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Stock Code: 3324

Auras Technology Co., Ltd.

2018

Annual Report

Published on April 9 2019

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 spokesman: Huang Yi-Ting

Title: Financial Officer

TEL: (02)8990-1653

E-mail address: [email protected]

Name of deputy spokesperson: Yen Pei-Hsu

Title: Accounting Supervisor

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:

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

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

(3) TEL: (02)2504-8125

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

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

(1) Name: Hsu Sheng-Chung, Wu Han-Chi

(2) Auditor's firm: PwC Taiwan

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

(4) TEL: (02)2729-6666

(5) Website: Uhttp://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://Uwww.auras.com.twU

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 ................................................................................ 52 VI. Change of CPA ................................................................................................................ 52 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 ...................... 52

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 ...................... 53

IX. Relationships among The Company’s top ten shareholders including spouses, second degree relatives or closer ................................................................................... 54

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 ........................................... 55

Four. Funding Status ...................................................................................................................... 56

I. The Company’s capital stock and stock shares ............................................................ 56 II. Execution status of issuing corporate bonds (including overseas bonds) .................. 60 III. Disclosure relating to preference shares ....................................................................... 61 IV. Disclosure relating to depository receipts ..................................................................... 61 V. Employee stock certificates ............................................................................................ 62 VI. The new shares from restricted employee stock option .............................................. 64 VII. Disclosure on new shares issued in exchange of other company shares .................... 64 VIII. Progress on the use of funds ........................................................................................... 64

Five. Business performance ............................................................................................................ 66

I. Content of business ......................................................................................................... 66 II. Market and sales overview ............................................................................................. 73 III. Information of Employees During the Most 2 Recent Years ...................................... 78

IV. Contribution to Environmental Protection .................................................................. 79 V. Employer and employee relationships .......................................................................... 80 VI. Major contracts ............................................................................................................... 80

Six. Financial summary .................................................................................................................. 81

I. Summary balance sheet and income statement for the last 5 years ........................... 81 II. Financial analysis for the latest 5 years ........................................................................ 85 III. The 2018 Supervisor’s Review Report. ......................................................................... 88 IV. 2018 Individual Financial Reports Audited by the CPA ............................................. 88 V. 2018 Consolidated Financial Reports Audited by the CPA ........................................ 88 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 ................... 88

Seven. Review of financial status, business performance, and risk management ..................... 89

I. Financial status analysis ................................................................................................. 89 II. Operating results analysis .............................................................................................. 90 III. Cash flow analysis ........................................................................................................... 91 IV. Material capital expenditures in the latest year and impacts on business

performance .................................................................................................................... 91 V. Re-investment policies of the most recent year and future investment plans ........... 92 VI. Risk Management Analysis ............................................................................................ 92 VII. Other important disclosures .......................................................................................... 95

Eight. Special remarks .................................................................................................................... 96

I. Affiliated companies ....................................................................................................... 96 II. Private placement of securities during the latest year up till the publication date

of this annual report ..................................................................................................... 103 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 ............................... 103 IV. Other supplementary information .............................................................................. 103 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 ...................................................... 103

~1~

One. Report to Shareholders Dear shareholders,

Thank you for attending the Company’s 2019 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 2018 and Prospects in 2019.

I. Operating Performance in 2018

1. Financial income and expense and profitability analysis The consolidated net operating revenues of the Company in 2018 was NT$ 7,654,265

thousand, which was 10% higher than that (NT$ 6,948,786 thousand) in 2017. The net income after tax was NT$ 231,505 thousand. In 2018, due to the adverse effects of the New Taiwan Dollar, the depreciation of the RMB and the high competitiveness of product prices, and the increase in raw material and labor costs, the gross profit of the products was not as good as in 2017, but the combined revenues still grew by 10% compared to 2017. 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 2017 2018

Revenue and expenses

Operating revenues 6,948,786 7,654,265Operating gross profit 1,015,959 966,978Net income 294,720 231,505

Profitability

Return on assets (%) 6.10 4.54Return on shareholders’ equity (%) 13.12 10.27Operating profits to paid-up capital (%) 44.93 21.94Pre-tax profits to paid-up capital (%) 45.01 35.40Net profit margin (%) 4.24 3.02

Earnings per share ($)

Base earnings per share 3.66 2.90

Diluted earnings per share 3.58 2.85

2. R&D status (1) Annual R&D expenses for the last 5 years

Unit: NT$ thousand Year

Item 2014 2015 2016 2017 2018

Research and Development

expenses 170,404 176,065 214,006 219,535 279,699

Net operating revenue 4,243,620 4,702,015 6,547,230 6,948,786 7,654,265

Percentage to operating revenue

4.02% 3.74% 3.27% 3.16% 3.65%

~2~

(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 G. AI chip high heat dissipation module design

II. Business Plan for 2019

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.

~3~

III. Strategy for Future Development of the Group

As digital technology advances as time goes by with the help of IoT and 5G technology and the technology and application of AI is becoming more and more mature, the data from each aspect of our daily life will only accumulate but not decrease with time, and thus our needs for server operation will increase gradually by year. As the data from some research institutions shows, the global market size of server with high efficiency operation is expected to grow into US$ 14.8 billion in 2021. The evolution of new technologies and new applications including artificial intelligence (AI), virtual reality (VR), augmented reality (AR), 5G, is driving the growth of servers. The server industry has maintained a rising pace in recent years. It is estimated that it will continue its pace in 2019. The main growth momentum of servers will come from the needs of the cloud service providers, affecting the back-end supply chain layout changes, the growth of the servers, and become the focus of the supply chain. From the core processor to the server design and manufacturing, they have become a battleground for manufacturers. This growth is mainly driven by the increase in demand in data centers that has driven the growth of the overall market. In response to the development of the innovative cloud business model, enterprises must continuously upgrade equipment to satisfy or meet future market demands. The Company expects this growth will promote the Company's performance in server sales this year.

For mobile devices, the Company expects that with 5G commercial operation and the improvement in the smart phone performance, middle-end mobile phones will also adopt heat pipes as their cooling solution. The cooling methods of high-end mobile phone will be changed from the original heat pipes to soaking plates. For the market trends, it is imminent that the soaking plates will become the cooling solution of high-end mobile phones. In the future, it is expected that more smart phone device manufacturers will be taking steps toward adopting heat pipes as their cooling solutions, which will effectively enhance the penetration rate of the Company's heat pipes in the field of smart phones.


Chairman: Lin Yu-Shen

President: Lin Yu-Shen

Accounting Supervisor: Yen Pei-Hsu

~4~

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.

~5~

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.

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.

~6~

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$ 600,000.

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$ 70,000,000. 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.

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$ 300,000,000.

In July, capital increase by cash amounted to NT$ 250,000,000. 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$5,000,000 in ChunHong Electronic Technology (Chungqing) Co., Ltd. was arranged.

~7~

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

~ 8 ~

(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

~ 9 ~

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 corporate governance, investor

relationship, shareholders service management, shareholders’ meetings and each functional committee

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

~ 10 ~

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 7, 2019; 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 closer acting as Directors,

Supervisors, or other department heads

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 11,802,686 14.10 －－－－ 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

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 －－ 250,304 0.30 －－－－ MBA, National Chengchi University

Special Assistant of Auras Technology Co., Ltd. Supervisor of RAIJINTEK Co., Ltd. Director of ZeHong (Guangzhou) Electronic Technology Industry Co., Ltd. Supervisor of PeiHong (Guangzhou) Electronic Technology Industry Co., Ltd.

Chairman Lin Yu-Shen

Second degree of kinship

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 UniversityChairman 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 0.23 212,399 0.25 －－－－

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

－－－

~ 11 ~

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 closer acting as Directors,

Supervisors, or other department heads


percentage Shares Shareholding percentage Shares Shareholding

percentage Title Name Relationship

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

years 2009.06.19 4,563,094 5.52 4,563,094 5.45 －－－－

Master’s Degree, EMBA of Department of Industrial Engineering and Management, National Taipei University of Technology EMBA, Department of Business Administration, National Taiwan University of Science and Technology

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

－－－

Supervisor: Republic of China

Chiang Ping-Chu Male 2018.06.09 3

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

Chairman of Cheer Time Co., Ltd., 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. President of Cheer Time Enterprise 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.

Independent director, Audit Committee and Remuneration Committee of Universal Vision Biotechnology Co., Ltd.

－－－

~ 12 ~

2. Corporate shareholders' main shareholders April 7, 2019

Name of corporate shareholder Corporate shareholders' main shareholders

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

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

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 － 1

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) The directors and supervisors (except for the independent directors that are appointed by the Company or the parent company and

subsidiaries in accordance with this Law or the local law) of a company other than the Company and its affiliates (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 of second degree, or direct kin of third degree or closer to persons not qualified for criteria 1~3. (5) Not a director, supervisor, or employee of the company's corporate shareholder holding more than 5% of the company's outstanding

capital; nor a director, supervisor, or employee to any of the top 5 corporate shareholders. (6) Not a director, supervisor, manager, or shareholder with more than 5% ownership interest in any company or institution that has

financial or business relationship with the company. (7) Not a professional, business owner, partner, director, supervisor, or manager of any sole-proprietorship, partnership, company, or

institution providing commercial, legal, financial, or accounting services or consultations to the company or any of its affiliated companies; nor a spouse to anyone listed herein. Except the members of the Remuneration Committee performing their duties pursuant to Article 7 of the Regulation Governing the Establishment of Remuneration Committee and the Performance of Authority of Companies trading their stocks in TWSE/GTSM.

(8) Not a spouse or relative of second degree or closer to any other directors. (9) Does not meet any descriptions stated in Article 30 of The Company Act. (10) 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 7, 2019; Unit: thousand shares; %

Title Nationality Name Gender Date elected

Shares held Shareholdings of

spouse and underage children

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

achievements Current positions in the company

and other companies

Spouse or relatives of second degree or closer

acting as managers


percentage Shares Shareholding percentage Title Name Relationship

Chairman / President

Republic of China

Lin Yu-Shen Male 2009.03.31 11,802,686 14.10 －－－－

MBA, National Taiwan University and Fudan University

Director of all re-invested companies of Auras Technology

Co., Ltd. －－－

President (discharge)

Republic of China

Hsu Chien-Chou Male 2012.01.01 Not

applicableNot

applicable －－－－ MBA, The City University of New York －－－－

Vice President of R&D

Department (discharge)

Republic of China

Wu An-Chih Male 2009.01.01 Not

applicableNot

applicable －－－－ Master of National Taiwan Ocean University －－－－

Vice President of Business

Division

Republic of China

Chang Chih-Hui Male 2015.02.01 10,000 0.01 －－－－

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:

－－－


Division

Republic of China

Chen Heng-Lung

Male

2014.11.02 51,000 0.06 －－－－

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 50,000 0.06 －－－－

College of Management, National Sun Yat-sen University EMBA

－－－－

Assistant Manager of

Business Division

(discharge)

Republic of China

Shen Chih-Yeh Male 2016.08.16 Not

applicableNot

applicable －－－－ Department of Chemical Engineering, National Tsing Hua University

－－－－

Business Division Assistant Manager

Republic of China

Lin Po-Hsun Male 2018.04.10 －－－－－－ EMBA of National Chengchi

University －－－－

~ 14 ~

Title Nationality Name Gender Date elected

Shares held Shareholdings of

spouse and underage children

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

achievements Current positions in the company

and other companies

Spouse or relatives of second degree or closer

acting as managers


percentage Shares Shareholding percentage Title Name Relationship

Business Division Assistant Manager

Republic of China

Chiang Jung-Cheng Male 2018.04.10 28,164 0.03 －－－－

Department of Mechanical Engineering, St. John's University

Legal Representative and General Manager ChunHong Electronic

Technology (Chongqing) Co., Ltd.

－－－

Financial Supervisor (discharge)

Republic of China

Lin Yu-Chun Female 2017.08.08 Not

applicableNot

applicable －－－－ Master of Accounting, Tamkang University －－－－

Financial Officer (New)

Republic of China

Huang Yi-Ting Female 2018.1114 4,000 0.00 －－－－

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

－－－－

Accounting Supervisor

Republic of China

Yen Pei-Hsu Female 2017.08.08 7,000 0.01 －－－－ Master of Accounting,

Soochow University

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

Supervisor of ShuangHong (Kunshan) Electronic Technology

Co., Ltd.

－－－

Chief Internal Auditor

Republic of China

Tsai Chin-Hui

Female 2009.12.16 31,100 0.04 －－－－

Department of Business Administration, Tamkang University

－－－－

~ 15 ~

III. Remuneration of Directors and Managers (I) Directors' remuneration (including Independent Directors)

December 31, 2018; 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 from invested

businesses other than the subsidiaries

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


in the financial

report

The Company

All companies

contained inthe financial

report

The Company

All companies

contained inthe financial

report

The Company


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

amountStock

amountCash

amountStock

amount

Chairman Lin Yu-Shen

2,693 2,693 －－ (Note 1) (Note 1) 230 230 1.26% 1.26% 3,644 3,644 －－ (Note 2) － (Note 2) － 2.83% 2.83% －

Director Lin Tsung-Tan

Director Jin Hong

Investment Co, Ltd.


Chang Yu-Yao

Independent Director Liu Fu-Han

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 2018 remuneration paid to directors and supervisors resolved by the Company’s Board of Directors on March 15, 2019 was NT$ 2,321 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 5, 2019.

Note 2: The 2017 remuneration paid to employees resolved by the Company’s Board of Directors on March 15, 2019 was NT$ 10,155 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 5, 2019.

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 All companies contained in the financial report The Company All companies contained in the

financial report

<NT$2,000,000 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$2,000,000 ~ NT$5,000,000 －－ Lin Yu-Shen Lin Yu-Shen NT$5,000,000 ~ NT$10,000,000 －－－－ NT$10,000,000 ~ NT$15,000,000 －－－－ NT$5,000,000 ~ NT$30,000,000 －－－－ NT$30000,000 ~ 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, 2018; Unit: NT$ thousand

Title Name

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

net profit

Remuneration from invested

businesses other than

the subsidiaries

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

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

report

Supervisor Cheng Ho-Pin

1,436 1,436 (Note) (Note) 75 75 0.65% 0.65% － Supervisor Chiang Ping-Chu

Supervisor Chen Yen-Chun Note: The 2018 remuneration paid to directors and supervisors resolved by the Company’s Board of Directors on March 15, 2019 was NT$ 2,321 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 5, 2019.


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 All companies contained in the financial report

<NT$2,000,000 Cheng Ho-Pin, Chiang Ping-Chu, Chen Yen-Chun

Cheng Ho-Pin, Chiang Ping-Chu, Chen Yen-Chun

NT$2,000,000 ~ NT$5,000,000 －－ NT$5,000,000 ~ NT$10,000,000 －－

NT$10,000,000 ~ NT$15,000,000 －－

NT$5,000,000 ~ NT$30,000,000 －－

NT$30000,000 ~ 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, 2018; 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 from

invested businesses other than

the subsidiaries

The Company

All companies


report

The Company

All companies


report

The Company


in the financial

report


The Company All companies

contained in the financial report Cash

amountStock

amount Cash amount Stock amount

President Lin Yu-Shen

11,045 11,045 －－ 1,248 1,248 (Note 2) － (Note 2) － 5.31% 5.31% －

President Hsu Chien-Chou

(Note 1) Vice President Wu An-Chih

(Note 1) Vice President Chang

Chih-Hui Vice President Chen Chih-Wei

Vice President Chen Heng-Lung

Note 1: The Chairman at the time, Chien-Chou Hsu, was dismissed on August 7, 2018, and resigned on August 31, 2018. Vice Chairman, An-Chih Wu, resigned on December 31, 2018.

Note 2: The 2017 remuneration paid to employees resolved by the Company’s Board of Directors on March 15, 2019 was NT$ 10,155 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 5, 2019.


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

Names of the Presidents and the Vice Presidents


<NT$2,000,000 Hsu Chien-Chou, Wu An-Chih, Chang Chih-Hui, Chen Chih-Wei, Chen Heng-Lung

Hsu Chien-Chou, Wu An-Chih, Chang Chih-Hui, Chen Chih-Wei, Chen Heng-Lung

NT$2,000,000 ~ NT$5,000,000 Lin Yu-Shen Lin Yu-Shen

NT$5,000,000 ~ NT$10,000,000 －－ NT$10,000,000 ~ NT$15,000,000 －－

NT$5,000,000 ~ NT$30,000,000 －－

NT$30000,000 ~ NT$50,000,000 －－

NT$50,000,000 ~ NT$100,000,000 －－

> NT$100,000,000 －－

Total 6 persons 6 persons

~ 18 ~

(IV) Name of the managers received remuneration and the distribution of remuneration December 31, 2018; Unit: thousand shares; NT$ thousand

Title Name Stock amount Cash amount Total

As a percentage of net profit after tax

(%)

Manager

President (Start of term in office: August 7, 2018) Lin Yu-Shen

－ (Note) －－

President (Date of dismissal: August 7, 2018) Hsu Chien-Chou

Vice President (Date of dismissal: December 31, 2018) Wu An-Chih

Vice President Chang Chih-Hui Assistant Manager of Business Division Chen Heng-Lung

Assistant Manager of Business Division Chen Chih-Wei

Assistant Manager of Business Division (Date of dismissal: July 31, 2018)

Shen Chih-Yeh

Assistant Manager of Business Division Lin Po-Hsun

Assistant Manager of Business Division Chiang Jung-Cheng

Accounting Supervisor Yen Pei-Hsu Financial Supervisor (Date of dismissal: November 14, 2018) Lin Yu-Chun

Financial Supervisor (Start of term in office: November 14, 2018) Huang Yi-Ting

Chief Internal Auditor Tsai Chin-Hui Note: The 2017 remuneration paid to employees resolved by the Company’s Board of Directors on March 15,

2019 was NT$ 10,155 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 5, 2019.

(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

2017 2018 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 9,456 9,456 3.21% 3.21% 6,567 6,567 2.83% 2.83%Supervisor 2,458 2,458 0.83% 0.83% 1,511 1,511 0.65% 0.65%

President and Vice President 10,165 10,165 3.50% 3.50% 12,293 12,293 5.31% 5.31%

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) Operation of the Board of Directors

A total of 9 board meetings were held in 2018 (A). The 7th Board of Directors held 4 meetings, and the 8th Board of Directors held 5 meetings. Attendance 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 9 － 100% Continue the term after the General Shareholders’ Meeting on June 8, 2018

Director Lin Tsung-Tan 9 － 100%

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

Director Jin Hong

Investment Co, Ltd.

9 － 100% Continue the term after the General Shareholders’ Meeting on June 8, 2018


Chang Yu-Yao 9 － 100%


Independent Director Liu Fu-Han 9 － 100%


Supervisor: Cheng Ho-Pin 5 － 56%


Supervisor: Chiang Ping-Chu 9 － 100%


Supervisor: Chen Yen-Chun 9 － 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 46. 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 46.

(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 February 7, 2018, the Board discussed the 2017 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 February 7, 2018, the Board discussed the 2017 transfer of treasury shares to 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.

3. On August 7, 2018, the Board of Directors discussed about the 2017 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.

4. On December 24, 2018, the Board discussed the 2017 transfer of treasury shares to 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.

(III) 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: Please refer to pages 41.

~20~

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

(III) Supervisors' involvements in Board of Directors meetings A total of 9 board meetings were held in 2018 (A). The 7th Board of Directors held 4 meetings, and the 8th Board of Directors held 5 meetings. Attendance of Directors and Supervisors is as follows:

Title Name Actual

attendance (B)

Proxy Attendance

Percentage of actual

attendance (%) [B/A]

Note

Supervisor Cheng Ho-Pin 5 － 56%


Supervisor Chiang Ping-Chu 9 － 100%


Supervisor Chen Yen-Chun 9 － 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: At the March 15, 2018 board meeting, Supervisor, Yen-Chun Chen, suggested: When improving the Company’s governance plan, the Company should also strengthen the performance evaluation of the Board of Directors and refer to the examples announced by the competent authorities to formulate detailed evaluation items suitable for the Company.

~ 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?

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


~22~

Evaluation Item




TSEC/ GTSM Listed

Companies


(4) Will the Company set up internal norms to prohibit

insiders from utilizing the undisclosed information to trade securities?

V

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 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

(1) No significant discrepancy

~23~

Evaluation Item




TSEC/ GTSM Listed

Companies


(2) Will the Company, in addition to setting the Remuneration Committee and Audit Committee lawfully, have other functional committee set up voluntarily?

V

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 43.

(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, optimization of operations, and

~24~

Evaluation Item




TSEC/ GTSM Listed

Companies


(3) Will the Company have the performance evaluation rules and methods for the Board of Directors regulated and have the performance evaluation performed regularly every year?

V

(3) In 2018, the 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.

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

~25~

Evaluation Item




TSEC/ GTSM Listed

Companies


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

V

(4) The Company appoints CPA Hsu Sheng-Chung 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 44.

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. (4) No significant discrepancy

4. Have the listed companies had the corporate governance unit (full time or part time) setup or personnel designated to handle the corporate governance related matters (including but not limited to providing necessary data to directors and supervisors for business operation, lawfully handling the Board meeting and shareholders’ meeting related matters, processing the company registration and change registration, and preparing the minutes of Board meeting and shareholders’ meeting)?

V The Company has established Company Governance personnel 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.


~26~

Evaluation Item




TSEC/ GTSM Listed

Companies


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.)?

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.


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 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?

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 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


~27~

Evaluation Item




TSEC/ GTSM Listed

Companies


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

~28~

Evaluation Item




TSEC/ GTSM Listed

Companies


on Restriction of Hazardous Substances (RoHS), and periodically conducts supplier evaluation every year.

2. Corporate Social Responsibility

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

~29~

Evaluation Item




TSEC/ GTSM Listed

Companies


(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 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 November 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 5th Corporate Governance Evaluation Indicators

Number Indicators Improvement method

2.2 Has the Company established a diversification policy for the composition of its Board of Directors? Has the status of implementation of such policy been disclosed in annual reports and the Company website?

The Company has disclosed the implementation status of its diversification policy in the annual reports and the Company website.

2.14 Does the Company have functional committees, other than as prescribed by the law, which consist of no less than three members, more than half of them are Independent Directors and whose constitution, responsibility and

The Company has established the Growth Strategy Committee in 2018 upon approval by the Board of Directors, and has disclosed the Committee’s constitution, responsibility and operation on the Company website.

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Evaluation Item




TSEC/ GTSM Listed

Companies


operation have been disclosed?

2.21 Has the Company established governance personnel responsible for relevant governance matters of the Company? Has the operation and implementation of such unit been disclosed in the annual reports and the Company website?

The Company has appointed managerial officers as governance personnel, established the operation and implementation has been disclosed in the annual reports and the Company website in 2018.

4.1

Has the Company established an appropriate governance structure for the establishment and review of CSR policies, systems or relative management approach, and disclosed such information in the annual reports and Company website?

The Company has established its “Corporate Social Responsibility Best Practice Principles” and “Corporate Sustainable Management Committee” as a basis for the implementation of CSR, and has disclosed the relevant information on the Company website.

4.6 Has the Company established a “Human Rights Protection Policy” with reference to “International Bill of Human Rights” and disclosed the relevant information on the Company website?

The Company has established “Human Right Protection Policy” and has disclosed relevant information on the Company website.

Items that have not been improved but will be strengthened with first priority among the 5th 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 will upload 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 will simultaneously upload 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 will 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 will convene 2 institutional investor conferences in 2019, and these two institutional investor conferences will be at least 3 months apart.

~ 31 ~

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

Identity

Qualification Name

Meet One of the Following Professional Qualification Requirements, Together with

at Least Five Years Work Experience Independence Criteria (Note 2)

Number of other public

companieswhere the members are also

the members

of the remunerat

ion 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


Chang Yu-Yao －－－ (Note

1)

Independent Director Liu Fu-Han －－－ (Note

1)

Others Hsieh Jung-Yuan －－－ (Note

1)

Note 1: The members of the 4th term re-elected on June 25, 2018 are all assumed by the members of the original Remuneration Committee.

Note 2: 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 its affiliates Except for the independent

directors that are appointed by the Company or the parent company and subsidiaries in accordance with this Law or the local law.

(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 of second degree, or direct kin of third degree or closer to persons not qualified for criteria 1~3.

(5) Not a director, supervisor, or employee of the company's corporate shareholder holding more than 5% of the company's outstanding capital; nor a director, supervisor, or employee to any of the top 5 corporate shareholders.

(6) Not a director, supervisor, manager, or shareholder with more than 5% ownership interest in any company or institution that has financial or business relationship with the company.

(7) Not a professional, business owner, partner, director, supervisor, or manager of any sole-proprietorship, partnership, company, or institution providing commercial, legal, financial, or accounting services or consultations to the company or any of its affiliated companies; nor a spouse to anyone listed herein.

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

~32~

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

4 compensation committee meetings were held in 2018 (A). The 3rd Compensation Committee held 2 meetings, and the 4th Compensation Committee held 2 meetings. Attendance of committee members is as follows:

Title Name Actual

attendance (B)

Proxy Attendance

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

Convener Chang Yu-Yao 4 － 100% Assumed from the board

on June 28, 2018

Members Liu Fu-Han 4 － 100% Assumed from the board on June 28, 2018

Members Hsieh Jung-Yuan 4 － 100% Assumed from the board

on June 28, 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 pages 49.

