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2023 ReportStock Code: 2324 Compal Electronics, Inc. 2019 Annual Report Notice to readers This English version annual report is a translation of the Mandarin version. This document is created for the sole purpose of the convenience for its non-Mandarin readers and is not an official document to represent the financial status of the Company per Taiwan laws. Should any discrepancy arise between the English and Mandarin versions, the Mandarin version shall prevail. Taiwan Stock Exchange Market Observation Post System: http://newmops.twse.com.tw The Company's Annual Report is available at: http://www.compal.com Printed on May 13, 2020 I. Spokesperson Spokesperson: Ching-Hsiung Lu/Vice President Deputy Spokesperson: Cheng-Chiang Wang /Vice President of Accounting Dept. Tel: 886-2-8797-8588 E-mail: Investor@compal.com II. Headquarters, Branches and Plant Headquarters Address: No.581& 581-1, Ruiguang Rd., Neihu District, Taipei, Taiwan Tel: 886-2- 8797-8588 Manufacturing Site Address: No. 8, South East Rd., Pingzhen City, Taoyuan City Tel: 886-3-439-1707 III. Share Administration Agency Chinatrust Transfer Agent Address: 5F, No. 83, Sec 1, Chung Ching Nan Road, Taipei, Taiwan Tel: 886-2-6636-5566 Website: https://www.ctbcbank.com IV. Auditors CPA Firm: KPMG Taiwan Auditors: Chien, Szu Chuan and Au, Yiu Kwan Address: 68F, No. 7, Sec. 5, Xinyi Road, Taipei, Taiwan Tel.: 886-2-8101-6666 Website: http://www.kpmg.com.tw V. Overseas Securities Exchange Luxembourg Stock Exchange: http://www.bourse.lu London Stock Exchange http://www.londonstockexchange.com VI. Corporate Website http://www.compal.com 1 Table of Contents 4 I. Letter to Shareholders II. Company Profile 6 6 2.1 Date of Incorporation 2.2 Company History III. Corporate Governance Report 3.1 Organization 3.2 Directors, Supervisors and Management Team 3.3 Implementation of Corporate Governance 3.4 Information Regarding the Company’s Audit Fee and Independence 3.5 Replacement of CPA 3.6 If the chairman, president, and financial or accounting manager of the Company had worked for the accounting firm or related parties thereof in the most recent year 3.7 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders 3.8 Relationship among the Top Ten Shareholders 3.9 Ownership of shares in Affiliated Enterprises IV. Capital Overview 4.1 Capital and Shares 4.2 Bonds 4.3 Preferred shares 4.4 Global Depository Receipts 4.5 Employee Warrants 4.6 Subscription of New Shares by Employees and Restricted Shares 4.7 New Share Issuance in Connection with Mergers and Acquisitions 4.8 Financing Plans and Implementation 8 10 33 94 95 95 95 98 99 101 106 107 108 110 110 110 110 V. Operational Highlights 5.1 Business Activities 5.2 Market and Sales Overview 5.3 Human Resources 5.4 Environmental Protection Expenditure 5.5 Labor Relations 5.6 Important Contracts 111 132 152 153 153 156 2 VI. Financial Information 157 161 165 166 166 166 6.1 Five-Year Financial Summary 6.2 Five-Year Financial Analysis 6.3 Audit Committee’s Report in the Most Recent Year 6.4 Consolidated Financial Statements and Independent Auditors’ Report (Attachment I) 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report (Attachment II) 6.6 Status of financial difficulties for the Company and its subsidiaries VII. Review of Financial Position, Operating Results, and Risk Management 167 168 169 169 170 171 176 7.1 Analysis of Financial Status 7.2 Analysis of Operation Results 7.3 Analysis of Cash Flow 7.4 Major Capital Expenditures 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year 7.6 Analysis of Risk Management 7.7 Other material issues VIII. Special Disclosure 177 205 205 205 205 8.1 Summary of Affiliated Companies 8.2 Private Placement of Securities in the Most Recent Year 8.3 Subsidiaries’ Holding of the Company’s Shares in the Most Recent Year 8.4 Other supplementary notes, where applicable 8.5 Events with Significant Impacts Attachment I II Consolidated Financial Statements and Independent Auditors’ Report Parent-Company-Only Financial Statements and Independent Auditors’ Report 3 I. Letter to Shareholders Dear shareholders, 2019 has been a year of many challenges. With the gloomy economy, global GDP experienced slow growth. Although the growth of Taiwan’s GDP maintained stable, the US-China trade dispute has significantly disrupted the global supply chain system, posing a sense of uncertainty among industry. In the face of challenges in our industry, the business of Compal has remained steady and we have delivered a number of decent results, continuing to build a strong foundation for future development. We would like to present the following summary of our financial and operational results for last year and the business outlook for this year: 2019 Financial Performance Compal’s 2019 consolidated revenue came to NT$980,442 million, up NT$12,736 million or 1% from the previous year. The total overall shipping volume of 5C related electronic products reached 92 million units, an increase of 9 million units with an annual growth of 11%. Thanks to the collaborative efforts from all Compal employees to continue to improve product service value and focus on profitability, the 2019 consolidated operating profit totaled NT$10,586 million which translates to an increase of 14%. With non- operating income and income tax accounted for, the net profit attributed to the parent company came to NT$6,956 million, with the EPS at NT$1.60. Core Business and Technology Development In terms of business development, Compal’s Notebook PC business has continued to rank as the world’s number 1 in the industry, accounting for 25% of global market share. Under the successful cultivation of technology as well as customers, diversified products including servers, wearables and auto electronic parts have more than doubled in 2019. With the stronger demand, Compal’s AIOT business, in which we have been a leader in its long-term planning, has also shown the decent growth momentum. We believe that, with the integration of AI and 5G technologies in the future, our AIOT business will keep accelerating, gaining even more development opportunities. Furthermore, since 2015, we have continued to invest in and planned the layout of our new field “Smart Medical and Healthcare”. Up to now, we have invested in more than ten medical technology new ventures and have accumulated a large amount of knowledge through various collaborations of external resources. The non-Notebook PC business has contributed 34% to the Company’s revenue in 2019, up 2% compared to the previous year. We aim to achieve our goals at a steady but firm pace. Production Diversification and Smart Manufacturing From the US-China trade disputes starting in 2018 to the recent novel coronavirus (COVID-19) outbreak in the beginning of this year, the demand for production diversification and smart manufacturing seems to have come to a new inflection point. Although the global supply chain may appear chaotic, it also poses as a beginning of a new era. To fulfill customers’ demand, we have conducted strategic capacity relocation in 2019 for various customers simultaneously, including investing in Taiwan and reestablishing and expanding 4 production sites in Vietnam. We will also continue to invest in smart manufacturing and automation equipment. Meanwhile, we have pro-actively recruited talents and teams from the industry, combined with supply chain logistic planning, to cope with this new era. Corporate Governance and Sustainability The business philosophy of “sustainability” allows Compal to be widely recognized by the world in terms of environment, society and corporate governance. In 2019, Compal was once again honored to receive "Taiwan Corporate Sustainability Awards" from Taiwan Institute for Sustainable Energy and has maintained its ranking in the top 6%-20% among Taiwanese listed companies during the latest "Corporate Governance Evaluation" on the Taiwan Stock Exchange (TWSE). We have also been selected as an index constituent of FTSE4Good Index for a number of years. In the “2019 Happy Enterprise Award” poll organized by a top job bank, Compal have gained the honor of being voted as one of the top 20 in Taiwan’s technology industry, indicating how much we value our talents and how essential they are to the growth of our sustainability and smart transformation. 2020 Business Outlook Looking ahead, changes in the global economy and industry still pose many uncertainties to lead year 2020 to be another challenging year. We believe volatilities may become a new normality for enterprises. With the decent results of last year, other than staying on top of the industry, we must accelerate the diversification on our product portfolio, production and supply chain. In the meantime, we believe that only by establishing a solid foundation of technology, operation and finance, can we face future uncertainties with flexibility. Therefore, in respect to technology, AI, 5G and Cloud will be the key focus, so that Compal is able to expand the business not only with the quantity increase but also with the quality enhancement, creating more value for customers. For operation, we will continue to enforce digitalization and automation, aiming to be a leading manufacturer in smart manufacturing. With regards to finance, based on our solid financial structure fundamental, we will keep the balance between the business growth as well as the long-term shareholders’ returns, so that our company can readily face and manage the risks brought by the industry fluctuations. Once again, we sincerely appreciate shareholders’ long-term support and advice for Compal and wish you a peaceful and prosperous year ahead. Sincerely, Chairman: Sheng-Hsiung Hsu (Rock Hsu) CEO: Chung-Pin Wong (Martin Wong) Head of Accounting: Cheng-Chiang Wang (Jack Wang) 5 II. Company Profile 2.1 Date of Incorporation: June 1, 1984 2.2 Company History ■ Company history in the past two years: 2018 • • • • • • • • • • • 2019 • • • • • • • • • • • Won 11 awards at the 2018 “iF design” awards and ranked 18th in Global Innovation. Selected to take part in the CDP climate change program for four consecutive years (2014-2017) and received an overall CDP rating of B at the Management Level in 2017. Ranked within the top 6%~20% of TWSE-listed companies in the “4th Round of Corporate Governance Evaluations” by TWSE Chairman Rock Hsu received the Economic Profession Medal (First Rank). Ranked 6th in CommonWealth Magazine’s “Top-2000 Manufacturers." Ranked 59th in CommonWealth Magazine’s “Cross-strait Top 1000 Survey." Ranked 404th on the Fortune Global 500. Ranked 1500th on the Forbes Global 2000. Received Taiwan Corporate Sustainability Report Awards at the “2018 TCSA” – ICT Manufacturing – The Platinum Medal. The Company’s share capital reached NTD 44.1 billion in 2018. The Company earned NTD 967.7 billion in consolidated revenues in 2018. Won 13 awards at the 2019 “iF design” awards and ranked 17th in Global Innovation. Ranked World Design Index - TOP 3 Taiwan, Top 10 Asia, Top 10 Computer, and Top 25 Companies 2015~2019 Selected to take part in the CDP climate change program for five consecutive years (2014-2018) and received an overall CDP rating of B- at the Management Level for 2018. Ranked within top the 6%~20% TWSE-listed companies of the “5th Round of Corporate Governance Evaluations” by TWSE. Ranked 6th in CommonWealth Magazine’s “Top-2000 Manufacturers." Ranked 62nd in CommonWealth Magazine’s “Cross-strait Top 1000 Survey." Won the Platinum Medal of 2019 Taiwan Corporate Sustainability Report Award of TCSA. Selected into the FTSE4GOOD Index for four consecutive years and in the FTSE4GOOD TIP Taiwan ESG Index for the second consecutive years . Ranked 390th on the Fortune Global 500. Ranked 1463th on Forbes Global 2000. Top 20 of 2019 Happiness Enterprise online voting by 1111 Human resource agency. 6 • • 2020 • • • The Company’s share capital reached NTD 44.1 billion in 2019. The Company earned NTD 980.4 billion in consolidated revenues in 2019. Won 18 honors at the 2020 “iF design awards” and a third consecutive Gold Award. Ranked 11th in the iF Global Innovation Companies Ranking. Selected to take part in the CDP climate change program for 6 consecutive years (2014-2019) and received an overall CDP rating of B- at the Management Level for 2019. Ranked within top the 6%~20% TWSE-listed companies of the “6th Round of Corporate Governance Evaluations” by TWSE. ■ Any changes to the management rights, significant changes of the management mode or business content, and other important matters that can affect shareholders' equity and their impact on the Company in the most recent year and up to the date of printing of the annual report: None. 7 3.1 Organization 3.1.1 Organizational Chart (As of Jan 1, 2020) Shareholders Board of Directors President Office Remuneration Committee Audit Committee Personnel Evaluation Committee Investment Planning & Management Office Legal Affairs Office Insider Trading Prevention Office Auditing Office Top Management Committee Digital Transformation Committee Green Sustainability Office Corporate Social Responsibility Office Occupational Safety & Health Office P C B G P C O B G G O B G S D B G H R & A D M G r o u p A c c o u n t i n g G r o u p 8 3.1.2 Major Corporate Functions Department Functions President’s Office Responsible for the Company’s operation Investment Planning & Management Office Responsible for investment-related activities Auditing Office Conducts internal audits Legal Affairs Office Handles the Company’s legal affairs Green Sustainability Office Executes “Green Life” projects Insider Trading Prevention Office Corporate Social Responsibility Office Occupational Safety & Health Office PCBG GOBG SDBG PCOBG Implements preventive measures against insider trading Promotes and executes CSR-related affairs Implementing a comprehensive occupational health and safety program Responsible for the R&D, production, quality control and the sale of PC products Responsible for production, quality control, and worldwide operation affairs Responsible for the R&D, production, quality control, and the sale of smart devices Responsible for production and quality control of NB Products Accounting Group Handles accounting, share administration, and funding affairs HR & Administration Group Responsible for human resource, training, education, employee relations, general affairs, and building management 9 3.2 Directors and Management Team 3.2.1 Directors Title Name/ Nationality/Gender (Note 1, 2) Elected Date Term First Elected Date Shareholding as of elected date Current shareholding Shares held by spouse and underage children Current shareholding Shares held by proxy Major career (academic) achievements April 21, 2020 Spouse or relatives of second degree or closer acting as Directors, Supervisors, or department heads Selected Current Positions held concurrent ly in the company and/or any other companies Shareholding Shareholding Shareholding Shareholding Shares Percentage Shares Percentage Shares Percentage Shares Percentage Title Name Relationship (%) (%) (%) (%) Chairman Sheng-Hsiung Hsu 2018.6.22 1984.04.16 8,975,401 0.20% 8,975,401 0.20% 17,107,025 0.39% 0 0.00% 3 years 3 years Vice Chairman Director Director Jui-Tsung Chen 2018.6.22 1992.04.30 35,352,587 0.80% 35,352,587 0.80% 1,069,405 0.02% Binpal Investment Co., Ltd. Representative: Wen- Being Hsu Kinpo Electronics, Inc. Representative: Shyh- Yong Shen 2018.6.22 3 years 2018.6.22 3 years 2018.6.22 5,000,000 0.11% 5,000,000 0.11% 1984.04.16 4,000,000 0.09% 5,000,000 0.11% 1990.06.22 151,628,692 3.43% 151,628,692 3.44% 2012.03.14 0 0.00% 0 0.00% - 0 - 0 - 0.00% - 0.00% 0 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0.00% Director Charng-Chyi Ko 2018.6.22 3 years 1984.04.16 7,896,867 0.18% 7,896,867 0.18% 30,645 0.00% 0 0.00% Director Sheng-Chieh Hsu 2018.6.22 3 years 1997.05.29 9,119,297 0.21% 8,714,297 0.20% 8,152,928 0.18% (Note 3) (Note 3) 10 Honorary Doctorate, National Taiwan Normal University Chairman of Kinpo and Compal Electronics, Inc. Honorary Doctorate, National Cheng Kung University Chairman of Compal Communication Inc. & Arcadyan Technology Corp. National Tao-Yuan Sr. Vocational Agricultural & Industrial School Director of BAOTEK, Inc. MBA, University of Southern California, USA, Ph.D, Law, Whittier Law School, USA Director and President of Kinpo Electronics Inc. National Taiwan University College of Management PhD, Lincoln University, USA Chairman and President of Taiwan Biotech Co., Ltd. Department of Architecture, Tam-Kang University Managing Director of Kinpo Electronics Inc. (Note 4) Director Director Sheng- Chieh Hsu Shyh-Yong Shen Brothers Father and son in law (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) Chairman Sheng- Hsiung Hsu Father and son in law (Note 4) N/A N/A N/A (Note 4) Chairman Sheng- Hsiung Hsu Brothers Director Yen-Chia Chou 2018.6.22 Director Chung-Pin Wong 2018.6.22 Director Chiung-Chi Hsu 2018.6.22 Director Ming-Chih Chang 2018.6.22 Director Anthony Peter Bonadero 2018.6.22 Director Sheng-Hua Peng 2018.6.22 Independent Director Min-Chih Hsuan 2018.6.22 Independent Director Duei Tsai 2018.6.22 Independent Director Duh-Kung Tsai 2018.6.22 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years 1987.06.13 8,022,874 0.18% 8,022,874 0.18% 2,502,768 0.06% 0 0.00% 2007.06.15 6,618,618 0.15% 6,618,618 0.15% 1,398 0.00% 0 0.00% 1994.04.23 2,000,731 0.05% 2,117,731 0.05% 30,000 0.00% 0 0.00% 2018.6.22 1,919,489 0.04% 1,919,489 0.04% 0 0.00% 2018.6.22 0 0.00% 0 0.00% 0 0.00% 0 0 0.00% 0.00% 2018.6.22 835,000 0.02% 835,000 0.02% 0 0.00% 0 0.00% 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Department of Geosciences, National Taiwan University Supervisor of Kinpo Electronics Inc. Graduate Institute of Management Science, National Chiao Tung University Chairman of Compal Broadband Networks, Inc. Master’s Degree, Golden Gate University, San Francisco, USA Director of I PAO Bearing Co., Ltd. Master’s degree in San Francisco Golden Gate University. Director of Mactech Co., Ltd. Texas A&M University EVP of Auscom Engineering Inc. Graduate Institute of Electronics Engineering of National Taiwan University Director of Arcadyan Technology Corp. Honorary Doctorate, National Chiao Tung University Chairman of United Microelectronics Corp. & Faraday Technology Corp. PhD, Graduate Institute of Electrical Engineering, National Taiwan University Minister of Transportation and Communications R.O.C. Department of Industrial Engineering, National Taipei Institute of Technology Chairman of Powertech Technology Inc. (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A Note: 1. All directors are male; except for Anthony Peter Bonadero who is a U.S. citizen, the remaining are ROC nationals. 2. The Chairman, Chief Strategy Officer and President of the Company are not the same person, spouses, or related to each other. 3. Director Sheng-Chieh Hsu held 3,041,000 shares (0.08%) through proxies. 11 4. Selected Current Positions as below: Title Name Chairman Sheng- Hsiung Hsu Vice Chairman Jui-Tsung Chen Selected Current Positions Chairman: Kinpo Electronics, Inc., AcBel Polytech Inc., Cal-Comp Electronics(Thailand) Public Company Limited, Teleport Access Services, Inc., AcSacca Solar Energy Co., Ltd., Cal-Comp Electronics And communications Co., Ltd., Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd., Jipo Investment Inc., Kinpo Group Management Consultant Company, NTNU Innovation Investment Holding Company, Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Kinpo Electronics (China) Co., Ltd. Managing Director: Taiwan Biotech Co., Ltd. Director: Crownpo Technology Inc., Compal System Trading (Kunshan) Co., Ltd., Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics and Communications (Suzhou) Co., Ltd., Acbel Polytech Holdings Inc., Acbel Polytech (Singapore) Pte. Ltd., Ascendant Private Equity Investment Ltd., Billion Sea Holdings Limited, Big Chance International Co., Ltd., Center Mind International Co., Ltd., Compal Display Holding (HK) Limited, Compal Electronics (Holding) Ltd., Compal Electronics International Ltd., Compal International Ltd., Compal International Holding (HK) Limited, Compal International Holding Co., Ltd., Compal Rayonnant Holdings Ltd., Core Profit Holdings Limited, Flight Global Holding Inc., Forward International Ltd. , Fortune Way Technology Corp., Global Strategic Investment Inc., Goal Reach Enterprises Ltd., HengHao Holdings A Co., Ltd., HengHao Holdings B Co., Ltd., HengHao Trading Co., Ltd., High Shine Industrial Corp., Intelligent Universal Enterprise Ltd., Jenpal International Ltd., Just International Ltd., Kinpo International (Singapore) Pte. Ltd., Kinpo International Ltd., Lipo Holding Co., Ltd., Prospect Fortune Group Ltd., Prisco International Co., Ltd., Ranashe International Ltd., Smart International Trading Ltd. President: Kinpo Group Management Consultant Company Other: Honorary Chairman of Chinese National Federation of Industries, Honorary Chairman of Importers and Exporters Association of Taipei, Chairman of The Third Wednesday Club-, Policy Consultant of Taiwan Electrical and Electronic Manufacturers’ Association, Chairman of China Productivity Center, Vice Chairman of Straits Exchange Foundation, Vice Chairman of Sinocon Industrial Standards Foundation, Managing Director of Taiwan Design Research Institute, Director of Management Institute in Taipei Chairman: Arcadyan Technology Corporation, Ripal Optotronics Co., Ltd., Palcom International Corporation, General Life Biotechnology Co., Ltd., Raycore Biotech Co., Ltd., Arce Therapeutics, Inc., Rally Biopharma Co., Ltd., UniCore Biomedical Co., Ltd., Aco Smartcare Co.,Ltd., Ray-Kwong Medical Management Consulting Co., Ltd., Compal System Trading (Kunshan) Co., Ltd. Director: Kinpo Electronics, Inc., Compal Broadband Networks, Inc., HengHao Technology Co. Ltd., Mactech Co., Ltd., Gempal Technology Corp., Panpal Technology Corp., Unicom Global, Inc.,Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd., Kinpo Group Management Consultant Company, Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Networking (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Compal (Vietnam) Co., Ltd., Compal Development & Management (Vietnam) Co., Ltd., Ascendant Private Equity Investment Ltd., Arcadyan Technology N.A. Corporation, Arcadyan Holding (BVI) Corp., Arch Holding (BVI) Corp., Billion Sea Holdings Limited, Big Chance International Co., Ltd., Bizcom Electronics, Inc., Center Mind International Co., Ltd., Compal Display Holding (HK) Limited, Compal Electronics International Ltd., Compal Electronics (Holding) Ltd., Compal International Ltd., Compal International Holding Co., Ltd., Compal International Holding (HK) Limited, Compal Rayonnant Holdings Ltd., Compalead Electronics B.V., Core Profit Holdings Limited, Etrade 12 Title Name Selected Current Positions Management Co., Ltd., Flight Global Holding Inc., Forever Young Technology Inc., Fortune Way Technology Corp., Giant Rank Trading Ltd., Goal Reach Enterprises Ltd., High Shine Industrial Corp., Intelligent Universal Enterprise Ltd., Jenpal International Ltd., Just International Ltd., Prospect Fortune Group Ltd., Prisco International Co., Ltd., Smart International Trading Ltd., Sinoprime Global Inc., Wah Yuen Technology Holding Ltd., Webtek Technology Co., Ltd. Chief Strategy Officer: Compal Electronics, Inc. President: Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd. Director Director Representative of Binpal Investment Co., Ltd.: Wen- Being Hsu Kinpo Electronics Inc. Director Representative of Kinpo Electronics Inc.: Shyh-Yong Shen Director Charng- Chyi Ko Chairman: Binpal Investment Co., Ltd. Director: AcBel Polytech Inc., CastleNet Technology Inc., Teleport Access Services, Inc., Crownpo Technology Inc., Cal-Comp Biotech Co., Ltd., iHELPER Inc., Cal- Comp Big Data, Inc., XYZprinting, Inc., Norm Pacific Automation Corp., Kinpo Group Management Consultant Company, Cal-Comp Asset Management, Inc., Jipo Investment Inc., PK Venture Capital Corp., Prudence Venture Investment Corp., NTNU Innovation Investment Holding Company Supervisor: Cal-Comp Biotech Co., Ltd., Jipo Investment Inc. Chairman: CastleNet Technology Inc., Cal-Comp Biotech Co., Ltd., QBit Semiconductor Ltd., New Era AI Robotic Inc., iHELPER Inc., Cal-Comp Big Data, Inc., XYZprinting, Inc., Dongguan Kaipo Electronics Co., Ltd., Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal- Comp Electronics and Communications (Suzhou) Co., Ltd., Cal-Comp Optical Electronics (Yueyang) Co., Ltd. Yueyang, ICKP (Beijing) Technology Development Co., Ltd., CastleNet Technology Inc (Kunshan)., XYZprinting (Shanghai) cloud technology Co.,Ltd., XYZprinting (suzhou) Co., Ltd., Cal- Comp Precision (Yueyang) Co., Ltd., Cal-Comp Precision (Wujiang) Co., Ltd., Cal-Comp Precision (Dongguan) Co., Ltd., Cal Comp (Malaysia) SDN. BHD., Cal-Comp Electronics de Mexico Co. S.A. de C.V., Cal-Comp Precision (Philippines), Inc., Cal-Comp Technology (Philippines), Inc., Kinpo Electronics (Philippines), Inc., New