investments in Mainland China

A. Basic information: Please refer to table 8.

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

Financial Contract Favourable Unfavourableassets period Input Change change change

Equity instruments December 31, 2019 11,484$ ±1% 115$ 115)($

Financial Contract Favourable Unfavourableassets period Input Change change change

Equity instruments December 31, 2018 10,740$ ±1% 107$ 107)($

Recognised in othercomprehensive income

Recognised in othercomprehensive income

~242~

14. SEGMENT INFORMATION (1) General information

The Group is primarily engaged in the manufacture, processing and sale of thermal module. The operating decision maker operates business in line with different appliances of thermal module, which is distinguished as computer and non-computer thermal module. The segments of computer thermal module and non-computer thermal module have been aggregated into one reportable segment as they have similar average gross margins and similar expected cost rates and meet the condition of aggregation.

(2) Information on products and services Revenue from external customers is mainly from the sales of abovementioned reportable segments. Reportable segments shall use products to be the standards of revenue recognition, therefore products revenue is the reportable segment revenue.

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

(4) Major customer information

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

Revenue Non-current

assets Revenue Non-current

assetsChina 4,716,349$ 1,769,057$ 4,114,846$ 1,207,082$

Taiwan 2,747,158 122,465 2,031,947 106,369

Korea 1,428,848 - 516,982 -

Ireland 656,516 - 454,153 -

Others 698,690 9 536,337 9

10,247,561$ 1,891,531$ 7,654,265$ 1,313,460$

2019 2018For the years ended December 31,

Amount % Amount %a 1,518,064$ 14.81% A 1,240,235$ 16.20%

b 1,421,983 13.88% B 1,181,656 15.44%

c 1,338,894 13.07% C 604,959 7.90%

d 822,041 8.02% D 557,354 7.28%

e 782,967 7.64% E 544,941 7.12%

5,883,949$ 4,129,145$

2019 2018Revenue Revenue


Item Value0 Auras

Technology Co.,Ltd.

AurasTechnology(Chongqing) Co.,Ltd.


Yes 100,000$ -$ -$ 2 1 1,451,700$ - -$ - -$ 1,402,916$ 1,402,916$

0 AurasTechnology Co.,Ltd.



Yes 250,000 - - 2 1 4,399,199 - - - - 1,402,916 1,402,916$

1 Ze Hong(Guangzhou)Technology Co.,Ltd.



Yes 46,860 - - 2 1 832,828 - - - - 1,104,004 1,104,004

Note 1: The numbers filled in for the loans provided by the Company or subsidiaries are as follows: (1) The Company is ‘0’. (2) The subsidiaries are numbered in order starting from ‘1’.Note 2: 1.Business transaction. 2. Short-term financingNote 3: For the companies having business relationship with the Company, financial limit on loans granted to a single party shall not exceed the 40% of the net assets of the Company. Loans granted to a single party shall not exceed the amount of business transactions occurred between the creditor and borrower. The amount of business transactions refers to the higher of purchase or sales between both parties, or processing cost.Note 4: To maintain the normal operations of the Comapny's 100% indirect invested subsidiary. The short-term loans to individual company limit to 30% of the net assets of the Company's latest financial statements that were audited by independent accountant.Note 5: The foreign subsidiary that was directly or indirectly wholly owned by the Company was not limited by above restriction.

Allowancefor

doubtfulaccounts

Collateral

Limit onloans granted

to a singleparty

Ceiling ontotal loans

granted Footnote

Reason forshort-termfinancing

No.(Note 1) Creditor Borrower

Generalledger

account

Is arelatedparty

Maximumoutstanding

balance duringthe year endedDecember 31,

2019

Balance atDecember31, 2019

Actualamount

drawn downInterest

rate

Nature ofloan

(Note 2)

Amount oftransactions

with theborrower

Auras Technology Co., Ltd. and Subsidiaries

Loans to others




~243~

Company name

Relationshipwith the

endorser /guarantor


AurasTechnology(Chongqing)Co., Ltd.


1,753,646$ 94,800$ 89,940$ -$ - 2.56 1,753,646$ Y N Y




1,753,646 488,000 479,680 239,840 - 13.68 1,753,646 Y N Y

Note : Limit on total endorsements granted by the Company is 50% of the company's net assets based on the latest audited financial statements, limit on total endorsements to a single party is 20% of the Company's net assets based on the latest audited financial statements, companies that are 50% controlled by the Company are not subject to the limit on total endorsements to a single party.