(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 session of 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 49.

~ 33 ~

(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. Implementation of sound corporate governance (1) Does the company have the CSR policies or systems

established and the implementation effect reviewed? (2) Does the company have the CSR education and training

arranged on a regular basis? (3) 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?

(4) Does the Company have a reasonable salary and remuneration

policy set-up, have the employee performance evaluation system been combined with the corporate social responsibility policies and have a clear and effective reward and punishment system been established?

V

V

V

V

(1) The Company has added to the “Corporate Social

Responsibility Best Practice Principles” and established the additional “Corporate Sustainable Management Committee” as a basis for implementation of CSR, and the regular evaluation on performance. The CSR policy formulated by the Company covers management principles related to ethics, labor safety and hygienic environment. In addition to putting EICC (Electronic Industry Citizenship Coalition) declaration on the company website, the Company lists the relevant disadvantages and conducts reviews for improvement via internal audit and external customer evaluation. It also devotes to aspects such as environmental protection, safety and hygiene, and labor rights, etc., to implement social responsibility.

(2) The Company continues to promote its corporate operating concept and social responsibility through each meeting.

(3) 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.

(4) In addition to clearly listing matters such as the service principles, safety and hygiene, etc., on the “Work Rules,” the Company conducts CSR propagation to the employees via management meetings and emails, and considers CSR spirit into the annual performance examination, in order to make the reward and punishment system precise and effective.

No significant discrepancy. The Company will report to the Board of Directors about the processing status whenever needed.

2. Development of a sustainable environment (1) Is the Company committed to enhance the utilization

efficiency of resources and use renewable materials that are

(1) In order to fulfill the social responsibility of protecting the

Earth environment, the Company does not use harmful


~34~

Evaluation Item




with low impact on the environmental?

(2) Does the Company have an appropriate environmental management system established in accordance with its industrial character?

V V

substances during the production and R&D processes. In addition to asking suppliers to sign on the agreement for not using harmful substances, the Company requires suppliers to provide materials that meet the requirements of environmental protection.

(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. Accordingly, the Company promises to implement the following policies: 1. Communicate with material suppliers and assisting

firms on matters related to environmental protection and vocational safety and hygiene. The laws and regulations of environmental protection and vocational safety and hygiene shall first be abided by, and then the environmental protection policies required by the headquarters and customers shall be followed, in order to mutually reach the goals of environment and safety protection, industrial safety and sustainable operation.

2. With appropriate management system, devote to the prevention of pollution and accidents and safe and continuous improvement.

3. Set up classification signatures for each kind of waste, and conduct appropriate process.

4. Implement educational propagation and trainings on

~35~

Evaluation Item




(3) Does the company pay attention to the impact of climate

change on the operational activities, implement greenhouse gas check, and form an energy-saving, carbon-reduction, and greenhouse emissions reduction strategy?

V

environmental protection and vocational safety and hygiene, in order to enhance employees’ awareness and concept of environmental protection and vocational environmental safety.

5. Matters related to environmental protection and vocational safety and hygiene all meet the requirements of government laws and regulations and the requirements of the related parties.

6. Find out problems in advance, enhance operating safety, and promote measures for safety and hygiene, in order to protect employees’ life, safety and health.

7. In executing the policies, senior managers of each level shall lead their subordinates to complete the tasks all together for prevention.

8. Establish each environment, safety and hygiene management system, clearly define the duties of each department and personnel of each level on environmental protection and vocational health and safety, in order to enhance the attention of the staff on safety and hygiene.

9. Periodically conduct auditing to implement environmental safety management operation and achieve the annual goal of environmental safety.

10. Management of life-cycle environmental factors: obtaining of raw materials, designing, procurement, production, transportation and shipment, usage, processing after durable years and final disposal.

(3) The Company refers to the requirements of ISO14064-1 and ISO14064-3 standards, and devotes to promoting energy saving to reach the efficacy of energy saving and carbon reducing. The undertaken measures are: 1. Utilize cyclical fan and temperature sensor to

effectively control the temperature of air conditioning and the time of using electricity.

2. Gradually update system information, utilize online checking, and add the authorization function on printers to record the usage of each department and

~36~

Evaluation Item




lower the paper usage of the office. 3. The waste water of the production plants are recycled

for the use in cleaning restrooms. 4. The scrap of bronze pipes in the production process is

made into powder for re-usage. 5. The indirect materials during the production process

(e.g., paper boxed and wooden boxes) are returned back to the factory for re-usage.

6. The company cars are dispatched under the system of arranging different passengers in one car.

7. During the lunch break, the lights of office areas will be turned off.

8. In spring and autumn, air conditioners will replaced by exhaust fans for circulation of air.

9. The high bays of the factory are replaced by LED high bays.

10. The faucets in the while plant area are replaced by energy-saving ones.

3. Enforcement of social justice (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) Does the company have the complaints mechanism and

channels established for employees and have it handled properly?

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

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 dedicated personnel and email address to handle problems related to employee complaints and to ensure that the problems can soon be dealt with.

(3) The Company strictly implements the three-level safety education, and examines the identification risk, control risk, and prevention risk of the management program. Meanwhile, the Company periodically conducts operating environment checking and quality examination of drinking water, remind the staff of their health conditions via periodic employee health examinations, and holds activities such as the family day and employee travel, hoping to improve the health of the staff. In terms of work


~37~

Evaluation Item




(4) The Company has developed the mechanism for the routine

communication with the employees, and informed the employees of the changes in operation that may cause significant influence on the employees through reasonable means.

(5) Does the company have an effective career capacity

development training program established for the employees? (6) Does the company have the relevant consumer protection

policies and complaint procedures established in the sense of R&D, procurement, production, operations and service processes?

(7) Has the company complied with the relevant law and

regulations and international standards on the marketing and labeling of products and services?

(8) Has the Company assessed whether the suppliers had a record of affecting the environment and society in advance?

V

V

V

V

V

safety, employees are cultivated with the ability of emergency reaction and the concept of safety, in order to strengthen the employees’ recognition, create a safe working environment, lower the probability of accidents occurring in the working environment, and to alleviate the adverse effects on the Company’s assets and employee safety.

(4) The Company periodically convenes labor-employer meetings, establishes the interaction and communication mechanism with employees, and notifies employees in a harmonious way, in order to maintain a good and harmonious relationship with employees and to avoid operating changes that may cause significant impacts.

(5) 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.

(6) The Company has dedicated units and email address to handle problems related to complaints about consumers’ rights, ensuring that when a customer complaint occurs, the Company can respond to it as soon as possible. The Company has also set up the “Procedures for Managing Customer Complaints,” with which the Company prevents similar matters to happen through the analysis on the reason for customer complaints and improvement.

(7) The Company has executed under the requirements of laws and regulations, international standards, counter parties of sales and stakeholders.

(8) The Company focuses on the protection of the environment and society. Before cooperating with suppliers, the Company would sign the Honest Agreement, ask the suppliers to follow the Company’s policies of sustainable operation, environmental protection and energy saving, honesty and ethics, and fulfilment of social responsibility, encourage suppliers to enhance corporate

~38~

Evaluation Item




(9) Does the contract signed by the major suppliers and the company containing the clauses of having the contract terminated or cancelled at any time when the suppliers committing a violation against the corporate social responsibility policy and having a significant impact on the environment and society?

V

governance with the Company, and devote to enhancing CSR. Green procurement: The Company asks the materials suppliers to sign agreements for not using toxic 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.

(9) 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: [email protected]

4. Enhanced information disclosure (1) Does the Company have the relevant and reliable CSR

information disclosed on the Company’s website and MOPS?V

The Company has established an external website and published brief introduction to the Company on it for shareholders to fully understand. The Company has also uploaded company information to the MOPS in accordance with laws and regulations.


5. 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 not formulated the “CSR Principles,” but has formulated relevant regulations among the Company’s operating standards for human resource, environmental protection and safety and hygiene, which satisfies the requirements of laws.

6. 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

~39~

Evaluation Item




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. 7. If the Company’s Corporate Social Responsibility Report has passed the certification standards of the relevant certification institutions, it should be detailed:

The Company has not prepared the CSR Report.

~ 40 ~

(VII) Proper enforcement of business integrity

Evaluation Item

Implementation Status Variation from the Ethical Corporate Management


and the reasons


1. Business Integrity Policy and action plans (1) Does the Company have the corporate management policy and

method declared explicitly in the Articles of Incorporation and external documents; also, the commitment of the board of directors and the management to actively implement the operating policies?

(2) Does the Company have the prevention program for any fraud

stipulated; also, have the respective operating procedures, behavior guidelines, disciplinary actions and complaints system declared explicitly; also have it implemented substantively?

(3) Does the company have preventive measures adopted in response to the conducts stated in Article 7 Paragraph 2 of the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies” or other business activities subject to higher risks of fraud?

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 formulated the “Codes of Ethical Conduct for Directors, Supervisors and Managers,” and “Honesty and Secret Agreement”. The email address for complaints reporting is [email protected]

(3) The Company has formulated the “Codes of Ethical Conduct for Directors, Supervisors and Managers,” and strictly requires employees and the management level to obey corporate ethics and stick to the spirits of ethic and honesty. At the same time, the Company irregularly propagates to the Group members in obeying relevant regulations in the operating activities within the operating scope.


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?

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.


~41~

Evaluation Item



and the reasons


(2) Does the Company have a specific (part-time) unit setup under the board of directors to advocate the code of integrity and to report on its implementation to the Board on a regular basis?

(3) Does the company have developed policies to prevent conflicts of

interest, provided adequate channel for communication, and substantiated the policies?

(4) Has the company established effective accounting systems and

internal control systems to substantiate corporate management; also, have audits performed by the internal audit unit on a regular basis or by the commission CPAs?

(5) Has the Company organized corporate management internal and

external education and training programs on a regular basis?

V

V

V

V

(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 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) Does the Company have the standard investigating procedures and

related confidentiality mechanism established for the incidents being reported?

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


~42~

Evaluation Item



and the reasons


(3) Has the company taken proper measures to protect the

whistle-blowers from suffering any consequence of reporting an incident?

V

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 (1) Does the company have the contents of ethical corporate

management and its implementation disclosed on the website and MOPS?

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


5. Where the company may have establish 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.

~ 43 ~

(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. (Corporate Director Representative of 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. Board of Directors performance assessment mechanism

2018 Board of Directors performance self-assessment (1) Assessment period: January 1 2018 to December 31, 2018 (2) Results of internal Directors’ self-assessment on overall performance:

Assessment criteria Results Level of involvement in the Company’s

operation Good

Improvement on the Board of Directors’ judgment

Good

Constitution of the Board of Directors and each functional committees.

Good

Election of the Board of Directors and continuing education

Good

Internal Control Good (3) Results of internal board members’ self-assessment on performance: Evaluation

results are good.

3. Training hours of directors and supervisors in 2018: Title Name Training date Organizer Course name Training

hours

Director Lin Yu-Shen

2018/12/24 Securities and Futures Institute

Strengthening of corporate governance with the self-assessment system of the Board of Directors

3


Discussion on Money Laundering Prevention and Legal Compliance

3

Director Lin Fang-Ling 2018/12/24 Securities and Strengthening of corporate 3

~44~

Title Name Training date Organizer Course name Training hours

Futures Institute governance with the self-assessment system of the Board of Directors



3

Director Lin Tsung-Tan


Discussion on the Influence of China-US Trade Disputes on Domestic Enterprises

3


Discussion on Examples of Corporate Fraudulent Financial Reporting and Directors’ and Supervisors’ Liability for Financial Statement Fraud

3

Independent Director Liu Fu-Han

2018/03/21

Corporate Governance Association in Taiwan

Development of AI and the Industry 3

2018/11/02


Latest Responsibilities and Management Risks of Directors in Corporate Governance Blueprint

3

Independent Director Chang Yu-Yao



3



3

Supervisor: Cheng Ho-Pin



3



3

Supervisor Chiang Ping-Chu

2018/10/24


Director and Supervisor Responsibility Risk Seminar 3

2018/12/14 Taiwan Printed Circuit Association

Corporate Business Secret Protection and Information Security Seminar

3



3



3

Supervisor Chen Yen-Chun

2018/09/20


New Trends and Analysis on Company Law Amendments (I) 3

2018/09/20


New Trends and Analysis on Company Law Amendments (II) 3

~45~

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

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

Date: March 15, 2019 The following declaration is based on the 2018 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. “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, 2018, 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 15, 2019. 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 Signature

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

review must be disclosed: Not applicable.

~46~

(XI) Table for CPA’s Audit and Evaluation: Company name: Auras Technology Co., Ltd. Auditor's firm: PwC Taiwan CPA: Hsu Sheng-Chung, Wu Han-Chi Evaluation year: 2018

Item CPA Hsu Sheng-Chung

CPA Wu

Han-ChiNote

(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

Yes Yes

YesYes

~47~

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

YesYes

Yes

The Company’s officer: Yen Pei-Hsu Date: 108.01.02

(XII) Major resolutions from general shareholders' meetings and board of directors meetings during the latest financial year, up to the publication date of this annual report: 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. Important resolutions and execution status of the shareholders’ meeting

Time / Meeting Important resolution contents Resolution results / Implementation status

2018.06.08 General Meeting of shareholders

1. Adoption of the 2017 Business Report and Financial Statements.

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

2. Adoption of the Proposal for Distribution of 2017 Profits.

The proposal has been passed by the attending shareholders by voting. 1. On the June 25, 2018, the board meeting set

the ex-dividend date as July 30, 2018, and authorized the Chairman to handle the relevant matters.

2. On July 6, 2018, the cash dividend rate was adjusted to NT$ 2.02595097, and was published as significant information.

3. On August 13, 2018, cash dividends were distributed.

3. Approval of amendments to the “Rules of Procedure for Shareholder Meetings”.

All attending shareholders had no disputes and passed the proposal. The proposal was executed according to the operating procedures after being amended.

4. The 8th Election of Directors and Supervisors.

Results of the Election: Director: Lin Yu-Shen Corporate director: Jin Hong Investment Co, Ltd.

(Representative: Lin Fang-Ling)

Director: Lin Tsung-Tan Independent director: Chang Yu-Yao Independent director: Liu Fu-Han Supervisor: Cheng Ho-Pin Supervisor: Chiang Ping-Chu Supervisor: Yen-Chun Chen Relevant information has been announced and disclosed on the company website pursuant to the relevant regulations.

5. Proposal for canceling the non-compete restriction for new directors and their representatives

Relevant information has been announced and disclosed on the company website pursuant to the relevant regulations.

~48~

2. Major Board of Directors resolutions

Board of Directors Important resolution contents

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

Independent directors

opposed or reserved their

opinion The 19th

meeting for the 7th term (April

23, 2018)

1. Review of the qualifications of Independent Directors. － None

2. The continued application for financing credit quota from Bank SinoPac was approved. － None

The 20th meeting for the 7th term (May

10, 2018)

1. The “2013 Employee Stock Option Certificates” executed in 2018Q2, “The 1st Employee Stock Option Certificates in 2014,” and the proposal of issuing new shares converted from “The 2nd Employee Stock Option Certificates in 2014”

－ None

2. Proposal of issuing new shares converted from “The 2nd Domestic Secured Convertible Bond” in 2018Q2. － None

3. The continued application for financing credit quota from First Commercial Bank was approved.。－ None

4. The continued application for financing credit comprehensive quota from DBS Bank Taiwan Branch was approved.

－ None

5. The continued application for the quota of financing credit and account receivable purchase from Mega International Commercial Bank Co., Ltd. was approved.

－ None

6. The continued application for financing credit quota from KGI Commercial Bank was approved. － None

7. The proposal for adding for the Company’s endorsement and guarantee quota of US$ 2 million to the 100% held subsidiary, Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

－ None

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

－ None

9. Capital increase in ChunHong Electronic Technology (Chongqing) Co., Ltd. through subsidiaries located in a third place overseas.

－ None

10. Proposal for the 1st repurchase of the Company’s shares for transferring to employees in 2018. － None

1st special board meeting of the 8th Board

of Directors (June 8, 2018)

1. Approved the Election of the Chairman. － None

The 2nd meeting for the 8th term (June 25, 2018)

1. Deciding on matters related to the Company’s ex-dividend date in 2018. － None

2. The adjustment to the conversion price of the Company’s domestic 2nd secured convertible bond － None

3. The adjustment to the conversion price of the Company’s 1st (in 2013 and 2014), and 2nd (in 2014) employee stock option certificates

－ None

4. Appointment of the Company’s 4th compensation committee member － None

The 3rd meeting for the 8th term

(August 7, 2018)

1. Reviewing on the 2017 Proposal for Distributing Remuneration to Directors and Supervisors None

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

~49~





opinion 3. The “2013 Employee Stock Option Certificates”

executed in 2018Q3, “The 1st Employee Stock Option Certificates in 2014,” and the proposal of issuing new shares converted from “The 2nd Employee Stock Option Certificates in 2014”

－ None


5. Approved the addition of “Treasury share buyback and transfer management operations” in the Company’s “Internal Control Policy - Financial Cycle” and “Guidelines for Internal Audit Implementation - Financing Cycle”.

None

6. Approved the appointment of managerial officers. None 7. Approved the change of spokesperson. None 8. Approved the change of deputy spokesperson. None 9. The continued application for the Company’s lending of

NT$ 250,000,000 to subsidiary, Ze Hong (Guangzhou) Technology Co., Ltd., was approved.

None

10. Approved the increase of the loan limit, NT$100,000,000, to subsidiary, ChunHong Electronic Technology (Chongqing) Co., Ltd.

None

The 4th meeting for the 8th term (November 14,

2018)


－ None

2. Proposal of issuing new shares converted from “The 2nd Domestic Secured Convertible Bond” in 2018Q4 － None

3. The Company’s “2019 Audit plans” was approved. － None 4. The proposal for changing the Financial Officer was

approved. None

5. Approved the change of spokesperson. None

6. Approved the change of deputy spokesperson. None

7. The continued application for financing credit quota from E.Sun Commercial Bank was approved. － None

8. The continued application for financing credit quota from Chang Hwa Commercial Bank was approved. － None

9. Approved the addition of China Bills Finance Corporation Commercial Paper Facilities. － None

10. Approved the Company’s “Guidelines for Self-assessment or Peer-assessment of the Board of Directors”.

－ None

The 5th meeting for the 8th term (December 24,

2018)

1. The Company’s proposal of 2017 Treasury Stocks Transferred to Managers was approved. None

2. The proposal for amending the Company’s “Corporate Governance Principles” was approved. － None

3. Approved the establishment of the Company’s 1st Growth Strategy Committee. － None

4. Approved the appointment of corporate governance personnel. None

5. Approved the addition of the Company's “Human Rights Policy”. － None

6. Approved the addition of the Company's “Corporate Social Responsibility Best Practice Principles”. － None

~50~





opinion 7. The proposal of continued application for the quota of

financing credit and account receivable purchase from Shin Kong Commercial Bank Co., Ltd. was approved.

－ None

The 6th meeting for the 8th term

(January 16, 2019)

1. The Company’s 2019 Operation Plan was approved. － None 2. The proposal for evaluating the independence of the

Company’s CPA was approved. None

3. The Company’s proposal of 2018 Year-End Bonuses Distributed to Managers. None

4. The proposal for amending the Company’s “Corporate Governance Principles” was approved. － None

5. Approved the addition of the loan limit for Cathay United Bank. － None

The 7th meeting for the 8th term

(March 15, 2019)

1. The Company’s proposal of 2018 Remuneration to Employees. None

2. The Company’s proposal of 2018 Remuneration to Directors and Supervisors. None

3. Proposal for changing the Company’s CPA of financial statements None

4. The Company’s 2018 business report and financial statements. － None

5. The Company’s 2018 earnings appropriation. None 6. The Company's 2018 "Declaration of Internal

Control Policies". None

7. Approved the issuance of the 3rd domestic unpledged convertible company bonds. None


－ None


10. Amendments to the “Articles of Incorporation”. － None 11. Amendments to the “Procedures for Election of Directors

and Supervisors”. － None

12. Amendments to the “Regulations Governing the Acquisition or Disposal of AssetsRegulations Governing the Acquisition or Disposal of Assets”.

None

13. The proposal for formulating the matters related to the Company’s 2019 General Shareholders’ Meeting. － None

14. The continued application for the quota of financing credit and account receivable purchase from Taishin International Bank Co., Ltd. was approved.

－ None

15. The continued application for the quota of financing credit and account receivable purchase from CTBC Bank Co., Ltd. was approved.

－ None

16. The continued application for financing credit quota from Yuanta Commercial Bank was approved. － None

17. The application for financing credit quota from Land Bank of Taiwan was approved. － None

~51~





opinion 18. The application for the Company’s endorsement and

guarantee quota of US$ 3 million to the 100% held subsidiary, Chuen Hong (Guangzhou) Technology Co., Ltd. (hereafter “Chuen Hong”), was approved.

None

19. The application for the Company’s endorsement and guarantee quota to the 100% held subsidiary, Ze Hong (Guangzhou) Technology Co., Ltd. (hereafter “Ze Hong”), was approved.

None

(XIV) Major resolutions of the Remuneration Committee in the most recent year to the date this

report was printed:

Remuneration Committee Important resolutions and follow-ups: Resolution results

The handling of the Company's opinion

towards compensation committee members.

The 1st meeting for the 4th term (August 7,

2018)

1. Approved the appropriation of the Company’s 2017 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 2017.




The 2nd meeting for the 4th term

(December 24, 2018)

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




The 3rd meeting for the 4th term (January 16,

2019)

1. Reviewed the 2018 annual bonus appropriation to managerial officers.




The 4th meeting for the 4th term (March 15,

2019)

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




(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, CEO, President, Chief Accounting Officer, Chief Financial Officer, Chief Internal Auditor, 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

President Hsu Chien-Chou 2012.01.01 2018.08.31 Resignation

Chief Financial Officer

Lin Yu-Chun 2012.04.26 2018.11.14 Resignation

~52~

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 Sheng-Chung 2,700

thousand dollars

－－－ 1,960 1,960 2018.01.01 ~2018.12.31

Transfer Pricing Report: $1,960 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.