Era AI Robotic Ltd., XYZLife (Philippines) Inc., XYZprinting Japan, Inc. Vice Chairman: Cal-Comp Electronics (Thailand) Public Company Limited, PChome (Thailand) Co., Ltd. Director: Kinpo Electronics, Inc., AcBel Polytech Inc., Cal-Comp Electronics And communications Co., Ltd., Jipo Investment Inc., Kinpo Group Management Consultant Company, Cal-Comp Asset Management, Inc., Cal-Comp Brazil Holding Co., Ltd., Cal-Comp Precision Holding Co., Ltd., Kinpo Electronics (China) Co., Ltd., NKG Advanced Intelligence and Technology Development (Yue Yang) Co., Ltd., Ascendant Private Equity Investment Ltd., Cal-Comp Big Data International Ltd., Cal-Comp Electronics (USA) Co., Ltd., Cal-Comp (India) Private Ltd., Cal-Comp Automation and Industrial 4.0 Service (Thailand) Co., Ltd., Cal-Comp Holding (Brasil) S.A., Cal-Comp Industria De Semicondutores S.A., Cal-Comp Precision (Malaysia) SDN. BHD., Cal-Comp Precision (Singapore) Ltd., Cal-Comp Precision (Thailand) Ltd., Cal-Comp USA (Indiana), Co., Inc., Cal-Comp USA (San Diego), Co., Inc., Castlenet Technology (BVI) Inc., Kinpo International (Singapore) Pte. Ltd., Kinpo International Ltd., Nexa3D Inc., Power Station Holdings Ltd., QBit Semiconductor Holding, Ltd., XYZprinting, Inc. (Samoa), XYZprinting, Inc. (USA), XYZprinting Netherlands, B.V., XYZprinting (Thailand) Co., Ltd. President: Cal-Comp Electronics And communications Co., Ltd., Kinpo Electronics (China) Co., Ltd., Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics and Communications (Suzhou) Co., Ltd., Cal-Comp Optical Electronics (Yueyang) Co., Ltd. Yueyang, Cal-Comp Precision (Yueyang) Co., Ltd., XYZprinting (Shanghai) cloud technology Co.,Ltd., XYZprinting (suzhou) Co., Ltd., Cal-Comp Electronics (USA) Co., Ltd., Cal-Comp USA (Indiana), Co., Inc., Cal-Comp USA (San Diego), Co., Inc., XYZprinting, Inc. (USA) Chairman: Taiwan Biotech Co., Ltd., Evergene Biotech Industrial Co., Ltd., Weck Tech Biotech Co., Ltd., Global BioPharma, Inc., Genhealth Pharma Co., Ltd., Taiwan Veterans Pharmaceutical Co., Ltd., Aseptic Innovative Medicine Co., Ltd., Young & Health Care Resorts Inc., Taiwan Venture Capital Co., Ltd., Long Yee Investment Co. Ltd., Yinfeng International, Inc., Taiwan Chariston AMC Corp., Ltd, Twin Luck Global Company Ltd. Director: Kinpo Electronics, Inc., Baotek Industrial Materials Ltd., Formosan Union Chemical Corp., Chang Yao Technology Inc., OmniHealth Group, Inc., All Information Inc., Spiregene Biotech Co., Ltd., All For Health Biotech Co., Ltd., Chipgene International Enterprise Co., Ltd., Minsheng Medical Holding 13 Title Name Selected Current Positions Inc., Global Strategic Investment Inc. (Samoa), Gold Precision Ltd., KKXC Intergrated Management Holding (CYPRUS) Ltd., Optics Lab Inc., Syn Pharm Inc. Supervisor: Teleport Access Services, Inc., Sunny Special Dyeing & Finishing Co., Ltd., Commonwealth Magazine Co, Ltd. Other: Managing Supervisor of Cross-Strait Health Care and Leisure Activities Association, Director of Health, Welfare & Environment Foundation, Chairman of Yang Bi Li Education Foundation Of Management Director Sheng- Chieh Hsu Director Yen-Chia Chou Chairman: Integrate Investment Corp. Director: Kinpo Electronics, Inc., Cal-Comp Electronics(Thailand) Public Company Limited, Cal-Comp Electronics And communications Co., Ltd., Jipo Investment Inc., Kinpo Electronics (China) Co., Ltd., Dongguan Kaipo Electronics Co., Ltd., Kinpo International Ltd. Supervisor: Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd. Chairman: Sceptre Industry Co., Ltd., Mega Plastic Industry Co., Ltd. Director: Kinpo Electronics, Inc., Micro Metal Electronics Co., Ltd. Supervisor: Full Power Investment Co., Ltd. President: Sceptre Industry Co., Ltd. Chairman: Compal Broadband Networks, Inc., HengHao Technology Co. Ltd., Rayonnant Technology Co., Ltd., HippoScreen Neurotech Corp., Shennona Co., Ltd., Unicom Global, Inc.,Wah Yuen Technology Holding Ltd. Executive Director: Compower Global Service Co., Ltd. Director: Arcadyan Technology Corporation, Mactech Co., Ltd., Panpal Technology Corp., Ripal Optotronics Co., Ltd., Infinno Technology Corp., , General Life Director Chung-Pin Wong Director Chiung-Chi Hsu Director Ming-Chih Chang Director Anthony Peter Bonadero Biotechnology Co., Ltd., UniCore Biomedical Co., Ltd., Aco Smartcare Co.,Ltd., Kinpo Group Management Consultant Company, Taiwan Sanga Co., Ltd., Hong Jin Investment Co., Ltd., Maxima Ventures I, Inc.,Taiwan, Compal System Trading (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Allied Power Holding Corp., Amexcom Electronics, Inc., Auscom Engineering Inc., Bizcom Electronics, Inc., Compal Connector Manufacture Ltd., HengHao Holdings A Co., Ltd., HengHao Holdings B Co., Ltd., HengHao Trading Co., Ltd., Primetek Enterprises Ltd., Shennona Corporation, Sirqul Inc. Supervisor: Hong Ya Technology Corporation President: Compal Electronics, Inc. Chairman: Full Power Investment Co., Ltd Director: Plank Optoelectronics Inc., E-Bow Bearing Co., Ltd., Juan Hsin Bao Hardware co., Ltd. Director: Mactech Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Europe (Poland) Sp. z o. o. President: Compal System Trading (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compower Global Service Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Management (Chengdu) Co., Ltd. Executive Vice President: Compal Electronics, Inc. Executive Vice President: Auscom Engineering Inc. 14 Title Name Selected Current Positions Chairman: Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., HANHELT Communications (Nanjing) Co., Ltd., Director Sheng-Hua Peng Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh-Kung Tsai Compal Communications (Nanjing) Co., Ltd. Director: Arcadyan Technology Corporation, Gempal Technology Corp., Palcom International Corporation, Ripal Optotronics Co., Ltd., UniCore Biomedical Co., Ltd., Hong Ji Capital Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Amexcom Electronics, Inc., Bizcom Electronics, Inc. Supervisor: General Life Biotechnology Co., Ltd. President: Palcom International Corporation, Compal Investment (Jiangsu) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., HANHELT Communications (Nanjing) Co.,Ltd, Compal Smart Device (Chongqing) Co., Ltd., Compal Communications (Nanjing) Co., Ltd. Executive Vice President: Compal Electronics, Inc. Chairman: Taiwan Memory Company, Fusionvax, Inc., TC-1 Culture Fund, Vital First Investment Corporation, Maxima Ventures I, Inc., Taiwan, Maxima Ventures II, Inc. Director: General Biologicals Corporation, SIPP, Inc., Clientron Corp., Meridigen Biotech Co., Ltd., Elevant Biopharma Co., Ltd., Tonghua United Capsules Co., Ltd., Angeluca Science Ltd. (Republic of Seychelles), Pacgen Biopharmaceuticals Corporation (Canada) Supervisor: Meribank Biotech Co., Ltd. Remuneration Committee Member: Compal Electronics, Inc. Audit Committee Member: Compal Electronics, Inc. Independent Director: Taiwan Taxi Co., Ltd. INC, TTY Biopharm Company Ltd. Remuneration Committee Member: Compal Electronics, Inc., Taiwan Taxi Co., Ltd. Inc., TTY Biopharm Company Ltd. Audit Committee Member: Compal Electronics, Inc., TTY Biopharm Company Ltd. Chairman: Powertech Technology Inc., Greatek Electronics Inc. Director: Powertech Technoloyg (Suzhou) Ltd., Powertech Technology Akita Inc., Powertech Holding (B.V.I.) Inc., Powertech Technology (Singapore) Pte. Ltd., PTI Technology (Singapore) Pte. Ltd., Tera Probe, Inc. Business Executive Representative: Powertech Technology Japan Ltd. Independent Director: Chicony Power Technology Co., Ltd. Remuneration Committee Member: Compal Electronics, Inc., Chicony Power Technology Co., Ltd. Audit Committee Member: Compal Electronics, Inc., Chicony Power Technology Co., Ltd. Chief Strategy Officer: Powertech Technology Inc. 15 Major shareholders of the Company’s corporate shareholders Name of corporate shareholder Major shareholders of the corporate shareholder (Note) Kinpo Electronics, Inc. Compal Electronics, Inc. (8.46%), Cathay Life Insurance Co., Ltd. (5.36%), Jipo Investment Inc.(3.15%), Lai-Shun Shen, Tsai (2.85%), Nan Shan Life Insurance Co., Ltd. (2.79%,), Citi (Taiwan) Bank Custodian for Norges Bank (2.27%), JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds (1.61%), Panpal Technology Corp. (1.58%), Ho Bao Investment Co., Ltd. (1.53%), April 24, 2020 Note: If the major shareholder is also a corporate entity, please refer to the following table. Li-Chu Tsai(1.48%) Major shareholders of the Company’s major corporate shareholders Name of corporate shareholder Major shareholders of corporate shareholders Cathay Life Insurance Co.,Ltd. Cathay Financial Holding Co., Ltd. (100%) Jipo Investment Inc. Kinpo Electronics, Inc. (100%) First Commercial Bank Trustee Account For Representative of Ruen Chen Investment Holding Co., Ltd. (60.01%), Representative of Ruen Chen Nan Shan Life Insurance Co., Ltd. Investment Holding Co., Ltd. (29.54%), Ying-Tsong Du (2.90%), Ruen Tai Shing Co., Ltd. (0.30%), Ruen Hua Dyeing & Weaving Co., Ltd. (0.27%), Ruentex Development Co., Ltd. (0.23%), Ruentex Industries Ltd. (0.21%), Taishin International Bank Trust Account of Nan Shan Life Insurance Co., Ltd. (0.21%), Panpal Technology Corporation Compal Electronics, Inc. (100%) Yen Sin Corporation (0.16%), Ruentex Leasing Co., Ltd. (0.13%,) Ho Bao Investment Co., Ltd. Chieh-Li Hsu (42.93%), Li-Chu Tsai (27.83%), Chun-Chi Hsu (13.91%), Yung-Hsu Hsu (12.50%), Hsin-Hsu, Huang (2.83%) 16 Professional qualifications and independence analysis of directors Criteria Name Sheng-Hsiung Hsu Jui-Tsung Chen Representative of Binpal Investment Co., Ltd.: Wen-Being Hsu Representative of Kinpo Electronics Inc.: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Chiung-Chi Hsu Ming-Chih Chang Anthony Peter Bonadero Sheng-Hua Peng Min Chih Hsuan Duei Tsai Duh-Kung Tsai Having Met One of the Following Professional Qualifications combined with at Least Five Years Work Experience 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 Having Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company Independence Criteria (Note) 1 2 3 4 5 6 7 8 9 10 11 12 Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 0 0 0 0 0 0 0 0 0 0 0 0 0 2 1 Note: If the director or supervisor meets the following conditions in the two years before the election and during the term of office, please mark “✔” in the space below each condition code. (1) Not an employee of the Company or its affiliated enterprises. (2) Not a director or a supervisor of the Company or its affiliated enterprises (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). 17 A natural person shareholder who or whose spouse or minor children or in another person’s name does not hold more than 1% of the total issued shares of the Company or is not a top-ten shareholder. (3) (4) Not a manager in (1) or the spouse, second-tier relatives, or third-tier relatives of the persons listed in (2) or (3). (5) A director, supervisor, or employee of a corporate shareholder who does not directly hold more than 5% of the total issued shares of the Company, is a top-five shareholder, or is designated as a representative to serve as a director or supervisor of the Company in accordance with paragraph 1 or 2 of Article 27 of the Company Act (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). A director, supervisor, or employee of another company who does not have a seat on the board of directors or more than half of the shares with voting rights are controlled by the same person of this company (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). A director, supervisor, or employee of another company or institution who is not the same person or spouse as the Chairman, President, or an equivalent position of the Company (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). A director, supervisor, or manager of another company or institution which does not have financial or business dealings with the Company, or a shareholder holding more than 5% of the shares of the Company (not applicable if the Company or institution holds more than 20% but no more than 50% of the total issued shares of the Company, with concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). A professional, sole proprietor, partner, business owner or partner, director, supervisor, manager, or the spouse of the above of a company or institution which does not provide audit services to the Company or its affiliated enterprises or the cumulative remuneration amount of which in the past two years does not exceed NT$500,000 for business, legal affairs, finance or accounting related services. However, this does not apply to the members of the remuneration committee, public takeover review committee, or special merger and acquisition committee who perform their functions in accordance with the Securities and Exchange Act or the Business Mergers and Acquisitions Act. (6) (7) (8) (9) (10) Not a spouse or have a second-tier relative relationship with other directors. (11) There are no such circumstances as in Article 30 of the Company Act. (12) Not the government, legal person, or their representatives are elected as stipulated in Article 27 of the Company Act. 18 3.2.2 Management Team Name/ Shares held minors names of others Major career (academic) achievements Shares held by spouse and Total shares held in the Title Nationality/ Date elected Gender /appointed Subsidiary shareholding Shares held Shareholding Shareholding Shareholding (Note 1, 2) Shares Percentage Shares Percentage Shares Percentage (%) (%) (%) April 21, 2020 Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relationship Chief Strategy Officer Jui-Tsung Chen 2018.07.04 35,352,587 0.80% 1,069,405 0.02% 0 0.00% Honorary Doctorate, National Cheng Kung University Refer to Vice Po-Tang Relative by Chairman of Compal Communication Inc. & Page12-13 President Wang affinity President Chung-Pin Wong 2018.07.04 6,618,618 0.15% 1,398 0.00% Executive Vice Ming-Chih Chang 2018.07.04 1,919,489 0.04% President Executive Vice Sheng-Hua Peng 2018.07.04 835,000 0.02% President Executive Vice Chen-Chang Hsu 2011.08.31 0 0.00% 0 0 0 0.00% 0.00% 0.00% President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Chun-Te Shen 2007.01.01 2,953,700 0.07% 900,000 0.02% Kuo-Chuan Chen 2007.01.01 829,823 0.02% 10,924 0.00% Pei-Yuan Chen 2009.10.06 3,487,698 0.08% 1,045,585 0.02% Chyou-Jui Wei 2010.03.18 0 0.00% 0 0.00% 0 0 0 0 0 0 0 0 19 Arcadyan Technology Corp. Graduate Institute of Management Science, 0.00% National Chiao Tung University Chairman of Compal Broadband Networks, Inc. Department of Electrical Engineering, Ming 0.00% Chi University of Technology Director of Mactech Co., Ltd. Graduate Institute of Electrical Engineering, 0.00% National Taiwan University Director of Arcadyan Technology Corp. National Chiao Tung University EMBA Refer to Page 14 Refer to Page 14 Refer to Page 15 N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.00% Executive Vice President of WINTEK (Note 4) N/A N/A N/A Corporation Graduate Institute of Electrical Engineering, 0.00% National Taiwan University (Note 4) N/A N/A N/A Director of Kinpo Electronics Inc. Department of Physics, Chung Yuan Christian 0.00% University Senior Vice President of Compal Communication Inc. Department of International Trade, Hsingwu N/A N/A N/A N/A 0.00% College (Note 4) N/A N/A N/A Director of Kinpo Electronics Inc. Master of Business Administration, University 0.00% of Washington, USA (Note 4) N/A N/A N/A Senior Vice President of Toppoly Name/ Shares held minors names of others Major career (academic) achievements Shares held by spouse and Total shares held in the Title Nationality/ Date elected Gender /appointed Subsidiary shareholding Shares held Shareholding Shareholding Shareholding Selected Current Positions Spouse or relatives of second degree or closer acting as managers (Note 1, 2) Shares Percentage Shares Percentage Shares Percentage Title Name Relationship (%) (%) (%) Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Ying Chang 2011.02.24 735,000 0.02% Wen-Da Hsu 2014.02.27 1,333,000 0.03% Wei-Chang Chen 2004.04.01 810,656 0.02% Shi-Kuan Chen 2009.05.01 Chi-Wai Wan 2017.05.10 0 0 0.00% 0.00% Min-Tung Weng 2018.12.01 623,786 0.01% Lo-Chun Lee 2018.12.01 420,000 0.01% Sheng-Hung Li 2019.11.11 504,574 0.01% Bor-Heng Chen 2020.05.13 280,010 0.01% 0.00% 0.00% Optoelectronics Corp. MBA, University Of Georgia President of Swenc Technology Co., Ltd. Department of Media Administration, Shih Hsin University Senior Vice President of Compal Communication Inc. Department of Electronic Engineering, Taipei (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A 0.00% College of Maritime Technology (Note 4) N/A N/A N/A 0.00% Vice President of Cheong Tat Technology Master of Industrial Design, Cranbrook Academy of Art Director of Design and Customer Affairs, Philips (Hong Kong) Department of Electrical Engineering, Fu Jen (Note 4) N/A N/A N/A 0.00% Catholic University N/A N/A N/A N/A Inventec Corp. Vice President Master of Business Administration, University of Washington, USA Deputy Manager of Sales, Kapok Computer Company Department of Electronic Engineering, Lee- Ming Institute of Technology Chairman's Special Assistant, Mag Technology Co., Ltd. Department of Electronics, National Taipei Institute of Technology COLUMBIA UNIVERSITY 0.00% 0.00% 0.00% (Note 4) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.00% Master of Industrial Engineering and N/A N/A N/A N/A Operations Management 0 0 0 0 0 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0 0 0 0 0 0 0 0 0 20 Name/ Shares held minors names of others Major career (academic) achievements Shares held by spouse and Total shares held in the Title Nationality/ Date elected Gender /appointed Subsidiary shareholding Shares held Shareholding Shareholding Shareholding Selected Current Positions Spouse or relatives of second degree or closer acting as managers (Note 1, 2) Shares Percentage Shares Percentage Shares Percentage Title Name Relationship (%) (%) (%) Vice Chih-Chuan President Cheng 2003.01.01 2,103,786 0.05% 51,194 0.00% 0 0.00% Vice President Vice President Ching-Hsiung Lu 2003.01.01 7,597,007 0.17% 910,000 0.02% Po-Tang Wang 2007.07.10 559,548 0.01% 486 0.00% Vice Tzong-Ming President Wang 2009.07.16 293,184 0.01% Fu-Chuan Chang 2009.07.16 170,662 0.00% Yung-Nan Chang 2011.01.01 0 0.00% 0 0 0 0.00% 0.00% 0.00% Yong-Ho Su 2011.07.01 500,401 0.01% 73,000 0.00% Jyh-Shyan Liang 2011.10.31 105,000 0.00% Chiao-Lie Huang 2014.02.27 38,992 0.00% 0 0 0.00% 0.00% Chung-Hsing Tan 2014.02.27 0 0.00% 5,320 0.00% Vice President Vice President Vice President Vice President Vice President Vice President Department of Electronic Engineering, Lunghwa University of Science and Technology Deputy Manager of Research and Development, Top Information Technologies Co., Ltd. Department of Accounting, Feng Chia N/A N/A N/A N/A 0.00% University (Note 4) N/A N/A N/A 0.00% Director Compal Communication Inc. Department of Computer Science and Information Engineering, National Taiwan University President of Vibo Telecom Inc. National Taipei Institute of Technology N/A Chief Strategy Officer Jui-Tsung Relative by Chen affinity 0.00% Head of Research and Development, CLEVO N/A N/A N/A N/A Company 0.00% 0.00% National Chin-Yi University of Technology Production Manager, ADI Corp MBA, Pacific Western University Factory Manager, Delta Electronics Inc. Department of Electrical Engineering, 0.00% National Taipei Institute of Technology Vice President of Arima Photovoltaic & Optical Corp. University of Colorado 0.00% Postgraduate Institute of Digital Communication/Vice President of Wireless Communication, Altek Corporation Graduate Institute of Electrical Engineering, (Note 4) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.00% National Taiwan University (Note 4) N/A N/A N/A Vice President of Compal Communication Inc. Department of Electrical Engineering, Tatung University 0.00% (Note 4) N/A N/A N/A 0 0 0 0 0 0 0 0 0 21 Name/ Shares held minors names of others Major career (academic) achievements Shares held by spouse and Total shares held in the Title Nationality/ Date elected Gender /appointed Subsidiary shareholding Shares held Shareholding Shareholding Shareholding Selected Current Positions Spouse or relatives of second degree or closer acting as managers (Note 1, 2) Shares Percentage Shares Percentage Shares Percentage Title Name Relationship (%) (%) (%) Vice President Vice President Yi-Yun Chang 2014.08.13 300,246 0.01% Hsin-Kung Mao 2014.11.13 420,714 0.01% Vice Hsin-Hsiung President Huang 2015.01.22 419,001 0.01% Shih-Hong Huang 2016.02.24 280,000 0.01% Yi-Chiang Chiu 2016.02.24 280,000 0.01% Jui-Chun Shyur 2016.05.11 0 0.00% 0 0 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Shyh-An Lee 2016.06.29 76,071 0.00% 4,000 0.00% Ta-Chun Wang 2016.06.29 204,200 0.00% 4,119 0.00% Vice President Vice President Vice President Vice President Vice President Vice President 0 0 0 0 0 0 0 0 Vice President of Compal Communication Inc. Graduate Institute of Electrical Engineering, 0.00% National Taiwan University Senior Manager of Compal Communication Inc. Master of Business Administration, University 0.00% of Lincoln Director of Avalue Technology Inc. Department of Electronics, Chung Yuan Christian University Senior Manager of Compal Communication 0.00% Inc. Master in Control Engineering, National Chiao N/A N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A 0.00% Tung University N/A N/A N/A N/A 0.00% 0.00% Director of Coretronic Corporation Master in Earth Sciences, National Central University PhD, Graduate Institute of Electrical Engineering, National Taiwan University Photonics Industries International, Inc.President Department of Navigation, Taipei College of N/A N/A N/A N/A N/A N/A N/A N/A 0.00% Maritime Technology (Note 4) N/A N/A N/A 0.00% LCFC Taiwan Branch Vice CEO Master of Industrial Engineering, University of Illinois Shanghai Real Industrial Co., Ltd. Managing Vice President Department of Industrial Engineering, Feng Chia University Director of Operations Division, Compal Fab No. 2 N/A N/A N/A N/A N/A N/A N/A N/A Jen-Liang Lin 2018.03.06 100,500 0.00% 0 0.00% 0 0.00% 22 Name/ Shares held minors names of others Major career (academic) achievements Shares held by spouse and Total shares held in the Title Nationality/ Date elected Gender /appointed Subsidiary shareholding Shares held Shareholding Shareholding Shareholding Selected Current Positions Spouse or relatives of second degree or closer acting as managers (Note 1, 2) Shares Percentage Shares Percentage Shares Percentage Title Name Relationship Peng-Hong Chan 2018.05.09. 0 0.00% (%) Wei-Chia Wang 2018.12.01 120,000 0.00% (%) 0.00% 0.00% 0 0 General Counsel Vice President Accounting & Corporate Cheng-Chiang 2018.07.04 Governance Wang 2019.05.13 955,808 0.02% 30 0.00% Officer Vice President Vice President Cheng-Hui Su 2018.12.01 105,000 0.00% 0 0.00% Tu-Chuan Tu 2018.12.01 593,081 0.01% 62,105 0.00% Vice Chang-Chieh President Tien 2018.12.01 403 0.00% 0 0.00% Vice Presiden Vice Presiden Internal Audit Officer Hsiao-Wei Lo 2019.11.11 20,000 0.00% 100 0.00% Guo-Dung Yu 2019.11.11 60,000 0.00% Po-Wen Hsieh 2019.11.11 0 0.00% 0 0 0.00% 0.00% 0 0 0 0 0 0 0 0 0 (%) 0.00% Master of Cornell University Law School CSO, Pou Chen Group Chung Yuan Christian University, Electrical 0.00% Engineering Senior Director of LCFC Fu Jen Catholic University, Department of N/A N/A N/A N/A N/A N/A N/A N/A 0.00% Accounting (Note 4) N/A N/A N/A Financial officer of Allied Circuit Co., Ltd. 0.00% Tulane University Master of MBA N/A N/A N/A 0.00% Vanung University, Electrical Engineering N/A N/A N/A 0.00% 0.00% National Chiao Tung University,Transportation Management Tamkang University Bachelor of International Trade George Washington University Master of N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.00% Accounting (Note 4) N/A N/A N/A Financial officer of Arcadyan Technology Corp. Department of Accounting, National Taiwan 0.00% University N/A N/A N/A N/A Audit Manager, KGT Telecom Note: 1. All managers are ROC nationals; except for Senior Vice President Chyou-Jui Wei, all other managers are male. 2. The Chairman, Chief Strategy Officer, and President of the Company are not the same person, spouses, or related to each other. 3. Vice President Po-Hsiung Chang, Tsing-Fa Lee, and Fei-Long Chen resigned in 2019. 