Amount ofendorsements/ guaranteessecured with

collateral

Ratio ofaccumulated

endorsement /guarantee amountto net asset value

of theendorser/guaranto

r company

Ceiling on totalamount of

endorsements /guaranteesprovided


by parentcompany tosubsidiary

Provision ofendorsements/ guaranteesby subsidiary

to parentcompany

Outstandingendorsement /

guaranteeamount at

December 31,2019


Provision of endorsements and guarantees to others




No.(Note 1)

Endorser/guarantor

Party beingendorsed/guaranteed

Limit onendorsements /

guaranteesprovided for a

single party

Maximumoutstanding

endorsement /guarantee

amount as ofDecember 31,

2019


to the party inMainland

China Footnote

Actualamount

drawn down

~244~

Securities held by Marketable securitiesRelationship with the

securities issuerGeneral

ledger account Contributed amount Book value Ownership (%) Fair value FootnoteSHIH HORNG TECHNOLOGYCO., LTD. (SHHT)

KUNSHAN JINXIPLASTIC CO., LTD.

None Financial assets at fair value throughother comprehensive income - equity

2,708$ 11,484$ 13 11,484$

As of December 31, 2019



Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)



~245~

Purchases(sales) Amount

Percentage oftotal purchases

(sales) Credit term Unit price Credit term Balance

Percentage of totalnotes/accounts

receivable (payable)Auras Technology Co., Ltd. AURAS TECHNOLOGY

(KUNSHAN) CO., LTD.Indirect subsidiary Purchases 2,154,955$ 27 3~4 months Did not purchase

from othersuppliers

As generalsuppliers

825,951)($ 45

Auras Technology Co., Ltd. AURAS TECHNOLOGY(CHONGQING) CO., LTD.


As generalsuppliers

255,343)( 14

Auras Technology Co., Ltd. Ze Hong (Guangzhou)Technology Co., Ltd.


As generalsuppliers

729,206)( 40


AURAS TECHNOLOGY(KUNSHAN) CO., LTD.


As generalcustomers

RMB 6,437 2


AURAS TECHNOLOGY(CHONGQING) CO., LTD.


As generalcustomers

RMB 8,417 3

FootnotePurchaser/seller CounterpartyRelationship withthe counterparty

TransactionDifferences in transaction terms

compared to third party transactions Notes/accounts receivable (payable)



Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more



~246~

Amount Action takenAURAS TECHNOLOGY(KUNSHAN) CO., LTD.


AURAS TECHNOLOGY(CHONGQING) CO., LTD



Auras Technology Co., Ltd. Indirect subsidiary RMB 169,688 5.86 (times) RMB - RMB - RMB -

Amount collectedsubsequent to thebalance sheet date

Allowance fordoubtful accountsCreditor Counterparty

Relationship with thecounterparty

Balance as at December31, 2019 (thousand

dollars) Turnover rate

Overdue receivables


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

December 31, 2019



Table 5

~247~

General ledger account Amount (Note 3)Transaction

terms

Percentage of consolidated totaloperating revenues or total assets

(Note 4)0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 1 Purchases 2,154,955$ Note 5 21.03%

0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 1 Accounts payable 825,951 Note 5 10.98%

0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Purchases 1,451,700 Note 5 14.17%

0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Accounts payable 255,343 Note 5 3.39%

0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Purchases 4,399,199 Note 5 42.93%

0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Accounts payable 729,206 Note 5 9.69%

1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 3 Sales RMB 49,824 Note 6 2.17%

1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 3 Sales RMB 29,618 Note 6 1.29%

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

(1) Parent company is ‘0’.

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

Note 2: Relationship between transaction company and counterparty is classified into the following three categories:

(1) Parent company to subsidiary.

(2) Subsidiary to parent company.

(3) Subsidiary to subsidiary.

Note 3: Disclosure standard of transactions is related parties account for at least $100 million or 20% of actual capital. Relative related are not disclosed.

Note 4: The percentage of consolidated total assets is computed with the consolidated total assets divided by period-end balance of balance sheet accounts while the consolidated total operating revenues is computed with consolidated

total operating revenues divided by interim accumulated amount of income statement accounts.

However, aforementioned related party transaction has been written off when preparing the consolidated financial statements.

Note 5: The Company did not purchase from other suppliers, and the credit terms are the same with general suppliers. The credit term for general suppliers is 3-4 months.

Note 6: The credit condition of sales is three to four months, and is three to five months for general customers.

Transaction



Significant inter-company transactions during the reporting period



Number(Note 1) Company name Counterparty

Relationship(Note 2)

~248~


2019


2018Number of

sharesOwnership

(%) Book valueAuras Technology Co., Ltd. LI-HORNG

TECHNOLOGY CO., LTD.Belize Investment

holdings $ 1,109,003 $ 1,000,935 36,510,928 100 $ 1,938,382 $ 343,149 $ 322,520

Auras Technology Co., Ltd. PRO JUMP CO., LTD.(PRO JUMP)


7,500 7,500 253,447 15 2,307 ( 18,412) ( 2,762)

Auras Technology Co., Ltd. HAO HORNGTECHNOLOGY CO., LTD.