VI. Change of 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.

~53~

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

2018 Up till April 7, 2019 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 (Date of new term: August 7, 2018) 316,000 1,340,000 97,000 －

Director Lin Tsung-Tan －－－－ Director Jin Hong Investment Co, Ltd. －－－－ Director representative Lin Fang-Ling 15,000 － 10,000 －

Independent Director Liu Fu-Han 20,000 －－－

Independent Director Chang Yu-Yao －－－－

Supervisor: Cheng Ho-Pin (146,000) －－－ Supervisor: Chiang Ping-Chu －－－－ Supervisor: Chen Yen-Chun －－－－

President Hsu Chien-Chou (Date of dismissal: August 7, 2018) 37,000 － Not applicable Not applicable

Vice President Wu An-Chih (Date of dismissal: December 31, 2018) 28,000 － Not applicable Not applicable

Vice President Chang Chih-Hui －－ (65,000) － Vice President Chen Heng-Lung 18,000 － 16,000 － Vice President Chen Chih-Wei 25,000 － (29,000) － Accounting Supervisor Yen Pei-Hsu 12,000 － 7,000 －

Chief Internal Auditor Tsai Chin-Hui 6,100 － 7,000 －


Lin Yu-Chun (Date of dismissal: November 14, 2018) (3,000) － Not applicable Not applicable

Financial Officer Huang Yi-Ting (Date of new term: November 14, 2018) －－ 4,000 －

Assistant Manager Shen Chih-Yeh (Date of dismissal: August 1, 2018) －－－－

Assistant Manager Lin Po-Hsun 19,000 － 13,000 － Assistant Manager Chiang Jung-Cheng 4,000 － 13,000 － Large shareholders with shareholdings exceeding 10%

Lin Yu-Shen 316,000 1,340,000 97,000 －

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

~54~

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

April 7, 2019

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 11,802,686 14.10% －－－－－－－

New labor pension fund 5,264,000 6.29% －－－－－－－

Cheng Ho-Pin 4,563,094 5.45% －－

Citibank Taiwan in Custody for Nomura International (Hong Kong) Ltd.’s customer Nomura International PLC Fund

3,273,000 3.91% －－－－－－－

Old labor pension fund 2.641,000 3.15% －－－－－－－

Chang Chih-Chun 2,395,000 2.86% －－－－－－－

Taiwan Business Bank in Custody for Capital OTC Fund

1,700,000 2.03% －－－－－－－

Taiwan Business Bank Trust Department in Custody for Capital High Tech Fund

1,500,000 1.79% －－－－－－－

Chang Chih-Yuan 1,300,000 1.55% －－－－－－－

Hua Nan Bank in Custody for Capital Marathon Fund

1,255,000 1.50% －－－－－－－

~55~

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, 2018; NT$ thousand; thousand shares

Invested businesses

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. 32,953 100% －－ 32,953 100%

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

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

Milk Idea Inc. 200 20% 500 50% 700 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. －－ 5,000 100% 5,000 100%

SHIH HORNG TECHNOLOGY CO., LTD. －－ 1,000 100% 1,000 100%

JCD OPTICAL CO., LTD. (Cayman) －－ 2,907 35.00% 2,907 35.00%

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

－－ (Note 1) 100% (Note) 100%

Ze Hong (Guangzhou) Technology Co., Ltd. －－ (Note 1) 100% (Note) 100%

Pei Hong (Guangzhou) Technology Co., Ltd. －－ (Note 1) 100% (Note) 100%

Chun Hong (Chongqing) Technology Co., Ltd. －－ (Note 1) 100% (Note) 100%

Kunshan jinxi plastic co., ltd －－ (Note 2) 13% (Note) 13%

Anhui Weihong Electronic Technology Co.,Ltd. －－ (Note 1) 60% (Note) 60%

JCD (Guangzhou) Technology Co., Ltd. －－ (Note 1) 35.00% (Note) 35.00%

Note 1: The Company’s long-term investment in the equity method. Note 2: Financial assets at fair value through other comprehensive income

~56~

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

(I) Source of capital 1. Share category April 7, 2019; Unit: shares

Shareholding Type of patent

Authorized capital Note

Outstanding shares Unissued shares Total Ordinary

shares 83,732,340 36,267,660 120,000,000 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

2018.06 10 120,000,000 1,200,000,000 82,657,953 826,579,530

Employee shares converted to

ordinary sharesCB converted to ordinary shares

None

Approved under Notice No. Jin-Shou-Shan-Tze

10701057770 dated June 12, 2018

2018.06 10 120,000,000 1,200,000,000 82,657,953 826,579,530Re-election of

directors/ supervisors

None


10701071400 dated June 27, 2018

2018.09 10 120,000,000 1,200,000,000 82,690,212 826,902,120



None

Approved under Notice No. Jin-Shou-Shan-Tze 10701108070 dated September 12, 2018

2018.11 10 120,000,000 1,200,000,000 83,011,582 830,115,820



None

Approved under Notice No. Jin-Shou-Shan-Tze 10701151170 dated November 30, 2018

2019.04 10 120,000,000 1,200,000,000 83,483,896 834,838,960



None


10801036150 dated April 9, 2019

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 7, 2019; Unit: shares

Shareholders structure

Volume

Government institutions

Financial institutions

Other corporations Individuals

Foreign institutions and

foreigners Total

Number of person (persons) 4 57 157 14,630 44 14,892

Number of shares held (shares) 8,936,000 15,057,082 3,874,147 50,857,848 5,007,263 83,732,340 Shareholding

percentage (%) 10.67% 17.98% 4.63% 60.74% 5.98% 100.00%

~57~

(III) Ownership diversification April 7, 2019; Unit: shares; %

Shareholding rank Number of shareholders

Number of shares held

Shareholding percentage

1 to 999 10,443 239,058 0.29%1,000 to 5,000 3,586 6,253,034 7.47%5,001 to 10,000 354 2,815,015 3.36%

10,001 to 15,000 127 1,636,585 1.95%15,001 to 20,000 83 1,547,887 1.85%20,001 to 30,000 86 2,214,154 2.64%30,001 to 40,000 41 1,470,208 1.76%40,001 to 50,000 20 929,973 1.11%50,001 to 100,000 62 4,473,601 5.34%

100,001 to 200,000 35 5,031,055 6.01%200,001 to 400,000 25 6,837,049 8.17%400,001 to 600,000 8 3,738,000 4.46%600,001 to 800,000 5 3,474,000 4.15%800,001 to 1,000,000 4 3,719,085 4.44%

1,000,001 and above 13 39,353,636 47.00%Total 14,892 83,732,340 100.00%

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

April 7, 2019

Rank Name of major shareholder Shares held Shareholding percentage

1 Lin Yu-Shen 11,802,686 14.10% 2 New labor pension fund 5,264,000 6.29% 3 Cheng Ho-Pin 4,563,094 5.45%

4

Citibank Taiwan in Custody for Nomura International (Hong Kong) Ltd.’s customer Nomura International PLC Fund

3,273,000 3.91%

5 Old labor pension fund 2,641,000 3.15% 6 Chang Chih-Chun 2,395,000 2.86%

7 Taiwan Business Bank in Custody for Capital OTC Fund 1,700,000 2.03%

8 Taiwan Business Bank Trust Department in Custody for Capital High Tech Fund

1,500,000 1.79%

9 Chang Chih-Yuan 1,300,000 1.55%

10 Hua Nan Bank in Custody for Capital Marathon Fund 1,255,000 1.50%

~58~

(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 2017 2018 Up till March 31,

2019

Market price per share

Highest 109.50 100.50 140.00 Lowest 66.00 45.00 94.10 Average 86.81 77.70 120.38

Net worth per share Before dividend distribution 27.79 28.75 － After dividend distribution 25.79 (Note 4) －

Earnings per share

Weighted average shares (in thousands shares) 79,244 80,312 －

Earnings per share

Before adjustment 3.66 2.90 － After adjustment 3.58 2.85 －

Dividends per share

Cash dividend 2.0 1.5 － Stock

dividends From earnings －－－

From capital reserves －－－ Retained Dividends －－－

Analysis of investment returns

P/E ratio (Note 1) 23.71 26.79 － Price to dividends ratio (Note 2) 43.41 51.80 －

Cash dividend yield (Note 3) 2.30% 1.93% － 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 2018, 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 2019Q1 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$ 125,225,844 are proposed to be distributed to the shareholders

this year (as approved by the Board of Directors on March 15, 2019): 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 criteria. 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 15, 2019, the Board of Directors proposed to distribute NT$ 10,155,025 as the

employee remuneration in 2018 and NT$ 2,321,149 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 2017 approved to be distributed by 2018 General Shareholders’ Meeting are as follows, and are all distributed by cash and have no discrepancy with the estimated value. (1) Employee bonus: NT$ 11,768,878. (2) Remuneration for directors and supervisors: NT$ 2,690,029.

(IX) Shares repurchased by The Company: April 7, 2019

Period No. 4th 5th Purpose of repurchase Transferring stocks to employees Transferring stocks to employees

Repurchase period 2017/06/09 – 2017/06/14 2018/05/14 – 2018/06/05 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 Shareholdings that have been

cancelled and transferred 800,000 shares are transferred. 0

Accumulated shareholdings of the Company 1,592,000

Ratio of accumulated shareholdings of the Company to total issued

shares 1.90%

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II. Execution status of issuing corporate bonds (including overseas bonds)

(I) Corporate bond information

Bond type 2nd domestic secured convertible bond

Issue date May 17, 2016 Face Value NT$ 100 thousand

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

Total NT$ 300,000 thousand Interest rate Coupon rate:

Maturity 3 years, matured on May 17, 2019 Guarantee Institution Taishin International Bank

Trustee Chinatrust Commercial 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 Hsu Yung-Chien

Repayment Methods

Except when the bondholder converts the bond into the Company’s ordinary shares according to Article 10 of the Rules for Issuance and Conversion (hereinafter referred to as “the Rules”) this time, or exerts the right of put according to Article 19 of the Rules, or early redemption according to Article 18 of the Rules, or that the Company purchases back the bond from the office of the security house for cancellation, the bonds are all repaid with cash with face value at expiry.

Unpaid principal All of these have been converted as of the printing date of this annual report.

Redemption or earlier redemptionLimitation 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

Bonds with a face-value of NT$300,000 thousand have been fully converted to 5,289,095 common shares as of the printing

date of this annual report.

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

All of these have been converted as of the printing date of this annual report. Based on the estimate of the current conversion price, the greatest possible dilution effect on equity is limited and has little impact on existing shareholders' equity.

Custody Agency Name for the Exchange Target None

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(II) Status of convertible bonds

Bond type 2nd domestic secured convertible bond

Year Item

2017 2018 As of March 31, 2019

Market price of the convertible

bond

Highest 188.00 182.00 243.00

Lowest 112.40 115.00 194.00

Average 158.91 146.14 229.36

Conversion price 55.60 (Note 1) 54.00 (Note 2) 54.00 (Note 2)

Issue date and conversion price

Issued on May 17, 2016. The conversion price was NT$ 59.20 on the issue date.

Ways of fulfilling conversion obligation Issuance of new shares

Note 1: Since the Company’s ratio of cash dividend to market price per share exceeded 1.5% due to issuance of ordinary shares in 2017, the Company conducts adjustment to the conversion price according to Article 11 of the Company’s Rules for Issuance and Conversion of the 2nd Domestic Secured Convertible Bond. Since July 15, 2017, the conversion price has been adjusted to NT$ 55.60.

Note 2: Since the Company’s ratio of cash dividend to market price per share exceeded 1.5% due to issuance of ordinary shares in 2018, the Company conducts adjustment to the conversion price according to Article 11 of the Company’s Rules for Issuance and Conversion of the 2nd Domestic Secured Convertible Bond. Since July 30, 2018, the conversion price has been adjusted to NT$ 54.0.

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

March 31, 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 1,377,000 440,000

Share amount that has been purchased 10,528,400 26,866,200 7,832,900

Shares that have not been purchased 0 (Note 1) 40,000 (Note 2) 55,000 (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% 0.05% 0.07%

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 ineffective 10,000 shares bought for that time have been deducted. Note 2: The cumulative ineffective 583,000 shares bought for that time have been deducted. Note 3: The cumulative ineffective 5,000 shares bought for that time have been deducted.

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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 5)

Exercised Not exercised

Shares bought

Share price

Share amount

Ratio of shares bought to total issued shares

(Note 5)

Shares bought

Share price

Share amount

Ratio of shares bought to total issued shares

(Note 5)

Man

ager

President Lin Yu-Shen

950 1.14% 862 (Note 2) 16,469(Note 3) 1.03% 75 (Note 2) 1,358

(Note 3) 0.09%

President Hsu Chien-Chou (Note 4)

Vice President Wu An-Chih (Note 4)

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


Lin Yu-Chun (Note 4)

Empl

oyee

Senior Managers

Huang Ju-Mao

345 0.41% 337 (Note 2) 6,846(Note 3) 0.40% 8 (Note 2) 156

(Note 3) 0.01%

Senior Managers Fan Mu-Shu

Senior Managers

Chou Yeh-Chi

Managers, Lo Ming-Yuan

Managers, Li Chien-Sheng

Deputy Manager Lo Tzu-Chieh

Deputy Manager

Hsu Hao-Tsung

Deputy Manager

Liu Chih-Yung

Note 1: As of the date when the annual report was printed. 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 Chairman at the time, Chien-Chou Hsu, was dismissed on August 7, 2018, and resigned on August 31, 2018. Vice Chairman, An-Chih

Wu, resigned on December 31, 2018. Financial Manager, Yu-Chun Lin, resigned on November 14, 2018. Note 5: Recently renewed and registered as approved by Jin-Shou-Shan-Tze No.10801036150 dated April 9, 2019. The shares amount was

83,483,896.

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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.

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

VIII. Progress on the use of funds (I) 2016 capital increase by cash and the issuance of the 2nd domestic secured convertible

bond: 1. Date of approval by the competent authority and the document number:

(1) The capital increase by cash was effective under Jin-Guan-Zheng-Fa-Zi No.1050013435 on April 26, 2016.

(2) The convertible bond issuance was effective under Jin-Guan-Zheng-Fa-Zi No.10500134351 on April 26, 2016.

(II) Contents of fund raising and issuance of securities: 1. The total fund amount needed for the plan: NT$ 550,000 thousand. 2. Fund source:

(1) In the capital increase by cash, 5,000 thousand shares were issued with face value NT$ 10 per share. The issue price per share was NT$ 50. Total amount raised was NT$ 250,000 thousand.

(2) Issued 3,000 units of the 2nd domestic secured convertible bond with face value of NT$ 100 thousand per unit. Total amount raised was NT$ 300,000 thousand.

3. Project item and progress of usage Unit: NT$ thousand

Plans Scheduled completion date

Total funds required

Scheduled progress for fund usage 2016

Q2 Q3 Total Repayment of bank

borrowings 2016Q2 300,000 300,000 — 300,000

Replenishing operating fund 2016Q3 250,000 — 250,000 250,000

Total 550,000 300,000 250,000 550,000(III) Execution:

Unit: NT$ thousand

Plans Execution status 2016Q3 As of 2016Q3 Reasons for over or lagging progress and

plans for improvement

Repayment of bank borrowings

Expenditure amount

Scheduled — 300,000

The repayment of bank borrowings and the plan for replenishing operating fund are all completed according to the scheduled progress.

Actual — 300,000 Execution

progress (%) Scheduled — 100

Actual — 100

Replenishing operating fund

Expenditure amount

Scheduled 250,000 250,000 Actual 250,000 250,000

Execution progress (%)

Scheduled 100 100 Actual 100 100

Total

Expenditure amount

Scheduled 250,000 550,000 Actual 250,000 550,000

Execution progress (%)

Scheduled 100 100 Actual 100 100

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(IV) Evaluation on execution benefit:

1. Evaluation on execution benefit of the repayment of bank borrowings Unit: NT$ thousand

Lending agency Interest rate (%)

Repayment amount

Interest amount reduced 6/1~12/31 Year afterwards

First Bank

1.303~1.97

75,000

2,709 4,620

Chang Hwa Bank 20,000Yushan Bank 21,000

International Bills 30,000Taiwan Shin Kong Commercial Bank 20,000

KGI Commercial Bank 80,000Taishin International

Bank Co., Ltd. 14,000

Yuanta Bank 40,000Total 300,000

After completing the fund raising on May 16, 2016, the Company soon repaid bank borrowings on May 30, 2016. As of 2016Q3, the Company has used NT$ 300,000 thousand of funds. If the cost-saving benefits are calculated based on the actual bank borrowing rate of 1.303%~1.97%, the Company will save interest expense of NT$ 2,709 thousand in 2016, and will save about NT$ 4,620 thousand annually in the future. The cost-saving benefits are also equivalent with expected benefits, and there are no significant abnormal matters.

2. Evaluation on the benefits of replenishing operating fund In the financing project this time, the Company expects to use NT$ 250,000 thousand in replenishing operating fund. As of 2016Q3, the actual expenditure amount was NT$ 250,000 thousand, and the project has been completed according to the scheduled fund using progress. If calculated with the NT dollar weighted-average borrowing rate of 1.2162% when the Company obtained the raised fund at the end of July in 2016, the Company will save interest expense of NT$ 1,266 thousand in 2016, and will be able to save interest expense of about NT$ 3,040 thousand annually afterwards.

(V) As of 2016Q3, the Company has completed the fund raising based on the scheduled project item. There were no matters of not using the fund, and no matters involved in changing the plans.

(VI) The 3000 domestic 2nd pledged convertible bonds issued have been fully converted as of the printing date of this annual report.

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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 2017 2018

Operating revenues

Business weightage

Operating revenues

Business weightage

Cooling module 6,948,786 100.00% 7,654,265 100.00%

Total 6,948,786 100.00% 7,654,265 100.00%

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).

(II) Industry overview 1. Industry condition and development

Currently, the heat sinking technology used by the computer heat sinking module on the market is mainly the technology of heat sinking with heat pipes. Heat sinking module with heat pipes is a heat sinking tool combined from elements such as fan, heat sinking plate, and heat pipe, and is installed inside the computer for the internal electric components to enjoy the operating environment of equal temperature and heat sinking. It can also help the computer to operate more stably and prolong the life of usage. 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

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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.

Although in recent years, the PC industry is commonly in recession, as businesses are actively moving toward digitalization, it is expected that there will be more and more data or figures produced. Furthermore, as IoT and 5G mobile bandwidth service thrive and the technology and application of AI advances, the cumulative data volume will be larger and larger, which will make the need for servers increase by year. As predicted by DIGITIMES Research, the global server sales in 2017~2022 will have about 6.5% of annual multiple growth rate.

In the future, we can still expect the heat sinking of electronic products to be designed with higher scale, as social network websites are thriving, cloud saving needs and the game market are growing, and the heat sinking needs of servers, base stations, E-sports NBs and high-level Graphics cards are continuously increasing. Meanwhile, there will be more rooms for the overall heat sinking industry to grow.

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

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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(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 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

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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.

(III) 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.

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

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

Year Item

2016 2017 2018

Head count % Head count Percentage (%) Head count Percentage

(%) Ed

ucat

ion

Doctoral Degree 3 1.74% 2 1.67% 3 1.80% Master’s Degree 51 29.65% 40 33.33% 46 27.54%

University 92 53.49% 50 41.67% 75 44.91% College 18 10.47% 26 21.67% 39 23.35%

elow Senior High School 8 4.65% 2 1.67% 4 2.40%

Total 172 100% 120 100% 167 100% Average Years of

Service 4.01 4.1 3.8

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


Item 2014 2015 2016 2017 2018

Research and Development

expenses 170,404 176,065 214,006 219,535 279,699

Net operating revenue 4,243,620 4,702,015 6,547,230 6,948,786 7,654,265

Percentage to operating revenue 4.02% 3.74% 3.27% 3.16% 3.65%

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

2014 1. Cyclical water cooling module with two-phase change 2. Super-thin equal temperature plate 3. Super-thin heat pipe

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

207 1. Development of loop heat pipe 2. Development of pivot heat sinking gadget 3. Development of water cooling and emission system

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Year R&D results

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

(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 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

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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.

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 2017 2018 Amount Percentage (%) Amount Percentage (%)

Exports

Asia 4,175,241 60.09% 4,933,736 64.46%Europe 139,214 2.00% 130,788 1.71%

America 17,335 0.25% 303,356 3.96%Subtotal 4,331,790 62.34% 5,367,880 70.13%

Domestic sales 2,616,995 37.66% 2,286,385 29.87%Total 6,948,786 100.00% 7,654,265 100.00%

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 According to the latest statistics from MIC, the global information system product

market size in 2018 was about 422 million units, with an annual decline of 2.9%. The market size for computer products including desktop computers, notebook computers and tablet computers declined slightly. The Company's PC (NB and DT) thermal module shipments account for approximately 13% of the global market. In 2018, the Company's PC (NB+DT) heat sinking modules accounted for approximately 40% of revenue; non-PC products included Server, VGA, and Smartphone, etc., which account for approximately 60% of revenue. With the growing need for high-end graphics cards, Gaming, servers and Communication product and the adjustment of operational strategies in 2019, 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.

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(2) Demand and growth The global information system market has been stagnant for a long time.

However, in 2018, the global computer market remained on a plateau due to the demand for commercial computer replacements. Looking forward to 2019, the global computer system market is experiencing a slight decline due to the sluggish commercial computer replacement demand and trade protection policies. Regarding the prediction of the 2018 performance of major manufacturers of information products being better than that of the global market, MIC predicted that in 2018, the sales of desktop computers and notebook computers will stay the same as in 2017, and the server market will continue to grow. As desktop PCs are spurred by the introduction of Intel's new processors and chipsets, the annual decline has shrunk to minus 0.3%. As Taiwanese companies are receiving orders from most international PC manufacturers, it is predicted that the annual shipments will grow slightly by 1.6%. In order to expand more product fields, the Company's marketing team actively strives to win the non-NB customer base in the motherboard factory and independent graphics card market, and benefits from players, servers, workstations, and high-performance work requirements (such as 3D video workers). High-end independent graphics cards and CPU coolers effectively bring growth benefits to the Company.

In terms of mobile devices, as the efficacy of smartphones increases, it is expected to see more smart mobile device firms gradually planning for adopting heat pipe and equal-heat plate as the heat sinking gadget. The Company expects it to efficiently increase the penetration rate of the Company’s heat pipe and equal-heat plate in the field of smartphones.

For the e-sports PCs, although Nvidia released a new GPU architecture - Turing and its matching display card in August 2018, its contribution to the overall e-sports PC market in 2018 is still limited, as it belongs to the high-end market. Looking forward to 2019, Nvidia is planning to launch middle-end models, which is expected to contribute to the Company's VGA revenue.

The server market has grown, benefiting from the data storage and

computing needs driven by the emerging of AI applications. However, due to the lack of platform replacement demand, the annual growth rate will be slightly reduced. Benefiting from the Intel Purley platform conversion and AI application requirements, the market continued to grow in 2018.

4. Competitive advantage

(1) Professional R&D team: 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.

(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

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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 50% of revenue, and high-end graphics card VGA accounts for about 22%. The sales of NB benefits from the recovery of European and American economies, which is expected 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 215W 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 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

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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 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.

(II) 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.

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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; %

106 years 107 years

Item Name Amount Percentage 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 282,116 7.61% － E 355,104 6.19% －

2 Others 3,427,448 92.39% － Others 5,377,594 93.81% －

Net

purchase amount

3,709,564 100.00% － Net purchase amount 5,732,698 100.00% －

Reasons for the increase or decease: The increase of the Group’s sales and the increasing need for heat pipes cause the amount of the purchase from Firm E to increase.

Gluing parts

Assembly

Baking

Attachment

Final good

Assembly of heat sinking module

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2. Information of the main customers with over 10% of percentage to total sales amount in any year of the most recent two years:

Unit: NTD thousand; %

Item

2017 2018

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 1,170,074 16.84% Non-related parties C 1,240,235 16.20% Non-relat

ed parties

2 B 1,000,678 14.40% Non-related parties B 1,181,656 15.44% Non-relat

ed parties

3 Others 4,778,034 68.76% Non-related parties Others 5,232,374 68.36% Non-relat

ed parties

Net sales amount 6,948,786 100.00% － Net sales

amount 7,654,265 100.00% －

Reasons for the increase or decrease: The needs for E-sport products graphics card increase, and thus causes the percentage of sales amount to Company C to increase in 2018.

(V) Production volume and value in the last two years:

Unit: NT$ thousand; thousand sets Year

Production volume and value

Main products

2017 2018

Production capacity

Production volume

Production value

Production capacity

Production volume

Production value

Cooling module 233,000 100,360 7,086,291 234,000 99,033 7,796,123

Total 233,000 100,360 7,086,291 234,000 99,033 7,796,123

(VI) Sales volume and value in the last two years: Unit: NT$ thousand; thousand sets

Year Sales Volume/Value

Main products

2017 2018 Domestic sales Exports Domestic sales Exports

Volume Value Volume Value Volume Value Volume Value

Cooling module 28,545 2,616,995 77,770 4,331,791 17,392 2,286,385 76,296 5,367,880

Total 28,545 2,616,995 77,770 4,331,791 17,392 2,286,385 76,296 5,367,880

III. Information of Employees During the Most 2 Recent Years

Unit: person; year; %

Year 2017 2018 Up till March 31, 2019

Number of employees

Indirect labor 619 805 877 Direct labor 400 573 786

Total 1,019 1,378 1,663 Average age 32 30.5 30

Average years of service 3.7 3.3 2.96

Academic qualification

Doctoral Degree 0.29% 0.22% 0.12% Master’s Degree 5.89% 4.50% 3.55%

University/College 28.95% 26.63% 22.25% Senior High School 42.79% 27.36% 24.77% Below high school 22.08% 41.29% 49.31%

Note: Only includes the formal employees of the Company and the subsidiaries in consolidated financial statements.

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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 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.

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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.

(II) 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, 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 2017 to February 2019 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 (1) Summary balance sheet- International Financial Reporting Standards (Consolidated

financial statements)


Item

Financial information for the latest 5 years (Note 1)

2014 2015 2016 2017 2018

Current assets 2,142,014 2,352,243 3,348,102 3,784,385 4,314,034Property , plant, and

equipment 804,462 824,926 945,380 996,170 1,029,504

Intangible assets －－－－－

Other assets 397,862 378,559 390,748 378,407 436,375Total assets 3,344,338 3,555,728 4,684,230 5,158,962 5,779,913

Current liabilities

Before dividend

distribution 1,990,584 2,084,914 2,217,670 2,957,041 3,471,314

After dividend

distribution 2,004,811 2,156,050 2,496,242 3,119,702 (Note 2)

Non-current liabilities 92,580 40,322 174,157 0 0

Total liabilities

Before dividend

distribution 2,083,164 2,125,236 2,391,827 2,957,041 3,471,314

After dividend


Attributable to owners of the parent company 1,245,047 1,405,672 2,270,046 2,188,822 2,297,172

Capital 711,362 711,362 791,381 807,163 831,431Capital reserve 208,243 215,401 549,219 597,311 686,920

Retained earnings

Before dividend

distribution 186,282 344,483 893,615 905,190 975,516

After dividend

distribution 172,055 273,347 615,043 742,529 (Note 2)

Other equity 139,160 134,426 35,831 14,692 (11,222)Treasury stock －－ — (135,534) (185,473)non-controlling

interests 16,127 24,820 22,357 13,099 11,427

Total equity

Before dividend

distribution 1,261,174 1,430,492 2,292,403 2,201,921 2,308,599

After dividend


Note 1: Consolidated financial reports prepared with the IFRS and audited by CPAs of year 2014~2018. Note 2: In 2018, 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 2019Q1 that

has been audited by CPAs.