4. Concurrent positions in other companies 23 Title Name Concurrent positions in other companies Executive Vice President Senior Vice President Senior Vice President Chen-Chang Hsu Chairman: HengHong Optoelectronics Technology (Kunshan) Co., Ltd., LUCOM Display Technology (KunShan) Limited Vice Chairman: HengHao Technology Co. Ltd. Director: Mactech Co., Ltd. President: HengHao Technology Co. Ltd., HengHong Optoelectronics Technology (Kunshan) Co., Ltd., LUCOM Display Technology (KunShan) Limited Chun-Te Shen Director: Kinpo Electronics, Inc., HippoScreen Neurotech Corp., Auscom Engineering Inc., Shennona Corporation Pei-Yuan Chen Director: Kinpo Electronics, Inc., Full Power Investment Co., Ltd. Senior Vice President Chyou-Jui Wei Chairman: Rapha Bio Ltd. Director: Taiwan Star Telecom Co., Ltd, Chenfeng Optronics Corp., UniCore Biomedical Co., Ltd., Trust Bio-sonics, Inc., General Life Biotechnology Co., Ltd., Raycore Biotech Co., Ltd., Maxima Ventures I, Inc., Taiwan, Hua Vi Venture Capital Corporation, Hua VII Venture Capital Corporation, Cdib & Partners Investment Holding Corp., Compal Electronic Technology (Chongqing) Co., Ltd., ZhengYing Electronics (Chongqing) Co., Ltd., Compal Precision Module(Jiangsu) Co., Ltd., ShengBao Precision Electronics (Taicang) Ltd., Rayonnant Technology (HK) Holdings Limited Supervisor: HengHao Technology Co. Ltd., Infinno Technology Corp., Rayonnant Technology Co., Ltd., Ripal Optotronics Co., Ltd., Mactech Co., Ltd., Unicom Global, Inc., Global BioPharma, Inc., Arce Therapeutics, Inc., Aco Smartcare Co., Ltd., Ray-Kwong Medical Management Consulting Co., Ltd., Rayonnant Technology (Taicang) Co., Ltd. Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Vice President and head of finance Independent Director: SYNergy ScienTech Corp. Remuneration Committee Member: SYNergy ScienTech Corp. Audit Committee Member: SYNergy ScienTech Corp. Ying Chang Director: Allied Circuit Co., Ltd. Wen-Da Hsu Director: HANHELT Communications (Nanjing) Co., Ltd. Wei-Chang Chen Director: HippoScreen Neurotech Corp., Shennona Corporation Hsi-Kuan Chen Director: Rayonnant Technology Co., Ltd., Rayonnant Technology (Taicang) Co., Ltd. Min-Tung Weng Director: Auscom Engineering Inc. President: Auscom Engineering Inc. Director: Zhi-pal Technology Inc., Arcadyan Technology (Shanghai) Corp., Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co., Ltd., Leading Images Limited Ching-Hsiung Lu Supervisor: Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display 24 Title Name Concurrent positions in other companies Electronics (Kunshan) Co., Ltd. , Compal Networking (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd. Vice President Vice President Vice President Vice President Vice President Po-Tang Wang Director: Bizcom Electronics, Inc., Compal Europe (Poland) Sp. z o. o. Fu-Chuan Chang President: Compal Optoelectronics (Kunshan) Co., Ltd., Compal Electronics, (China) Co., Ltd. Chiao-Lieh Huang Supervisor: HANHELT Communications (Nanjing) Co., Ltd Chung-Shing Tan Director: HANHELT Communications (Nanjing) Co., Ltd Hsin-Kung Mao Technologies, LLC Director: Avalue Technology Inc., Unicom Global, Inc., Amexcom Electronics, Inc., Compalead Electronics B.V., Mexcom Electronics, LLC, Mexcom Vice President Vice President Accounting & Corporate Governance Officer Vice President Hsin-Hsiung Huang Shyh-An Lee Cheng-Chiang Wang Guo-Dung Yu President: Amexcom Electronics, Inc. Director: Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co., Ltd. Director: Infinno Technology Corp., Rayonnant Technology (Taicang) Co., Ltd. Director: Zhi-pal Technology Inc., HengHao Technology Co. Ltd., Palcom International Corporation, Compal Electronics India Private Limited Supervisor: HippoScreen Neurotech Corp., Compal System Trading (Kunshan) Co., Ltd., Compower Global Service Co., Ltd., HengHong Optoelectronics Technology (Kunshan) Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd. Chairman: Compal Electronics India Private Limited Supervisor: Palcom International Corporation, Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co., Ltd. President: Compal Electronics India Private Limited 25 3.2.3 Remuneration of Directors and Independent Directors Remuneration of Directors, Independent Directors, President and Vice Presidents Directors' remuneration The sum of A, B, C and D as a percentage of after- tax profit Remuneration as an employee Unit: NTD thousand; thousand shares; % The sum of A, B, C, D, E, F, and G as a percentage of after- tax profit Remuneration from ventures other than subsidiaries or from the parent company (H) Title Name Remuneration (A) Pension (B) Remuneration from earnings appropriation (C) Business department implementation Fees for services rendered (D) Salaries, bonuses, special allowances etc (E) Retirement Pension (F) Share of profit as an employee (G) The Compa ny All companie s included in the financial statement s The Compa ny All companie s included in the financial statement s The Compa ny All companie s included in the financial statement s The Company All companies included in the financial statements The Compa ny All companie s included in the financial statement s The Compa ny All companies included in the financial statements The Compan y All companie s included in the financial statement s The Company All companies included in the financial statements Cash Amount Stock Amount Cash Stock The Company All companie s included in the financial statement s 0 0 0 0 38,671 38,671 2,284 3,064 0.5888% 0.6000% 58,895 106,144 708 708 31,700 0 31,700 0 1.9014% 2.5919% 95,769 Chairman Vice Chairman Director Director Director Director Director Director Director Director Director Sheng-Hsiung Hsu Jui-Tsung Chen Representative: of Binpal Investment Co., Ltd. Wen-Being Hsu Representative of Kinpo Electronics Inc.: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Chiung-Chi Hsu Ming-Chih Chang Anthony Peter Bonadero Sheng-Hua Peng Min-Chih Hsuan Director Independent Director Independent Director Independent Director 1. Please state the remuneration payment policy, system, standard and structure of independent directors, and the relationship between factors such as the responsibilities, risks and time devoted, and the amount of Duh-Kung Tsai 475 0.1103% Duei Tsai 0.1103% 0.1103% 0.1103% 7,200 7,200 475 0 0 0 0 0 0 0 0 0 0 0 0 remuneration: The remuneration of Independent Directors shall be submitted by the remuneration committee to the Board of Directors and decided by the Board of Directors, which depended on personal partake-in, contribution to the Company’s business and benchmarks in the same industry according to the “Articles of Incorporation." 0 2. Remuneration collected by Directors for their services (i.e. acting as advisor for non-employees) as disclosed in the Financial Report in the most recent year not shown in the table: 0 26 Note: 1. In 2019, the Company made pension contributions totaling NT$ 708 thousand (including NT$ 324 thousand under the new system and NT$ 384 thousand under the old system) for directors who also assumed managerial roles as employees; Meanwhile, all companies reported in the financial statements had made pension contributions totaling NT$ 708 thousand (including NT$ 324 thousand under the new system and NT$ 384 thousand under the old system). 2. Directors’ compensation refers to the estimated directors’ compensation approved by the Board of Directors meeting on March 30, 2020. Total of (A+B+C+D) Total of (A+B+C+D+E+F+G+H) Number of Directors The Company 2 (Note 1) 11 (Note 2) 3 (Note 3) 1 (Note 4) Companies in the consolidated financial statements 2 (Note 5) 11 (Note 6) 3 (Note 7) 1 (Note 8) The Company 2 (Note 9) 8 (Note 10) 2 (Note 11) 1 (Note 12) 2 (Note 13) 2 (Note 14) Companies in the consolidated financial statements 1 (Note 15) 5 (Note 16) 2 (Note 17) 2 (Note 18) 2 (Note 19) 5 (Note 20) 17 17 17 17 Range of Remuneration Under NT$ 1,000,000 NT$1,000,000 ~ NT$2,000,000 (exclusive) NT$2,000,000 ~ NT$3,500,000 (exclusive) NT$3,500,000 ~ NT$5,000,000 (exclusive) NT$5,000,000 ~ NT$10,000,000 (exclusive) NT$10,000,000 ~ NT$15,000,000 (exclusive) NT$15,000,000 ~ NT$30,000,000 (exclusive) NT$30,000,000~ NT$50,000,000 (exclusive) NT$50,000,000 ~ NT$100,000,000 (exclusive) Over NT$100,000,000 (inclusive) Total Note: 1. Wen Being Hsu, Shyh-Yong Shen – 2 positios 2. 3. 4. 5. Wen Being Hsu, Shyh-Yong Shen – 2 positions 6. Sheng-Chieh Hsu, Yen-Chia Chou, Chung-Pin Wong, Chiung-Chi Hsu, Ming-Chih Chang, Anthony Peter Bonadero, Sheng-Hua Peng, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai, Kinpo Electronics, Inc.– 11 positions Jui-Tsung Chen, Charng-Chyi Ko, Binpal Investment Co., Ltd. – 3 position Sheng-Hsiung Hsu –1 position Sheng-Chieh Hsu, Yen-Chia Chou, Chung-Pin Wong, Chiung-Chi Hsu, Ming-Chih Chang, Anthony Peter Bonadero, Sheng-Hua Peng, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai, Kinpo Electronics, Inc. – 11 positions Jui-Tsung Chen, Charng-Chyi Ko, Binpal Investment Co., Ltd. – 3 positions Sheng-Hsiung Hsu –1 position 7. 8. 9. Wen Being Hsu, Shyh-Yong Shen – 2 positions 10. heng-Chieh Hsu, Yen-Chia Chou, Chiung-Chi Hsu, Anthony Peter Bonadero, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai, Kinpo Electronics, Inc. – 8 positions 11. Charng-Chyi Ko, Binpal Investment Co., Ltd. – 2 positions 27 Jui-Tsung Chen, Chung-Pin Wong– 2 positions 12. Sheng-Hsiung Hsu – 1 position 13. Ming-Chih Chang, Sheng-Hua Peng – 2 positions 14. 15. Wen Being Hsu -1 position 16. Yen-Chia Chou, Chiung-Chi Hsu, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai – 5 positions 17. Binpal Investment Co., Ltd., Kinpo Electronics, Inc.– 2 positions 18. Charng-Chyi Ko, Sheng-Chieh Hsu-- 2 positions 19. Ming-Chih Chang, Sheng-Hua Peng- 2 positions 20. Sheng-Hsiung Hsu, Jui-Tsung Chen, Shyh-Yong Shen, Chung-Pin Wong, Anthony Peter Bonadero- 5 positions 28 Remuneration of Supervisors: Not Applicable (The Company adopts an Audit Committee system) Remuneration of the President and Vice Presidents Salary (A) Pension (B) Bonus and special allowances (C) Share of profit as an employee (D) Unit: NTD thousand; thousand shares; % Sum of A, B, C and D as a percentage of after-tax profit (%) Remuneration from ventures other than subsidiaries or from the parent company (E) The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements Cash Amount Stock Amount Cash Amount Stock Amount The Company All companies included in the financial statements 122,319 128,737 6,130 6,130 208,759 209,348 102,600 0 102,600 0 6.32281% 6.42354% 1,052 Title Name 48 employees including CSO Jui-Tsung Chen (Note1) Note: 1.Managers’ titles and names ‧Chief Strategy Officer: Jui-Tsung Chen – 1 position ‧President: Chung-Pin Wong – 1 position ‧Executive Vice Presidents: Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu – 3 positions ‧Senior Vice Presidents: Chun-Te Shen, Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Wei-Chang Chen, Shi-Kuan Chen, Chi-Wai Wan, Min-Tung Weng, Lo- Chun Lee, Sheng-Hung Li, Bor-Heng Chen– 13 positions ‧Vice Presidents: Chih-Chuan Cheng, Ching-Hsiung Lu, Po-Tang Wang, Tzong-Ming Wang, Fu-Chuan Chang, Yung-Nan Chang, Yong-Ho Su, Jyh-Shyan Liang, Chiao-Lie Huang, Chung- Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Hsin-Hsiung Huang, Shih-Hong Huang, Yi-Chiang, Jui-Chun Shyur, Shyh -An Lee, Ta-Chun Wang, Liang-Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng- Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu, Chang-Chieh Tien, Hsiao-Wei Lo, Guo-Dung Yu, Po-Hsiung Chang, Tsing-Fa Lee, Fei-Long Chen– 30 positions 2. The Company made pension contributions totaling NT$ 6,130 thousand (including NT$ 4,495, thousand under the new system and NT$ 1,635 thousand under the old system). While all companies reported in the financial statements made pension contributions totaling NT$ 6,130 thousand (including NTD NT$ 4,495, thousand under the new system and NT$ 1,635 thousand under the old system). 3. Employees’ compensation appropriation was approved by the Board of Directors at the meeting on March 30, 2020. The compensations of the aforementioned managers were not yet final and will be reviewed based on the list of the date of distribution. 29 Range of Remuneration Under NT$ 1,000,000 NT$1,000,000 ~ NT$2,000,000 (exclusive) NT$2,000,000 ~ NT$3,500,000 (exclusive) NT$3,500,000 ~ NT$5,000,000 (exclusive) NT$5,000,000 ~ NT$10,000,000 (exclusive) NT$10,000,000 ~ NT$15,000,000 (exclusive) NT$15,000,000 ~ NT$30,000,000 (exclusive) NT$30,000,000~ NT$50,000,000 (exclusive) NT$50,000,000 ~ NT$100,000,000 (exclusive) Over NT$100,000,000 (inclusive) Total Number of President and Vice Presidents Total of (A+B+C+D) The Company Total of (A+B+C+D+E) Companies in the consolidated financial statements 1 (Note 1) 2 (Note 2) 2 (Note 3) 3 (Note 4) 26 (Note 5) 8 (Note 6) 4 (Note 7) 2 (Note 8) 1 (Note 9) 2 (Note 10) 2 (Note 11) 1 (Note 12) 28 (Note 13) 8 (Note 14) 4 (Note 15) 2 (Note 16) 48 48 Note: 1. Po-Hsiung Chang – 1 position 2. Tsing-Fa Lee, Fei-Long Chen – 2 positions 3. Hsiao-Wei Lo, Guo-Dung Yu – 2 positions 4. 5. Fu-Chuan Chang, Yung-Nan Chang, Chang-Chieh Tien – 3 positions Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Chih-Chuan Cheng, Ching-Hsiung Lu, Po-Tang Wang, Tzong-Ming Wang, Yong-Ho Su, Jyh- Shyan Liang, Chiao-Lie Huang, Yi-Yun Chang, Hsin-Kung Mao, Hsin-Hsiung Huang, Shih-Hong Huang, Yi-Chiang Chiu, Jui-Chun Shyur, Shyh-An Lee, Ta-Chun Wang, Liang- Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng-Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu – 26 positions Chun-Te Shen, Wei-Chang Chen, Shi-Kuan Chen, Min-Tung Weng, Lo-Chun Lee, Sheng-Hung Li, Chung-Hsing Tan, Bor-Heng Chen– 8 positions 6. 7. Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu, Chi-Wai Wan – 4 positions 8. 9. 10. Tsing-Fa Lee, Fei-Long Chen – 2 positions 11. Hsiao-Wei Lo, Guo-Dung Yu – 2 positions 12. Chang-Chieh Tien – 1 position 13. Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Chih-Chuan Cheng, Ching-Hsiung Lu, Po-Tang Wang, Tzong-Ming Wang, Fu-Chuan Chang, Yung-Nan Chang, Yong-Ho Su, Jyh-Shyan Liang, Chiao-Lie Huang, Yi-Yun Chang, Hsin-Kung Mao, Hsin-Hsi Yi-Chiang Chiu, Jui-Chun Shyur, Shyh-An Lee, Ta-Chun Wang, Liang-Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng-Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu – 28 positions Jui-Tsung Chen, Chung-Pin Wong – 2 positions Po-Hsiung Chang – 1 position 30 14. Chun-Te Shen, Wei-Chang Chen, Shi-Kuan Chen, Min-Tung Weng, Lo-Chun Lee, Sheng-Hung Li, Chung-Hsing Tan, Bor-Heng Chen – 8 positions 15. Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu, Chi-Wai Wan –4 positions 16. Jui-Tsung Chen, Chung-Pin Wong – 2 positions Employee profit sharing granted to the management team Unit: NTD thousand Title Name Stock dividends Cash dividends Total Total as a percentage to after-tax profit (%) 46 employees including CSO Jui-Tsung Chen (Note 1) 0 102,819 102,819 1.47816% Note: 1.Managers’ titles and names ‧Chief Strategy Officer: Jui-Tsung Chen – 1 position ‧President: Chung-Pin Wong – 1 position ‧Executive Vice Presidents: Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu– 3 positions ‧Senior Vice Presidents: Chun-Te Shen, Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Wei-Chang Chen, Shi-Kuan Chen, Chi-Wai Wan, Min- Tung Weng, Lo-Chun Lee, Sheng-Hung Li, Bor-Heng Chen– 13 positions ‧Vice Presidents :Chih-Chuan Cheng, Ching-Hsiung Lu, Po-Tang Wang, Tzong-Ming Wang, Fu-Chuan Chang, Yung-Nan Chang, Yong-Ho Su, Jyh-Shyan Liang, Chiao-Lie Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Hsin-Hsiung Huang, Shih-Hong Huang, Yi-Chiang Chiu, Jui-Chun Shyur, Shyh -An Lee, Ta-Chun Wang, Liang- Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng- Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu, Chang-Chieh Tien, Hsiao-Wei Lo, Guo-Dung Yu – 27 positions ‧Other: Po-Wen Hsieh - 1 position 2. Vice President Po-Hsiung Chang, Tsing-Fa Lee, and Fei-Long Chen resigned in 2019. 3. Employees’ compensation appropriation was approved by the Board of Directors at the March 30, 2020 meeting. The compensations of the aforementioned managers have not been finalized and will be reviewed based on the list upon the date of distribution. 31 3.2.4 Comparison of Remuneration for Directors, Supervisors, Presidents and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents, and Vice Presidents A. The percentage of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the two most recent fiscal years to directors, supervisors, presidents, and vice presidents of the Company, relative to net income. 2019 2018 (Note) Increase (Decrease) Amount % Amount % Amount % Unit: NT$ thousand 542,598 7.80% 413,080 4.63% 129,518 31.35% Analysis Directors CSO, Presidents, and Vice Presidents Net Income 6,955,899 8,913,365 (1,957,466) Note: 2018 is the actual amount. B. The policies, standards, and portfolios for the payment of remuneration, the procedures for determining remuneration, and correlation with business performance. ‧ Remuneration paid by the Company to Directors has been made in accordance with the Articles of Incorporation. When the Company makes profit in a year, no more than 2% of the Company’s pre-tax profit (not including remuneration for employees and Directors) shall be paid to Directors as remuneration along with reasonable compensation based on other factors such as the Company’s operational performance and the individual Director’s contribution to the Company’s performance taken into consideration. ‧ The Company’s remuneration policy for Managers has been established based on various factors, including the Company’s wage policy, the average wage offered by competitors for the same position, the duties and responsibilities for the position in question, and the Manager’s actual contribution to the Company’s operational objectives. ‧ The Company’s procedure for determining remuneration not only takes into account the Company’s overall operational performance but also includes employee’s personal performance and their contribution to the Company’s performance in order to determine a reasonable compensation. Relevant wages and compensations are reviewed by the Remuneration Committee and resolved by the Board of Directors. The Company will also be keeping a close eye on the latest developments in the global economy, international financial environment, and state of the industry in order to predict its operational development, profit status, operational risks and changes in pertinent regulations in the near future in order to review the compensation system, thereby striving for an ideal balance between the Company’s sustainable operation and relevant risk control. 32 3.3 Implementation of Corporate Governance 3.3.1 Board of Directors ‧The term of the 13th committee is from June 22, 2018 to June 21, 2021. ‧There were Six Board meetings during 2019 (A). Director’s attendance records are as shown below: Title Name Chairman Sheng-Hsiung Hsu Director Jui-Tsung Chen Director Wen-Being Hsu Director Director Kinpo Electronics, Inc. Representative: Shyh-Yong Shen Charng-Chyi Ko Director Sheng-Chieh Hsu Director Yen-Chia Chou Director Chung-Pin Wong Director Chiung-Chi Hsu Director Ming-Chih Chang Director Anthony Peter Bonadero Director Sheng-Hua Peng Independent Director Independent Director Independent Director Min-Chih Hsuan Duei Tsai Duh-Kung Tsai Attendance in Person (B) 5 5 6 1 6 6 5 5 5 3 2 4 5 5 4 By Proxy Attendance Rate (%)[B/A] Remarks 1 1 0 5 0 0 0 1 1 2 2 2 1 1 1 83% 83% 100% 17% 100% 100% 83% 83% 83% 50% 33% 67% 83% 83% 67% ․In 2019, Independent Director’s attendance records are as shown below: Title Name Independent Director Independent Director Independent Director Min-Chih Hsuan Duei Tsai Duh-Kung Tsai 1st Meeting 2nd Meeting 3rd Meeting 4th Meeting 5th Meeting 6th Meeting ● ★ ◎ ● ● ● ● ● ● ★ ● ● ● ● ★ ● ● ● Note: ●: Attendance in Person; ★: By Proxy; ◎: Absent Other notes: 1. For board of directors meetings that meet any of the following descriptions, state the date, session, the discussed topics, independent directors' opinions, and how the company has responded to such opinions: (1) Conditions described in Article 14-3 of the Securities and Exchange Act: Not applicable (the Company has assembled the Audit Committee in place of supervisors) (2) Any other documented objections or qualified opinions raised by independent directors against board resolutions in relation to matters other than those described above: None. 33 2. Disclosure regarding avoidance of interest-conflicting agendas, including the names of directors concerned, the agendas, the nature of conflicting interests, and the voting outcome: Board of Directors Meeting Meeting (13th Term) 2019.5.13 9th Meeting (13thT Term) 2019.8.13 The agendas, the nature of conflicting interests, and the voting outcome ・Approved the release of non-competition restrictions for the managers An interested party relationship existed among Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng. In order to avoid conflict of interest, these Directors recused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the establishment of Compal Electronics Kaohsiung Branch Office An interested party relationship existed in Director Chung-Pin Wong. In order to avoid conflict of interest, the Director recused himself from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approve the first mid-year employees’ bonus of 2019 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists among any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approve employees’ salary adjustment of 2019 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists among any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Passed the compensation of Directors’ Remuneration of 2018 Chairman Sheng-Hsiung Hsu asked the Independent Director Min-Chih Hsuan to act as a deputy chairman to preside at this meeting for discussion and voting on this proposal. Since an interested party relationship existed, the Directors (i.e., Sheng-Hsiung Hsu, Jui-Tsung Chen, Wen Being Hsu, Shyh-Yong Shen［attended by proxy of Sheng-Hsiung Hsu］, Charng- Chyi Ko, Sheng-Chieh Hsu, Yen-Chia Chou, Chung-Pin Wong, Chiung-Chi Hsu, Ming-Chih Chang, Sheng-Hua Peng), recused themselves from discussion and voting on this proposal to avoid conflict of interest. Upon solicitation of comments by the deputy chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approve the second mid-year employees’ bonus of 2019 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, 34 10th Meeting (13thT Term) 2019.11.11 13th Meeting (13thT Term) 2020.5.13 Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the compensation of Employee bonuses in cash of year 2018 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the proposal for 2019 year-end employees’ bonus In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the release of non-competition restrictions for the managers A conflict of interest relationship between multiple parties exists among Directors Jui-Tsung Chen, Chung-Pin Wong and Sheng-Hua Peng. In order to avoid conflict of interest, these Directors recused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the first mid-year employees’ bonus of the year 2020 ・Approved the proposal for 2019 year-end employees’ bonus In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved employees’ salary adjustment of the year 2020 ・Approved the proposal for 2019 year-end employees’ bonus In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the proposal for the appropriate percentage for the remuneration of employees and Directors of the year 2020 ・Approved the proposal for 2019 year-end employees’ bonus 35 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should recuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. 3. Self-Evaluation of the Board of Directors: The Board of Directors enacted the “Rules of Self-Evaluation of the Board of Directors and Functional Committees Performance” on March 30, 2020. Evaluation cycles Evaluation periods Scope of evaluation Method of evaluation Once a year From June 1, 2019 to May 31, 2020 Board of Directors, Functional Committees (Including Audit Committee, Remuneration Committee), individual directors Internal self-evaluation of Board of Directors and Functional Committees (Including Audit Committee, Remuneration Committee), Self-evaluation of individual directors ◆Criteria for evaluating the performance of the Board of Directors, which should cover the following five aspects: 1.Participation in the operation of the Company; 2.Improvement of the quality of the Board of Directors' decision making; 3.Composition and structure of the Board of Directors; 4.Election and continuing education of the Directors; and 5.Internal control ◆Criteria for evaluating the performance of the Functional Committees, which should cover Content of evaluation the following five aspects: 1.Participation in the operation of the Company; 2.Awareness of the duties of the Functional Committee; 3.Improvement of quality of decisions made by the Functional Committee; 4.Makeup of the Functional Committee and election of its members; and 5. Internal control. ◆Criteria for evaluating the performance of the individual directors, which should cover the following five aspects: 1.Alignment of the goals and missions of the Company; 2.Awareness of the duties of a Director; 3.Participation in the operation of the Company; 4.Management of internal relationship and communication; 5.The Director's professionalism and continuing education; and 6. Internal control. 