Belize Engaged in sale ofcomputer heatdissipation module

29,551 29,551 50,000 100 24,902 ( 8,057) ( 8,057)

Auras Technology Co., Ltd. MILK IDEA INC. Taiwan Development ofmobile appication

4,000 2,000 400,000 20 2,992 89 18

Auras Technology Co., Ltd. RAIJINTEK CO., LTD. Taiwan Engaged in sale ofcomputer heatdissipation module

11,200 11,200 1,120,000 56 3,517 956 536

Auras Technology Co., Ltd. AURAS International Inc. U.S.A Engaged in sale ofcomputer heatdissipation module

14,810 14,810 500,000 100 12,131 401 401


SHUANG HORNGTECHNOLOGY CO., LTD.(SHT)


151,375 151,375 5,000,000 100 320,096 68,450 68,450


ZE HONGTECHNOLOGY CO., LTD.(ZHT)


542,985 542,985 18,000,000 100 1,104,023 272,398 272,398


PEL HORNGTECHNOLOGY CO., LTD.(PHT)


49,592 49,592 2,100,000 100 35,973 13,675 13,675


ZHEN HORNGTECHNOLOGY CO., LTD.(ZEHT)


303,545 195,477 10,000,000 100 438,041 14,956 14,956


SHIH HORNGTECHNOLOGY CO., LTD.(SHHT)

Samoa Investmentholdings

5,644 5,644 184,709 100 13,753 1,152 1,152

Information on investees











~249~


2019


2018Number of

sharesOwnership

(%) Book value








PRO JUMP CO., LTD.(PRO JUMP)


$ 10,263 $ 10,263 353,136 21 $ 3,298 ($ 18,412) ($ 3,848)




83,565 83,565 6,629,473 26 67,904 ( 86,005) ( 23,638)

HAO HORNGTECHNOLOGY CO., LTD.



27,855 27,855 2,210,922 9 23,002 ( 86,005) ( 8,017)

~250~

Remitted toMainland

China

Remittedback toTaiwan

Auras Technology(Kunshan) Co., Ltd.


$ 149,900 (1) $ 149,900 $ - $ - $ 149,900 $ 68,444 100 $ 68,444 $ 319,737 $ -



539,640 (1) 479,680 - - 479,680 272,398 100 272,398 1,104,004 -

Pel Horng(Guangzhou)Technology Co., Ltd.


62,958 (1) 53,855 - - 53,855 13,675 100 13,675 35,972 -

Auras Technology(Chongqing) Co., Ltd.


299,800 (1) 194,870 104,930 - 299,800 14,986 100 14,986 438,068 -

Anhui Wei-hongElectronic TechnologyCo., Ltd.


21,525 (2) - - - - 12,592 60 7,555 20,392 - Note 4

JCD (Guangzhou)Optical Corporation

Production andsales of light andelectronic materialand components

122,918 (2) 4,727 - - 4,727 ( 72,920) 35 ( 25,340) 55,547 -


Information on investments in Mainland China



Investee inMainland China


Book value ofinvestments in


31, 2019

Accumulatedamount ofinvestment

income remittedback to Taiwan asof December 31,

2019

Table 8

FootnoteMain business

activities Paid-in capital

Investmentmethod(Note 1)



Mainland China asof January 1, 2019




31, 2019

Ownershipheld by theCompany(direct orindirect)

Investmentincome (loss)

recognised by theCompany for the

year endedDecember 31,2019 (Note 2)

Net income ofinvestee for the

year endedDecember 31,

2019

Amount remitted fromTaiwan to Mainland China /

Amount remitted back toTaiwan for the year ended

December 31, 2019

~251~

Company name


Note 1: (1) Through investing in LI-HORNG TECHNOLOGY CO., LTD. in the third area, which then invested in the investee in Mainland China.

(2) Through investing in an existing company in the third area, which then invested in the investee in Mainland China

Note 2: The financial statements were audited and attested by R.O.C. parent company’s CPA.

Accumulated amount ofremittance from Taiwan to

Mainland China as ofDecember 31, 2019

$ 987,962

Investment amount approved bythe Investment Commission of the

Ministry of Economic Affairs(MOEA)

Ceiling on investments inMainland China imposed by the

Investment Commission ofMOEA

$ 1,066,658 Note 3

Note 3: In accordance with Gong-Zi No. 10820416020 letter of Industrial Development Bureau, Ministry of Economic Affairs on June 20, 2019, the Company acquired operating certificate document of operating

Note 4: The Company reinvested in the China investee company, Anhui Wei-hong Electronic Technology Co,.Ltd., through the investing business in Mainland China, Auras Technology (Kunshan) Co., Ltd., Since the

head office, the effective period was from June 17, 2019 to June 16, 2022, thus the Company was not restricted to the accumulated amounts of direct or indirect investment in Mainland China.

investing business in Mainland China is not a controlling company, there was no need to apply the reinvestment to Investment Commission.

~252~


Representative: Lin Yu-Shen

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