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(1) Summary comprehensive income statements Information- International Financial Reporting Standards (Consolidated financial statements)

Unit: NT$ thousand

Year Item


2014 2015 2016 2017 2018

Operating revenues 4,243,620 4,702,015 6,547,230 6,948,786 7,654,265Operating gross profit 544,006 735,516 1,338,185 1,015,959 966,978Operating gains and

losses 31,321 183,999 690,716 362,619 182,386

Non-operating revenues and expenses 31,219 67,723 42,524 677 111,916

Earnings before tax 62,540 251,722 733,240 363,296 294,302Current net profits from continuing operations 13,830 182,684 622,958 294,720 231,505

gain(loss) from discontinued operations －－－－－

Net income (loss) 13,830 182,684 622,958 294,720 231,505Other comprehensive income for the period

(post-tax profit or loss) 33,299 (4,625) (100,064 ) (21,374) (26,104)

Total comprehensive income for the period 47,129 178,059 522,894 273,346 205,401

Net income attributable to owners of the parent

company 15,499 172,428 620,268 290,147 232,987

Net income attributable to non-controlling

interests (1,669) 10,256 2,690 4,573 (1,482)

Total comprehensive income attributable to owners of the parent

company

48,407 167,694 521,673 269,008 207,073

Total comprehensive income attributable to

non-controlling interests (1,278) 10,365 1,221 4,338 (1,672)

Earnings per share 0.22 2.42 8.36 3.66 2.90Note 1: Consolidated financial reports prepared with the IFRS and audited by CPAs of year 2014~2018 Note 2: As of the date on which the annual report was printed, there was not financial data for 2019Q1 that


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(III) Summary balance sheet- International Financial Reporting Standards (Individual financial statements)

Unit: NT$ thousand

Year Item


2014 2015 2016 2017 2018

Current assets 1,284,611 1,379,510 2,255,207 2,291,674 2,894,808Property, plant, and

equipment 35,742 18,604 11,999 13,462 11,406

Intangible assets －－－－－

Other assets 1,004,138 1,075,625 1,373,969 1,622,525 1,735,688Total assets 2,324,491 2,473,739 3,641,175 3,927,661 4,641,902

Current liabilities

Before dividend

distribution 987,109 1,027,990 1,197,213 1,738,839 2,344,730

After dividend


Non-current liabilities 92,335 40,077 173,916 －－

Total liabilities

Before dividend

distribution 1,079,444 1,068,067 1,371,129 1,738,839 2,344,730

After dividend


Attributable to owners of the parent company 1,245,047 1,405,672 2,270,046 2,188,822 2,297,172

Capital 711,362 711,362 791,381 807,163 831,431Capital reserve 208,243 215,401 549,219 597,311 686,920

Retained earnings

Before dividend

distribution 186,282 344,483 893,615 905,190 975,516

After dividend

distribution 172,055 273,347 615,043 742,529 (Note 2)

Other equity 139,160 134,426 35,831 14,692 (11,222)Treasury stock －－－ (135,534) (185,473)non-controlling

interests －－－－－

Total equity

Before dividend

distribution 1,245,047 1,405,672 2,270,046 2,188,822 2,297,172

After dividend


Note 1: Individual financial reports prepared with the IFRS and audited by CPAs of year 2014~2018. Note 2: In 2018, 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 2019Q1 that


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(IV) Summary comprehensive income statements Information- International Financial Reporting Standards (Individual financial statements)

Unit: NT$ thousand

Year Item


2014 2015 2016 2017 2018

Operating revenues 3,705,069 3,777,152 5,321,397 5,596,372 6,976,955Operating gross profit 381,888 350,386 606,446 463,470 496,650Operating gains and

losses 132,228 79,053 255,672 92,266 87,904

Non-operating revenues and expenses (93,408) 125,712 412,339 229,529 189,763

Earnings before tax 38,820 204,765 668,011 321,795 277,667Current net profits from continuing operations 15,499 172,428 620,268 290,147 232,987

gain(loss) from discontinued operations

－－－－－

Net income (loss) 15,499 172,428 620,268 290,147 232,987Other comprehensive income for the period

(post-tax profit or loss) 32,908 (4,734) (98,595) (21,139) (25,914)

Total comprehensive income for the period 48,407 167,694 521,673 269,008 207,073

Net income attributable to owners of the parent

company 15,499 172,428 620,268 290,147 232,987

Net income attributable to non-controlling

interests

－－－－－

Total comprehensive income attributable to owners of the parent

company

32,908 (4,734) (98,595) (21,139) (25,914)

Total comprehensive income attributable to

non-controlling interests －－－－－

Earnings per share 0.22 2.42 8.36 3.66 2.90Note 1: Individual financial reports prepared with the IFRS and audited by CPAs of year 2014~2018. Note 2: As of the date on which the annual report was printed, there was not financial data for 2019Q1 that


(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 2014 PwC Taiwan Hsu Sheng-Chung, Hsu Yung-Chien Modified unqualified opinion2015 PwC Taiwan Hsu Sheng-Chung, Hsu Yung-Chien Modified unqualified opinion2016 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

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 (1) International Financial Reporting Standards (Consolidated financial statements)

Year Items of analysis

Financial analysis for the latest 5 years (Note 1)

2014 2015 2016 2017 2018

Financial structure

Debt to assets ratio (%) 62.29 59.77 51.06 57.32 60.06 Ratio of long-term capital to property, plant and equipment (%) 168.28 178.30 260.91 221.04 224.24

Solvency Current ratio (%) 107.61 112.82 150.97 127.98 124.28 Liquid ratio (%) 80.78 85.54 120.43 92.59 85.68 Interest coverage ratio 4.42 15.79 59.39 54.89 17.25

Operating efficiency

Account receivable turnover (times) 4.14 3.77 3.82 3.15 3.19 Average collection days 88 97 96 116 114 Inventory turnover (times) 7.90 8.44 9.56 7.72 6.13 Account payable turnover (times) 3.26 2.92 3.31 3.11 3.14 Average days in sales 46 43 38 47 60 Property, plant, and equipment turnover (times) 5.35 5.77 7.40 7.16 7.56

Total assets turnover (times) 1.27 1.36 1.59 1.41 1.40

Profitability

Return on assets (%) 0.87 5.70 15.37 6.1 4.54 Return on equity (%) 1.11 13.57 33.47 13.12 10.27 As a percentage

of paid up capital (%)

Operating profit 4.40 25.87 87.28 44.93 21.94

Pre-tax net profit 8.79 35.39 92.65 45.01 35.40

Net profit margin (%) 0.33 3.89 9.51 4.24 3.02 Earnings per share ($) 0.22 2.42 8.36 3.66 2.90

Cash flow Cash flow ratio (%) 16.49 16.11 13.42 11.84 3.26 Cash flow adequacy ratio (%) 56.23 65.83 84.41 76.58 60.03 Cash flow reinvestment ratio (%) 14.76 15.30 7.22 2.39 (1.60)

Leverage Operating leverage 20.11 4.51 3.15 3.48 6.57 Financial leverage 2.4 1.10 1.02 1.02 1.13

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 2018 and 2017: 1. The interest protection multiples have decreased by 69%, which is mainly due to the increase in capital demand,

causing factoring and the amount of borrowing to increase, leading to an increase in interest expenses. 2. The inventory turnover rate has decreased by 21%, and the inventory turnover days increased by 26%. These are

mainly due to the increase in revenue. The sales from overseas hub operations have increased, and thus the days in inventory was lengthened.

3. The ROE decreased by 22%, which is mainly due to the decrease in profit. 4. The operating income to capital stock ratio has decreased by 51%, which is mainly due to the change in product

portfolio, leading to a decrease in the gross margin of the current period. 5. The profit before tax to capital stock ratio has decreased by 21%, which is mainly due to the change in product

portfolio, leading to a decrease in the gross margin of the current period. 6. The net profit margin decreased by 29%, which is mainly due to the decrease in profit. 7. The cash flow ratio has decreased by 72%, which is mainly due to an increase in revenue at the year end, and thus

more capital is needed for payment of goods, leading to an increase in liabilities. 8. The cash flow reinvestment ratio has decreased by 167%, which is mainly due to the change in product portfolio,

and a decrease in the gross margin of the current period, leading to a decrease in cash flow from operations. 9. The ROA has decreased by 26%, which is mainly due to the increase in capital demand, causing factoring and the

amount of borrowing to increase, leading to an increase in interest expenses. 10. The Degree of Operating Leverage has increased by 89%, which is mainly due to the change in product portfolio,

leading to a decrease in the operating profit. Note 1: The financial reports for year 2014~2018 have been audited by CPAs. As of the date on which the

annual report was printed, there was not financial data for 2019Q1 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.

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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 (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)

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(II) International Financial Reporting Standards (Individual financial statements) Year

Items of analysis

Financial analysis for the latest 5 years (Note 1)

2014 2015 2016 2017 2018

Financial structure

Debt to assets ratio (%) 46.44 43.18 37.66 44.27 50.51 Ratio of long-term capital to property, plant and equipment (%)

3,741.77 7,771.17 20,368.05 16,259.21 20,140.03

Solvency Current ratio (%) 130.14 134.19 188.37 131.79 123.46 Liquid ratio (%) 112.49 116.71 174.34 113.82 104.26 Interest coverage ratio 3.99 19.12 90.56 56.67 20.51

Operating efficiency

Account receivable turnover (times) 4.68 4.20 4.24 3.39 3.49

Average collection days 78 87 86 108 105 Inventory turnover (times) 27.43 21.83 31.04 23.93 18.47 Account payable turnover (times) 4.57 4.23 4.91 4.51 4.44

Average days in sales 13 17 12 15 20 Property, plant, and equipment turnover (times) 95.83 140.40 347.77 439.60 561.12

Total assets turnover (times) 1.49 1.57 1.74 1.48 1.63

Profitability

Return on assets (%) 1.06 7.58 20.58 7.79 5.73 Return on equity (%) 1.26 13.01 33.90 13.01 10.39

As a percentage of paid up capital (%)

Operating profit 18.59 11.11 32.31 11.43 10.57

Pre-tax net profit 5.46 28.78 84.41 39.87 33.40

Net profit margin (%) 0.42 4.57 11.66 5.18 3.34 Earnings per share ($) 0.22 2.42 8.36 3.66 2.90

Cash flow Cash flow ratio (%) 15.33 21.24 (20.78) (0.76) 0.6 Cash flow adequacy ratio (%) 117.50 196.21 208.30 37.73 13.09 Cash flow reinvestment ratio (%) 7.98 13.38 (12.76) (13.01) (6.30)

Leverage Operating leverage 3.50 11.40 1.09 3.01 3.29 Financial leverage 1.11 1.17 1.03 1.07 1.21

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 2018 and 2017: 1. The interest protection multiples have decreased by 64%, which is mainly due to the increase in capital

demand. Therefore, factoring and amount of borrowing have caused an increase in interest expenses. 2. The inventory turnover rate has decreased by 23%, and the inventory turnover days increased by 30%.

Increase in in inventory turnover days is mainly due to the increase in revenue. The sales from overseas hub operation increased, and thus the days in inventory was lengthened.

3. The fixed-asset turnover rate has increased by 28%, which is mainly due to an increase in revenue. 4. The net profit margin has decreased by 36%, which is mainly due to the decrease in profit. 5. The cash flow ratio has decreased by 178%, which is mainly due to an increase in revenue at year end,

and thus more capital is needed for payment of goods, leading to an increase in liabilities. 6. The cash flow reinvestment ratio has decreased by 52%, which is mainly due to the change in product

portfolio, and a decrease in the gross margin of the current period, leading to a decrease in cash flow from operations.

7. The ROA has decreased by 27%, which is mainly due to the increase in capital demand, causing factoring and amount of borrowing to have increased, leading to an increase in interest expenses.

Note 1: The financial reports for year 2014~2018 have been audited by CPAs. As of the date on which the annual report was printed, there was not financial data for 2019Q1 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.

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(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 (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 2018 Supervisor’s Review Report.

Please refer refer to pages 100 to 102. IV. 2018 Individual Financial Reports Audited by the CPA

Please refer refer to pages 103 to 164. V. 2018 Consolidated Financial Reports Audited by the CPA

Please refer refer to pages 165 to 222. 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.

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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 2017 2018 Difference

Amount % Current assets 3,784,385 4,314,034 529,649 14%property , plant, and investment 996,170 1,029,504 33,334 3%

Intangible assets －－－－ Other assets 378,407 436,375 57,968 15%Total assets 5,158,962 5,779,913 620,951 12%Current liabilities 2,957,041 3,471,314 514,273 17%Non-current liabilities －－－－ Total liabilities 2,957,041 3,471,314 514,273 17%Capital 807,163 831,431 24,268 3%Capital reserve 597,311 686,920 89,609 15%Retained earnings 905,190 975,516 70,326 8%Other equity 14,692 (11,222) (25,914) (176%)Non-controlling interests 13,099 11,427 (1,672) (13%)Treasury stock (135,534) (185,473) (49,939) 37%Total shareholders' equity 2,201,921 2,308,599 106,678 5%

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) Other equity is less than that in 2017, which is mainly due to the increase in the assessed

values, when investment held under equity method in the current period was changed to financial assets measured at fair value through other comprehensive income due to decrease in the ratio of shareholding.

(2) Treasury stocks increased as compared with 2017 mainly because the Company repurchased treasury stocks.

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.

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II. Operating results analysis Table of Comparative Analysis of Operating Results

Unit: NTD thousand; % Year

Item 2017 2018 Difference Amount %

Net operating revenue 6,948,786 7,654,265 705,479 10%

Operating cost 5,932,827 6,687,287 754,460 13% Operating gross profit 1,015,959 966,978 (48,981) (5%)

Operating expenses 653,340 784,592 131,252 20% Operating profit 362,619 182,386 (180,233) (50%) Non-operating revenues and expenses

677 111,916 111,239 16431%

Earnings before tax 363,296 294,302 (68,994) (19%) Income tax expense 68,576 62,797 (5,779) (8%) Current period net profit 294,720 231,505 (63,215) (21%)

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) Operating gross profit decreased as compared with 2017 mainly because the gross profit

of product combination decreased as affected by fluctuation of exchange rate. (2) Operating profits decreased as compared with 2017 mainly because the gross profit of

product combination decreased as affected by fluctuation of exchange rate. (3) Non-operating income and expenses have increased compared that in 2017. The main

reason was the increase in gains on exchange compared to the previous year due to exchange rate fluctuation and the increase in the government subsidy income.

(4) Profit before tax was less than that in 2017, which is mainly due to the decrease in profit in 2018, leading to a decrease in profit before tax.

(5) Net income of the current period was less than that in 2017, which is mainly due to the decrease in profit in 2018, leading to a decrease in profit before tax.

2. Expected sales and the basis of estimation, the likely impacts on The Company's future financial position, and responsive plans: In recent years, the Company has actively expanded non-NB heat sinking module products. The proportion of non-NB heat sinking module products in 2018 was 60%. It is estimated that the proportion of non-NB heat sinking module products in 2019 will exceed 70%. 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.

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III. Cash flow analysis (I) Liquidity analysis for the last 2 years:


Item 2017 2018 Increase (decrease)

Variation (%)

Net cash inflow (outflow) from operating activities 349,970 113,055 (236,915) (68%) Net cash inflow (outflow) from investing activities (211,630) (285,580) (73,950) 35%

Net cash inflow (outflow) from financing activities (178,124) 292,729 470,853 (264%) Notes to percentage changes: (1) The increase in net cash inflow from operating activities is due to the decrease in profit. (2) Net cash flows from investing activities decreased: caused by the increase of capital

expenditure in the current period as compared with 2017. (3) The increase in net cash outflow from financing activities is due to an increase in capital

demand, which led to an increase in short-term borrowing.

(II) Liquidity analysis for the next year: Unit: NT$ thousand

Beginning of year cash

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

421,322 214,052 (1,260,500) (625,126) —

Issuance of convertible bonds and increase in

bank borrowings

(1) Cash flow analysis for the next year A. Operating activities: An increase in revenue from operating activities in the following year

is expected, and the net cash inflow from operating activities is expected to be $214,052 thousand.

B. Investing activities: the cash outflow is mainly due to the expenses for expansion of production capacity and distribution of cash dividend.

C. Financial activities: The Company will issue convertible bonds and increase in bank borrowings.

(2) Remedial measures and liquidity analysis of the estimated cash deficiency: The predicted cash outflow of the Company and its subsidiaries in the coming year is mainly due to the future operational demand and repayment of bank loans. Therefore, the domestic convertible bonds will be issued when the cash balance is insufficient.

IV. Material capital expenditures in the latest year and impacts on business performance

None.

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V. Re-investment policies of the most recent year and future investment plans

December 31, 2018; 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.

118,502 Overseas shareholdings

Mainly due to profits of subsidiaries; Kunshan Plant: Loss in 2018. Ze Hong (Guangzhou): Profit in 2018. Chun Hong (Chongqing): Profit in 2018. Pei Hong (Guangzhou): Profit in 2018. JCD (Guangzhou): Loss in 2018.

— None

HAO HORNG TECHNOLOGY CO., LTD.

(6,454) Overseas shareholdings The re-invested company had losses. — None

Raijintek Co., Ltd. (738) Sales of computer

heat sinking modules

Still in the stage of expanding business

Continuously develop new

customers None

AURAS INTERNATIONAL, INC.

383 Sales of computer

heat sinking modules

Profit in 2018. — None

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 2017 2018 Interest expense (A) 6,741 21,238 Net operating revenue (B) 6,948,786 7,654,265 Operating gains (C) 362,619 182,386 Interest expense / operating revenue (A)/(B) 0.10% 0.28% Interest expense / operating gains (A)/(C) 1.86% 11.64%

In 2018, the global economy showed a recovery in the second half of the year.

The US Federal Reserve (Fed) implemented a tightening monetary policy. This year, it raised interest rates by a quarter of a percentage point, pushing the federal funds rate to 2.25%-2.5%. The Company continues to closely master the trend and information of market interest rate and exchange rate, adjusts the portfolio for borrowing structure, and retrieves advantages from each bank to obtain the best borrowing criteria. Meanwhile, the Company will continue strengthening the control over the Company’s overall accounts receivable, inventories and day periods of accounts payable, fastens the speed and strength of cashflows. Under the trend of gradually increasing interest rates, the Company aims at cutting the impacts of cashflows on the Company to the lowest. In the future, the financial unit will continue to pay attention to the global economic development, and maintain close contact with financial institutions in various places, and allocate the loan-to-deposit ratio of major currencies in a timely manner to obtain the advantage of discrepancy in interest rates of different currencies to actively reflect the negative impact of interest rate fluctuations.

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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 2017 2018

Net exchange gain (loss) (109,653) 25,467 Net operating revenue 6,948,786 7,654,265 Operating gains 362,619 182,386 Exchange gains to net operating revenues (1.58%) 0.33% Exchange gains to operating gains (%) (30.24%) 13.96%

The sales of the Company and its subsidiaries are mainly exports 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 negative assets for the whole year. Looking back on the 2018 international overall currency market policy and exchange rate trend, the annual average exchange rate of the Taiwan dollar against the US dollar has fallen significantly compared to that in 2017. The RMB has also depreciated against the US dollar. The company's annual net assets are in USD, and thus yielding an exchange gain of $25,467 thousand. The Financial Department will adjust the foreign currency asset and liability positions based on future capital demand structure and the long-term trend of global foreign exchange rate to reduce the possible impact of exchange rate fluctuation risk on the Company's profit and loss.

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.

(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 operations. The Board of Directors authorizes

the Chairman to conduct hedging without exceeding the Company's net position. However, until now, the Company has not engaged in any high-risk and highly leveraged derivative product operations.

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

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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.

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

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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.

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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 TECHNOLOGY, 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%


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%

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(II) Investment in affiliates

December 31, 2018 Unit: NTD thousand; thousand shares

Name of affiliated enterprises Shares Percentage (%) Investment amount Relationship with The Company

LI-HORNG TECHNOLOGY CO., LTD. 32,953 100% NTD 1,018,605 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. 200 20% NTD 2,000 Subsidiaries 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 5,000 100% NTD 195,477 Subsidiaries of subsidiaries evaluated with

Equity Method SHIH HORNG TECHNOLOGY CO., LTD 1,000 100% NTD 16,942 Subsidiaries of subsidiaries evaluated with

Equity Method

JCD OPTICAL (Cayman) CO., LTD 2,907 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 153,575 Subsidiaries of subsidiaries of subsidiaries evaluated with Equity Method

Ze Hong (Guangzhou) Technology Co., Ltd. (Note 3) 100% NTD 491,440 Subsidiaries of subsidiaries of subsidiaries

evaluated with Equity Method Pei Hong (Guangzhou) Technology Co., Ltd. (Note 3) 100% NTD 64,502 Subsidiaries of subsidiaries of subsidiaries

evaluated with Equity Method Chun Hong (Chongqing) Technology Co., Ltd. (Note 3) 100% NTD 199,648 Subsidiaries of subsidiaries of subsidiaries

evaluated with Equity Method

Kunshan jinxi plastic co., ltd (Note 3) 13% NTD 5,673 Financial assets at fair value through other comprehensive profit or loss

JCD (Guangzhou) Technology Co., Ltd. (Note 3) 35% NTD 4,843

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.

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(III) Basic information of affiliates December 31, 2018 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 1,018,605 Holdings

PRO JUMP CO., LTD. 2008/07/16 Level3,Alexander House,35 Cybercity,Ebene Maruitius NTD 51,897 Holdings

Milk Idea Inc. 2011/09/09 9F.-5, No.45, Sec. 1, Zhongxiao W. Rd., Zhongzheng Dist., Taipei City

NTD 10,000 Development of mobile apps

AURAS INTERNATIONAL, INC. 2013/02/27 10430 S DE ANZA BLVD STE

280 NTD 15,358 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 HORNG 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 63,981 Holdings

ZHEN HORNG TECHNOLOGY Co., LTD. 2011/08/15 Level 3, Alexander House,35

Cybercity, Ebene, Mauritius NTD 195,477 Holdings

SHIH HORNG TECHNOLOGY Co., LTD. 2012/08/14 Offshore Chambers,P.O. Box217,

Apia, Samoa NTD 9,293 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 256,969 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 22,360 Computer heat sinking modules


2002/09/16 No. 46, Central Avenue, Export Processing District, Kunshan, Jiangsu Province

NTD 184,279 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 186,213 Production and sales of computer heat sinking modules

Kunshan jinxi plastic co., ltd 2008/10/29 No. 8, Xin He Rd., Zhangpu Town, Kunshan City, Jiangsu Province

NTD 21,363 Production and sales of plastic materials

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 113,932 Production and sales of materials and elements for optoelectronics

~99~

(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

Manufacturer Kunshan jinxi plastic 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 HONG 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

Manufacturer Dongguan City Denghong Metal Surface Processing Techbology Co., Ltd. None

~100~

(VI) Directors, supervisors, and general managers of affiliated enterprises

December 31, 2018

Name of enterprise Title Name or the representative person

Shares held Shares

(Thousand Shares)


LI-HORNG TECHNOLOGY CO., LTD. Auras Technology Co., Ltd. 32,756 100%

Director Lin Yu-Shen (Representative) －－

HAO HORNG TECHNOLOGY CO., LTD. Auras Technology Co., Ltd. 50 100%


SHUANG HORNG TECHNOLOGY CO., LTD.

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



SHUANG HORNG TECHNOLOGY CO., LTD. Note 1 100%

Director Chou Yeh-Chi (Representative) －－

ZE HORNG TECHNOLOGY CO.,LTD LI-HORNG TECHNOLOGY CO., LTD. 18,000 100%


Ze Hong (Guangzhou) Technology Co., Ltd. ZE HONG TECHNOLOGY CO.,LTD Note 1 100%


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


Pei Hong (Guangzhou) Technology Co., Ltd. PEL HORNG TECHNOLOGY CO.,LTD Note 1 100%

Director Chang Chih-Hui (Representative) －－

ZHEN HORNG TECHNOLOGY CO.,LTD LI-HORNG TECHNOLOGY CO., LTD. 5,000 100%


Chun Hong (Chongqing) Technology Co., Ltd. ZHEN HORNG TECHNOLOGY CO., LTD. Note 1 100%

Director Chiang Jung-Cheng (Representative) －－

SHIH HORNG TECHNOLOGY CO.,LTD LI-HORNG TECHNOLOGY CO., LTD. 1,000 100%


PRO JUMP CO., LTD.

Auras Technology Co., Ltd. 253 15%


LI-HORNG TECHNOLOGY CO., LTD. 353 21%


AURAS INTERNATIONAL, INC. Auras Technology Co., Ltd. 500 100%

~101~

Name of enterprise Title Name or the representative person

Shares held Shares

(Thousand Shares)



JCD OPTICAL (Cayman) CO., LTD

LI-HORNG TECHNOLOGY CO., LTD. 2,180 26%

Director Li Jung-Chou (Representative) －－

Director Lin Yu-Shen －－

Milk Idea Inc. Auras Technology Co., Ltd. 200 20%

Director Lin Fang-Ling (Representative) 50 5%

Raijintek Co., Ltd. Auras Technology Co., Ltd. 1,120 56%

Director Lin Yu-Shen (Representative) 60 3%

JCD (Guangzhou) Technology Co., Ltd. JCD OPTICAL CO.,LTD. Note 1 100%



Auras Electronic Science and Technology Industrial (Kunshan) Co., Ltd. Note 1 60%

Chairman Lin Yu-Shen (Representative) －－

Director Chou Yeh-Chi (Representative) －－

Note 1: The invested company has not issued any shares.