4. Enhance the valuation regarding the target achievement and execution by the Board of Directors in the current and most recent year: The Company established a “Remuneration Committee” in 2011. During the election of the 11th Board of Directors and Supervisors at the 2012 annual shareholders’ meeting, 3 independent directors were elected and appointed to be the committee members of the Remuneration 36 Committee. Supervisor positions were replaced with the Audit committee after the 12th Board of Directors was elected at the 2015 annual shareholders’ meeting. In 2019, the “Rules and Procedures for Board of Directors Meetings” was amended in accordance with the “Key points for the establishment and compliance of exercising duties of powers of the Board of Directors by TWSE Listed Companies” and “Company Act,” and the Company shall appoint a chief corporate governance officer to execute corporate governance matters. In 2020, to implement corporate governance, enhance the Board of Directors function and set up the performance targets, the “Rules of Self-Evaluation of the Board of Directors and Functional Committees Performance” was enacted to strengthen their operation efficiency. 37 3.3.2 Audit Committee ‧The Company’s Audit Committee has three members. ‧The term of the 2nd committee is from June 22, 2018 to June 21, 2021. ‧There were four Audit Committee meetings during 2019 (A). The attendance records of the Independent Directors are as follows: Title Name Attendance in Person (B) By Proxy Attendance Rate (%) [B/A] Remarks Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh Kung Tsai 4 4 3 0 0 1 100% 100% 75% - - - ■ Duties of the Audit Committee The Audit Committee exists as an enhancement to the Company's supervisory and management function. It assists the Board of Directors in various decisions such as review of financial statements, internal control policies, internal audits, accounting policies and procedures, major asset transactions, appointment/dismissal/independence/suitability of certified public accountants, appointment/dismissal of the chief accountant and chief auditor, etc., thereby ensuring that the Company operates in compliance with the competent authority's instructions and relevant laws. ■ The powers of the Committee are as follows: 1. The adoption of or amendments to the internal control system pursuant to Article 14-1 of the Securities and Exchange Act. 2. Assessment of the effectiveness of the internal control system. 3. The adoption or amendment, pursuant to Article 36-1 of the Securities and Exchange Act, of the procedures for handling financial or business activities of a material nature, such as acquisition or disposal of assets, derivatives trading, loaning of funds to others, and endorsements or guarantees for others. 4. Matters in which a director is an interested party. 5. Asset transactions or derivatives trading of a material nature. 6. Loans of funds, endorsements, or provision of guarantees of a material nature. 7. The offering, issuance, or private placement of equity-type securities. 8. The hiring or dismissal of a certified public accountant, or their compensation. 9. The appointment or discharge of a financial, accounting, or internal audit officer. 10. Annual financial reports which are signed or sealed by the chairperson, managerial officer, and accounting officer. 11. Other material matters as may be required by this Corporation or by the competent authority. 38 ■ The major audit items of the Audit Committee in 2019 are as follows: 1. 2018 Financial Statement 2. To evaluate the CPAs’ independence and competence for performing the financial report audit. 3. To approve the amendment to the “Procedures for Acquisition or Disposal of Assets," “Procedures for Financial Derivatives Transactions," “Procedures for Endorsement and Guarantee," “Procedures for Lending Funds to Other Parties” and “Ethical Corporate Management Best Practice Principles 4. Appointment of the manager of the Kaohsiung Branch Office. 5. A matter bearing on the personal interest of the director and Manager 6. A material monetary loan 7. A material asset transaction. 8. Assessment of the design and operation effectiveness of the internal control system. 9. The defects, irregularities, and the status of corrections in the internal control system. 10. Annual audit plan for year 2020 11. Compliance with the relevant laws and regulations by this Corporation. ■ Other notes: 1. The Company should record the date of the Board of Directors’ meeting, the term, content of discussion, the result of the Audit Committee’s decision and the actions the Company has taken in response should any of the following situations arise in the operation of the Audit Committee: (1) Matters listed in Item 5, Article 14 of the Security Act: Board of Directors Meeting 6th Meeting (13th Term) 2019.3.22 Content of discussion and actions taken in response Matters listed in Item 5, Article 14 of the Security Act Not approved by the Audit Committee but had the consent of more than two- thirds of all directors. 1. To review and approve the Consolidated and Individual Financial Statements for 2018. 2. To review and approve the Company’s Internal Control Declaration for 2018. 3. To review and approve the independence and fitness of the CPA engaged by the Company for the Financial Statements. V V V None None None ▲ Resolution adopted by the Audit Committee (2019.3.22): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in response to opinion of the Audit Committee: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 9th Meeting (13th Term) 2019.5.13 1.To approve the amendment to the “Procedures for Acquisition or Disposal of Assets” 2.To approve the amendment to the “Procedures for Financial Derivatives Transactions” 3.To approve the amendment to the “Procedures for Endorsement and Guarantee” 4.To approve the amendment to the “Procedures for Lending Funds to Other Parties” 5. To review and approve the motion to lift the non- competition restriction for Managers. 6. To propose the manager of the Kaohsiung Branch Office. 7.To approve fund loan to100% owned subsidiary 39 V V V V V V V None None None None None None None Compal (Vietnam) Co., Ltd. 8.To approve fund loan to 100% owned subsidiary Compalead Eletrônica do Brasil Indústria e Comércio Ltda. V ▲ Resolution adopted by the Audit Committee (2019.5.13): None Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in response to the opinion of the Audit Committee: ・Motion 1~4 and Motion 7~8: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. ‧ Motion 5: An interested party relationship existed among Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng. In order to avoid conflict of interest, these Directors recused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ‧ Motion 6: An interested party relationship exited in Director Chung-Pin Wong. In order to avoid conflict of interest, the Director recused himself from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. 1.To approve for a loan to Henghao Technology Co. Ltd. 2.To approve for a loan to Unicom Global, Inc. ▲ Resolution adopted by the Audit Committee (2019.8.13): None None V V Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in response to opinion of the Audit Committee: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 1.To propose for approval of annual audit plan for year 2020 2.To approve the amendment to the “Ethical Corporate Management Best Practice Principles” 3.To approve the proposal of leasing the office (building) and car parking lots, with Shin Kong Life Insurance Co., Ltd. V V V None None None ▲ Resolution adopted by the Audit Committee (2019.11.11): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in response to opinion of the Audit Committee: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 9th Meeting (13thT Term) 2019.8.13 10th Meeting (13thT Term) 2019.11.11 (2) With the exception of the aforementioned matter, other matters not approved by the Audit Committee but had the consent of more than two-thirds of all directors: None. 40 2. The actions of the independent directors with respect to the avoidance of conflict of interest should be disclosed including the name of the independent director, the matter, and the reasons for the avoidance, and the voting and attendance status: None. 3. Status of communication between Independent Directors, Internal Audit Officer, and CPA: (1) Method of communication between Independent Directors, the Internal Audit Officer, and CPA: After the Internal Audit Officer has submitted an audit report and follow-up report, he/she should provide the completed audited items to the independent directors for their review by the end of the following month. Should the Independent Directors require clarification of the audit and follow- up, they should contact the internal audit supervisor at any time. The internal auditor shall report the audit results to the Audit Committee on a quarterly basis and discuss the relevant matters in person with the committee. The Independent Directors must communicate with the CPA on a yearly basis through the Audit Committee or Board of Directors’ Meeting. The CPA shall report to the Independent Directors on the results of the financial statement audit and other pertinent legal requirements while the Audit Committee shall also evaluate the selection, independence, and fitness of the CPA engaged by the Company. (2) Summary of the communications between Independent Directors and Internal Audit Officer: Date 2019.3.22 Content of discussion 1. Report on operational status of the internal audit activities 2.To approve the Internal Control System Statement for the year 2018 1. Report on operational status of the internal audit activities 2019.5.13 2019.8.13 1. Report on operational status of the internal audit activities 2019.11.11 1. Report on operational status of the internal audit activities 2. To propose for approval of annual audit plan for year 2020 2020.3.30 1. Report on operational status of the internal audit activities 2.To approve the Internal Control System Statement for the year 2019 1. Report on operational status of the internal audit activities 2020.5.13 Results The report was reviewed by the Audit Committee whereupon independent directors raised no objection or further instruction. The proposal was approved by the Audit Committee and will be resolved by the Board of Directors The report was reviewed by the Audit Committee whereupon independent directors raised no objection or further instruction. The report was reviewed by the Audit Committee whereupon independent directors raised no objection or further instruction. The report was reviewed by the Audit Committee whereupon independent directors raised no objection or further instruction. The proposal was approved by the Audit Committee and will be resolved by the Board of Directors The report was reviewed by the Audit Committee whereupon independent directors raised no objection or further instruction. The proposal was approved by the Audit Committee and will be resolved by the Board of Directors The report was reviewed by the Audit Committee whereupon independent directors raised no objection or further instruction. 41 (3) Summary of the communications between the Independent Directors and CPA: Content of discussion Results Date 2019.3.22 The proposal was approved by the Audit Committee and will be resolved by the Board of Directors The proposal was approved by the Audit Committee and will be resolved by the Board of Directors 1. To approve 2018 Audited Consolidated Financial Statements and Parent Company Only Financial Statements ˙Explanation of key audit items ˙Financial statements and major accounting items analysis 2020.3.30 1. To approve 2019 Audited Consolidated Financial Statements and Parent Company Only Financial Statements ˙Explanation of key audit items ˙Financial statements and major accounting items analysis ˙Description of the Company's self-made financial report process 42 3.3.3 Corporate Governance Implementation and Deviations from the “Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies” Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No Summary description The Company’s corporate governance principles were approved by the Board of Directors on May 13, 2020, and have been disclosed on its official website and MOPS. No deviations were found The Company has a spokesperson and acting spokesperson that represent the interest of the shareholders and a unit that specializes in addressing shareholders’ suggestions, queries, disputes, and litigations. No deviations were found Assessment criteria Yes Yes I. Has the company established and disclosed its corporate governance principles based on the “Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies?” II. Shareholding structure and shareholders’ interests 1. Has the company Yes implemented a set of internal procedures to handle shareholders’ suggestions, queries, disputes, and litigations? 2. Is the company constantly Yes The Company keeps track of the identity of its ultimate controller by monitoring insider informed of the identities of its major shareholders and the ultimate controller? shareholding positions (including that of directors, supervisors, managers, and shareholders with more than 10% ownership interest), with the shareholder registry held by the share administration agency. 3. Has the company established Yes The Company has established “Internal Control Policy - Non-trade Activities - Supervision and and implemented risk management practices and firewalls for companies it is affiliated with? 4. Has the company established internal policies that prevent insiders from trading securities against non-public information? Yes Management of Subsidiaries," “Internal Control Policy - Trade Activities – Investment Management," and “Guidelines on Financial and Business Dealings Between Affiliated Enterprises” to set up and execute firewalls and risk controls over related parties. To prevent insider trading, the “CO10 Insider Trading Prevention Management” and “Insider Trading Prevention Procedures” have been included as part of the internal control of the Company and details are published on the intranet and linked to the TWSE website to which employees have access. Both policies have been included as part of the compulsory e-Learning courses for departmental heads, and eCSA questionnaires are issued on a yearly basis to facilitate self- assessment. Insiders such as directors, supervisors, and managers are given a copy of the TWSE 43 No deviations were found No deviations were found No deviations were found Assessment criteria Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies III. Assembly and obligations of the board of directors 1. Has the board devised and implemented policies to ensure the diversity of its members? Yes No Summary description “Insider Share Trading Manual” when they come aboard to make them aware of the company insider rules. Yes The Company has established rules and regulations such as the “Corporate Governance Guidelines” and “Rules for Director Election” to ensure a diversified board member composition in addition to drafting suitable guidelines for diversification based on the Board’s operation, the Company’s operating format, and its needs and developments. As such, board members are required to possess the required knowledge, skills, and character in order to accomplish the goal of ideal corporate governance. For more information on the diversification of board members, please refer to page 50. No deviations were found 2. Apart from the Remuneration Yes Committee and Audit Committee, has the company assembled other functional committees at its own discretion? Apart from the Remuneration and Audit Committees, the Company has also established a CSR Committee headed by President & CEO Chung-Pin Wong, who in turn reports to the Board of Directors regarding the operating status and results of the committee on a yearly basis. No deviations were found 3. Has the Company established Yes performance evaluation measures and methods for the board of directors, conducted performance evaluation annually and regularly, The Board of Directors enacted the “Rules of Self-Evaluation of the Board of Directors and Functional Committees Performance” on March 30, 2020. The performance evaluation scope covers the evaluation of the Board as a whole, individual directors and Functional Committees. Methods of evaluations included the Self-Evaluation of the Board of Directors and Functional Committees, self-evaluation by individual board members, or other appropriate methods. The evaluation results, being submitted to the Remuneration Committee analytical review and No deviations were found 44 Assessment criteria Actual governance Yes No Summary description reported the results of performance evaluation to the board of directors and applied them to the reference of salary and remuneration of individual directors and nomination and renewal? ) 4. Is the independence of Yes external auditors assessed on a regular basis? IV. Is the listed or OTC company Yes equipped with competent and appropriate number of corporate governance personnel and has its designated corporate governance director to be responsible for corporate governance related matters (including but not limited to providing information required by directors and supervisors to carry out business, assisting directors reported to the Board of Directors for discussion and improvement, shall be used as reference in determining individual Directors compensation and their nomination of next office term. The CPA issues an “Independent Auditor’s Report” on an annual basis and is required to decline engagement should he/she be involved in any direct or indirect material interest. The Company evaluates the independence and suitability of the CPA at least once a year, in accordance with Article 47 of the CPA Law and Bulletin 10 of the Norms of Ethics for Certified Public Accountants. The CPA cannot be a director, supervisor, or shareholder of the company and may not be on the payroll or be a related party to the Company. The Company then submits the “CPA Independence and Fitness Evaluation Form” along with the “Independent Auditor’s Report” to the Audit Committee for review before it is submitted to the Board of Directors for examination and discussion. The same principles apply to whenever there is an internal rotation within the accounting firm. VP Cheng-Chiang Wang has been appointed to take charge of and supervise affairs pertaining to corporate governance in accordance with the Company’s “Corporate Governance Guidelines," while the BOD secretariat was assigned as the Company’s responsible unit for corporate governance to handle relevant affairs. VP Cheng-Chiang Wang and the designated personnel responsible for corporate governance have more than 25 years of experience in stock affairs and meeting-related management for publicly traded companies. They are primarily responsible for handling corporate governance affairs, such as handling matters relating to board meetings and shareholders meetings according to the laws, producing minutes of board meetings and shareholders meetings, assisting in onboarding and continuous development of directors, furnishing information required for duty execution by directors and members of the audit committee, ensuring legal compliance and taking other matters set out in the articles or corporation or contracts, periodically examining and revising the Company’s corporate governance 45 Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found Assessment criteria Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies and supervisors to comply with laws and regulations, managing related matters of the board of directors’ meeting and shareholders' meeting in accordance with laws, taking minutes of the board of directors’ meeting and shareholders' meeting, etc.) V. Has the company provided proper communication channels and created dedicated sections on its website to address corporate social responsibility issues that are of significant concern to stakeholders (including but not limited to shareholders, employees, customers, and suppliers)? VI. Does the company engage a share administration agency to handle shareholder meeting affairs? VII. Information disclosure 1. Has the company established a website that discloses financial, business and corporate governance-related Yes No Summary description guidelines and relevant procedures, improving disclosure transparency, safeguarding shareholder rights and promoting better corporate governance. For more information on the status of Compal’s corporate governance operations for 2019, refer to page 51. Yes The Company has addressed its stakeholder relations on its corporate website, CSR report, and CSR Sustainability website. Separate contact persons, phone numbers, and e-mail addresses have been provided for each type of stakeholder relation to ensure that queries are directed to the relevant departments. In addition, an online “Material Aspects” questionnaire has also been created for stakeholders to identify issues that are of significant concern. The Company will address stakeholders’ responses properly and take their suggestions as part of the Company’s goals. No deviations were found Yes The Chinatrust Commercial Bank – Securities Trust has been appointed as the share administration agency responsible for handling shareholder affairs and meetings while offering share administration services. No deviations were found Yes The Company website at (www.compal.com) is regularly updated with information such as financial performance, corporate governance and shareholder meetings No deviations were found 46 Actual governance Yes No Summary description Yes ‧The Company website has both Chinese and English pages. The information is gathered and disclosed by a dedicated department. ‧The Company has also appointed a spokesperson and an acting spokesperson in place. ‧Investor conferences are held regularly and whenever deemed necessary. The proceedings are posted on the Company’s website and also broadcast on the TWSE platform (at https://www.compal.com/investor-relations/financial-release/). No The Company financial reports were not able to be announced and filed within two months after the fiscal year end. However, the date of the Company's announcing and filing financial reports for annual and quarterly, such as first, second, third, as well as business operational results for each month were earlier than that of statutory request. Assessment criteria information? 2. Has the company adopted other means to disclose information (e.g. an English website, assignment of specific personnel to collect and disclose corporate information, implementation of a spokesperson system, broadcasting of investor conferences via the company website)? 3. Does the Company announce and declare the annual financial report within two months after the end of the fiscal year and announce and declare the first, second, and third quarter financial reports and the operation of each month ahead of the required time limit? Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found The Company will carefully assess the probability of announcing and filing annual financial reports within two months after the fiscal year end. 47 Actual governance Summary description • Employee rights and care for employees (page 52) • Code of conduct for directors, managers, and employees (page 52) • Investor relations (page 53) • Supplier relations and execution of customer policy (page 53-54) • Stakeholders’ interests (page 54) • Risk management practice and framework (page 54-56), Risk analysis (page 171-176) • Purchasing liability coverage for the company’s directors, supervisors, and managers (page 56) • Continuing education for directors and managers (page 57-58) • Succession plan for Board members and key Management team (page 58) • Certificate and qualification acquisition status for personnel (page 59) Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found No Yes Yes Assessment criteria VIII. Does the company offer other vital information (including but not limited to employee rights, employee care, investor relationships, supplier relationships, stakeholders’ interests, continuing education of directors/supervisors, risk management policies, risk assessment standard implementation status, implementation status of customer policies, insuring against liabilities of company directors and supervisors) that would enable a better understanding of the company’s corporate governance practices? 