~102~

(7) Business Performance of Affiliated Enterprises December 31, 2018 Unit: NT$ thousand

Name of enterprise Share capital

Total assets

Total liabilities Net value Operating

revenuesOperating

profit

Current period profit (after tax)

Earnings per share ($) (After

tax)

LI-HORNG TECHNOLOGY CO., LTD. 1,018,605 1,610,854 1,766 1,609,088 0 (3) 113,809 Not

applicableSHUANG HORNG TECHNOLOGY CO., LTD. 205,907 264,052 0 264,052 0 0 (5,896) Not

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

184,279 837,053 573,355 263,698 1,915,276 (10,634) (5,902) Note 2

ZE HONG TECHNOLOGY CO.,LTD. 583,318 874,464 0 874,464 0 0 115,149 Not

applicableZe Hong (Guangzhou) Technology Co., Ltd. 566,685 2,522,152 1,647,707 874,445 4,105,197 81,624 115,149 Note 2

PRO JUMP CO., LTD. 51,897 215,167 149,947 65,220 0 (53) (12,624) Not applicable

PEL HORNG TECHNOLOGY CO., LTD. 63,981 23,693 0 23,693 0 0 3,768 Not

applicablePei Hong (Guangzhou) Technology Co., Ltd. 60,369 100,754 77,061 23,693 532,214 7,239 3,768 Note 2

ZHEN HORNG TECHNOLOGY CO. LTD. 195,477 332,735 0 332,735 0 (1) 21,611 Not

applicableChun Hong (Chongqing) Technology Co., Ltd. 186,213 942,708 609,977 332,731 1,639,954 (7,009) 21,608 Note 2

SHIH HORNG TECHNOLOGY CO., LTD. 9,293 13,396 1,539 11,857 0 (1,185) 472 Not

applicableKunshan jinxi plastic co., ltd 21,363 193,121 116,318 76,803 281,371 18,174 13,804 Note 2 Raijintek Co., Ltd. 20,000 21,535 16,211 5,324 42,911 (1,302) (1,319) (0.66) AURAS INTERNATIONAL, INC. 15,358 12,542 512 12,030 11,034 431 383 Not

applicableHAO HORNG TECHNOLOGY CO. LTD. 29,551 33,718 4 33,714 0 0 (6,454) Not

applicableAnhui Weihong Electronic Technology Co.,Ltd. 22,360 48,101 25,388 22,713 49,016 (453) (2,253) Note 2

JCD OPTICAL (Cayman) CO., LTD 256,969 356,174 13,387 342,787 0 (14,413) (49,061) Not

applicableJCD (Guangzhou) Technology Co., Ltd. 113,932 328,010 89,018 238,992 289,551 (61,671) (40,365) Note 2

Note 1: On December 31, 2018, the period-end USD/NTD = 30.715; RMB/NTD = 4.472. Note 2: Unissued shares.

~103~

(VIII) Consolidated financial reports of affiliates: please refer to page 165 to page 222. (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.

~104~

Auras Technology Co., Ltd. Supervisor’s Review Report

The Board of Directors produces and submits the Company’s 2018 Financial Reports, which

have been audited and certified by CPA Hsu Sheng-Chung 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,

2019 General Shareholders’ Meeting, Auras Technology Co., Ltd.

Supervisors Cheng Ho-Pin

March 15, 2019

~105~


The Board of Directors produces and submits the Company’s 2018 Financial Reports, which

have been audited and certified by CPA Hsu Sheng-Chung 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,


Supervisors Chiang Ping-Chu

March 15, 2019

~106~


The Board of Directors produces and submits the Company’s 2018 Financial Reports, which have been audited and certified by CPA Hsu

Sheng-Chung 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,


Supervisor, Yen-Chun Chen

March 15, 2019

~107~

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, 2018 and 2017, 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, 2018 and 2017, 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 audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (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, 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:

~108~

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 product is transferred). For the accounting policies on revenue recognition, refer to Note 4(25). The supporting documents of revenue recognition include reports or other information provided by warehouse custodians and inventory movement records 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(11) 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(5) for the details of inventory.

~109~

The Company is primarily engaged in 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 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.

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 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

front-end subsystem (i.e. sales, purchasing and inventory systems) to process the original transactions

and its approval procedures, which are then summarised and recorded through a journal entry

automatically generated by the system. Manually prepared journal entries are those which are prepared,

approved and recorded manually.

~110~

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

~111~

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

~112~

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, Sheng-Chung Wu, Han-Chi

For and on behalf of PricewaterhouseCoopers, Taiwan March 15, 2019 -------------------------------------------------------------------------------------------------------------------------------------------------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

(Expressed in thousands of New Taiwan dollars)

~113~

December 31, 2018 December 31, 2017 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 142,692 3 $ 139,558 3

1110 Financial assets at fair value

through profit or loss - current

6(2)

11 - 512 -

1170 Accounts receivable, net 6(3) 2,224,566 48 1,768,882 45

1200 Other receivables 6(4) 73,578 1 65,661 2

130X Inventory 6(5) 417,755 9 284,138 7

1470 Other current assets 8 36,206 1 32,923 1

11XX Total current assets 2,894,808 62 2,291,674 58

Non-current assets

1550 Investments accounted for under

equity method

6(6)

1,638,775 36 1,526,398 39

1600 Property, plant and equipment 6(7) 11,406 - 13,462 1

1840 Deferred income tax assets 6(21) 2,576 - 5,832 -

1900 Other non-current assets 6(8) 94,337 2 90,295 2

15XX Total non-current assets 1,747,094 38 1,635,987 42

1XXX Total assets $ 4,641,902 100 $ 3,927,661 100

(Continued)

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS


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

~114~

December 31, 2018 December 31, 2017 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities

2100 Short-term borrowings 6(9) $ 437,331 9 $ 245,000 6

2110 Short-term notes and bills payable 50,000 1 - -

2170 Accounts payable 11,851 - 7,439 -

2180 Accounts payable - related parties 7 1,667,345 36 1,233,081 31

2200 Other payables 6(10) 120,345 3 106,761 3

2230 Current income tax liabilities 6(21) 28,193 1 21,875 1

2320 Long-term liabilities, current

portion

6(11)

26,675 1 122,640 3

2399 Other current liabilities 2,990 - 2,043 -

2XXX Total liabilities 2,344,730 51 1,738,839 44

Equity

Share capital 6(14)

3110 Share capital - common stock 830,116 18 807,033 21

3130 Certificates of bond-to-stock

conversion

815 - - -

3140 Advance receipts for share capital 500 - 130 -

Capital surplus 6(15)

3200 Capital surplus 686,920 14 597,311 15

Retained earnings 6(16)

3310 Legal reserve 144,339 3 115,324 3

3350 Unappropriated retained earnings 831,177 18 789,866 20

Other equity interest

3400 Other equity interest ( 11,222) - 14,692 -

3500 Treasury stocks 6(14) ( 185,473) ( 4) ( 135,534) ( 3)

3XXX Total equity 2,297,172 49 2,188,822 56

Significant contingent liabilities

and unrecognised contract

commitments

9

3X2X Total liabilities and equity $ 4,641,902 100 $ 3,927,661 100

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

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


~115~

For the years ended December 31 2018 2017

Items Notes AMOUNT % AMOUNT %4000 Sales revenue $ 6,976,955 100 $ 5,596,372 1005000 Operating costs 6(5)(20) and 7 ( 6,480,305) ( 93) ( 5,132,902) ( 92)5900 Net operating margin 496,650 7 463,470 8 Operating expenses 6(20) 6100 Selling expenses ( 136,757) ( 2) ( 122,629) ( 2)6200 General and administrative

expenses

( 118,462) ( 2) ( 120,427) ( 2)6300 Research and development

expenses

( 153,527) ( 2) ( 128,148) ( 2)6000 Total operating expenses ( 408,746) ( 6) ( 371,204) ( 6)6900 Operating profit 87,904 1 92,266 2 Non-operating income and

expenses

7010 Other income 6(17) 72,070 1 56,317 17020 Other gains and losses 6(18) 23,395 - ( 78,278) ( 2)7050 Finance costs 6(19) ( 15,539) - ( 5,780) -7070 Share of profit of associates and

joint ventures accounted for under equity method

6(6)

109,837 2 257,270 57000 Total non-operating income

and expenses

189,763 3 229,529 47900 Profit before income tax 277,667 4 321,795 67950 Income tax expense 6(21) ( 44,680) ( 1) ( 31,648) ( 1)8200 Profit for the year $ 232,987 3 $ 290,147 5

Other comprehensive income Components of other

comprehensive income that will not be reclassified to profit or loss

8330 Share of other comprehensive

income of associates and joint ventures accounted for using equity method

$ 2,092 - $ - - Components of other

comprehensive income that will be reclassified to profit or loss

8361 Financial statements translation

differences of foreign operations

( 29,149) - ( 16,402) -8380 Share of other comprehensive

income (loss) of associates and joint ventures accounted for under equity method

1,143 - ( 4,737) -8360 Other comprehensive loss

that will be reclassified to profit or loss

( 28,006) - ( 21,139) -8300 Other comprehensive loss for the

year

($ 25,914) - ($ 21,139) -

8500 Total comprehensive income for the year

$ 207,073 3 $ 269,008 5

Earnings per share 6(23) 9750 Basic earnings per share $ 2.90 $ 3.66

9850 Diluted earnings per share $ 2.85 $ 3.58

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

(Expressed in thousands of New Taiwan dollars) Capital Retained Earnings Other Equity Interest

NotesShare capital -common stock

Certificates of

bond-to-stock

conversion

Advance receipts for

share capital

Total capital surplus,

additional paid-in capital

Legal reserve

Unappropriated retained earnings

Financial statements translation

differences of foreign

operations

Unrealised gains from

financial assets measured at fair value through

other comprehensive

income Treasury stocks

Total equity


~116~

For the year ended December 31, 2017 Balance at January 1, 2017 $ 784,686 $ 6,265 $ 430 $ 549,219 $ 53,297 $ 840,318 $ 35,831 $ - $ - $ 2,270,046

Profit for the year - - - - - 290,147 - - - 290,147

Other comprehensive loss for the year - - - - - - ( 21,139 ) - - ( 21,139 )

Total comprehensive income (loss) - - - - - 290,147 ( 21,139 ) - - 269,008

Appropriations of 2016 earnings 6(16) Legal reserve - - - - 62,027 ( 62,027 ) - - - -

Cash dividends - - - - - ( 278,572 ) - - - ( 278,572 )

Changes in equity of associates and joint ventures accountedfor under the equity method

6(6) - - - 172 - - - - - 172

Conversion of convertible bonds 6(11) 14,987 ( 6,265 ) - 39,824 - - - - - 48,546

Employee share options 6(13) 7,360 - ( 300 ) 6,682 - - - - - 13,742

Compensation cost of share-based payment 6(13) - - - 1,414 - - - - - 1,414

Acquisition of treasury shares 6(14) - - - - - - - - ( 135,534 ) ( 135,534 )

Balance at December 31, 2017 $ 807,033 $ - $ 130 $ 597,311 $ 115,324 $ 789,866 $ 14,692 $ - ($ 135,534 ) $ 2,188,822

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(16) Legal reserve - - - - 29,015 ( 29,015 ) - - - -

Cash dividends - - - - - ( 162,661 ) - - - ( 162,661 )

Conversion of convertible bonds 6(11) 16,843 815 - 78,511 - - - - - 96,169

Employee share options 6(13) 6,240 - 370 6,013 - - - - - 12,623

Compensation cost of share-based payment 6(13) - - - 5,085 - - - - - 5,085

Acquisition of treasury shares 6(14) - - - - - - - - ( 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

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS


For the years ended December 31, Notes 2018 2017

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CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax $ 277,667 $ 321,795

Adjustments Adjustments to reconcile profit (loss) Depreciation 6(20) 6,163 8,055

Amortisation 6(20) 17,583 10,765

Reversal of allowance for bad debts - ( 351 )

Interest expense (including accounts receivable factoring expenses)

6(19) 15,539 5,780

Interest income ( 512 ) ( 315 )

Net loss on financial assets at fair value through profit or loss

6(18) 24 3,242

Share of profit of associates accounted for using equity method

6(6) ( 109,837 ) ( 257,270 )

Compensation cost of share-based payments and cash capital increase reserved for employee preemption

6(13)

5,085 1,414

Changes in operating assets and liabilities Changes in operating assets Accounts receivable ( 455,684 ) ( 232,586 )

Other receivables ( 7,917 ) 138,770

Other receivables - related parties - ( 279 )

Inventories ( 133,617 ) ( 139,345 )

Prepayments ( 4,057 ) ( 5,180 )

Changes in operating liabilities Accounts payable 4,412 ( 1,307 )

Accounts payable - related parties 434,264 206,398

Other payables 12,821 ( 9,371 )

Other current liabilities 948 ( 188 )

Cash inflow generated from operations 62,882 50,027

Interest received 512 315

Interest paid ( 14,293 ) ( 3,680 )

Income tax paid ( 35,106 ) ( 59,956 )

Net cash flows from (used in) operating activities

13,995 ( 13,294 )

(Continued)

AURAS TECHNOLOGY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS


For the years ended December 31, Notes 2018 2017


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CASH FLOWS FROM INVESTING ACTIVITIES

Dividends received $ - $ 15,451

Acquisition of property, plant and equipment 6(23) ( 3,909 ) ( 5,795 )

Decrease in other current assets 774 840

Increase in other non-current assets ( 21,625 ) ( 54,959 )

Decrease in loans to subsidiaries - 121,500

Proceeds from disposal of subsidiary 6(23) - 8,470

Net cash flows (used in) from investing

activities

( 24,760 ) 85,507

CASH FLOWS FROM FINANCING ACTIVITIES

Increase in short-term borrowings 6(24) 242,331 245,000

Cash dividends paid 6(16) ( 162,661 ) ( 278,572 )

Acquisition of ownership interests in subsidiaries ( 46,125 ) -

Proceeds from capital reduction of subsidiaries - 2,475

Dividends received from subsidiaries 17,670 -

Acquisition of treasury shares 6(14) ( 49,939 ) ( 135,534 )

Exercise of employee share options 12,623 13,742

Net cash flows from (used in) financing

activities

13,899 ( 152,889 )

Net increase (decrease) in cash and cash equivalents 3,134 ( 80,676 )

Cash and cash equivalents at beginning of year 139,558 220,234

Cash and cash equivalents at end of year $ 142,692 $ 139,558

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AURAS TECHNOLOGY CO., LTD. NOTES TO THE PARENT COMPANY ONLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (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 15, 2019.

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 FSC effective from 2018 are as follows:

New Standards, Interpretations and Amendments

Effective date byInternational Accounting

Standards BoardAmendments to IFRS 2, ‘Classification and measurement of share-basedpayment transactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments withIFRS 4 Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue fromcontracts with customers’

January 1, 2018

Amendments to IAS 7, ‘Disclosure initiative’ January 1, 2017Amendments to IAS 12, ‘Recognition of deferred tax assets for unrealisedlosses’

January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS 1,‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

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

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

New standards, interpretations and amendments endorsed by the FSC effective from 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. The quantitative impact will be disclosed when the assessment is complete.

IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a ‘right-of-use asset’ and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors. The Company expects to recognise the lease contract of lessees in line with IFRS 16. However, the Company intends not to restate the financial statements of prior period (referred herein as the “modified retrospective approach”). On January 1, 2019, it is expected that ‘right-of-use asset’ and lease liability will both be increased by $2,664.



Standards Board

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IAS 28,‘Investments in associates and joint ventures’

January 1, 2018



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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(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:

(a) Financial assets (including derivative instruments) at fair value through profit or loss.

(b) Financial assets at fair value through other comprehersive income / available-for-sale financial assets measured at fair value.

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.



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 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, 2021

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C. In adopting IFRS 9 effective January 1, 2018, the Company has elected to apply modified retrospective approach whereby the cumulative impact of the adoption was recognised as retained earnings or other equity as of January 1, 2018 and the financial statements for the year ended December 31, 2017 were not restated. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’) and related financial reporting interpretations. Please refer to Note 12(4) for details of significant accounting policies and details of significant accounts.

(3) Foreign currency translation

A. The financial statements are presented in New Taiwan dollars, which is the Company’s functional and the Company’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.

(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

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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 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.

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(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.

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) Financial assets at fair value through other comprehensive income

A. Financial assets at fair value through other comprehensive income comprise equity securities which are not held for trading, and for which the Company has made an irrevocable election at initial recognition to recognise changes in fair value in other comprehensive income and debt instruments which meet all of the following criteria:

(a) The objective of the Company’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 Company measures the financial assets at fair value plus transaction costs. The Company 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 Company and the amount of the dividend can be measured reliably.

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(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.

(8) 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 selling, and the accounts receivable are subsequently measured at fair value, with any changes in fair value recognised in profit or loss.

(9) 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.

(10) 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.

(11) 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

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variable selling expenses.

(12) Investments accounted for using equity method / 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 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

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statutory/constructive obligations or made payments on behalf of the associate.

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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.

(13) Property, plant and equipment

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

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

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

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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

(14) Leased assets/ operating leases (lessee)

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.

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(18) 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.

(19) 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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(20) 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.

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.

(21) 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.

(22) 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.

(23) 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.

(24) 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.

(25) Revenue recognition 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 accepted the products in accordance with the sales contract, or the Company has objective evidence that all criteria for acceptance have been satisfied.

~133~

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, 2018, the carrying amount of inventories was $417,755.

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.

B. For the Company’s cash in bank pledged to others, please refer to Note 8.

December 31, 2018 December 31, 2017Cash on hand and revolving funds 60$ 60$

Checking accounts and demand deposits 142,632 139,498

142,692$ 139,558$

~134~


A. As of December 31, 2018, 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 at fair value through profit or loss as part of ‘other gains and losses’, and the related amount is shown in Note 6 (18).

C. Information relating to credit risk of financial assets at fair value through profit or loss is provided in Note 12(2).

(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. The Company does not hold any collateral as security.

C. Please refer to Note 6(4) for information on transfer of financial assets.

D. Information relating to credit risk of accounts receivable is provided in Note 12(2).

Items December 31, 2018 December 31, 2017Current items: Financial assets mandatorily measured at fair value through profit or loss Put and call options of secured convertible bonds 2,171$ 2,171$

Valuation adjustment 2,160)( 1,659)(

11$ 512$

December 31, 2018 December 31, 2017Notes receivable 23$ -$

Accounts receivable 2,229,605 1,773,786

2,229,628 1,773,786

Less: Allowance for bad debts 5,062)( 4,904)(

2,224,566$ 1,768,882$

December 31, 2018 December 31, 2017Not past due 2,176,196$ 1,618,020$

1 to 90 days 46,813 143,083

91 to 180 days 1,571 5,045

Over 180 days 5,048 7,638

2,229,628$ 1,773,786$

~135~

(4) Transfer of financial assets

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:

Expense arising from accounts receivable factoring is accounted as ‘financial cost’, and the related amount is shown in Note 6 (19).

(5) Inventories

Purchaserof accountsreceivable

Accountsreceivable not dueand transferred /

Amountderecognised

Amountadvanced

Retention andunadvanced

amount (Shown as"Other

receivables")

Contractamount of

bank

Interest rateof amountadvanced

TaishinInternationalBank, etc. 460,568$ 392,546$ 68,022$ 1,010,725$ 3.35%~3.99%



Amountderecognised

Amountadvanced


amount (Shown as"Other

receivables")

Contractamount of

bank


TaishinInternationalBank, etc. 243,166$ 178,664$ 64,502$ 728,560$ 2.22%~2.67%

December 31, 2018

December 31, 2017

Allowance forCost valuation loss Book value

Finished goods 422,206$ 4,451)($ 417,755$


Finished goods 296,724$ 12,586)($ 284,138$

December 31, 2018

December 31, 2017

~136~

The cost of inventories recognised as expense for the year:

Certain obsolete inventories were disposed or scrapped resulting to a gain on reversal of decline in market value for the years ended December 31, 2018 and 2017.

(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, 2018.

B. Associates

(a) For the years ended December 31, 2018 and 2017, the Company has no significant associates as the associates do not comprise above 1% of total assets.

2018 2017Cost of goods sold 6,489,082$ 5,132,914$

Loss on physical inventory - 247

Gain on reversal of market value decline of inventories 8,135)( 180)(

Sale of scraps 642)( 79)(

6,480,305$ 5,132,902$

For the years ended December 31,

Company name Amount % Amount %Subsidiaries: Li-Horng Technology Co., Ltd. 1,583,868$ 100 1,463,802$ 100

Hao-Horng Technology Co., Ltd. 33,714 100 40,362 100

Auras Technology Inc. 12,030 100 11,279 100

Raijintek Co., Ltd. 2,982 56 3,720 56

Associates: Pro Jump Co., Ltd. (Pro Jump) 5,207 15 6,299 15

MILK IDEA INC. 974 20 936 20

1,638,775$ 1,526,398$

December 31, 2018 December 31, 2017

~137~

(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, 2018 and 2017, the carrying amount of the Company’s individually immaterial associates amounted to $6,181 and $7,235, respectively. The operating results are summarised below:

(c) In April, 2017, JCD Optical (Cayman) Co., Ltd. distributed employees’ compensation in the

form of shares, therefore the shareholding ratio held through subsidiaries was changed, which has been adjusted in capital surplus, changes in equity of associates and joint ventures accounted for using equity method amounting to $172.

C. For the years ended December 31, 2018 and 2017, investment income accounted for using equity method amounted to $109,837 and $257,270, respectively, of which unrealised investment income (loss) arising from upstream transactions between the Company and the indirectly invested subsidiaries amounted to ($4,693) and $13,901, respectively.


2018 2017Loss from continuing operations 12,435)($ 25,951)($


Machineryand equipment

Transportationequipment

Officeequipment

Leaseholdimprovements

Otherfacilities Total

At January 1, 2018Cost 27,522$ 713$ 604$ 2,190$ 43,191$ 74,220$

Accumulated depreciation 26,810)( 713)( 110)( 1,928)( 31,197)( 60,758)(

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 - - 398 - 398)( -

Depreciation charge 676)( - 138)( 249)( 5,100)( 6,163)(

Closing net book amount as at December 31 36$ -$ 834$ 323$ 10,213$ 11,406$

At December 31, 2018Cost 27,522$ 713$ 1,083$ 2,500$ 46,509$ 78,327$


36$ -$ 835$ 323$ 10,212$ 11,406$

~138~

The Company did not have property, plant and equipment pledged as collateral.

(8) Other non-current assets

(9) Short-term borrowings


Transportationequipment

Officeequipment

Leaseholdimprovements

Otherfacilities Total

At January 1, 2017Cost 27,632$ 959$ 3,559$ 2,127$ 49,546$ 83,823$

Accumulated depreciation 25,249)( 858)( 3,482)( 1,601)( 40,634)( 71,824)(

2,383$ 101$ 77$ 526$ 8,912$ 11,999$

2017Opening net book amount as at January 1 2,383$ 101$ 77$ 526$ 8,912$ 11,999$

Additions - - 485 63 5,995 6,543 Transfers - - - - 2,975 2,975

Depreciation charge 1,671)( 101)( 68)( 327)( 5,888)( 8,055)(

Closing net book amount as at December 31 712$ -$ 494$ 262$ 11,994$ 13,462$

At December 31, 2017Cost 27,522$ 713$ 604$ 2,190$ 43,191$ 74,220$


712$ -$ 494$ 262$ 11,994$ 13,462$

December 31, 2018 December 31, 2017Computer software cost 82,424$ 47,233$

Guarantee deposits paid 5,779 10,418

Prepayments for business facilities 1,663 27,038

Others 4,471 5,606

94,337$ 90,295$

Type of borrowings December 31, 2018 Interest rate range CollateralBank borrowings Unsecured borrowings 437,331$ 1.036%~3.594% None


~139~

(10) Other payables

(11) Bonds payable

A. The terms of the second domestic secured convertible bonds are as follows:

(a) 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.

(b) The conversion price of the bonds is set up based on the pricing model. As of December 31, 2018, the bonds payable of $273,200 had been converted into 4,792,809 shares of common stock, of which 81,472 shares were recognised as ‘certificate of entitlement to new shares from convertible bond’. 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 $59.2 (in dollars) per share upon issuance. The Company adjusted the conversion price to $54 (in dollars) per share as mentioned above on July 30, 2018.

(c) The bondholders have the right to require the Company to redeem any bonds at the price of the bonds’ face value plus 1.0025% of the face value as interest upon two 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 one month of the bonds issue to 40 days before the maturity date,

December 31, 2018 December 31, 2017Bonus and salary payable 50,397$ 48,377$

Processing fees payable 16,755 12,054

Accrued commission 15,741 14,216

Payables for freight and warehouse charge 11,147 4,214

Payable for service fees 5,388 11,120

Other payables 20,917 16,780

120,345$ 106,761$

December 31, 2018 December 31, 2017Bonds payable 26,800$ 124,800$

Less: Discount on bonds payable 125)( 2,160)(

Less: Current portion (shown as “long-term liabilities, current portion”) 26,675)( 122,640)(

Bonds payable - non-current -$ -$

~140~

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.

B. Regarding the issuance of convertible bonds, the equity conversion options amounting to $10,766 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 1.2695%.

(12) Pensions


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 plans of the Company for the years ended December 31, 2018 and 2017 were $5,922 and $5,345, respectively.

(13) Share-based payment

A. For the years ended December 31, 2018 and 2017, the Company’s share-based payment arrangements were 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

~141~

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, 2018 and 2017 are as follows:

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

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 871 19.23$ $17.5~20.8 84.32$

Options forfeited 22)( -

Options exercised 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

For the year ended December 31, 2018

~142~

D. In 2018 and 2017, the Company issued 661 and 706 thousand shares of ordinary shares relative to the exercise of employee share options in accordance with the employee share options plan. As of December 31, 2018 and 2017, there are 50 and 13 thousand shares which have not yet completed the registration, and was accounted as advance receipts for ordinary share amounting to $500 and $130, respectively.

E. For the years ended December 31, 2018 and 2017, the Company recognised expenses on share-based payment transaction (equity settlement) and the cost of treasury shares reissued to employees’ compensation was $5,085 and $1,414, respectively.

(14) Share capital

A. As of December 31, 2018, the Company’s authorised capital was $1,200,000, and the paid-in capital was $830,116, consisting of 83,011,582 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 outstanding are as follows:



Stock options units) (in dollars) (in dollars) year date (in dollars)Outstanding options at the beginning of the year 1,598 20.03$ $18.3~21.7 80.77$

Options granted 606



Outstanding options at the end of the year 1,477 19.23 17.5~20.8

0 year~2 years 84.32

Exercisable options at the end of the year 1,112


2018 2017Ordinary shares Ordinary shares

At January 1 80,703,285 78,468,623

Employee stock options exercised 624,000 736,000

Conversion of convertible bonds 1,684,297 1,498,662

At December 31 83,011,582 80,703,285

~143~

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 three years from the reacquisition date and shares not reissued within the three-year period are to be retired.

(15) Capital surplus

Name of company holding the shares Reason for reacquisition Number of shares Carrying amount

The Company To be reissued to employees 2,392 $ 185,473



December 31, 2018

December 31, 2017

Difference between

considerationand carryingamount of

subsidiaries EmployeeShare acquired stock Stock

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

~144~

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. 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.

(16) 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.

Difference between




Changes in equity of associates and joint ventures accounted for using equity method - 172 - - 172

Conversion of corporate bonds payable 41,618 - - 1,794)( 39,824

Employee stock options exercised 10,635 - 3,953)( - 6,682


At December 31 562,936$ 4,050$ 23,205$ 7,120$ 597,311$

2017

~145~

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, 2017 and 2016 resolved by the shareholders during their meeting in June 2018 and 2017, 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 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 15, 2019, the Board of Directors proposed for the distribution of dividends from 2018 earnings in the amount of $125,226 at $1.5 (in dollars) per share.

G. For the information relating to employees’ compensation (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(20).

(17) Other income

Dividends per Dividends per Amount share (in dollars) Amount share (in dollars)

Legal reserve 29,015$ 62,027$

Cash dividends 162,661 $ 2.00 (Note) 278,572 $ 3.55 (Note)191,676$ 340,599$

Years ended December 31,2017 2016

2018 2017Sample revenue 49,352$ 36,915$

Tool reimbursement 16,563 16,956

Others 6,155 2,446

72,070$ 56,317$


~146~

(18) Other gains and losses

(19) Finance costs

(20) Employee benefit expense, depreciation and amortisation

As of December 31, 2018 and 2017, the Company had approximately 169 and 159 employees. There were 3 and 3 non-employee directors, respectively. 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.

2018 2017Net currency exchange gains (losses) 23,419$ 75,036)($

Losses on valuation of financial assets 24)( 3,242)(

23,395$ 78,278)($


2018 2017Accounts receivable factoring expenses 9,952$ 1,612$

Interest expense:Bank borrowings 4,905 2,597

Convertible bonds 682 1,571

Finance costs 15,539$ 5,780$


2018 2017Employee benefit expense Wages and salaries 130,279$ 127,998$

Labour and health insurance fees 11,352 10,908

Pension costs 5,922 5,345

Director's Compensation 2,221 2,383

Other personnel expenses 6,439 4,403

156,213$ 151,037$

Depreciation 6,163$ 8,055$

Amortisation 17,583$ 10,765$


~147~

B. For the years ended December 31, 2018 and 2017, employees’ compensation was accrued at $10,155 and $11,769, respectively; while directors’ and supervisors’ remuneration was accrued at $2,321 and $2,690, respectively. The aforementioned amounts were recognised in salary 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, which were consistent with those amounts approved by the Board of Directors. The employees’ compensation will be distributed in the form of cash.

Employees’ compensation and directors’ and supervisors’ remuneration for 2017 as resolved by the Board of Directors were in agreement with those amounts recognised in the 2017 financial statements.

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.

(21) Income tax

A. Components of income tax expense:

B. Reconciliation between income tax expense and accounting profit:

2018 2017Current tax:Current tax on profits for the year 39,247$ 44,918$ Prior year income tax under (over) estimation 2,177 7,661)(

Total current tax 41,424$ 37,257$

Deferred tax:Origination and reversal of temporary differences 4,285 5,609)(

Impact of change in tax rate 1,029)( -

Income tax expense 44,680$ 31,648$


2018 2017Income tax calculated by applying statutory rate to the profit before tax 55,533$ 54,705$

Effect from permanent differences of income tax 21,848)( 43,363)(

Prior year income tax under (over) estimation 2,177 7,661)(

Impact of change in tax rate 1,029)( - 10% additional tax on undistributed surplus earnings 9,847 27,967



~148~

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

D. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets 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.

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

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

January 1

Recognisedin profitor loss

Recognisedin other

comprehensiveincome

Recognisedin equity December 31

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

January 1


Recognisedin other

comprehensiveincome

Recognised inequity December 31

Deferred tax assets: Unused compensated absences 213$ 284$ -$ $ 497$ Unrealised exchange loss - 1,886 - - 1,886 Impairment loss on assets 1,309 - - - 1,309

Others 2,170 30)( - - 2,140

3,692$ 2,140$ -$ -$ 5,832$

Deferred tax liabilities: Unrealised exchange gain 3,469)($ 3,469$ -$ $ -$

2017

December 31, 2018 December 31, 2017Deductible temporary difference 5,073$ 3,531$

Taxable temporary differences-Liabilities 569,426)($ 500,932)($

~149~

(22) 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 232,987$ 80,312 2.90$

Diluted earnings per share Profit attributable to ordinary shareholders of the parent 232,987$ 80,312 Assumed conversion of all dilutive potential ordinary shares

Employee stock options - 359

Employees’ compensation - 229

Convertible bonds 545 921

Shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 233,532$ 81,821 2.85$


Amount after tax



Earnings pershare





Convertible bonds 1,481 861



~150~

(23) Supplemental cash flow information

A. Investing activities with partial cash payments

B. The Company lost control over ZAFA Technology Co., Ltd. due to the Company’s disposal of its 55% ownership in the third quarter of 2017. The details of the consideration received in relation to the transaction (including cash and cash equivalents) and related assets and liabilities of its subsidiaries are as follows:

(24) Change in liabilities from financing activities

For the year ended December 31, 2018, the effect from changes in financing activities and changes in borrowings was $242,331. Please refer to statements of cash flows.

2018 2017Purchase of property, plant and equipment 4,107$ 6,543$

Add: Opening balance of payable on equipment 793 45

Less: Ending balance of payable on equipment 991)( 793)(

Cash paid during the year 3,909$ 5,795$


September 21, 2017Consideration receivedCash 8,470$

Carrying amount of ZAFA Technology Co., Ltd.’s assets and liabilitiesCash 3,950

Accounts receivable, net (including related parties) 89,032

Other receivables 13,250

Prepayments 784

Other current assets 5

Other non-current assets 650

Accounts payable, net (including related parties) 87,189)(

Other payables 2,495)(

Current income tax liabilities 2,298)(

Other current liabilities 49)(

Deferred income tax liabilities 241)(

Total net assets 15,399$

~151~

7. RELATED PARTY TRANSACTIONS (1) Names of related parties and relationship

(2) Significant related party transactions A. Purchases

B. Accounts payable

The payables to related parties arise mainly from purchase transactions and are due two months after the date of purchase. The payables bear no interest.

(3) Key management compensation

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) SubsidiaryZong Hong (Kunshan) Co., Ltd. AssociateJCD Optical (Cayman) Co., Ltd. AssociateJCD Optical Co., Ltd. AssociateJCD Optical International Co., Ltd. AssociateJCD (Guangzhou) Optical Corporation (JCD (Guangzhou)) AssociateJCD Optical International Co., Ltd. (Taiwan Branch) Associate

2018 2017Purchases of goods: - Subsidiaries Ze Hong Guangzhou 3,114,631$ 1,983,976$

Auras Kunshan 1,906,267 2,044,947

Auras Chongqing 1,575,086 1,223,378

- Associates - 1,191

6,595,984$ 5,253,492$


December 31, 2018 December 31, 2017Accounts payable: - Subsidiaries Ze Hong Guangzhou 741,402$ 117,214$

Auras Kunshan 597,201 661,403

Auras Chongqing 328,742 454,464

1,667,345$ 1,233,081$

2018 2017Salaries and other short-term employee benefits 14,039$ 16,187$


~152~

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. 11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

Pledged asset December 31, 2018 December 31, 2017 PurposeOther current Customs guarantee, assets foreign tax guarantee - time deposits 1,406$ 1,358$ and long-term

borrowings guarantee

Book value

December 31, 2018 December 31, 2017Property, plant and equipment 848$ 14,933$

December 31, 2018 December 31, 2017Not later than one year 1,536$ 6,508$ Later than one year but not later than five years 1,166 26,031

Over five years - 6,508

2,702$ 39,047$

~153~

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 includes cash, accounts and notes receivable and other

receivables; financial liabilities at amortised cost includes short-term borrowings, short-term notes and bills payable, accounts and notes payable, other payables and long-term borrowings.

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.

(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.

December 31, 2018 December 31, 2017Financial assets Financial assets at fair value through profit or loss 11$ 512$

Financial assets at amortised cost 2,440,836 1,974,101

2,440,847$ 1,974,613$

Financial liabilities Financial liabilities at amortised cost 2,286,872$ 1,592,281$

~154~

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 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 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 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:

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 80,200$ 30.715 2,463,343$ 1% 24,633$

Non-monetary items Foreign operations USD:NTD 4,269$ 30.715 131,122$

RMB:NTD 339,285 4.4720 1,517,283$

Financial liabilities Monetary items USD:NTD 59,361$ 30.715 1,823,273$ 1% 18,233$

December 31, 2018 Sensitivity analysis

~155~

v. For the years ended December 31, 2018 and 2017, the total amount of exchange gain

(loss) were $23,419 and ($75,036) (including realised and unrealised), arising from significant foreign exchange variation on the monetary items held by the Company, respectively.

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, 2018 and 2017, the Company’s borrowings at variable rate were denominated in the NTD and USD.

ii. At December 31, 2018 and 2017, 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, 2018 and 2017.




RMB:NTD 307,242 4.5650 1,402,560



~156~

(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 uses the forecastability to adjust historical and timely information to assess the default possibility of accounts receivable. On December 31, 2018, the provision matrix is as follows:

vi. Movements in relation to the Company applying the simplified approach to provide loss

allowance for accounts receivable are as follows:

vii. Credit risk information for 2017 is provided in Note 12(4).

1 to ~ 90 to ~ Over December 31, Not 90 days 180 days 180 days2018 past due past due past due past due TotalExpected loss rate 0.03% 0.04% 0.06% 87.66%

Total book value 2,176,196$ 46,813$ 1,571$ 5,048$ 2,229,628$

Loss allowance 621$ 17$ 1$ 4,423$ 5,062$

December 31, 2018

2018Accounts receivable

At January 1_IAS 39 4,904$

Adjustments under new standards -

At January 1_IFRS 9 4,904

Effect of exchange rate changes 158

As of December 31 5,062$

~157~

(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 Companyings 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, 2018 and 2017.

(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.

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 receivable, accounts receivable, other receivables, short-term borrowings, notes payable, accounts payable, other payables and bonds payable) are approximate to their fair values.

~158~

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, 2018 and 2017, there was no transfer between Level 1 and Level 2.

F. For the years ended December 31, 2018 and 2017, there was no transfer into or out from Level 3.

(4) Effects on initial application of IFRS 9 and information on application of IAS 39 in 2017 A. Details of significant accounting policies adopted in 2017 and are provided in Note 4 of the

2017 financial statements.

B. Credit risk information for the year ended December 31, 2017 is as follows:

(a) 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. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail

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$


~159~

customers, including outstanding receivables. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted.

(b) For the year ended December 31, 2017, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.

(c) The credit quality information of financial assets that are neither past due nor impaired is as follows:

The Company’s credit assessment takes into consideration the scale, credit result and transaction frequency of counterparties, and record from A to D.

(d) The ageing analysis of financial assets that were past due but not impaired is as follows:


(e) Movement analysis of allowance for doubtful accounts (impairment) is as follows:

i. As of December 31, 2017, accounts receivable relating to impairment amounted to $7,627.

ii. Movements in the provision for impairment of accounts receivable are as follows:

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

Group A Group B Group C Group D Total Accounts receivable 1,152,230$ 48,415$ 417,375$ -$ 1,618,020$

December 31, 2017

December 31, 2017Up to 30 days 68,759$

31 to 90 days 74,234

91 to 180 days 5,045

181 to 365 days 11

148,049$

2017As of January 1 5,255$

Reversal of impairment, net 351)(


~160~

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.

Item Value0 Auras Technology

Co., Ltd.Auras Technology(Chongqing) Co.,Ltd.

Otherreceivables-relatedparties

Yes 100,000$ 100,000$ -$ 2 1 1,575,086$ - -$ - -$ 918,868$ 918,868$

0 Auras TechnologyCo., Ltd.

Ze Hong(Guangzhou)Technology Co.,Ltd.


Yes 250,000 250,000 - 2 1 3,114,631 - - - - 918,868 918,868$

1 Ze Hong(Guangzhou)Technology Co.,Ltd.

Pel Horng(Guangzhou)Technology Co.,Ltd.


Yes 46,860 44,720 - 2 1 - - - - - 874,446 874,446

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: To maintain the normal operations of the Comapny's 100% indirect invested subsidiary.Note 4: 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: 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.Note 6: 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,

2018

Balance atDecember31, 2018

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)

~161~

Company name

Relationshipwith the

endorser /guarantor

0 AurasTechnologyCo., Ltd.


A subsidiaryof theCompany

1,148,586$ 247,640$ 245,720$ 245,720$ - 10.70 1,148,586$ 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 31,2018


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,

2018


to the party inMainland

China Footnote

Actualamount drawn

down

~162~

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$ 10,740$ 13 10,740$

As of December 31, 2018



Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)



~163~

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 1,906,267$ 29 3~4 months Did not purchase

from othersuppliers

As generalsuppliers

597,201)($ 36

Auras Technology Co., Ltd. AURAS TECHNOLOGY(CHONGQING) CO., LTD.

Indirect subsidiary Purchases 1,575,086 24 3~4 months Did not purchasefrom othersuppliers

As generalsuppliers

328,742)( 20

Auras Technology Co., Ltd. Ze Hong (Guangzhou)Technology Co., Ltd.


As generalsuppliers

741,402)( 44

Ze Hong (Guangzhou)Technology Co., Ltd.

AURAS TECHNOLOGY(KUNSHAN) CO., LTD.

Indirect subsidiary Sales RMB 47,034 5 3~4 months Did not purchasefrom othersuppliers

As generalsuppliers

RMB 2,778 1


AURAS TECHNOLOGY(CHONGQING) CO., LTD.


As generalsuppliers

RMB 1,487 1

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



~164~

Amount Action takenAURAS TECHNOLOGY(KUNSHAN) CO., LTD.

Auras Technology Co., Ltd. Indirect subsidiary RMB 134,297 2.99 (times) RMB - RMB 45,357 RMB -




Auras Technology Co., Ltd. Indirect subsidiary RMB 165,670 7.16 (times) RMB - RMB - RMB -

Note : Purchase receivables arose from purchasing materials on behalf of subsidiary.

Amount collectedsubsequent to thebalance sheet date

Allowance fordoubtful accountsCreditor Counterparty

Relationship with thecounterparty

Balance as at December31, 2018 (thousand

dollars) (Note) Turnover rate

Overdue receivables


Receivables from related parties reaching $100 million or 20% of paid-in capital or more

December 31, 2018

Expressed in thousands of NTD


Table 5

~165~

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 1,906,267$ Note 5 24.90%0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 1 Accounts payable 597,201 Note 5 10.33%0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Purchases 1,575,086 Note 5 20.58%0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Accounts payable 328,742 Note 5 5.69%0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Purchases 3,114,631 Note 5 40.69%0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Accounts payable 741,402 Note 5 12.83%1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 3 Sales RMB 47,034 Note 6 2.80%1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 3 Sales RMB 41,864 Note 6 2.49%

Note 1: The numbers filled in for the transaction company in respect of inter-company transactions are as follows: (1) Parent company is ‘0’.


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)

~166~

Balance as atDecember 31,

2018


2017Number of

sharesOwnership

(%) Book valueAuras Technology Co., Ltd. LI-HORNG

TECHNOLOGY CO., LTD.Belize Investment

holdings $ 1,018,605 $ 972,480 32,952,870 100 $ 1,583,868 $ 113,809 $ 118,502

Auras Technology Co., Ltd. PRO JUMP CO., LTD.(PRO JUMP)

Mauritius Investmentholdings

7,500 7,500 253,447 15 5,207 ( 12,624) ( 1,894)

Auras Technology Co., Ltd. HAO HORNGTECHNOLOGY CO., LTD.

Belize Engaged in sale ofcomputer heatdissipation module

29,551 29,551 50,000 100 33,714 ( 6,454) ( 6,454)

Auras Technology Co., Ltd. MILK IDEA INC. Taiwan Development ofmobile application

2,000 2,000 200,000 20 974 189 38

Auras Technology Co., Ltd. RAIJINTEK CO., LTD. Taiwan Engaged in sale ofcomputer heatdissipation module

11,200 11,200 1,120,000 56 2,982 ( 1,319) ( 738)

Auras Technology Co., Ltd. AURAS International Inc. U.S.A Engaged in sale ofcomputer heatdissipation module

14,810 14,810 500,000 100 12,030 383 383

LI-HORNGTECHNOLOGY CO., LTD.

SHUANG HORNGTECHNOLOGY CO., LTD.(SHT)


151,375 151,375 5,000,000 100 264,052 ( 5,896) ( 5,896)


ZE HONG TECHNOLOGYCO., LTD. (ZHT)


542,985 542,985 18,000,000 100 874,464 115,149 115,149


PEL HORNGTECHNOLOGY CO., LTD.(PHT)


49,592 49,592 2,100,000 100 23,693 3,768 3,768


ZHEN HORNGTECHNOLOGY CO., LTD.(ZEHT)


195,477 149,352 5,000,000 100 332,735 21,611 21,611


SHIH HORNGTECHNOLOGY CO., LTD.(SHHT)

Samoa Investmentholdings

16,942 16,942 1,000,000 100 11,857 472 472


PRO JUMP CO., LTD.(PRO JUMP)


10,263 10,263 353,136 21 7,340 ( 12,624) ( 2,638)

Information on investees





Net profit (loss) ofthe investee for the

year endedDecember 31, 2018

Investment income(loss) recognised bythe Company for the

year endedDecember 31, 2018 FootnoteInvestor Investee Location

Main businessactivities

Initial investment amount Shares held as at December 31, 2018

~167~


2018


2017Number of

sharesOwnership

(%) Book value








JCD OPTICAL CO., LTD.(Cayman)

Cayman Investmentholdings

$ 83,565 $ 83,565 2,179,844 26 $ 93,808 ($ 68,773) ($ 19,148)

HAO HORNGTECHNOLOGY CO., LTD.



27,855 27,855 726,976 9 31,774 ( 68,773) ( 6,519)

~168~

Remitted toMainland

China

Remittedback toTaiwan

Auras Technology(Kunshan) Co., Ltd.

Production andsales of computerheat dissipationmodule

$ 153,575 (1) $ 153,575 $ - $ - $ 153,575 ($ 5,902) 100 ($ 5,902) $ 263,699 $ -



552,870 (1) 491,440 - - 491,440 115,149 100 115,149 874,446 -

Pel Horng(Guangzhou)Technology Co., Ltd.


64,502 (1) 64,502 - - 64,502 3,768 100 3,768 23,693 -

Auras Technology(Chongqing) Co., Ltd.


199,648 (1) 153,575 46,073 - 199,648 21,608 100 21,608 332,731 -

Anhui Wei-hongElectronic TechnologyCo., Ltd.


201,160 (2) - - - - ( 2,253) 60 ( 1,352) 13,628 - Note 4

Kunshan JinxiPlastic Co., Ltd.

Production andsales of plastic

21,363 (1) 17,456 - 11,783 5,673 13,804 13 - 10,740 -

JCD (Guangzhou)Optical Corporation

Production andsales of light andelectronic materialand components

125,932 (2) 4,843 - - 4,843 ( 40,365) 35 ( 14,027) 83,050 -


Information on investments in Mainland China



Investee inMainland China


Book value ofinvestments in

Mainland Chinaas of December

31, 2018

Accumulatedamount ofinvestment

income remittedback to Taiwan asof December 31,

2018

Table 8

FootnoteMain business

activities Paid-in capital

Investmentmethod(Note 1)

Accumulatedamount of

remittance fromTaiwan to

Mainland China asof January 1, 2018




31, 2018

Ownershipheld by theCompany(direct orindirect)

Investmentincome (loss)

recognised by theCompany for the

year endedDecember 31,2018 (Note 2)

Net income ofinvestee for the

year endedDecember 31,

2018

Amount remitted fromTaiwan to Mainland China /

Amount remitted back toTaiwan for the year ended

December 31, 2018

~169~

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, 2018

$ 919,681

Investment amount approved bythe Investment Commission of the

Ministry of Economic Affairs(MOEA)

Ceiling on investments inMainland China imposed by the

Investment Commission ofMOEA

$ 936,070 Note 3

Note 3: In accordance with Gong-Zi No. 10520415180 letter of Industrial Development Bureau, Ministry of Economic Affairs on June 27, 2016, 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 20, 2016 to June 19, 2019, 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.

~170~

AURAS TECHNOLOGY CO., LTD. DETAILS OF CASH AND CASH EQUIVALENTS

DECEMBER 31, 2018 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Table 1

~171~

Items Summary Amounts

Petty cash

$ 60

Demand deposits NTD 17,146 thousand 19,057 USD 4,023 thousand at exchange

rate of 30.715 123,557

JPY 65 thousand at exchange

rate of 0.2782 18

$ 142,692

(Remainder of page intentionally left blank)

AURAS TECHNOLOGY CO., LTD. DETAILS OF ACCOUNTS RECEIVABLE


Table 2

~172~

Customer name Summary Amount Notes

A customer

$ 272,262

B customer

239,316

C customer

139,743

D customer

131,068

E customer 130,965

Others

1,316,274 Balance of each

customer has not

exceeded 5% of

total accounts

receivable

2,229,628

Less: Allowance for bad debts

( 5,062)

$ 2,224,566


AURAS TECHNOLOGY CO., LTD. DETAILS OF INVENTORIES


Table 3

~173~

Items

Amount

Notes Summary Cost Market price

Finished goods $ 422,206 $ 462,273 Use the net

realisable value to

be the market price

Less: Allowance for

inventory valuation

losses

( 4,451)

$ 417,755


AURAS TECHNOLOGY CO., LTD. DETAILS OF INVESTMENT ACCOUNTED FOR USING EQUITY METHOD

FOR THE YEAR ENDED DECEMBER 31, 2018 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Table 4

~174~

Beginning of the period Additions (Note 1) Reductions (Note 2) Balance at December 31, 2018 Market price or value per share

Name

Number of

shares

(per share)

Amount

Number of

shares

(per share)

Amount

Number of

shares

(per share)

Amount

Number of

shares

(per share)

％

Interest held

Amount

Price (in dollar) Total price

Pledged to

others as collateral

Valuation basis

Li-Horng Technology

Co., Ltd. 32,756,498 $ 1,463,802 196,372 $ 149,049 - ($ 28,983) 32,952,870 100 $1,583,868 - $1,609,088 None Equity method

Pro Jump Co., Ltd. (Pro

Jump) 253,447 6,299 - 802 - ( 1,894) 253,447 15 5,207 - 5,207 〞〞

Hao-Horng Technology

Co., Ltd. 50,000 40,362 - - - ( 6,648) 50,000 100 33,714 - 33,714 〞〞

Milk Idea Inc. 20,000 936 - 38 - - 20,000 20 974 - 974 〞〞

Raijintek Co., Ltd. 1,120,000 3,720 - - - ( 738) 1,120,000 56 2,982 - 2,982 〞〞

Auras International Inc. 500,000 11,279 - 751 - - 500,000 100 12,030 - 12,030 〞〞

$ 1,526,398 $ 150,640 ($ 38,263) $1,638,775 $1,663,995 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, cash dividends received from the investees and disposal of shares of investees.