48 Assessment criteria Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies IX. State the improvements that have been made with regards to the results of the latest Corporate Governance Evaluation conducted by TWSE in the most recent year. For items that have yet to be improved upon, state the Company’s priorities and measures for improvement. Yes No Summary description • With regards to the further education of Directors (including Independent Directors), Compal has advocated and encouraged Directors to take part in courses on the pertinent regulations offered by subsidiary Kinpo Group Management Consultant Company or training provided by external professional organizations. In 2019, members of the Board of Directors completed a total of 24 hours of training. • In 2019, the amendment to the “Articles of Incorporation," “Procedures for Acquisition or Disposal of Assets," “Procedures for Financial Derivatives Transactions," “Procedures for Endorsements and Guarantees," “Procedures for Lending Funds to Other Parties," “Corporate Governance Best-Practice Principles," “Rules and Procedures for Board of Directors Meetings” and “Ethical Corporate Management Best Practice Principles” were proposed to accommodate the business needs and the requirements of applicable laws and regulations. The Board of Directors approved the policies that were based on integrity accordingly. In addition, the Board of Directors and the management had issued "The statement of compliance with the Ethical Corporate Management Best Principles". • In 2019, with setting forth a performance target to improve the operation efficiency of the Board of Directors, the "Rules of Self-Evaluation of the Board of Directors and Functional Committees Performance” was enacted. , In addition, the enactment to the "Colleague Integrity Code" has made and the amendment to the “"Rules and Procedures for Board of Directors Meetings," "Audit Committee Charter," "Remuneration Committee Charter," "Corporate Governance Best-Practice Principles," "Corporate Social Responsibility Best Practice Principles" and "Procedures for Ethical Management and Guidelines for Conduct" are completed to accommodate the business needs and the requirements of applicable laws and regulations. • In the “6th Round of Corporate Governance Evaluations” by TWSE, Compal was placed in the top 6%~20% listed companies. • The Company will provide the quarterly financial report in English from the first quarter of 2020. 49 Operation management Leadership and decision- making Knowledge of the industry International market perspective Finance and accounting Legal A. Status of board member diversification : Core items for diversification Name of director Sheng-Hsiung Hsu Jui-Tsung Chen Representative of Binpal Investment Co., Ltd.:Wen- Being Hsu Representative of Kinpo Electronics Inc.: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Chiung-Chi Hsu Ming-Chih Chang Anthony Peter Bonadero Sheng-Hua Peng Min-Chih Hsuan Duei Tsai Duh-Kung Tsai V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V Item 31 ~ 50 years old 51~65 years old 65 years and over Male Female Republic of China United States Age Gender Country of Citizenship Employee Status (Note) V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V Director Independent Director 1 5 6 12 0 11 1 5 0 0 3 3 0 3 0 0 Note: Concurrently an employee of the Company, subsidiaries companies. 50 B. The status of Compal’s corporate governance operations for 2019 is as follows: ● ● ● ● Compiled and prepared relevant documents needed for the Audit Committee and the Board of Directors’ Meetings in accordance with pertinent regulations and operational/financial needs; and be responsible for coordination of relevant units and coordination of proposal making from different relevant units. Pursuant to amendments to pertinent regulations, operations needs and corporate governance, partial revisions have been made to the “Articles of Incorporation," “Procedures for Acquisition or Disposal of Assets," “Procedures for Financial Derivatives Transactions," “Procedures for Endorsement and Guarantee," “Procedures for Lending Funds to Other Parties," “Corporate Governance Best-Practice Principles," “Rules and Procedures for Board of Directors Meetings," “Ethical Corporate Management Best Practice Principles” and the Company formulates policies that are based on integrity accordingly, all of which have been submitted to the Board of Directors for approval. Planned the communication meeting between Independent Directors, Internal Audit Supervisors and CPA to have the Audit Committee determine the independence and fitness of the CPA engaged by the Company as a measure to ensure sound corporate governance. For the records of the communication meetings, access Compal’s website. Pursuant to “Directions for the Implementation of Continuing Education for Directors and Supervisors of TWSE Listed and TPEx Listed Companies," Compal has advocated and encouraged Directors to take part in the courses on pertinent regulations offered by subsidiary Kinpo Group Management Consultant Company or by external professional organizations. ● ● ● Disclosed and announced important information in conjunction with Board of Directors Meetings, Shareholders Meetings, financial and sales information; in addition, the Company has also held investor conferences at least two times annually, and has been invited to attend domestic/overseas investor conferences to help investors better understand the Company’s status of operation. Registered the date for Shareholders Meetings as required by law; prepared meeting notifications within the scheduled deadline, meeting handbook and meeting minutes and filing; coordinated relevant units, agents for stock affairs, CPA, attorneys and so forth. ․Contents on the chapter for corporate governance – responsible for the collection of data, compilation of stock affairs data, coordination of different units and editing. Corporate governance evaluation – responsible for the collection of data, compilation of stock affairs data, coordination of different units and website maintenance. The Company has offered liability coverage for directors, supervisors and managers. The amount for their liability insurance in 2019 came to USD 50,000 thousand, which was roughly equivalent to NTD 1,525,000 thousand. Vital information relating to their liability insurance was reported to the Board of Directors on the meeting of the Board of Directors. Continuing education for the Corporate Governance Officer is offered in total 21 hours. The exact education program, please see page 58. ● ● ● 51 X. Other vital information on the operating status of corporate governance: ■ Employees' rights and care for employees Compal respects employees' rights and tends to their needs. All internal policies are updated constantly to reflect the latest labor regulations, and published to ensure understanding and compliance from employees. Compal's subsidiaries in the USA, China, Brazil, Vietnam, and India have all established employment guidelines in accordance with local labor regulations, and all terms of employment are compliant with the laws of the local countries and regions. The Company's support for equal work opportunities and respect for employees' freedom of association have led to the assembly of a union at Kunshan Factory. Employees are offered equal compensation for equal work, whereas salary details are approved based on the nature of work involved and individual performance. The Company has nursery rooms available throughout the organization. It actively prevents and resolves sexual harassment incidents, grants workers the break and overtime pay they deserve, purchases social insurance coverage, and contributes to employees' pension funds. Compal is committed to creating communication platforms where employees may exchange opinions and information. A “Sunshine Group” and hotlines have been set up at all plant sites and are run by compassionate people who promptly respond to employees' thoughts. By providing employees with the means to express feelings and complaints, the Company is able to help employees resolve difficulties in a timely manner. In an attempt to create a joyful work environment where talents are assigned to suitable positions, Compal publishes recruitment information internally and offers employees the freedom to choose or transfer to positions they consider suitable, and thereby assures satisfaction across the work force and protects employees' interest. Compal provides employees with the following health-related facilities and services outside of work: ‧ Common dining: Employee dining facilities have been made available to serve nutritional and healthy foods. Recreation center: Places where employees may hold club activities, exercise, and make friends. Spiritual, health, and arts seminars: The Company organizes health seminars, spiritual seminars, musical performances, and art exhibitions from time to time, and uses them as a means of stress relief to cater to employees' physical and mental health. Infirmary and stationed physicians: Employees may consult physicians and access timely medical assistance for them and their family members. ‧ ‧ ‧ ・ Employee assistance services are available. Employees can consult with consultants on work, family, relationships, physical and mental health, mental illness, finance, legal, and management issues through a dedicated line or E-mail. ■ Codes of conduct for directors, managers, and employees Compal has established an ethics policy as described below to enforce business integrity and to guide employees toward complying with laws and ethics for the protection of Compal's and stakeholders' assets, interests, and reputation: ‧ ‧ Comply with government regulations. Protect the interests of employees, customers, shareholders, suppliers, communities, and relevant 52 ‧ ‧ organizations. Uphold business integrity and the principles of fair trade, fair advertising, and fair competition. Refrain from making illicit gains. Make information transparent to stakeholders while at the same time respecting intellectual property rights, privacy, and identity protection. Prohibit retaliation and make responsible purchase of minerals. Continually improve, execute, and convey the Company's ethics policy to relevant organizations. In addition to implementing an ethics policy, Compal has also established a Human Resource Management Policy, Director and Manager Code of Conduct, and Employee Code of Conduct not only in the employees' best interest, but also to communicate with stakeholders about the moral standards and behavioral guidelines that employees are bound to obey when carrying out their duties. All employees are required to sign a "Confidentiality Commitment Letter" when coming on board, which is a declaration to abide by the Company's rules, the Human Resources Management Policy and to maintain confidentiality of the Company's business secrets. ■ Investor relations The Company has an Investor Relations Department available to handle shareholders' recommendations. The department bridges communication between the Company and its investors. In addition to hosting investor seminars on a regular and ad-hoc basis, the department has also created an Investor Relations section on the Company's website to facilitate complete and fair disclosure of Compal's latest progress, and thereby provide investors with full understanding of the Company's business performance and long- term goals. In 2019, Compal organized two investor conferences on its own and was invited to participate in four investor forums hosted by foreign brokers, which it used as a means to promote investors' understanding towards the Company's operations. ■ Supplier relations and execution of customer policy The Company signs contracts with all suppliers and customers not only to protect the interests of both parties, but also to maintain a strong working relationship. With respect to green products and parts, the Company coordinates closely and systematically with partnered suppliers, and follows a robust review and certification process to ensure effective communication, tracking, management, and elimination of parts that contain prohibited chemical substances. Every supplier and business partner thereof is able to inquire about the latest "Compal Environmental Management Standard for Parts and Materials" through the SDCP (Supplier Design Cooperation Portal: sdcp.compal.com)/GPMS (Green Product Management System). They are also required to provide assurance that all raw materials supplied are free of substances that may potentially harm the environment. The Company's R&D, production and quality assurance departments and all major customers are able to learn information concerning chemical composition and content of green products through the use of this system, and take measures such as sample testing and on-site inspection as deemed necessary. The Company operates throughout Europe, America, and Asia, and has service centers established at main business locations to provide customers with safe and high-quality products, as well as complete and correct product information. The Company addresses customer complaints actively and immediately. 53 It accepts customers' audit requests, participates in customers' activities, and handles critical correspondences in a confidential manner. The Company has always been protective of customers' secrets. It has firewalls in place to block exchange of confidential information between customers, teams, office areas, and factories. A specialized team has been assembled to monitor the security of network information from time to time for the protection of customers' interests. Meanwhile, all employees are required to sign a confidentiality agreement that prohibits them from openly discussing customers' details. It is the organization's goal to provide customers with the most comprehensive service network and the best protection anywhere in the world. There has been no violation of law concerning the offering and use of products or services. ■ Stakeholders' interests Stakeholders are able to communicate with and make suggestions to the Company for the protection of their interests. The Company provides safe and high-quality products along with complete and accurate product information to customers. Customers' complaints are addressed immediately. ■ Risk management 1. Risk management practice (1) One of the purposes of the risk management policy is to discover any risk factors in advance that might adversely affect operations, so that the Company may then apply appropriate assessments and treatments to transfer risks and mitigate or prevent losses. Another purpose is to enable timely detection and warning of changes in the internal and external environment, and thereby allow employees worldwide to execute risk management practices within their areas of responsibility in a timely manner. The Company has established its own financial, sales, and accounting system, and a system for monitoring financial and business information of its subsidiaries in accordance with "Regulations Governing the Establishment of Internal Control Systems by Public Companies". The Company has also set up relevant guidelines for supplier management, customer relations, R&D, human resources, financial affairs, credit/endorsement/guarantee arrangements with affiliated businesses, and acquisition/disposal of key assets. These policies, risk assessment standards, and procedures serve as a guideline by which employees may abide for risk assessment and management. Dedicated personnel have been appointed in every department to manage, control, minimize, and prevent Company risks. (2) The Internal Control System developed by the Company is distinguished between the Overall Level and Operation Level. Five elements (Control Environment, Risk Assessment, Control Operation, Information and Communication, Supervision) have been incorporated into each transaction cycle at the operation level. In recent years, the Company has made enhancements to corporate risk management based on the latest Regulations Governing Establishment of Internal Control Systems by Public Companies, corporate governance practice, internal audit theory, technology, and various codes of conduct by adopting robust risk detection, assessment, reporting, handling, and prevention measures. The Company's risk control mechanism operates on three levels: ‧ The first level involves the organizer or handling officer, who is responsible for risk discovery, 54 ‧ ‧ level involves heads of various divisions assessment and control at first contact, as well as designing preventive measures against risks. The second (offices), headquarters, business departments/centers and regional business groups/centers, Executive Vice Presidents and the President. This level comprises members of the senior management, who are responsible for assessing the feasibility of various operations as well as identifying, handling, and preventing operational risks. The third level involves review by Legal Affairs, the Auditing Office, the Board of Directors, and the Audit Committee. The Company involves all employees as part of the risk management system and implements layered controls over day-to-day operations. (3) From the implementation perspective, all the divisions of the company evaluate various business risks to make contingency plans, while preparing annual budget and work plan. At the same time, the internal audit office drafts the annual audit plans for the coming year based on the risk assessment of operating activities. The annual audit plan is implemented after being approved by the Board of Directors, and the execution status is also reported to the Board of Directors. Given the Company's role as an ODM for 5C electronics, we review and assess business risks on an annual basis, and reflect our findings in the financial statements under accounts such as allowance for doubtful debts, warranty reserves, and royalties. All provisioning policies are submitted to the CPA for review whenever adjustments are made. This is to ensure that financial reports present a fair view of the Company's operations. Furthermore, the Company has dedicated personnel appointed to monitor and control exchange rate risks, and take hedging measures as necessary (please refer to page 171). (4) If an important operating activity is identified with a potential urgent risk, it can be reported to the supervisor immediately for proper prevention. For extremely important matters, such as investments or engineering bidding, will be jointly reviewed by relevant departments. Audits will be performed on a regular or irregular basis. 2. Risk management framework Key risk areas ‧Interest rate, exchange rate, inflation and financial risks ‧High-risk or highly leveraged investment, loan to third party, endorsement, guarantee, trading of derivatives and treasury investment ‧R&D planning ‧Changes in policy and law ‧Changes in technology and industry ‧Changes in corporate image ‧Investment, subsidiary and Front line unit (Business organizer) (Level 1) Risk review and control (Executive management meeting) (Level 2) ‧Finance Department ‧Operation Team Board of directors, Audit Committee, Legal Affairs Office, Auditing Office (Level 3) ‧Legal Affairs Office: Oversees legal affairs and makes suggestions on risk identification, assessment and prevention ‧Business ‧Corporate investment departments/centers (Note 1) ‧Common departments (Note 3) review ‧Executive management meeting ‧Subsidiaries monitoring and management report ‧Auditing Office: Risk inspection, evaluation, supervision, improvement and reporting 55 M&A benefits ‧Expansion of factory, production site and equipment ‧Centralized purchase or sale ‧Equity transfer involving directors, supervisors, and major shareholders ‧Change of management ‧Litigation and non-contentious cases ‧Business ‧Monthly operating departments/centers (Note 1) ‧Common departments (Note 3) ‧Share administration meeting ‧Production and marketing meeting ‧Share administration affairs ‧Board of Directors affairs ‧Head of ‧Product risk management Finance/Accounting ‧Legal affairs ‧Business groups/centers ‧Handling of product safety ‧Managers of all levels (Note 2) ‧Board of Directors, Audit Committee: Decision-making and ultimate control over risk evaluation incidents ‧Other operational affairs ‧Personnel behaviors, ethics, and conduct ‧Rules (including SOP), internal control system and compliance with regulations ‧Managers of all levels ‧HR & Administration ‧Managers of all levels ‧Legal Affairs Office ‧Personnel Evaluation Committee ‧Investment Planning and Management Office ‧Auditing Office ‧Finance ‧Accounting ‧HR & Administration ‧IT ‧Board of Directors Meetings ‧Share administration affairs ‧Secretary of the Board of Directors ‧Legal Affairs Office ‧Auditing Office ‧Prevention of insider trading ‧Managers of all levels ‧Insider Trading ‧Information security ‧Managers of all levels ‧Information Security Prevention Office management (ISMS) Committee ‧Information Security Team Notes: 1. Business departments/centers: America/Europe, Asia Pacific, Operations, Enterprise Products, Auto Electronics, Creativity, Quality Assurance, Procurement, R&D, Manufacturing, and Sales, etc. 2. Business groups/centers: PC Business Group, Smart Devices Business Group, Global Operations, etc. 3. Common departments: Finance, Accounting, HR & Administration, Investment Planning and Management Office, Legal Affairs Office, etc. ■ Purchasing liability coverage for the Company’s directors, supervisors, and managers Starting from 2002, the Company has been purchasing liability coverage for directors, supervisors, and managers. The amount for their liability insurance in 2019 came to USD 50,000,000, which was roughly equivalent to NTD 1,525,000,000. Vital information relating to their liability insurance was reported to the Board of Directors on February 14, 2020. 56 ■ Continuing education for directors and managers All directors and managers are equipped with relevant professional knowledge and skills. In addition to offering relevant information both on a regular and intermittent basis to directors and managers, the Company would also organize seminars and workshops when deemed necessary. Training completed by directors and managers in 2019 include: Date of training Organized by Course title Hours of training Title Name Director Director Charng-Chyi Ko Chiung-Chi Hsu Independen t Director Min Chih Hsuan Independen t Director Duei Tsai Independen t Director Duh Kung Tsai 2019.07.23 Kinpo Group Management Consultant Company 2019.07.23 Kinpo Group Management Consultant Company Taiwan Corporate Governance Association 2019.12.18 Global Economy and Foreign Exchange Rate Outlook in the Storm of Trade War Global Economy and Foreign Exchange Rate Outlook in the Storm of Trade War Compliance of Company Law and Director's Supervision Obligation 2019.12.18 Taiwan Corporate Governance Association 2019.07.23 Kinpo Group Management Consultant Company Taiwan Corporate Governance Association 2019.09.17 2019.11.25 2019.11.13 Taiwan Corporate Governance Association Taiwan Corporate Governance Association 2019.11.13 Taiwan Corporate Governance Association How insider trading is avoided in Corporate, Directors and Supervisors? Global Economy and Foreign Exchange Rate Outlook in the Storm of Trade War Introduction of important contract terms of corporate mergers and acquisitions Risk of global and Corporate Social Responsibility Understanding and case analysis of money laundering prevention and combating capital terrorism Management and prevention of new generation enterprise threat : Analysis of big data and detection of company fraud Vice President Vice President Vice President Vice President Vice President Accounting Officer Cheng-Hui Su 2019.02.01 Compal Electronics, Inc. Management for the prevention of insider trading (Senior managers) Tu-Chuan Tu 2019.02.01 Compal Electronics, Inc. Management for the prevention of insider trading (Senior managers) Chang-Chieh Tien 2019.02.01 Compal Electronics, Inc. Management for the prevention of insider trading (Senior managers) 2019.02.15 Compal Electronics, Inc. Management for the prevention of Cheng-Chiang Wang Guo-Dung Yu 2019.12.31 Compal Electronics, Inc. Management for the prevention of insider trading (Senior managers) Cheng-Chiang Wang 2019.12.9~ 2019.12.10 Accounting Research and Development Foundation insider trading (Senior managers) “Training program for the new Accounting Officer” The class for the new Accounting Officer, requested due to the company share exchange/transaction on public 57 2 2 3 3 2 3 3 3 3 0.58 0.58 0.58 0.58 0.58 12 Title Name Date of training Organized by Course title Hours of training Corporate Governance Officer Cheng-Chiang Wang (Note) 2019.08.21 Accounting Research and Development Foundation 2019.11.1 Taiwan Corporate Governance Association 2019.12.09 Accounting Research and Development Foundation 2019.12.09 Accounting Research 2019.12.13 2020.02.18 and Development Foundation Taiwan Corporate Governance Association Taiwan Corporate Governance Association Internal Audit Officer 2020.03.06 Taiwan Corporate Governance Association Powen Hsieh 2019.12.16 Accounting Research and Development Foundation 2019.12.20 Accounting Research and Development Foundation place. Compliance for listed companies in the matter of appointment of independent directors & audit committees Key audit matters and corresponding strategies for the board of directors to learn Application and legal liability in Business Judgment Rule under economic crime Rules and practices in compliance with the Corporate Governance Roadmap 2018~2020 The practice of Audit Committee Functions and tasks of corporate governance personnel under the corporate governance blueprint Shareholders meeting planning and case study How to respond the impact of the Corporate Governance Roadmap (2018~2020) for internal audit Regulatory issues and common risk patterns of the information security and personal privacy for internal audit 3 3 3 3 3 3 3 6 6 Note: Corporate Governance Officer Cheng-Chiang Wang took office on May 13, 2019. ■ Succession plan for Board members and key Management team Compal launched the succession plan for Board members and the key management team in 2018. The former President Jui-Tsung Chen (Ray Chen) was promoted to the position of Vice Chairman and Chief Strategy Officer of the Company, responsible for the Company’s long-term strategy development and implementation. The President's position was taken by Executive VP Chung-Pin Wong, who joined Compal in 1989 and has full experience in various positions, such as marketing, procurement, sales, etc. In addition, Anthony Peter Bonadero, Sheng-Hua Peng (Eric Peng), and Ming-Chih Chang (Mage Chang) were promoted from Senior VP to Executive VP positions and were appointed to lead the three business group: PCBG, SDBG, and GOBG, separately. They were also elected as the 13th Board of Directors in 2018. By this, Compal has successfully completed the succession of the Board members and the key management team that symbolizes transition into a new generation. In response to the future growth, the Company will continue to invest in the talents and promote the key management team’s experience sharing and inheritance, through the arrangement of the regular “Group General Managers Meetings” and “Executive Management Meetings." This plan and mechanism will enable the Company to achieve its long-term sustainability goals. 58 ■ Certificate and qualification acquisition status for personnel involved in financial information transparency Name of certificate No. of persons CPA qualification USCPA qualification Senior Securities Specialist Securities Specialist Futures Specialist Securities Investment Trust and Consulting Professional Certified Internal Auditor - Taiwan Certified Internal Auditor Chartered Financial Analyst 6 persons 2 persons 11 persons 5 persons 4 persons 5 persons 2 persons 2 persons 1 person 59 3.3.4 Composition, Responsibilities, and Operations of the Remuneration Committee A. Professional Qualifications and Independence Analysis of Remuneration Committee Members Having work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the Company Having Met One of the Following Professional Qualifications, Together with at Least Five Years Work Experience 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 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 Independence Criteria (Note 2) 1 2 3 4 5 6 7 8 9 10 Number of Other Public Companies in Which the Individual is Concurrently Serving as an Remuneration Committee Member Remarks ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ 0 2 1 - - - Criteria Title (Note 1) Name Independent Director Independent Director Independent Director Min-Chih Hsuan Duei Tsai Duh- Kung Tsai Note: If the director or supervisor meets the following conditions in the two years before the election and during the term of office, please mark “✔” in the space below each condition code. (1) Not an employee of the Company or its affiliated enterprises. (2) Not a director or supervisor of the Company or its affiliated enterprises (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). (3) A natural person shareholder who or whose spouse or minor children or in another person’s name does not hold more than 1% of the total issued shares of the Company or is not a top-ten shareholder. (4) Not a manager in (1) the spouse, second-tier relatives, or third-tier relatives of the persons listed in (2) or (3). (5) A director, supervisor, or employee of a corporate shareholder who does not directly hold more than 5% of the total issued shares of the Company or is a top-five shareholder or is designated as a representative to serve as a director or supervisor of the Company in accordance with paragraph 1 or 2 of Article 27 of the Company Act (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). (6) A director, supervisor, or employee of another company who does not have a seat on the board of directors or more than half of the shares with voting rights are controlled by the same person of this company (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). (7) A director, supervisor, or employee of another company or institution who is not the same person or spouse as the Chairman, President, or an equivalent position of the Company (except for concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). (8) A director, supervisor, or manager of another company or institution which does not have financial or business dealings with the Company or a shareholder holding more than 5% of the shares of the Company (not applicable if the Company or institution holds more than 20% but no more than 50% of the total issued shares of the Company, with concurrent independent directors of the Company and its parent company, subsidiaries, or subsidiaries of the same parent company in accordance with this Act or local laws and regulations). (9) A professional, sole proprietor, partner, business owner or partner, director, supervisor, manager, or the spouse of the above of a company or institution which does not provide audit services to the Company or its affiliated enterprises or the cumulative remuneration amount of which in the past two years does not exceed NT$500,000 for business, legal affairs, finance or accounting related services. However, this does not apply to the members of the remuneration committee, public takeover review committee, or special merger and acquisition committee who perform their functions in accordance with the Securities and Exchange Act or the Business Mergers and Acquisitions Act. . (10) There are no such circumstances as in Article 30 of the Company Act. 60 B. Attendance of Members at Remuneration Committee Meetings ‧The Company elected three members of the Remuneration Committee. ‧The term of the 4th committee is from July 4, 2018 to June 21, 2021. ‧There were four Remuneration Committee meetings during 2019(A) and the committee member qualifications and attendance records are as follows: Title Name Convener Committee Member Committee Member Min-Chih Hsuan Duei Tsai Duh-Kung Tsai Attendance in Person (B) 4 4 3 By Proxy 0 0 1 Attendance Rate (%) [B/A] 100% 100% 75% Remarks - - - ■ Functions and Tasks of the Remuneration Committee • Prescribe and periodically review the performance review and remuneration policy, system, standards, and structure for directors/independent directors, and managerial officers. • Periodically evaluate and prescribe the remuneration of directors/independent directors, and managerial officers. "Remuneration" as used in the preceding two paragraphs includes cash compensation, stock options, profit sharing and stock ownership, retirement benefits or severance pay, allowances or stipends of any kind, and other substantive incentive measures. ■ The discussion of the salary and Remuneration Committee and the outcome of the resolution, as well as the actions the Company has taken in response should any of the situations arise in the operation of the Remuneration Committee. Board of Directors Meeting 6th Meeting (13th Term) 2019.3.22 8th Meeting (13th Term) 2019.5.13 Resolution Adopted by the Remuneration Committee 1. To approve the distribution of compensation to employees and directors for 2018 ▲ Resolution Adopted by the Remuneration Committee (2019.3.22): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in Response to the Opinion of the Remuneration Committee: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 1. To approve the 1st mid-year bonus of 2019 2. Salary adjustment of 2019 3.To approve the percentage of compensation to employees and directors for 2019 ▲ Resolution Adopted by the Remuneration Committee (2019.5.13): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in Response to the Opinion of the Remuneration Committee: ・Motion 1 and 2: In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang and Sheng-Hua Peng, who are also acting as managerial 61 Board of Directors Meeting 9th Meeting (13th Term) 2019.8.13 10th Meeting (13th Term) 2019.11.11 Resolution Adopted by the Remuneration Committee officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Motion 3: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present 1. To approve the Directors' remuneration of 2018 2. To approve the 2nd mid-year bonus of 2019 ▲ Resolution Adopted by the Remuneration Committee (2019.8.13): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in Response to the Opinion of the Remuneration Committee: ・Motion 1: Chairman Sheng-Hsiung Hsu asked the Independent Director Min-Chih Hsuan to act as a deputy chairman to preside at this meeting for discussion and voting on this proposal. Since an interested party relationship exists, the Directors (i.e., Sheng-Hsiung Hsu, Jui- Tsung Chen, Wen Being Hsu, Shyh-Yong Shen［attended by proxy of Sheng-Hsiung Hsu］, Charng-Chyi Ko, Sheng-Chieh Hsu, Yen-Chia Chou, Chung-Pin Wong, Chiung-Chi Hsu, Ming-Chih Chang, Sheng-Hua Peng), recused themselves from discussion and voting on this proposal to avoid conflict of interest. Upon solicitation of comments by the deputy chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Motion 2: In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. 1. To approve employee compensation in cash of 2018 2. To approve the year-end bonus payment of 2019 ▲ Resolution Adopted by the Remuneration Committee (2019.11.11): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲ Action taken by the Company in Response to the Opinion of the Remuneration Committee: ・Motion 1 and 2: In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. 62 ■ Other notes: 1. If the board of directors declines to adopt or modify a recommendation of the remuneration committee, it should specify the date of the meeting, the session, the nature of motion, the resolution made by the board of directors, and the Company’s response to the remuneration committee’s opinion (e.g., if the amount of remuneration passed by the Board of Directors exceeds the remuneration committee’s recommended amount, the circumstances and cause for the difference shall be specified): None. 2. If resolutions of the remuneration committee are objected to by members or become subject to a qualified opinion, which has been recorded or declared in writing, then the date of the meeting, the session, the nature of the motion, all members’ opinions and the response to members’ opinions should be specified: None. 63 Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found 3.3.5 Corporate Social Responsibility Assessment criteria Yes No Summary description Actual governance 1. Does the Company conduct Yes risk assessment on environmental, social, and corporate governance issues related to the Company's operation in accordance with the principle of materiality and formulate relevant risk management policies or strategies? 2. Has the Company set up a full- Yes time (or part-time) unit to promote corporate social responsibility, which is authorized by the board of directors to be handled by the senior management and reported to the board of directors? 3. Environmental issues. (1) Has the Company established an Yes appropriate environmental management system according to its industrial characteristics? The Company at least once a year in accordance with CSR materiality collects and reviews issues that stakeholders concern about, evaluates risks on material issues and formulates strategies and goals to respond to the risks as well as completely implements the strategies and goals. . In 2019, the Company collects material issues on economic, environment and social to formulate strategies and implement management. The Company has established a CSR Committee and a dedicated unit responsible for the prevention of insider trading. The Committee consists of members of senior management authorized by the Board of Directors to oversee affairs pertaining to CSR and integrity management. In addition, Compal has also initiated its CSR Office with designated personnel to handle the promotion of relevant tasks resolved by the CSR Committee. For the 2019 Corporate Social responsibility operation and implementation please refer to page 69, the targets and plans of 2020 Corporate Social Responsibility please refer to page70. The results of implementation are also disclosed in our Annual Report, CSR Report, and on our corporate website/CSR sustainability website. No deviations were found The Company began its implementation of ISO 14001 Environment Management System in April 1997. Quality and environmental safety policies were created in 2005 to guide the Company’s efforts on employee workplace safety and corporate responsibilities. Operating procedures and environmental/safety/health management systems have been established based on government regulations and international standards such as ISO 45001. The Company adopts proper communication channels to convey its environmental and safety policies and goals to employees, suppliers, contractors, surrounding neighbors, and interest groups. No deviations were found 64 Assessment criteria (2) Is the Company committed to improving the efficiency of resource utilization and using recycled materials with a low impact on the environment? Yes No Yes (3) Does the Company assess the Yes potential risks and opportunities of climate change for the enterprise now and in the future and take measures to deal with climate-related issues? Actual governance Summary description Throughout the "product life cycle," we consider the environmental impacts of raw material procurement, manufacturing, transportation and distribution, consumer use and disposal, etc., at the beginning of product design. In addition to focusing on user needs, functionality and additional Value, the R&D team is more focused on product development and design from the perspective of “environmental load minimization” at each stage, covering at least the three core directions of “green materials," “energy efficiency," and “ease of dis-assembly/recycling." Improve production line yield and energy efficiency, develop, and use recycled materials stably, design energy-saving products to reduce energy consumption during reuse, and increase the recoverable proportion of waste entering the waste phase Extreme weather conditions caused by global warming and climate change have caused significant impact to the world and Taiwan and posed unprecedented challenges to mankind. Apart from mitigation, we must also begin adaptation operations since climate change is inevitable. Adaptation applies not only to individuals, but to corporations as well, for it is important for companies to minimize business risks caused by extreme weather, which will require extensive and thorough risk assessments in order to turn risks into opportunities. Attach a climate-related risk and opportunity identification table, Please see page 72. Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found 65 Yes No Yes Assessment criteria (4) Does the Company prepare statistics of greenhouse gas emissions, water consumption, and the total weight of waste in the past two years and formulate policies for energy conservation and carbon reduction, greenhouse gas reduction, water consumption reduction, or other waste management? Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found Actual governance Summary description The Company began its greenhouse gas surveys (scopes 1 and 2) and carbon footprint inventory as early as 2010. Starting from 2014, the Company has conducted greenhouse gas (scopes 3) inventory on a yearly basis. In 2015, Compal was included in the CDP Climate Disclosure Leadership Index (“CDLI”) for the first time. The Company has actively participated in the Carbon Disclosure Project (“CDP”) as a means to improve its response to climate changes. The CDP achieves its purpose by assessing a company’s carbon emissions, reduction progress, compliance risks and exposure to physical risks in the hopes of reducing operational risks and costs through autonomous carbon reduction or even turning risks into opportunities to ensure the Company’s sustainability. In order to reduce the environmental impact of Compal's operations, we actively promote water saving and waste reduction in each plant area, and record the water consumption and the total amount of various types of waste of the latest 2 years attached as follows: Items Total greenhouse gas emissions Total water consumption Total waste 2018 282,796 2,286,986 19,035 Unit: Tons 2019 301,471 2,184,654 11,759 Note: For the detailed contents, please refer to CSR Reports. 4. Social issues (1) Has the Company formulated Yes relevant management policies and specific management plans in accordance with relevant laws and regulations and International Human Rights Conventions? The Company places great emphasis on equal opportunities and business ethics. It has policies and systems in place to ensure compliance with international conventions. The Company and all its subsidiaries throughout the world have established employment guidelines according to international human rights conventions and local labor regulations. All employment terms have been assured to conform with the laws of the local country or region. Out of respect to labor rights, the Company changes its policies and rules in line with the latest regulations, and announces them to the understanding of all its employees. For the purpose of maintaining harmonic employer-employee relations, a communication platform has been created to enable exchange of opinions and information between the Company and its employees. No deviations were found 66 Yes No Yes Assessment criteria (2) Has the Company established and implemented reasonable employee welfare measures (including compensation, vacation, and other benefits) and properly reflected the operating performance or the results of employee compensation? (3) Does the Company provide Yes employees with a safe and healthy work environment? Are employees trained regularly on safety and health issues? Actual governance Summary description The Company has enacted the work rules including the regulations of wage, working hours, leave, pension, social insurance and occupational disaster compensation…etc. and has set up Committee of employees' welfare for benefit planning and execution. Pursuant to the Articles of Incorporation, when the Company makes profit in a year, no more than 2% of the Company’s pre-tax profit (not including remuneration for employees and Directors) shall be appropriated to employees. The aforementioned bonus, adjustment in wages, and employee compensations are reviewed by the Remuneration Committee and resolved by the Board of Directors. The Company's remuneration policy is based on personal ability, contribution to the company, performance, and is considered to be a correlation between operating performance and the positive correlation. The Company is well-aware of how significantly “workplace safety and health” affects a company, its employees, and stakeholders. This was the reason why the Company has enhanced its environmental, safety, and quality policies and obtained ISO14001 and ISO45001 certification, which requires all departments to implement proper safety and health practices, as well as regular training on matters such as fire safety equipment, utility plans, waste disposal, emergency response procedures, etc. The Company organizes health and safety training for employees on a regular basis as a means to prevent occupational hazards and ensure workplace safety. In 2019, 2,246 employees had completed their training for a total of 4,623 hours. Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found (4) Has the Company established an effective career development training program for its employees? Yes Annual training programs are tailored to suit the needs of different employees, based on the Company’s business strategies, policy guidelines, and career roadmaps. The Company constantly aims to establish itself as a learning organization and coaching management. No deviation was found (5) Does the Company follow Yes relevant laws and regulations and international standards for customer health and safety, customer privacy, marketing and labeling of products and services and formulate relevant policies and grievance procedures to protect the rights and interests of consumers? The Company is an OEM/ODM. It manufactures TV sets, notebooks, cell phones and electronics for the world’s top brands. All products are printed with customers’ trademarks, names, and labeling that conform with relevant laws and international guidelines. However, the Company does not print its own logos or names on the products it produces. Until customers have officially launched their products, employees are not allowed to disclose product appearance, design, specifications, or technical information in any way. Compal is committed to protecting customers' information in every step along the way and is operated based on the policy and plans of Compal’s “Information Security Committee.” Compal aim for customers’ health and safety. Maintaining customer health and safety is the most basic and important issue. All products produced by Compal have passed the IEC 60950-1 67 No deviations were found Assessment criteria Yes No Summary description Actual governance (6) Does the Company have a Yes supplier management policy that requires suppliers to follow relevant specifications and their implementation in environmental protection, occupational safety and health, or labor human rights issues? Yes 5. Does the Company prepare the Corporate Sustainability and Social Responsibility Report and other reports that disclose the Company's non-financial information in accordance with the international reporting standards or guidelines? Is the aforesaid report confirmed or guaranteed by a third-party verification unit? certification standard, and have never violated product safety and health regulations and voluntary regulations and the development of Halogen-free products and construction of a more robust production capacity are our promise and responsibility. Compal adopts the policy of signing procurement agreements with every new supplier it engages with. The purpose of such agreements are to prohibit any unfair, unjust or discriminative behaviors in the procurement process, and to reiterate that: all products supplied to Compal must conform to international, national, and regional environmental regulations. Suppliers will be held responsible for any violations against the agreement. Apart from procurement contracts, starting from 2009, all new suppliers collaborating with Compal have been required to sign a contract of compliance to abide by RBA’s code of conduct and standards, with contents covering the five major aspects of RBA’s code of conduct: Labor, Health and Safety, Environment, Ethic, Management along with an additional clause on the non-use of conflict minerals. The policy has been effective ever since. Each year, we select suppliers involved in transactions of substantial amounts with greater disruption risks as the target of audit. We adopt RBA’s VAP for our audit process. We audited 24 suppliers in China in 2019. The Company has been preparing annual CSR reports and disclosing them to stakeholders on its website since 2010. The CSR report was first certified by an external institution in 2012. The Company adopted Global Reporting Initiative’s most updated guidelines (GRI Standards, published in 2016) to prepare its 2019 CSR report. The report was compiled based on issues concerning stakeholders and the Company’s key objectives. To ensure the credibility of reported contents, the Company commissioned SGS to provide independent assurance based on the criteria specified in AA 1000 AS and GRI Standards. After their assurance, the report was certified to meet AA 1000 AS Standard Type 2, mid-level accountability and GRI Standards application core requirements. The Company was awarded Silver or Bronze Awards by Taiwan Institute for Sustainable Energy for its “Taiwan Corporate Sustainability Report Award” in 2014-2019 and a Platinum Award in 2019. Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found 68 ■ The operation and implementation of Corporate Social Responsibility in 2019 Item Corporate Governance Supply Chain Management Green Environment Results 1. We were awarded the 5th Corporate Governance Evaluation top 6-20% in the Public traded company group, which was held by Taiwan Stock Exchange (“TWSE”). 2. We were selected into the FTSE4GOOD Index for four consecutive years and in the FTSE4Good TIP Taiwan ESG Index for the second consecutive years. 