AURAS TECHNOLOGY CO., LTD. DETAILS OF SHORT-TERM BORROWINGS


Table 5

~175~

Type of borrowings Explanation Balance at December 31, 2018 Contract period Interest rate range Financing line Collteral

Unsecured borrowings KGI Bank $ 150,000 2018/11/6~2019/3/27 1.04%~1.07% NT$ 150,000 None

〃

US$ 1,620 〃

〃 Mega International Commercial Bank 117,331 2018/12/13~2019/2/11 3.59% US$ 4,500 〃

〃

NT$ 50,000 〃

〃 Bank SinoPac Company Limited 70,000 2018/12/5~2019/3/11 1. 09% NT$ 75,000 〃

〃 First Commercial Bank 50,000 2018/12/14~2019/1/25 1.06% NT$ 50,000 〃

〃

US$ 4,500 〃

〃 DBS Bank (Taiwan) , Ltd. 50,000 2018/11/22~2019/3/13 1.07% NT$ 50,000 〃

〃

US$ 2,000 〃

$ 437,331


AURAS TECHNOLOGY CO., LTD. DETAILS OF OPERATING REVENUE


Table 6

~176~

Items Quantity Amount Notes

Heat dissipation modules

Notebooks and desktop computers 87,091 thousand sets $ 7,054,509

Less: Sales returns and discounts ( 77,554)

$ 6,976,955 (Remainder of page intentionally left blank)

AURAS TECHNOLOGY CO., LTD. DETAILS OF OPERATING COST


Table 7

~177~

Items

Total

Finished goods at beginning of the year $ 296,724

Add：Purchased 6,614,564

Less：Finished goods at the end of the year ( 422,206)

Cost of goods sold 6,489,082

Revenue from sale of scraps ( 642)

Inventory valuation loss ( 8,135)

Operating cost $ 6,480,305


AURAS TECHNOLOGY CO., LTD. DETAILS OF SELLING EXPENSES


Table 8

~178~

Items

Summary Amount Notes

Commissions expense

$ 38,242

Export expense

22,695

Wages and salaries

18,317

Transportation and

Warehouse expense

15,695

Service expense 10,990

Entertainment expense

7,590

Sample expense 6,825

Others

16,403

Balance of each

expense account

has not exceeded

5% of the total

selling expenses

$ 136,757


AURAS TECHNOLOGY CO., LTD. DETAILS OF ADMINISTRATIVE EXPENSES


Table 9

~179~

Items Summary Amount Notes

Wages and salaries

$ 45,677

Amortisation expense

15,945

Labour expenses

10,639

Commissions expense

5,332

Others

40,869

The balance of each

expense account has

not exceeded 5% of

the administrative

expenses $ 118,462


AURAS TECHNOLOGY CO., LTD. DETAILS OF RESEARCH AND DEVELOPMENT EXPENSES


Table 10

~180~

Items Summary Amount Notes

Wages and salaries

$ 66,285

Sample cost

53,095

Others

34,147

The balance of each

expense account has

not exceeded 5% of

the research and

development

expenses $ 153,527


AURAS TECHNOLOGY CO., LTD. CURRENT EMPLOYEE BENEFITS, DEPRECIATION, AND AMORTISATION EXPENSES

SUMMARIZED BY FUNCTION FOR THE YEAR ENDED DECEMBER 31, 2018

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Table 11

~181~

Information on employee benefits, depreciation, and amortisation expenses is provided in Note 6(20).

~182~

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, 2018 and 2017, 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, 2018 and 2017, 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 audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further described in the 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 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:

~183~

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(26). 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.

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, 2018, the balance of inventories and allowance for inventory valuation losses amounted to NT$1,276,513 thousand and NT$28,648 thousand, respectively.

~184~

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.

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 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

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

~185~

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.

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, 2018 and 2017.

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.

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

~186~

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

~187~

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, Sheng-Chung Wu, Han-Chi

For and on behalf of PricewaterhouseCoopers, Taiwan March 15, 2019 -------------------------------------------------------------------------------------------------------------------------------------------------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


~188~

December 31, 2018 December 31, 2017 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 421,322 7 $ 301,925 6

1110 Financial assets at fair value

through profit or loss - current

6(2)

11 - 512 -

1170 Accounts receivable, net 6(4) 2,450,208 42 2,345,605 45

1200 Other receivables 6(5) and 7 89,330 2 80,804 2

130X Inventory 6(6) 1,247,865 22 932,968 18

1470 Other current assets 6(7) and 8 105,298 2 122,571 2

11XX Total current assets 4,314,034 75 3,784,385 73

Non-current assets

1517 Non-current financial assets at fair

value through other

comprehensive income

6(3)

10,740 - - -

1523 Available-for-sale financial assets

- non-current

12(4)

- - 8,648 -

1550 Investments accounted for under

equity method

6(8)

139,103 2 168,121 3

1600 Property, plant and equipment 6(9) 1,029,504 18 996,170 20

1840 Deferred income tax assets 2,576 - 5,832 -

1900 Other non-current assets 6(10) 283,956 5 195,806 4

15XX Total non-current assets 1,465,879 25 1,374,577 27

1XXX Total assets $ 5,779,913 100 $ 5,158,962 100

(Continued)

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS


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

~189~

December 31, 2018 December 31, 2017 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities

2100 Short-term borrowings 6(11) $ 682,869 12 $ 245,000 5

2110 Short-term notes and bills payable 50,000 1 - -

2170 Accounts payable 2,142,801 37 2,075,699 40

2180 Accounts payable - related parties 7 19,512 - 25,748 -

2200 Other payables 6(12) and 7 509,941 9 451,911 9

2230 Current income tax liabilities 34,514 1 32,978 1

2320 Long-term liabilities, current

portion 6(13)

26,675 - 122,640 2

2399 Other current liabilities 5,002 - 3,065 -

2XXX Total liabilities 3,471,314 60 2,957,041 57

Equity

Equity attributable to owners of

parent

Share capital 6(16)

3110 Share capital - common stock 830,116 14 807,033 16

3130 Certificates of bond-to-stock

conversion

815 - - -

3140 Advance receipts for share capital 500 - 130 -

Capital surplus 6(17)

3200 Capital surplus 686,920 12 597,311 12

Retained earnings 6(18)

3310 Legal reserve 144,339 3 115,324 2

3350 Unappropriated retained earnings 831,177 14 789,866 15

Other equity interest

3400 Other equity interest ( 11,222) - 14,692 -

3500 Treasury stocks 6(16) ( 185,473) ( 3) ( 135,534) ( 2)

31XX Equity attributable to owners

of the parent

2,297,172 40 2,188,822 43

36XX Non-controlling interest 11,427 - 13,099 -

3XXX Total equity 2,308,599 40 2,201,921 43

Significant contingent liabilities

and unrecognised contract

commitments

9

3X2X Total liabilities and equity $ 5,779,913 100 $ 5,158,962 100

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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


~190~

For the years ended December 31 2018 2017

Items Notes AMOUNT % AMOUNT % 4000 Sales revenue 14 $ 7,654,265 100 $ 6,948,786 100

5000 Operating costs 6(6) and 7 ( 6,687,287) ( 88) ( 5,932,827) ( 85)

5900 Net operating margin 966,978 12 1,015,959 15

Operating expenses 6(22)

6100 Selling expenses ( 265,689) ( 3) ( 213,652) ( 3)6200 General and administrative expenses ( 239,204) ( 3) ( 220,153) ( 4)

6300 Research and development expenses ( 279,699) ( 4) ( 219,535) ( 3)

6000 Total operating expenses ( 784,592) ( 10) ( 653,340) ( 10)

6900 Operating profit 182,386 2 362,619 5

Non-operating income and expenses

7010 Other income 6(19) and 7 148,072 2 112,466 27020 Other gains and losses 6(20) 15,243 - ( 129,179) ( 2)

7050 Finance costs 6(21) ( 21,238) - ( 6,741) -

7060 Share of profit/(loss) of associates and joint ventures accounted for under equity method

6(8)

( 30,161) - 24,131 -

7000 Total non-operating income and expenses

111,916 2 677 -

7900 Profit before income tax 294,302 4 363,296 57950 Income tax expense 6(23) ( 62,797) ( 1) ( 68,576) ( 1)

8200 Profit for the year $ 231,505 3 $ 294,720 4

Other comprehensive income

Components of other comprehensive income that will not be reclassified to profit or loss

8316 Unrealised gains (losses) on financialassets at fair value through other comprehensive income

6(3)

$ 2,092 - $ - -

Components of other comprehensive income that will be reclassified to profit or loss

8361 Financial statements translation differences of foreign operations

( 28,006) - ( 16,637) -

8370 Share of other comprehensive loss of associates and joint ventures accounted for under equity method

( 190) - ( 4,737) -

8360 Other comprehensive loss that will be reclassified to profit or loss

( 28,196) - ( 21,374) -

8300 Other comprehensive loss for the year ($ 26,104) - ($ 21,374) -

8500 Total comprehensive income for the year

$ 205,401 3 $ 273,346 4

Profit (loss) attributable to:

8610 Owners of the parent $ 232,987 3 $ 290,147 48620 Non-controlling interest ( 1,482) - 4,573 -

$ 231,505 3 $ 294,720 4

Comprehensive income attributable to:

8710 Owners of the parent $ 207,073 3 $ 269,008 4

8720 Non-controlling interest ( 1,672) - 4,338 -

$ 205,401 3 $ 273,346 4

Earnings per share 6(24)

9750 Basic earnings per share $ 2.90 $ 3.66

9850 Diluted earnings per share $ 2.85 $ 3.58

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(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

Total capital surplus, additional

paid-in capital Legal reserveUnappropriated

retained earnings

Financial statements translation

differences of foreign operations

Unrealised gains (losses) from

financial assets measured at fair value through

other comprehensive

incomeTreasury

stocks TotalNon-controlli

ng interest

Total equity


~191~

For the year ended December 31, 2017 Balance at January 1, 2017 $ 784,686 $ 6,265 $ 430 $ 549,219 $ 53,297 $ 840,318 $ 35,831 $ - $ - $ 2,270,046 $ 22,357 $ 2,292,403

Profit for the year - - - - - 290,147 - - - 290,147 4,573 294,720

Other comprehensive loss for the year - - - - - - ( 21,139 ) - - ( 21,139 ) ( 235 ) ( 21,374 )

Total comprehensive income (loss) - - - - - 290,147 ( 21,139 ) - - 269,008 4,338 273,346

Appropriation and distribution of 2016 retained earnings

Legal reserve - - - - 62,027 ( 62,027 ) - - - - - -

Cash dividends - - - - - ( 278,572 ) - - - ( 278,572 ) ( 4,641 ) ( 283,213 )

Changes in equity of associates and joint ventures accounted for under the equity method

6(8) - - - 172 - - - - - 172 - 172

Conversion of convertible bonds 6(13) 14,987 ( 6,265 ) - 39,824 - - - - - 48,546 - 48,546

Employee share options 6(15) 7,360 - ( 300 ) 6,682 - - - - - 13,742 - 13,742

Compensation cost of share-based payments 6(15) - - - 1,414 - - - - - 1,414 - 1,414

Acquisition of treasury shares - - - - - - - - ( 135,534 ) ( 135,534 ) - ( 135,534 )

Loss for the year - - - - - - - - - - ( 8,955 ) ( 8,955 )

Balance at December 31, 2017 $ 807,033 $ - $ 130 $ 597,311 $ 115,324 $ 789,866 $ 14,692 $ - ($ 135,534 ) $ 2,188,822 $ 13,099 $ 2,201,921

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

Legal reserve - - - - 29,015 ( 29,015 ) - - - - - -

Cash dividends - - - - - ( 162,661 ) - - - ( 162,661 ) - ( 162,661 )

Conversion of convertible bonds 6(13) 16,843 815 - 78,511 - - - - - 96,169 - 96,169

Employee share options 6(15) 6,240 - 370 6,013 - - - - - 12,623 - 12,623

Compensation cost of share-based payments 6(15) - - - 5,085 - - - - - 5,085 - 5,085

Acquisition of treasury shares 6(16) - - - - - - - - ( 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

AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


For the years ended December 31 Notes 2018 2017


~192~

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax $ 294,302 $ 363,296

Adjustments Adjustments to reconcile profit (loss) Depreciation 6(22) 138,706 143,999

Amortisation 6(22) 21,670 13,749 Reversal of allowance for bad debts - ( 600 )

Interest expense (including accounts receivable factoring expenses)

6(21)21,238 6,741

Interest income ( 1,099 ) ( 889 )

Share of (profit) loss of associates accounted for using equity method 30,161 ( 24,131 )

Loss on disposal of property, plant and equipment 6(20) 6,298 8,501

Net loss on financial assets at fair value through profit or loss 6(20) 24 3,242

Compensation cost of share-based payments 6(15) 5,085 1,414 Loss from disposal of investment accounted for using equity

method 6(22)

- 7,009

Changes in operating assets and liabilities Changes in operating assets Accounts receivable ( 151,082 ) ( 301,807 )

Other receivables ( 9,267 ) 163,617 Inventories ( 332,298 ) ( 329,178 )

Prepayments 20,311 ( 40,109 )

Other current assets ( 4,520 ) ( 518 ) Changes in operating liabilities Accounts payable 111,137 416,452

Accounts payable - related parties ( 4,513 ) ( 2,852 ) Other payables 40,161 23,526

Other current liabilities 1,937 ( 2,414 )

Cash inflow generated from operations 188,251 449,048

Interest received 1,099 889 Interest paid ( 18,290 ) ( 5,102 )

Income tax paid ( 58,005 ) ( 94,865 )

Net cash flows from operating activities 113,055 349,970

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment 6(25) ( 159,302 ) ( 185,245 ) Disposal of property, plant and equipment 745 3,539

Increase in other non-current assets ( 127,023 ) ( 52,192 )

Proceeds from disposal of subsidiary - 4,520 Proceeds from disposal of investment accounted for using equity

method - 18,018

Net cash flows used in investing activities ( 285,580 ) ( 211,360 )

CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings 6(26) 492,706 228,906 Exercise of employee share options 12,623 13,742

Dividends paid to non-controlling interests - ( 4,641 )

Shares returned from reduction in non-controlling interests - ( 2,025 ) Cash dividends paid ( 162,661 ) ( 278,572 )

Acquisition of treasury shares 6(16) ( 49,939 ) ( 135,534 )

Net cash flows from (used in) financing activities 292,729 ( 178,124 )

Effect of changes in foreign currency exchange ( 807 ) ( 9,651 )

Net increase (decrease) in cash and cash equivalents 119,397 ( 49,165 )

Cash and cash equivalents at beginning of year 301,925 351,090

Cash and cash equivalents at end of year $ 421,322 $ 301,925

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AURAS TECHNOLOGY CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (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 15, 2019.

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 FSC effective from 2018 are as follows:



Standards BoardAmendments to IFRS 2, ‘Classification and measurement of share-basedpayment transactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments withIFRS 4 Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue fromcontracts with customers’

January 1, 2018

Amendments to IAS 7, ‘Disclosure initiative’ January 1, 2017Amendments to IAS 12, ‘Recognition of deferred tax assets forunrealised losses’

January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

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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 9, ‘Financial instruments’

A. Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading.

B. The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses or lifetime expected credit losses (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.

C. The amended general hedge accounting requirements align hedge accounting more closely with an entity’s risk management strategy. Risk components of non-financial items and a group of items can be designated as hedged items. The standard relaxes the requirements for hedge effectiveness, removing the 80-125% bright line, and introduces the concept of ‘rebalancing’; while its risk management objective remains unchanged, an entity shall rebalance the hedged item or the hedging instrument for the purpose of maintaining the hedge ratio.

D. The Group has elected not to restate prior period financial statements using the modified retrospective approach under IFRS 9. There is no significant effect as at January 1, 2018.



Standards Board

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IAS28, ‘Investments in associates and joint ventures’

January 1, 2018

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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 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 Group’s financial condition and financial performance based on the Group’s assessment.

IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a ‘right-of-use asset’ and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors. The Group expects to recognise the lease contract of lessees in line with IFRS 16. However, the Group intends not to restate the financial statements of prior period (referred herein as the “modified retrospective approach”). On January 1, 2019, it is expected that ‘right-of-use asset’ and lease liability will be increased by $110,660 and $26,146, respectively.

(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:



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



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, 2020

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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” and IAS 34, ‘Interim Financial Reporting’ as endorsed by the FSC.

(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 (including derivative instruments) at fair value through profit or loss. (b) Financial assets at fair value through other comprehersive income / available-for-sale

financial assets measured at fair value. 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 Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

C. In adopting IFRS 9 effective January 1, 2018, the Group has elected to apply modified retrospective approach whereby the cumulative impact of the adoption was recognised as retained earnings or other equity as of January 1, 2018 and the financial statements for the year ended December 31, 2017 were not restated. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’) and related financial reporting interpretations. Please refer to Note 12(4) for details of significant accounting policies and details of significant accounts.



Standards Board

Amendments 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, 2021

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(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 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.

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B. Subsidiaries included in the consolidated financial statements:

MainName of Name of business December 31, December 31,investor subsidiary activities 2018 2017 Description

AURASTechnology Co.,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


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

SHUANGHORNGTechnology Co.,Ltd.

AURASTechnology(KUNSHAN)Co., Ltd.

Manufacturingcompany

100 100

ZE HONGTechnology Co.,Ltd.



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, 2018 and 2017, 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 2018 2017 Description

Ownership (%)

PEL HORNGTechnology Co.,Ltd.



100 100

ZHEN HORNGTechnology Co.,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

sold or consumed within the normal operating cycle;

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(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.

(7) 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. 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: (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.

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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 selling, and the accounts receivable are subsequently measured at fair value, with any changes in fair value recognised in profit or loss.

(10) Impairment of financial assets 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.

(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.

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(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 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

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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.

(14) 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 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 Leasehold improvements 3 years Other assets 3 ~10 years

(15) Leased assets/ operating leases (lessee) 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.

(16) 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

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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.

(17) 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.

(18) 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. (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 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 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

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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.

(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


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.

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

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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.

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.

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

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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

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.

(27) 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.

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

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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, 2018, the carrying amount of inventories was $1,247,865.

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.


A. As of December 31, 2018, the Group has no financial assets at fair value through profit or loss pledged to others.

B. The Group recognised net gain (loss) on financial assets 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 at fair value through profit or loss is provided in Note 12(2).

December 31, 2018 December 31, 2017Cash on hand and revolving funds 1,987$ 1,462$

Checking accounts and demand deposits 419,335 300,140

Time deposits - 323

421,322$ 301,925$

Items December 31, 2018 December 31, 2017Current items: Financial assets mandatorily measured at fair value through profit or loss Put and call options of secured convertible bonds 2,171$ 2,171$

Valuation adjustment 2,160)( 1,659)(

11$ 512$

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

A. As of December 31, 2018, the Group has no financial assets at fair value through other

comprehensive income pledged to others.

B. For the year ended December 31, 2018, no amount was recognised in profit or loss in relation to the financial assets at fair value through other comprehensive income, while the amount of fair value changes recognised in other comprehensive income was $2,092.

C. Information relating to credit risk of financial assets at fair value through other comprehensive income is provided in Note 12(2).

D. The information on available-for-sale financial assets and financial assets at cost as of December 31, 2017 is provided in Note 12(4).

(4) Accounts receivable, net

A. The ageing analysis of accounts receivable that were past due but not impaired is as follows:


B. The Group does not hold any collateral as security.

C. Please refer to Note 6(5) for information on transfer of financial assets.

D. Information relating to credit risk of accounts receivable is provided in Note 12(2).

Items December 31, 2018Non-current items: Unlisted stocks 8,648$

Valuation adjustment 2,092

10,740$

December 31, 2018 December 31, 2017Notes receivable 7,115$ 6,021$

Accounts receivable 2,448,155 2,344,488

Less: Allowance for bad debts 5,062)( 4,904)(

2,450,208$ 2,345,605$

December 31, 2018 December 31, 2017Not past due 2,398,101$ 2,184,287$

1 to 90 days 50,102 156,580

91 to 180 days 1,741 5,045

Over 180 days 5,326 4,597

2,455,270$ 2,350,509$

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(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:

Expense arising from accounts receivable factoring is accounted as ‘financial cost’, and the related amount is shown in Note 6 (21).

(6) Inventories



Amountderecognised

Amountadvanced


amount (Shownas "Other

receivables")

Contractamount of

bank


TaishinInternationalBank, etc. 460,568$ 392,546$ 68,022$ 1,010,725$ 3.35%~3.99%



Amountderecognised

Amountadvanced


amount (Shownas "Other

receivables")

Contractamount of

bank


TaishinInternationalBank, etc. 243,166$ 178,664$ 64,502$ 728,560$ 2.22%~2.67%

December 31, 2018

December 31, 2017


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, 2018 and 2017, the basic information of the associates that are material to the Group and comprise above 1% of total assets were as follows:


Raw materials 327,252$ 9,521)($ 317,731$

Work in progress 179,290 6,471)( 172,819

Finished goods 453,366 14,659)( 438,707

Merchandise 4,720 1,009)( 3,711

964,628$ 31,660)($ 932,968$

December 31, 2017

2018 2017Cost of goods sold 6,610,500$ 5,886,168$

Loss on market value decline of inventories 35,546 67,465

Loss on scrapping inventory 61,349 -

Loss (gain) on physical inventory 1,726 3,911)(

Sale of scraps 21,834)( 16,895)(

6,687,287$ 5,932,827$


December 31, 2018 December 31, 2017Business tax paid 84,567$ 104,188$

Prepaid expenses 7,248 8,119

Others 13,483 10,264

105,298$ 122,571$

Company name Amount % Amount %JCD OPTICAL (CAYMAN) CO., LTD.(JCD CAYMAN) 125,582$ 34.75 152,025$ 34.75

PRO JUMP CO., LTD. 12,547 36.00 15,160 36.00

MILK IDEA INC. 974 20.00 936 20.00

139,103$ 168,121$

December 31, 2018 December 31, 2017

Principal

Company Registered place of December December Nature of Method of

name country business 31, 2018 31, 2017 relationship measurementJCD CAYMAN Cayman China 34.75% 34.75% Note Equity method

Shareholding ratio

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Note: Owns more than 20% of voting rights

(b) The summarised financial information of the associates that are material to the Group is shown below:

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, 2018 and 2017, the carrying amount of the Group’s individually immaterial associates amounted to $13,521 and $16,096, respectively. The operating results were as follows:

B. The balances of aforementioned profit or loss on investments accounted for using equity method

for the years ended December 31, 2018 and 2017 were ($30,161) and $24,131, respectively.

December 31, 2018 December 31, 2017Current assets 329,459$ 402,766$

Non-current assets 145,261 164,591

Current liabilities 113,332)( 129,875)(

Total net assets 361,388$ 437,482$

Share in associate’s net assets 125,582$ 152,025$

Carrying amount of the associate 125,582$ 152,025$

JCD CAYMAN

2018 2017Revenue 304,350$ 682,601$

(Loss) profit for the year from continuing operations 68,773)( 98,257

Other comprehensive (loss) income, net of tax 13,905)( 17,928

Total comprehensive (loss) income 82,678)($ 116,185$

JCD CAYMANFor the years ended December 31,

2018 2017Loss from continuing operations 12,435)($ 25,951)($


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Buildings andstructures


Leaseholdimprovements Others Total

At January 1, 2018Cost 578,272$ 748,997$ 75,668$ 394,551$ 1,797,488$

Accumulated depreciation 239,488)( 288,036)( 57,886)( 215,908)( 801,318)(

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$

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(10) 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 and $2,091 for the years ended December 31, 2018 and 2017, respectively. The lease period is 50 years.

Buildings andstructures


Leaseholdimprovements Others Total

At January 1, 2017Cost 487,816$ 727,515$ 67,046$ 339,376$ 1,621,753$


324,392$ 499,485$ 12,025$ 109,478$ 945,380$

2017Opening net book amount as at January 1 324,392$ 499,485$ 12,025$ 109,478$ 945,380$

Additions 22,175 32,242 9,483 118,772 182,672

Disposals - 8,196)( - 3,020)( 11,216)(

Transfers 33,659 25,621 44 21,565)( 37,759

Depreciation charge 36,282)( 79,789)( 3,663)( 24,265)( 143,999)( Net exchange differences 5,160)( 8,402)( 107)( 757)( 14,426)(

Closing net book amount as at December 31 338,784$ 460,961$ 17,782$ 178,643$ 996,170$

At December 31, 2017Cost 578,272$ 748,997$ 75,668$ 394,551$ 1,797,488$


338,784$ 460,961$ 17,782$ 178,643$ 996,170$

December 31, 2018 December 31, 2017Computer software cost 86,271$ 52,136$

Land use right 84,514 88,389

Prepayments for business facilities 84,453 31,605

Guarantee deposits paid 19,893 14,576

Others 8,825 9,100

283,956$ 195,806$

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(11) 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, 2018 and 2017 is provided in Note 6(21).

(12) Other payables (including related parties)

(13) Bonds payable

A. The terms of the second domestic secured convertible bonds are as follows:

(a) 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.

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, 2018 December 31, 2017Bonus and salary payable 130,724$ 120,811$

Processing fees payable 119,738 96,834

Payable for service fees 44,897 49,399

Payables for freight and warehouse charge 37,431 29,524

Payables for miscellaneous purchases 31,738 22,570

Payable for equipment 29,652 2,130

Other payables 115,761 130,643

509,941$ 451,911$

December 31, 2018 December 31, 2017Bonds payable 26,800$ 124,800$

Less: Discount on bonds payable 125)( 2,160)(

26,675 122,640 Less: Current portion (shown as “long-term liabilities, current portion”) 26,675)( 122,640)(

Bonds payable - non-current -$ -$

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(b) The conversion price of the bonds is set up based on the pricing model. As of December 31, 2018, the bonds payable of $273,200 had been converted into 4,792,809 shares of common stock, of which 81,472 shares were recognised as ‘certificate of entitlement to new shares from convertible bond’. 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 $59.2 (in dollars) per share upon issuance. The Company adjusted the conversion price to $54 (in dollars) per share as mentioned above on July 30, 2018.