3.We were ranked 390th of Fortune Top 500, 1463th of Forbes Top 2000, 6th of Common Wealth Magazine’s Top 2000 Manufacturers and 62th of CommonWealth Magazine’s Top1000 in China, Taiwan and Hong Kong. 4. The Compal CSR report in 2019 was certified by SGS Taiwan Ltd., by using the assurance standards of the AA1000 and GRI Standards core options. Meanwhile, the report won the Platinum Medal of 2019 Taiwan Corporate Sustainability Report Award of TCSA. 5. We were ranked Taiwan TOP3 of Germany iF Product Design Award From 2015 ~ 2019 and 17th of iF Worldwide Design Award Gold in 2019. 1. We implement the training and promotion of Corporate Social Responsibility (“CSR”) and the code of conduct of Responsible Business Alliance (“RBA”) for employees and suppliers. In 2019, we implemented the non-use of conflict minerals policy and completed a Survey (CMRT) of 988 suppliers' conflict minerals with a completion rate of 100%. 2. To reinforce CSR audit and management on Tier 1 suppliers, we have audited 24 suppliers and tracked the finding correcting plans in 2019. 3. We launched the project of supply chain management on-line platform in 2019, with an estimated construction in 2 years, and 80% completed by the end of 2019. 1. We participated in the Carbon Disclosure Project (“CDP”), finished the questionnaire of climate change and water safety. The 2019 climate change questionnaire achieved the management level. 2. We constantly promote energy management. In 2019, Kunshan Plant 3, Pingzhen Plant and Chengdu Plant obtained ISO 50001 certification. Meanwhile, we applied the management model to other plants. 3. To Promote waste reduction and recycling, Nanjing plant obtained UL2799 waste zero- landfill platinum certification. 4. We participated in the "Waste 3C Recycling Activities" of customers. 265 Compal employees joined the event. 5. To respond to the United Nations "SDGs 14 Life Below Water" sustainable development goals, we held a beach clean-up activity, a crab protection activity in Kenting and a “Caring for the Marine Ecology” with Nuan-nuan Elementary School at the National Museum of Marine Science & Technology. Green Product 1. In 2019, we produced 87 halogen-free notebooks, 10 halogen-free smart phones and 34 halogen-free wearable devices. 2. Our products obtained the latest Energy Star certification, including 88.24% of NB (V7.1), 100% of the server (V3.0), and six LCDs (V8.0). 5 models of The LCD monitor passed CECP certification, and 3 models passed TCO8.0 certification. Social Welfare 1. We continue participating in charities with the HCI foundation. In 2019, 730 employees donated more than NT$ 3 million. 2. We sponsored a children theater of W3 Troupe in Yunlin. Also, we held a charity painting exhibition and sale for autistic youth artists of Taiwan Curio. 3.To promote digital mobile learning in schools in remote areas, we donated tablets, held a Taoyuan Maker Education Winter Camps and participated in Chiao Tung University's "Science and Technology Downward Plan" to help promote the information technology education for school to achieve SDGs-4 Quality Education of UN. 4. We regularly hold volunteer service activities. In 2019, we had 9 volunteer service activities with 167 participants. We also held blood donation activities. (424 employees donated 641 units of blood) Employee Care 1. We offer diverse care. We arrange health counseling services for employees every week. 948 employees used the service in 2019. There are various employee health 69 Item Results promotion activities, including weight loss courses, health lectures and community activities to take care of employees' physical and mental health. 2. We officially introduced the Employee Assistance Program (EAP) in 2019. EAP counseled a total of 52 cases about family issue, parenting issue, law issue and management issue. Meanwhile, we held 3 health lectures about emotion care. 3. To improve fertility rates, we provide a NT$ 66,000 maternity subsidy to employees for each newborn baby. 254 Compal babies were born in 2019. The programs of personnel training We organize a GOLF academic alliance with AUO and Wistron. In 2019, we successfully admitted 121 students to participate in a one-year internship. Also we had 193 students to register online courses and host 13 on-campus business internship sessions with a total of more than 1,000 students participating. ■ The targets and plans of Corporate Social Responsibility in 2020 NO. 1 Target Focus on the product life cycle, enhance energy efficiency, reduce greenhouse gas emissions, and constantly strengthen response capabilities on extreme climate. 2 3 4 Strengthen the supply chain management mechanism and complete CSR on-line platform of supply chain management Consistently implement the physical and mental health care in the workplace for employees and promote health and charity projects which link health care and public welfare participation. Focus on SDGs3 Good health & well-being, and SDGs4 Quality Education Plans (1)Use the temperature rise of 2 ° C as the benchmark for scenario analysis, identify risks related to climate change, improve the competitiveness of exhibits based on energy saving, and grasp green business opportunities. (2)Pay attention to energy consumption based on a product life cycle to strengthen or improve energy-saving from product design. (3)From the perspective of river basin water resources, in response to the change of natural water resources during the high and low seasons, implement water-saving measures on a quarterly basis. (4)In the case of constant changes in the plant area and production line, continue to promote Lean production, control the use of energy resources, create economic effects, and improve environmental efficiency and corporate competitiveness. (1)Complete CSR on-line platform of supply chain management by the end of 2020. (2)Complete the CSR data collection, analysis and tracking improvement by suppliers on the platform. (1)We actively manage health promotion for employees who are in the moderate and high-risk group of cardiovascular diseases based on health examination results, and achievement rate is 80%. (2)Strengthen education and training on anti-violence in the workplace in order to protect employees’ safety. (3)Integrate and promote the health projects with charity to achieve a win-win situation for employee health and public welfare participation. (1)Pay attention to good health and well-being of disadvantaged school kids. Also, consistently participate in charities with the HCI foundation to support life, educational quality and spiritual growth activities in rural areas. (2)Cooperate with the Rural Education Center of Fu Jen University on “Kangaroo Project” to enhance the quality of teaching and learning afterschool in rural areas (3)Continue implementing “Compal Reading Volunteer Program” to promote reading education in rural areas. (4)Hold beach clean-up activities every year, pay attention to the quality of environmental education and take action to protect the ocean. (5)Continue committing to “Action Digital Learning Program” to 70 enhance the quality of popular science education for school kids in rural areas. 71 Risk and Influence Adaption and Opportunity ■ Climate-related risk and opportunity identification table Type Transfer of Risk ‧ Strategy and Law International trends and the environmental regulations in China have become stricter. Therefore, we are faced with fines or risks of plants closing down resulting from more environmental requests. There are also possibilities that the suppliers close down the plants or reduce the production due to environmental problems, which will lead to unstable supply and indirectly influence the efficiency of our assembly line. The amendment draft of the “Renewable Energy Development Act” of Taiwan adds an article that electricity consumers who have the capacity contract higher than 800 kW must set up a renewable energy generation device or replace it with energy storage, purchase of renewable energy certificates, and payment of subsidies, which might lead to the increase of operation costs in the short term. ‧ Technology Products are faced with stricter instructions, regulations, and standards. New materials might influence reliability. ‧ Market Customers have gradually put emphasis on and chosen low-carbon and eco- friendly products. ‧ Reputation If we do not coordinate with the environmental standards and regulations in advance, the client might transfer the order. Concrete Risks ‧ Acute Climate change might lead to rainfall type change and the increase of frequency in rainstorms, droughts, and typhoons. These will bring about the block of road transportation, the increase of burden on AC devices, health problems and poor attendance of employees, and damage to plants and machines due to floods. ‧ Chronic 1. Areas with stricter laws and regulations help us distinguish fine green suppliers and enable us to construct a complete green supply chain. 2. We voluntarily review our internal environmental disadvantages, undergoing improvement of personnel behavior and device updates to boost our green production competitiveness. 1. Accelerating the development of green electricity and improving the energy management. Escalating energy productivity and saving energy expenses to cut down costs. 2. The price fluctuation of the oil and electricity will influence the operation costs directly. Therefore, we effectively control the operation costs through the erection of renewable energy devices and the boost of energy management ability. We have to handle regulations and standards from the globe and the market certainly to coordinate, research, develop, and trial run in advance. We also have to construct the development and the production capacity of green products to boost our competitiveness. We are equipped with the ability to mass produce low-carbon products, and we continue to develop new products to complete the ability of creating a green product market. We actively engage in external advocacy to learn the international trends and bring in external guidance and the audit system, constructing complete risk assessment of climate change and the coordination strategy. 1. We monitor the rainstorm alarm system and implement an alert plan to elevate the plants located on lower land, reducing the risk of floods. 2. We established a healthcare department designated to provide fine healthcare counseling for the employees. 1. We established a plan for water use and a drought operating team to effectively monitor and use water resources, reduce the risk of water use, and cut down the expense on water. 2. We promote the propaganda of knowledge on climate change and rescue exercises and enforce the medical resources preparation and epidemic prevention exercises to improve the health and safety awareness of employees. 72 6. If the company has established the corporate social responsibility principles based on “Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies," please describe any discrepancy between the Principles and their implementation: ■ The Company has established the “Compal Corporate Social Responsibility Best Practices” based on “Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies." A “CSR Office” has also been introduced specifically for the purpose of promoting social responsibilities, environmental sustainability, public welfare, and information disclosure. The Company has adopted the principles of RBA by including corporate social responsibilities as part of its overall business plan, thereby making sure that everything it does confirms with RBA. The CSR Office reports its progress regularly to the Board of Directors, and publishes annual CSR reports to ensure proper disclosure of CSR information. ■ In order to implement the development of a sustainable environment, maintain an environmental management system, the Company regularly organizes environmental education courses for management and employees. At the same time, green management has been introduced from the product design stage and the supply chain. Reduce the energy consumption of products and services, effectively manage harmful substances, reduce the generation of waste water and waste, and properly handle and adopt the best feasible pollution prevention and control technology measures. Improve product life and reliability, and maximize the sustainable use of renewable resources with the concept of easy disassembly and recycling. Formulate the Company's energy conservation and carbon reduction targets, carry out greenhouse gas reduction operations, and do its utmost to reduce the adverse impact of the Company's operations on human health and the natural environment. 7. Other important information to facilitate better understanding of the Company’s corporate social responsibility practices: ■ External initiatives and participation As a significant member of the Earth, the Company actively participates in global and local environmental initiatives and actions. Since 2009, Compal has been participating in CDP's questionnaires on climate change, water, and supply chain carbon management. In addition, the Company takes part in the GHG Protocol developed by World Business Council for Sustainable Development (“WBCSD”) and World Resources Institute (“WRI”), and the “Business Transformation Carbon Footprint Program” introduced by the Industrial Technology Research Institute (“ITRI”) and Taiwan Electrical and Electronic Manufacturers' Association (“TEEMA”). The Company has been named a “Low-carbon pioneer," and is a current participant of DSJI and the Supply Chain GHG Task Force under the International Sustainability Index Promotion Alliance for Taiwanese Businesses, and took part in the Taipei Earth Day Corporate Environment Education Commitment campaign. In 2014, Compal was invited to the annual meeting of Taiwan's “Cradle to Cradle” platform. In 2015, Compal was selected as part of CDP's Climate Disclosure Leadership Index (“CDLI”) for the first time. In 2019, Compal received an overall CDP Management score of B-. ■ Energy management system Increasing productivity per unit of energy is the most fundamental solution to reducing energy consumption and greenhouse gas emission, the Company has detailed planning and implementation since 2017. The Company has completed the certification of the energy management system of PCP, KS3 and CD Plants in 2019, and has extended relevant experience to other plants. 73 ■ Supply chain carbon management Being one of the world's key IT producers, Compal uses “information platform” and “workshops” to keep suppliers informed of the latest energy/carbon reduction technologies and green living, and inspires them to commit to active care for the local environment. The Company requires all its suppliers to be certified for ISO9001 (quality management system) and ISO14001 (environmental management system), and follow EICC guidelines by signing a letter of commitment to the behavioral standards of the RBA Code of Conduct. Under this commitment, upstream suppliers are bound to comply with international, national, and local regulations with respect to all activities. In the second half of 2019, Compal launched its “Supply Chain GHG Management Program” and held seminars at various factories as a means to communicate with suppliers on how they are expected to contribute and assist in Compal's global environmental protection and quality management initiatives. Compal also took the opportunity to exchange and share experiences on CSR issues with suppliers. ■ Corporate environmental education The Company continued to incorporate environmental education and green experience into employees' training throughout 2019. Including ecological and cultural lectures such as low-carbon comfort food promotion in the local eating season, North Beach clean beach, Keelung River ecological cultural history tour, North Coast mountain conservation lecture and rehabilitation activities. The Company had provided full support from the top-down, while employees and their family members enthusiastically participated in a series of “experiential” environmental education. We rallied our employees to exercise our influence as consumers to select safe foods and sponsor quality rice fields and tea farms. The crops are later presented to clients as Chinese New Year gifts. By modifying demand, we hope to change supply and promote more sustainable agriculture, forestry, animal husbandry, and fishery. All new recruits are required to undergo 0.5 hours of online environmental training in their initial year. The course covers a variety of topics from green living, preservation of ecosystems, climate change, to green design. In the future, the Company will also make “green products” a mandatory course and introduce more advanced courses on green design issues. A core team will be assembled specifically for the purpose of improving green energy efficiency, and building up Compal's distinguished values in the ICT (Information and Communication Technologies) industry. ■ Supporting social enterprises In recent years, many social enterprises have emerged with goals to protect the environment and improve public interest. In support of their efforts, the Company encourages employees to purchase products and services offered by social enterprises, hoping that by redirecting purchasing power, we may be able to muster positive energy to solve society's problems. In 2019, Compal collaborated with Mennonite Hualien County Sheltered Workshop, I Can Sheltered Workshop, Hanner Family, Taiwan Mountain and Maritime Protection Society, and managed to raise several hundred thousand dollars of donations from employees. ■ Community engagement ‧ The Company has long been sponsoring the maintenance and management of Zhouzi Park No. 2 in Neihu in order to provide community residents and industrial park workers an ideal place for leisure 74 and recreation activities. ‧ Compal supports the “1st Neihu Technology Park Blood Donation Event” and a total of 209 employees donating 76,000 ml of blood. ■ Social services ‧ Compal's employees have been running the “Compal Volunteer Club” since 2004. Members of this club visit disadvantaged children during weekends and guide them to reading good books. The goal of this program is to help them develop the habit of reading and the ability to think independently, and hence prepare them for the future. The volunteers have also been working with Hsu Chauing Social Welfare and Charity Foundation to provide extra-curriculum education for immigrant children. Since 2009, they have been visiting Jong Jen Elementary School, Wuhan Elementary School, Nan-Shi Primary School, Chung Ping Elementary School, Shuang Long Elementary School, Neihai Elementary School, Nan Sing Elementary School, Hsiang An Elementary School, Tien Hsin Elementary School, Hua Hsun Elementary School, Wu Cyuan Elementary School, San He Elementary School, Chung-Shing Elementary School, Sin-Jie Elementary School, Xin Lu Elementary School, Fu An Elementary School, Dacheng Elementary School, Long-Sing Primary School, San Keng Primary School, Shanghu Primary School, Yisheng Elementary School, Shi-Hai Primary School, Te-Long Elementary School, Sha Keng Elementary School, Da Po Elementary School and Haibin Elementary School in Taoyuan during public holidays to accompany children in their reading activities. By the end of 2019, the volunteers had assisted 2,668 immigrant children and children from disadvantaged families. ‧ Compal has been encouraging college volunteer clubs to join the Company's “reading volunteers” initiative and provide study aids to children from low-income families in the neighborhood. By sharing good reading materials and environmental awareness, the Company hopes to contribute to the learning progress of disadvantaged children. ■ Social welfare (1) Budget sponsorship ‧ Sponsoring of budgets for college volunteer clubs- In an attempt to encourage college students to participate in volunteer service, the Company has been contributing NT$600,000 every year since 2004 to sponsor college clubs in promoting children's reading, after-school classes, and environmental education in locations that lack resources and for low-income households. A total of 21 college clubs applied for sponsorship and 355 volunteers participated in sponsored volunteer activities in 2019, for which the Company contributed a sum of NT$600,000 that benefited 1,524 students. ‧ ‧ Sponsoring of W3 Troupe's charity performance - Compal donated NT$700,000 and invited more than 1,000 disadvantaged children and their teachers to W3 Troupe's show - “Fantasy Valley I - Finding Lost Courage." Through art therapy, we hope to give children the right influence they need to develop a positive mind, and encourage them to listen, see, and experience for themselves the wonders of life. In addition to charity involvement, the Company also provides strong support to academic and industrial organizations including: Taiwan Foundation For Rare Disorders, Taipei City Friends of the Police Association Neihu Office, Taiwan PoAi Care Animal Association, Taoyuan Enterprise Chamber, Taiwan Curio Association, Taiwan District of Kiwanis International, Management Institute in Taipei Foundation, National Taipei University, National Chiao Tung University, Kenting National Park 75 Headquarters, Spinal Cord Injury Foundation, Taoyuan County Volunteer Fire Fourth Brigade . A sum of NT$8,556,205 was donated to the above mentioned entities in 2019. (2) Donation of supplies ‧ 20 tablets, 40 NB were donated to support the digital learning Program in remote areas. The Company donated 20 tablets to three digital centers located in Sansing Township Library of Yilan County, Yuli Township of Hualien Country, Hualien City Office of Hualien County. In addition, the Company donated 40 NBs to Xinzhuang elementary school in Taoyuan City, and assisted Township schools and communities to help promote digital mobile learning. (3) Compal Charity Art Show “The Fantasyland of Stars” This year marked the sixth time of the charity art show. From recruiting artworks from employees for charity sales to inviting vulnerable groups to give art performances and exhibit their works, Compal maintains respect for life diversity, takes care of the vulnerable, and contributes to society. Through ceaseless efforts to promote the charity art show with employees. Through face-to-face close encounters, the organizers of this exhibition hope that the public can understand more about the situation of autistic spectrum disorder (ASD) patients and let ASD patients to demonstrate their unique gifts and talent through finding and fulfilling their purpose of life and progressively fuse with society through their own strength. Apart from supporting “respect for life diversity” through real actions, limited edition products were sold at the show for charity to express Compal and employees’ care about corporate social responsibilities. All exhibits were on sale for charity. We donated NT$130,848 to the Taiwan Curio. ■ Human rights The Company respects the human rights of all employees. In addition to prohibiting the use of child labor and overtime working, the Company treats all employees of different ethnicities, religious beliefs, skin color, gender, nationality, age and physical features with equal respect and fairness. It has been explicitly stated in the Human Resource Management Policy that “The Company shall recruit employees based on knowledge, morality, skills, experience and suitability for the position/job in question. Under no circumstances may the Company reject recruitment for reasons such as gender, ethnicity, religion, political association, nationality, sexual preference, or age." The Company also refrains from using involuntary workers and child labor. ■ Safety and health At a time when financial performance is as important as environmental protection, the Company considers “occupational safety and health” to be an important issue that no business shall neglect. Only by creating a safe work environment are employees able to unleash their full potential, which is a driving force behind the Company's progress. For this reason, the Company not only ensures that every operation is compliant with environmental, safety, and health rules, but also commits to eliminate or reduce safety and health risks to employees, suppliers, contractors and stakeholders that are caused by production procedures, facilities, and activities. At Compal, we see financial performance, environmental protection, and occupational safety and health as three co-existing and complementing factors of business administration. The Company created its official environmental safety and quality policies to guide employees toward 76 protection in the workplace and social responsibilities. Furthermore, these policies also provide employees and external stakeholders (such as suppliers, contractors, customers, environmental organizations, government agencies and community residents) with a better understanding of the Company's environmental safety efforts and its resolve to protect and minimize risks to the environment. Ultimately, we hope to direct the attention of our partnered vendors to environmental protection, safety and health, and work together towards accomplishing our goals. (1) Environment safety policy: ‧ ‧ Comply with environmental, safety and health laws, and related requirements. Conduct environment safety and health training to raise employees' awareness towards individual responsibilities as well as safety and health concerns of the surrounding environment, while at the same time encouraging their participation in relevant issues. ‧ ‧ ‧ Continually improve environmental, safety and health performance through programs such as pollution prevention, accident prevention, energy/resource conservation, waste reduction, and responsible care. Pay attention to the control of pollution sources and reducing waste from production. Enhance safety and health facilities to prevent pollution and minimize risks. Establish proper communication channels to convey the Company's environmental safety policy, requirements, and goals to employees, suppliers, contractors, nearby residents and concerned organizations. (2) Environmental safety and health systems/measures: In an attempt to minimize losses on occupational hazards and rectify hidden dangers and recurring safety incidents for more harmonic labor-management relations, the Company subsequently assembled an Environment Safety Promotion Committee that specializes in the development of environment safety plans. Any environment safety-related policies and goals proposed are subject to review during the Environmental Safety Management Review Meeting. Once reviewed, the Committee becomes responsible for supervising work safety units in the implementation of safety and health-related measures, auto inspections, maintenance, and training to eliminate hazardous factors in the environment. In addition, the Committee also supervises relevant departments in completing hazard prevention and loss control systems. (3) Execution ‧ Fire safety equipment (facility) plans and execution: Appropriateness and adequacy of fire safety equipment (facilities) are reviewed whenever there is a change to the layout of the business premises. Locations of fire safety equipment (facility) and evacuation routes are clearly labeled on each floor. The Company also engages professional and qualified fire safety inspectors to conduct annual fire safety inspections and reports according to law. ‧ Water/power plans and execution: The Company promotes proper awareness and implements appropriate control on all uses of water and power equipment for more effective conservation of energy and resources. The administrative department is responsible for the day-to-day inspection of power usage, power systems, and water equipment. All inspection findings are detailed in the “Safety 77 and Health Equipment Inspection Log” and any issues discovered are rectified immediately. ‧ Cleaning, monitoring, and control of industrial waste: Handled by the Factory Affairs Division of various factories and General Affairs Department of the headquarters. Waste generated from factories can be classified into the following categories: a. Hazardous waste: Sorted according to “Standards for Defining Hazardous Industrial Waste” stipulated by the Environmental Protection Administration (EPA), Executive Yuan, and collected by certified contractors for subsequent treatment. b. Industrial waste: Industrial waste other than hazardous industrial waste is collected and treated by certified contractors. 