(c) The bondholders have the right to require the Company to redeem any bonds at the price of the bonds’ face value plus 1.0025% of the face value as interest upon two 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 one month 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.

B. Regarding the issuance of convertible bonds, the equity conversion options amounting to $10,766 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 1.2695%.

(14) 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 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

~218~

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, 2018 and 2017 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, 2018 and 2017 were $37,986 and $30,050, respectively.

(15) Share-based payment

A. For the years ended December 31, 2018 and 2017, 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:

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

~219~

C. The details of the employee stock option plan for the years ended December 31, 2018 and 2017 are as follows:



Stock options units) (in dollars) (in dollars) year date (in dollars)Outstanding options at the beginning of the year 871 19.23$ $17.5~20.8 84.32$



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




Stock options units) (in dollars) (in dollars) year date (in dollars)Outstanding options at the beginning of the year 1,598 20.67$ $18.3~21.7 80.77$

Options granted 606



Outstanding options at the end of the year 1,477 19.23 17.5~20.8

0 year~2 years 84.32

Exercisable options at the end of the year 1,112


~220~

D. In 2018 and 2017, the Company issued 661 thousand and 706 thousand shares of ordinary shares relative to the exercise of employee share options in accordance with the employee share options plan. As of December 31, 2018 and 2017, there are 50 thousand and 13 thousand shares which have not yet completed the registration, and were accounted as advance receipts for ordinary share amounting to $500 and $130, respectively

E. For the years ended December 31, 2018 and 2017, the Group recognised expenses on share-based payment transaction (equity settlement) and the cost of treasury shares reissued as employees’ compensation was $5,085 and $1,414, respectively.

(16) Share capital A. As of December 31, 2018, the Company’s authorised capital was $1,200,000, and the paid-in

capital was $830,116, consisting of 83,011,582 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 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 three years from the reacquisition date and shares not reissued within the three-year period are to be retired.

2018 2017Ordinary shares Ordinary shares

At January 1 80,703,285 78,468,623

Employee stock options exercised 624,000 736,000

Conversion of convertible bonds 1,684,297 1,498,662

At December 31 83,011,582 80,703,285





December 31, 2018

December 31, 2017

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(17) Capital surplus

Difference between




Conversion of corporate bonds payable 82,028 - - 3,517)( 78,511 Employee stock options exercised 9,158 - 3,145)( - 6,013


At December 31 654,122$ 4,050$ 25,145$ 3,603$ 686,920$

2018

Difference between




Changes in equity of associates and joint ventures accounted for using equity method - 172 - - 172

Conversion of corporate bonds payable 41,618 - - 1,794)( 39,824

Employee stock options exercised 10,635 - 3,953)( - 6,682


At December 31 562,936$ 4,050$ 23,205$ 7,120$ 597,311$

2017

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Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. 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.

(18) 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, 2017 and 2016 resolved by the shareholders during their meeting in June 2018 and 2017, respectively, are as follows:

Dividends per Dividends per Amount share (in dollars) Amount share (in dollars)

Legal reserve 29,015$ 62,027$

Cash dividends 162,661 $ 2.00 (Note) 278,572 $ 3.55 (Note)191,676$ 340,599$

Years ended December 31,2017 2016

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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 Group adjusted the shareholder yield based on the actual number of outstanding shares.

F. On March 15, 2019, the Board of Directors proposed for the distribution of dividends from 2018 earnings in the amount of $125,226 at $1.5 (in dollars) per share.

G. For the information relating to employees’ compensation (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(22).

(19) Other income

(20) Other gains and losses

(21) Finance costs

2018 2017Government grant revenues 55,913$ 31,424$

Sample revenue 52,181 38,815

Mold income 16,718 17,869

Rent income 11,807 8,573

Others 11,453 15,785

148,072$ 112,466$


2018 2017Net currency exchange gains (losses) 25,467$ 109,653)($

Losses on disposal of property, plant and equipment 6,298)( 8,501)(

Losses on valuation of financial assets 24)( 3,242)(

Losses on disposal of investments - 7,009)(

Other losses 3,902)( 774)(

15,243$ 129,179)($


2018 2017Interest expense:

Bank borrowings 10,604$ 3,103$

Convertible bonds 682 1,571

Accounts receivable factoring expenses 9,952 2,067

Finance costs 21,238$ 6,741$


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(22) 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, 2018 and 2017, employees’ compensation was accrued at $10,155 and $11,769, respectively; while directors’ and supervisors’ remuneration was accrued at $2,321 and $2,690, respectively. The aforementioned amounts were recognised in salary 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 2017 as resolved by the Board of Directors were $11,769 and $2,690, respectively, and were in agreement with those amounts recognised in the 2017 financial statements.

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.

2018 2017Employee benefit expense Wages and salaries 1,148,811$ 933,987$

Labour and health insurance fees 32,865 29,533

Pension costs 37,986 30,050

Other personnel expenses 69,962 66,105

1,289,624$ 1,059,675$

Depreciation 138,706$ 143,999$

Amortisation 21,670$ 13,749$


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(23) Income tax A. Components of income tax expense:

B. Reconciliation between income tax expense and accounting profit:

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

2018 2017Current tax:Current tax on profits for the year 44,951$ 52,622$

Tax on undistributed surplus earnings 9,847 27,967 Prior year income tax under (over) estimation 4,743 6,404)(

Total current tax 59,541$ 74,185$

Deferred tax:Origination and reversal of temporary differences 4,285 5,609)(

Impact of change in tax rate 1,029)( -



2018 2017Income tax calculated by applying statutory rate to the profit before tax 71,084$ 90,376$

Effect from permanent differences of income tax 21,848)( 43,363)(

Impact of change in tax rate 1,029)( - 10% additional tax on undistributed surplus earnings 9,847 27,967

Prior year income tax under (over) estimation 4,743 6,404)(



January 1


Recognisedin other

comprehensiveincome

Recognisedin equity December 31

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

~226~

D. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets are as

follows:

E. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets 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

Recognised

in equity Sales of

subsidiaries December 31Deferred tax assets: Unused compensated absences 213$ 284$ -$ $ -$ 497$

Impairment loss on assets 1,309 - - - - 1,309

Unrealised exchange loss - 1,886 - - - 1,886

Others 2,170 30)( - - - 2,140

3,692$ 2,140$ -$ -$ -$ 5,832$

Deferred tax liabilities: Unrealised exchange gain 3,710)($ 3,469$ -$ $ 241$ -$

2017

Year Amount filed/ Unrecognised incurred assessed Unused amount deferred tax assets Expiry year

2016 6,022$ 6,022$ 6,022$ 20262017 201 201 201 2027

6,223$ 6,223$ 6,223$

Year Amount filed/ Unrecognised incurred assessed Unused amount deferred tax assets Expiry year

2016 6,022$ 6,022$ 6,022$ 20262017 201 201 201 2027

6,223$ 6,223$ 6,223$

December 31, 2018

December 31, 2017

December 31, 2018 December 31, 2017Deductible temporary difference 5,073$ 3,531$

Taxable temporary differences-Liabilities 569,426)($ 500,932)($

~227~

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 2016 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% effective from January 1, 2018. The Group has assessed the impact of the change in income tax rate.

(24) Earnings per share

Amount after tax



Earnings pershare





Convertible bonds 545 921



~228~

For the year ended December 31, 2018, the Group’s convertible bonds were not included in the calculation of diluted earnings per share due to its anti-dilutive effect.

(25) Supplemental cash flow information

Investing activities with partial cash payments

(26) Change in liabilities from financing activities

For the year ended December 31, 2018, the effects from changes in financing activities and changes in borrowings and exchange rate were $492,706 and ($4,837), respectively. Please refer to consolidated statements of cash flow.

Amount after tax



Earnings pershare





Convertible bonds 1,481 861



2018 2017Purchase of property, plant and equipment 186,824$ 182,672$

Add: Opening balance of payable on equipment 2,130 4,703

Less: Ending balance of payable on equipment 29,652)( 2,130)(

Cash paid during the year 159,302$ 185,245$


~229~

7. RELATED PARTY TRANSACTIONS (1) Names of related parties and relationship

(2) Significant related party transactions

A. Purchases

B. Other income

The Group leased plant to related parties for a contract period starting from June 1, 2017 to December 31, 2018. 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

2018 2017Purchases of goods: Associates 74,126$ 112,413$


2018 2017Rent income: JCD (Guangzhou) 11,514$ 8,390$

Associates 42 168

Other income: Associates 1,385 7,367

12,941$ 15,925$


December 31, 2018 December 31, 2017Other receivables: Associates 4,481$ 5,000$

December 31, 2018 December 31, 2017Accounts payable: Associates 19,512$ 25,748$

~230~

(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 expenditure contracted for at the balance sheet date but not yet incurred is 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

None.

2018 2017Salaries and other short-term employee benefits 14,039$ 16,187$


Pledged asset December 31, 2018 December 31, 2017 PurposeOther current Customs guarantee, assets foreign tax guarantee - time deposits 1,513$ 1,508$ and long-term

borrowings guarantee

Book value

December 31, 2018 December 31, 2017Property, plant and equipment 195,626$ 21,845$

December 31, 2018 December 31, 2017Not later than one year 17,152$ 41,557$ Later than one year but not later than five years 11,657 157,392

Over five years - 39,348

28,809$ 238,297$

~231~

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 includes cash, accounts and notes receivable and other

receivables; financial liabilities at amortised cost includes short-term borrowings, short-term notes and bills payable, accounts and notes payable, other payables and long-term borrowings.

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.

(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.

December 31, 2018 December 31, 2017Financial assets Financial assets at fair value through profit or loss 11$ 512$

Financial assets at fair value through other comprehensive income 10,740 -

Financial assets at amortised cost 2,960,860 2,728,334

2,971,611$ 2,728,846$

Financial liabilities Financial liabilities at amortised cost 3,405,123$ 2,798,358$

~232~

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:



USD:RMB 60,153 6.8632 1,847,599 1% 18,476


RMB:NTD 339,285 4.4720 1,517,283$


USD:RMB 38,987 6.8632 1,197,486 1% 11,975


~233~

v. For the years ended December 31, 2018 and 2017, the total amount of exchange gain (loss) were $25,467 and ($109,653) (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, 2018 and 2017, the Group’s borrowings at variable rate were denominated in the NTD and USD.

ii. At December 31, 2018 and 2017, 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, 2018 and 2017.



USD:RMB 61,010 6.5342 1,815,658 1% 18,157


RMB:NTD 307,242 4.5650 1,402,560


USD:RMB 42,217 6.5342 1,256,378 1% 12,564


~235~

(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 uses the forecastability to adjust historical and timely information to assess the default possibility of accounts receivable. On December 31, 2018, the provision matrix is as follows:

vi. Movements in relation to the Group applying the simplified approach to provide loss allowance for accounts receivable are as follows:

vii. Credit risk information for 2017 is provided in Note 12(4).

1 to ~ 90 to ~ Over December 31, Not 90 days 180 days 180 days2018 past due past due past due past due TotalExpected loss rate 0.03% 0.03% 0.11% 82.20%

Total book value 2,398,101$ 50,102$ 1,741$ 5,326$ 2,455,270$

Loss allowance 665$ 17$ 2$ 4,378$ 5,062$

December 31, 2018

2018Accounts receivable

At January 1_IAS 39 4,904$

Adjustments under new standards -

At January 1_IFRS 9 4,904

Effect of exchange rate changes 158


~236~

(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 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 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, 2018 and 2017.

(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 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 receivable, accounts receivable, other receivables, short-term borrowings, notes payable, accounts payable, other payables and bonds payable) are approximate to their fair values.

~237~

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 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, 2018 and 2017, there was no transfer between Level 1 and Level 2.

F. For the years ended December 31, 2018 and 2017, there was no transfer into or out from Level 3.


Available-for-sale financial assets - Equity securities - - 10,740 10,740

-$ 11$ 10,740$ 10,751$


Available-for-sale financial assets - Equity securities - - 8,648 8,648

-$ 512$ 8,648$ 9,160$

~238~

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:

(4) Effects on initial application of IFRS 9 and information on application of IAS 39 in 2017

A. Details of significant accounting policies adopted in 2017 are provided in Note 4 of the 2017 consolidated financial statements.

B. The reconciliation of carrying amount of financial assets transferred from December 31, 2017, IAS 39, to January 1, 2018, IFRS 9, were as follows:

(a) Under IAS 39, because the equity instruments, which were classified as available-for-sale financial assets amounting to $8,648 were not held for the purpose of trading, they were reclassified as "financial assets at fair value through other comprehensive income (equity instruments)" on initial application of IFRS 9.

(b) Under IAS 39, the equity instruments, which were classified as financial assets at fair value through profit or loss amounting to $512, were reclassified as "financial assets at fair value through profit or loss (debt instruments)" under IFRS 9.

(c) Above classification has no impact on retained earnings and other equity on January 1,

Significant Range RelationshipDecember 31, Valuation unobservable (weighted of inputs

2018 technique input average) to fair value Non-derivative equity instrument:Unlisted shares 10,740$ Discounted

cash flowLong-term

revenuegrowth rate

3.00% The higher the long-term revenue growthrate and long-term pre-tax operating margin,the higher the fair value

Financial Contract Favourable Unfavourableassets period Input Change change change

Equity instruments December 31, 2018 10,740$ ±1% 1,074$ 1,074)($

Recognised in othercomprehensive income

~239~

2018.

C. The significant accounts as of December 31, 2017 are as follows: Available-for-sale financial assets

(a) The Group disposed 27% equity shares of Kunshan Jinxi Plastic Co., Ltd. in the fourth

quarter of 2017, where the Group lost its significant influence over Kunshan Jinxi Plastic Co., Ltd. At the same time, the Group re-measured the carrying amount of the remaining investment in Kunshan Jinxi Plastic Co., Ltd. by fair value, and the investment was transferred from investment accounted for using equity method to｀available-for-sale financial assets’.

(b) The Group has no available-for-sale financial assets pledged to others as of December 31, 2017.

D. Credit risk information on December 31, 2017 and for the year ended December 31, 2017 are as follows:

(a) 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. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted.

(b) For the year ended December 31, 2017, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.

(c) The credit quality information of financial assets that are neither past due nor impaired is as follows:

Items December 31, 2017Non-current items:Kunshan Jinxi Plastic Co., Ltd. 8,648$

~240~

The Group’s credit assessment takes into consideration the scale, credit result and transaction frequency of counterparties, and record from A to D.

(d) The ageing analysis of financial assets that were past due but not impaired is as follows:


(e) Movement analysis of allowance for doubtful accounts (impairment) is as follows:

i. As of December 31, 2017, accounts receivable relating to impairment amounted to $13,354, respectively.

ii. Movements in the provision for impairment of accounts receivable are as follows:

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

Group A Group B Group C Group D Total Accounts receivable 1,196,738$ 518,184$ 469,365$ -$ 2,184,287$

December 31, 2017

December 31, 2017Up to 30 days 73,460$

31 to 90 days 74,324

91 to 180 days 5,045

181 to 365 days 39

152,868$

2017As of January 1 5,511$

Provision for impairment -

Reversal of impairment loss 600)(

Effect of exchange rate changes 7)(


~241~

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

(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, 2018 and 2017 is as follows:

~242~

Non-current Non-current Revenue assets Revenue assets

China 4,114,846$ 1,207,082$ 4,156,034$ 1,087,027$

Taiwan 2,031,947 106,369 1,441,720 104,765

Korea 516,982 - 696,059 -

India 454,153 - 464,590 -

Others 536,337 9 190,383 184

7,654,265$ 1,313,460$ 6,948,786$ 1,191,976$

For the years ended December 31, 2018 2017

~243~

(4) Major customer information Major customer information of the Group for the years ended December 31, 2018 and 2017 is as follows:

Amount % Amount %a 1,240,235$ 16.20% A 1,170,074$ 16.84%

b 1,181,656 15.44% B 1,000,678 14.40%

c 604,959 7.90% C 722,312 10.39%

d 557,354 7.28% D 532,715 7.67%

e 544,941 7.12% E 532,304 7.66%

4,129,145$ 3,958,083$

For the years ended December 31, 2018 2017

Revenue Revenue

Item Value0 Auras Technology

Co., Ltd.Auras Technology(Chongqing) Co.,Ltd.


Yes 100,000$ 100,000$ -$ 2 1 1,575,086$ - -$ - -$ 918,868$ 918,868$

0 Auras TechnologyCo., Ltd.



Yes 250,000 250,000 - 2 1 3,114,631 - - - - 918,868 918,868$

1 Ze Hong(Guangzhou)Technology Co.,Ltd.



Yes 46,860 44,720 - 2 1 - - - - - 874,446 874,446

Note 1: The numbers filled in for the loans provided by the Company or subsidiaries are as follows: (1) The Company is ‘0’.


Note 2: 1.Business transaction. 2. Short-term financingNote 3: To maintain the normal operations of the Comapny's 100% indirect invested subsidiary.Note 4: 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: 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.Note 6: The foreign subsidiary that was directly or indirectly wholly owned by the Company was not limited by above restriction.

Auras Technology Co., Ltd. and Subsidiaries

Loans to others




Reason forshort-termfinancing

No.(Note 1) Creditor Borrower

Generalledger

account

Is arelatedparty

Maximumoutstanding

balance duringthe year endedDecember 31,

2018

Balance atDecember31, 2018

Actualamount

drawn downInterest

rate

Nature ofloan

(Note 2)

Amount oftransactions

with theborrower

Allowancefor

doubtfulaccounts

Collateral

Limit onloans granted

to a singleparty

Ceiling ontotal loans

granted Footnote

~244~

Company name

Relationshipwith the

endorser /guarantor

0 AurasTechnologyCo., Ltd.


A subsidiaryof theCompany

1,148,586$ 247,640$ 245,720$ 245,720$ - 10.70 1,148,586$ Y N Y

Note : Limit on total endorsements granted by the Company and subsidiaries 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.

Outstandingendorsement /

guaranteeamount at

December 31,2018


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,

2018


to the party inMainland

China Footnote

Actualamount drawn

down

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

~245~

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$ 10,740$ 13 10,740$

As of December 31, 2018



Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)



~246~

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 1,906,267$ 29 3~4 months Did not purchase

from othersuppliers

As generalsuppliers

597,201)($ 36

Auras Technology Co., Ltd. AURAS TECHNOLOGY(CHONGQING) CO., LTD.


As generalsuppliers

328,742)( 20

Auras Technology Co., Ltd. Ze Hong (Guangzhou)Technology Co., Ltd.


As generalsuppliers

741,402)( 44


AURAS TECHNOLOGY(KUNSHAN) CO., LTD.


As generalsuppliers

RMB 2,778 1




As generalsuppliers

RMB 1,487 1

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



~247~

Amount Action takenAURAS TECHNOLOGY(KUNSHAN) CO., LTD.


AURAS TECHNOLOGY(CHONGQING) CO., LTD



Auras Technology Co., Ltd. Indirect subsidiary RMB 165,670 7.16 (times) RMB - RMB - RMB -

Note : Purchase receivables arose from purchasing materials on behalf of subsidiary.

Amount collectedsubsequent to thebalance sheet date

Allowance fordoubtful accountsCreditor Counterparty

Relationship with thecounterparty

Balance as at December31, 2018 (thousand

dollars) (Note) Turnover rate

Overdue receivables


Receivables from related parties reaching $100 million or 20% of paid-in capital or more

December 31, 2018



Table 5

~248~

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 1,906,267$ Note 5 24.90%0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 1 Accounts payable 597,201 Note 5 10.33%0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Purchases 1,575,086 Note 5 20.58%0 Auras Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 1 Accounts payable 328,742 Note 5 5.69%0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Purchases 3,114,631 Note 5 40.69%0 Auras Technology Co., Ltd. Ze Hong (Guangzhou) Technology Co., Ltd. 1 Accounts payable 741,402 Note 5 12.83%1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (KUNSHAN) CO., LTD. 3 Sales RMB 47,034 Note 6 2.80%1 Ze Hong (Guangzhou) Technology Co., Ltd. AURAS TECHNOLOGY (CHONGQING) CO., LTD. 3 Sales RMB 41,864 Note 6 2.49%

Note 1: The numbers filled in for the transaction company in respect of inter-company transactions are as follows: (1) Parent company is ‘0’.


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.

Number(Note 1) Company name Counterparty

Relationship(Note 2)

Transaction



Significant inter-company transactions during the reporting period



~249~


2018


2017Number of

sharesOwnership

(%) Book valueAuras Technology Co., Ltd. LI-HORNG

TECHNOLOGY CO., LTD.Belize Investment

holdings $ 1,018,605 $ 972,480 32,952,870 100 $ 1,583,868 $ 113,809 $ 118,502

Auras Technology Co., Ltd. PRO JUMP CO., LTD.(PRO JUMP)


7,500 7,500 253,447 15 5,207 ( 12,624) ( 1,894)

Auras Technology Co., Ltd. HAO HORNGTECHNOLOGY CO., LTD.

Belize Engaged in sale ofcomputer heatdissipation module

29,551 29,551 50,000 100 33,714 ( 6,454) ( 6,454)

Auras Technology Co., Ltd. MILK IDEA INC. Taiwan Development ofmobile appication

2,000 2,000 200,000 20 974 189 38

Auras Technology Co., Ltd. RAIJINTEK CO., LTD. Taiwan Engaged in sale ofcomputer heatdissipation module

11,200 11,200 1,120,000 56 2,982 ( 1,319) ( 738)

Auras Technology Co., Ltd. AURAS International Inc. U.S.A Engaged in sale ofcomputer heatdissipation module

14,810 14,810 500,000 100 12,030 383 383


SHUANG HORNGTECHNOLOGY CO., LTD.(SHT)


151,375 151,375 5,000,000 100 264,052 ( 5,896) ( 5,896)


ZE HONG TECHNOLOGYCO., LTD. (ZHT)


542,985 542,985 18,000,000 100 874,464 115,149 115,149


PEL HORNGTECHNOLOGY CO., LTD.(PHT)


49,592 49,592 2,100,000 100 23,693 3,768 3,768


ZHEN HORNGTECHNOLOGY CO., LTD.(ZEHT)


195,477 149,352 5,000,000 100 332,735 21,611 21,611


SHIH HORNGTECHNOLOGY CO., LTD.(SHHT)

Samoa Investmentholdings

16,942 16,942 1,000,000 100 11,857 472 472


PRO JUMP CO., LTD.(PRO JUMP)


10,263 10,263 353,136 21 7,340 ( 12,624) ( 2,638)







Information on investees





~250~


2018


2017Number of

sharesOwnership

(%) Book value










$ 83,565 $ 83,565 $ 2,179,844 $ 26 $ 93,808 ($ 68,773) ($ 19,148)

HAO HORNGTECHNOLOGY CO., LTD.



27,855 27,855 726,976 9 31,774 ( 68,773) ( 6,519)

~251~

Remitted toMainland

China

Remittedback toTaiwan

Auras Technology(Kunshan) Co., Ltd.


$ 153,575 (1) $ 153,575 $ - $ - $ 153,575 ($ 5,902) 100 ($ 5,902) $ 263,699 $ -



552,870 (1) 491,440 - - 491,440 115,149 100 115,149 874,446 -

Pel Horng(Guangzhou)Technology Co., Ltd.


64,502 (1) 64,502 - - 64,502 3,768 100 3,768 23,693 -

Auras Technology(Chongqing) Co., Ltd.


199,648 (1) 153,575 46,073 - 199,648 21,608 100 21,608 332,731 -

Anhui Wei-hongElectronic TechnologyCo., Ltd.


201,160 (2) - - - - ( 2,253) 60 ( 1,352) 13,628 - Note 4

Kunshan JinxiPlastic Co., Ltd.

Production andsales of plastic

21,363 (1) 17,456 - 11,783 5,673 13,804 13 - 10,740 -

JCD (Guangzhou)Optical Corporation

Production andsales of light andelectronic materialand components

125,932 (2) 4,843 - - 4,843 ( 40,365) 35 ( 14,027) 83,050 -

Investee inMainland China


Book value ofinvestments in


31, 2018

Accumulatedamount ofinvestment

income remittedback to Taiwan asof December 31,

2018

Table 8

FootnoteMain business

activities Paid-in capital

Investmentmethod(Note 1)



Mainland China asof January 1, 2018




31, 2018

Ownershipheld by theCompany(direct orindirect)

Investmentincome (loss)

recognised by theCompany for the

year endedDecember 31,2018 (Note 2)

Net income ofinvestee for the

year endedDecember 31,

2018

Amount remitted fromTaiwan to Mainland China /

Amount remitted back toTaiwan for the year ended

December 31, 2018


Information on investments in Mainland China



~252~

Note 3: In accordance with Gong-Zi No. 10520415180 letter of Industrial Development Bureau, Ministry of Economic Affairs on June 27, 2016, 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 20, 2016 to June 19, 2019, 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.

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, 2018

$ 919,681

Investment amount approved bythe Investment Commission of the

Ministry of Economic Affairs(MOEA)

Ceiling on investments inMainland China imposed by the

Investment Commission ofMOEA

$ 936,070 Note 3

~253~


Representative: Lin Yu-Shen

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