78 ‧Emergency response procedures: These procedures have been established to guide the Company through disruption of production, information, and raw material supply in the occurrence of natural or man-made disasters. Incident resolution procedures: Hazard alert occurs Incident reporting Confirmation of Hazard YES Activate emergency response NO Update records m e a s u r e s i n r i s k m a n a g e m e n t s y s t e m I n c l u s i o n o f i n c i d e n t i n v e s t i g a t i o n r e p o r t a n d i m p r o v e m e n t / p r e v e n t i v e Confirmation of damage control NO Request external support YES Level 1 hazard: Post-disaster recovery Any death or 3 major injuries or Incident investigation and proposal of preventive measures higher Loss of work hour exceeding 1 day Loss of property above US$1 million SP: Occurrence of Level 1 hazard must be escalated to the Senior Risk Management Committee (4) Quality Policy (pursuing continuous improvement to meet customer needs): We commit to . Implement customer-oriented performance management. . Create competitive advantages in products and services. 79 3.3.6 Ethical Corporate Management Assessment criteria Actual governance Yes No Summary description I. Establishment of integrity policies and solutions 1. Does the Company have an Yes ethical corporate management policy approved by the board of directors and clearly state the ethical corporate management policy and practice in the internal regulations and external documents, as well as the commitment of the board of directors and senior management to actively implement the corporate management policy? The Company has established the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct” and, in addition, clearly outlined the procedures for ethical management and guidelines to conduct in its HR policies, social responsibility policies, the integrity principles and code of conduct for directors, supervisors, managers, and the general code of conduct. The Company’s “Board of Directors Meeting Guidelines” contain a conflicting interest clause that requires directors to disassociate from all discussion and voting on any agenda that poses a conflict of interest between the Company and themselves or the entities they represent. The Board of Directors approved the policies that were based on integrity accordingly in 2019 as well. The Board of Directors and the management had issued "The statement of compliance with the Ethical Corporate Management Best Principles," committed themselves to business integrity. Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found 2. Has the Company Yes established an evaluation mechanism for the risk of unethical behavior, regularly analyzed and evaluated the business activities with high unethical behavior risk within the business scope and formulated a plan to prevent unethical behavior accordingly which at least When the Company internal audit prepared the next year audit plan, unethical behavior was included in the scope of risk assessment. The relevant audits are performed accordingly, and the “Procedures for Ethical Management and Guidelines for Conduct” was enacted to govern the of follows items: ‧ Prohibition against offering and acceptance of improper gains ‧ Prohibition against lobbying ‧ Prohibition against illegal political donations ‧ Prohibition against improper donations or sponsorships ‧ Prohibition against inappropriate gifts, treatments and illegitimate benefits ‧ Prohibition against unfair competition ‧ Prohibition against leakage of commercial secrets and infringement of intellectual property rights ‧ Prohibition against insider trading and rules of confidentiality Furthermore, the “Information Security Policy” has introduced measures to prevent violation of No deviations were found 80 Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found Actual governance Yes No Summary description commercial secrets. Assessment criteria covers the preventive measures for the behaviors in paragraph 2, Article 7 of the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies”? 3. Does the Company Yes stipulate the operating procedures, behavior guidelines, and disciplinary and grievance systems in its unethical behavior prevention plan and implement them and regularly review and revise the plan? II. 1. Yes Integrity actions Does the company evaluate the integrity of all counterparties it has business relationships with? Are there any integrity clauses in the agreements it signs with business partners? The Company has established the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct” (hereinafter, “Procedures and Behaviors”) as an incentive to insiders and outsiders to report unethical or unseemly conduct. Any insider who makes a false report or a malicious accusation shall be subject to disciplinary action and be removed from office if the circumstance has substance. This Company has appointed a contact person, and has established a hotline and mailbox that can be used either through the Intranet of the Company website or the official Company website. Any person involved in unethical conduct will be referred to an authorized department and processed according to the “Procedures for Ethical Management and Guidelines for Conduct." The Company carries out regular reviews and revises for relevant measures every year. Also, we arrange related training on Ethical Corporate Management and announce the request to follow Ethical Corporate Management Best Practice Principles. The Company requires all suppliers to sign the Letter of Undertaking for Compliance with the Responsible Business Alliance (“RBA”) Code of Conduct by Vendors, which binds them to local regulations on workers, environment, safety, health, management, and moral conduct, and prevents them against corruption and unethical behaviors. No deviations were found 2. Has the Company set up a dedicated unit under the board of directors to Yes The Company has appointed its Human Resources, Administrative Management and Legal Affairs Office as the competent units in charge of the Company’s ethical matters. These units jointly set the guidelines and policies, which are monitored by the auditors and reports to the Board of Directors on No deviations were found 81 Assessment criteria promote ethical corporate management and regularly (at least once a year) report to the board of directors its ethical corporate management policy and plan to prevent unethical behavior as well as its supervision of the implementation? Actual governance Yes No Summary description Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies a yearly basis. To prevent potential conflicts of interest, the Company has established the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct," In addition, the Company has also designed relevant course for its online e- Learning, including legal affairs related training on information security, personal information protection act, relevant company policies and employees’ code of conduct so as to familiarize all employees with the aforementioned guidelines and thereby facilitate the promotion of honest management. Status of Operation and Implementation in 2019: The Company requires suppliers to follow the RBA code of conduct, and sign the RBA Code of Conduct commitment or complete the RBA Code of Conduct questionnaire. A total of 1,180 suppliers with transaction records, 1,090 have signed the RBA Code of Conduct commitment or completed the RBA Code of Conduct questionnaire, and the signing completion rate is 92.37%. In addition, a total of 8,886 employees completed a total of 20,867 hours of integrity management related training, including: ‧ Orientation training for new employees and group activities, covering topics such as: Company policies, corporate culture, human resource system, ethical corporate management best practice principles, trade secrets, information security, Personal Information Protection Act, and so forth. Management for the prevention of insider trading (for senior managers), covering topics such as: What is insider trading, 5 W for insider trading, Criminal liability and civil liability for insider trading, the difference between “insider trading “and "non-insider trading," Case Study of Insider Trading. Responsible Business Alliance Introduction to intellectual property rights, understanding information security, and Personal Information Protection Act, and case studies. ‧ ‧ ‧ 3. Yes Does the company have any policy that prevents conflict of interest, and channels that facilitate the report of conflicting interests? The Company has established the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct” (hereinafter, “Procedures and Behaviors”). A Company director, officer or other stakeholder attending, or present at a board meeting, or a juristic representative whose presence infers a likelihood that company interests might be prejudiced may not participate in a discussion or vote on that proposal, shall recuse themselves from any discussion and voting, and may not exercise voting rights as a proxy on behalf of another director. The directors shall exercise discipline among themselves, and may not support each other in any inappropriate manner. If, in the course of conducting company business, an employee of this Corporation discovers that a potential conflict of interest exists involving themselves or the juristic 82 No deviations were found Assessment criteria Actual governance Yes No Summary description person that they represent, or that they or their spouse, parents, children, or a person with whom they have a relationship of interest is likely to obtain improper benefit, the matter shall be reported to their immediate supervisor and the responsible unit, and the supervisor shall provide the employee with the proper instructions. No employee of this Corporation may use company resources for commercial activities other than those of this Corporation, nor may his or her job performance be affected by involvement in commercial activities other than those of this Corporation. The Company’s HR policy and employee code of conduct have introduced rules to identify, supervise, and manage conflicts of interest for business activities that are more highly prone to dishonest behaviors. There are channels in place for directors, supervisors, managers, stakeholders, and board meeting participants to state their conflicting interests with the Company. To prevent leakage of material nonpublic information, the Company has established “CO10 Insider Trading Prevention Management” as part of its internal control and demanded strict compliance from directors, supervisors, managers, employees, and any party that gains knowledge to the Company’s material non-public information whether because of their identity, job responsibility, or controlling relationships. The Company has set “Ethical Corporate Management Best Practice Principles” and focuses on creating an effective accounting system and internal control system to avoid high-risk or unethical business activities and the use of external or secret accounts. Self-evaluation is done on a regular basis to make sure the design and execution of the system is effective. When the Company internal audit prepared the next year audit plan, unethical behavior was included in the scope of risk assessment, and relevant audits are performed accordingly since 2019. 83 4. Yes Has the Company established an effective accounting system and internal control system for the implementation of ethical corporate management and has the internal audit unit, according to the assessment results of the risk of unethical behavior, drawn up relevant audit plans to check the status of unethical behavior prevention accordingly, or entrusted an independent auditor to carry out the Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found Assessment criteria Actual governance Yes No Summary description Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 5. III. 1. audit? Yes Yes Does the company organize internal or external training on a regular basis to maintain business integrity? Implementation of whistleblowing system Does the company provide incentives and means for employees to report malpractice? Does the company assign dedicated personnel to investigate the reported malpractice? 2. Has the Company Yes established the standard operating procedures for the investigation of accused matters, follow-up measures after investigation, and the relevant confidentiality mechanism? Yes 3. IV Does the company assure malpractice reporters that they will not be mistreated for making such reports? Enhanced information disclosure The Company organizes training courses in accordance with “Regulations Governing the Establishment of Internal Control Systems by Public Companies” and the board-approved “Insider Trading Prevention Principles." Insider training prevention courses are organized for vice president- grade employees and above, while general employees are subjected to training on ethical behaviors on a yearly basis. No deviations were found The Company has mailboxes in place to receive malpractice reports from within or outside the Company. Once a report has been sent to the mailbox, it will be referred to the appropriate department and personnel depending on the nature of the underlying issue to handle or conduct related checks. No deviations were found The Company has established procedures to report the matter for filing, assigning, verifying, etc., and requires the In-change person to take relevant actions depending on the results of the investigation. The case content and whistleblower information shall be processed in confidential. No deviations were found The Company's relevant regulations and employee code of conduct are clearly regulated, requiring the In-change unit or person not to disclose the content of the case and the identity of the whistleblower, and to take necessary protective actions to ensure that the whistleblower is not treated inappropriately or retaliated. No deviations were found 84 Assessment criteria Actual governance Yes No Summary description Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 1. V Yes Has the company disclosed its integrity principles and progress onto its website and MOPS? If the company has established business integrity policies in accordance with “Ethical Corporate Management Best Practice Principles for TWSE/TPEX-Listed Companies" please describe its current practices and any deviations from the Best Practice Principles: The Company’s “Business Integrity Principles” and “Business Integrity Procedures and Behaviors” have been passed by the Board of Directors and disclosed at the Company’s website and MOPS. A specialized unit will be empowered to enforce these policies and ensure employees’ compliance. The Company has disclosed corporate governance and business integrity matters and updated the progress of such efforts in its annual reports, CSR reports and “Investor Relations-corporate governance” and “CSR” sections of its website. No deviations were found VI. Other information relevant to understanding the company’s business integrity (e.g. reviews over business integrity principles): Courses have been introduced to the e-Learning system so that employees are made aware of the Company’s “Business Integrity Principles” and “Business Integrity Procedures and Behaviors." 85 3.3.7 Corporate Governance Guidelines and Regulations Please refer to the Company’s website→ Investor Relations → Corporate Governance → Major Internal Policies https://www.compal.com/investor-relations/corporate-governance/ ‧Framework of Corporate Governance ‧Articles of Incorporation ‧Rules of Procedure for Shareholders’ Meetings ‧Regulations for Election of Directors ‧Procedures for Acquisition or Disposal of Assets ‧Procedures for Financial Derivatives Transactions ‧Procedures for Lending Funds to Other Parties ‧Procedures for Endorsements and Guarantees ‧Board of Directors Meeting Guidelines ‧The Responsibilities and Rules for Independent Directors ‧Audit Committee Procedures ‧Remuneration Committee Procedures ‧CSR Committee Procedure ‧Corporate Governance Best-Practice Procedures ‧Code of Conduct for Directors and Managers ‧Code of Conduct for Employees ‧Ethical Corporate Management Best Practice Principles ‧Business Integrity Procedures and Behaviors ‧Insider Trading Prevention Procedures ‧Corporate Social Responsibility Best Practice Principles ‧Rules Governing Financial and Business Matters Between this Corporation and its Affiliated Enterprises ‧Procedures of Application to Suspend and Resume Trading ‧Rules of Self-Evaluation of the Board of Directors and Functional Committees Performance 86 3.3.8 Other Important Information Regarding Corporate Governance Please refer to the Company’s website→ CSR https://www.compal.com/CSR/ZH/ ‧Sustainable Management ‧Stakeholders ‧Supply Chain Management ‧Environment ‧Employee Relationship ‧Charity ‧Download Report Please refer to the Company’s website→ Stakeholder Communication https://www.compal.com/stakeholder-communication-area/ ‧Employee Relations ‧Customer Relations ‧Supplier Relations ‧Investor Relations 87 3.3.9 Internal Control Systems 1. Statement of the Internal Control System Compal Electronics, Inc. Statement of the Internal Control System Date: March 30, 2020 The Company states the following with regard to its internal control system during fiscal year 2019, based on the findings of a self-assessment: 1. The Company is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and management. The Company has established such a system aimed at providing reasonable assurance of the achievement of objectives in the effectiveness and efficiency of operations (including profits, performance, and safeguard of asset security), reliability, timeliness, transparency, and regulatory compliance of reporting, and compliance with applicable laws, regulations, and bylaws. 2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing the three goals mentioned above. Furthermore, the effectiveness of an internal control system may change along with changes in environment or circumstances. The internal control system of the Company contains self-monitoring mechanisms, however, and the Company takes corrective actions as soon as a deficiency is identified. 3. The Company judges the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the “Regulations”). The internal control system judgment criteria adopted by the Regulations divide internal control into five elements based on the process of management control: 1. control environment 2. risk assessment 3. control activities 4. information and communications 5. monitoring activities. Each element further contains several items. Please refer to the Regulations for details. 4. The Company has assessed the design and operating effectiveness of its internal control system according to the aforesaid criteria. 5. Based on the findings of the assessment mentioned in the preceding paragraph, the Company believes that as of Dec 31, 2019 its internal control system (including its supervision and management of subsidiaries), encompassing internal controls for knowledge of the degree of achievement of operational effectiveness and efficiency objectives, reliability, timeliness, transparency, and regulatory compliance of reporting, and compliance with applicable laws, regulations, and bylaws, is effectively designed and operating, and reasonably assures the achievement of the above-stated objectives. 6. This Statement will become a major part of the content of the Company's Annual Report and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Act. 7. This Statement has been passed by the Board of Directors Meeting of the Company held on March 30, 2020, where 0 of the 15 attending directors expressed dissenting opinions, and the remainder all affirmed the content of this Statement. Compal Electronics, Inc. Chairman: Sheng-Hsiung Hsu (Rock Hsu) President: Chung-Pin Wong (Martin Wong) 88 2. If an independent auditor is entrusted with reviewing the internal control system, the independent auditor’s report: None. 3.3.10 Penalties imposed against the company and its staff, or penalties imposed by the company against its staff for violations of internal control or regulations. State any corrective actions taken in the most recent years up to the date of the annual report: None. 3.3.11 Major Resolutions Made in Shareholders’ Meeting and Board Meetings 1. Shareholders’ meeting ▓ Time: 9:00 am, June 21, 2019 ▓ Place: B1, No. 581, Ruiguang Rd., Neihu District, Taipei City 11492, Taiwan (R.O.C.) ▓ Major Resolutions: (1) Ratified the Business Report and Financial Statements for 2018. (2) Ratified the Distribution of Earnings for 2018. (3) Approval cash distribution from capital surplus. (4) Approval of the amendment to the “Articles of Incorporation” (5) Approval of the amendment to the “Procedures for Acquisition or Disposal of Assets” (6) Approval of the amendment to the “Procedures for Financial Derivatives Transactions” (7) Approval of the amendment to the “Procedures for Endorsement and Guarantee” (8) Approval of the amendment to the “Procedures for Lending Funds to Other Parties” (9) Approval of the release of non-competition restrictions for Directors. ▓ Post-meeting Execution: (1) The amendments to the Company’s Articles of Incorporation were approved and registered on file by the Ministry of Economic Affairs on July 29, 2019. (2) The 2019 distribution of cash dividends and capital reserves are summarized as follows: ‧Cash Dividends: NTD 1 per share ‧Cash Distributed from Capital Reserve: NTD 0.2 per share ‧Ex-dividend Date: July 21, 2019. ‧Declaration Date: August 9, 2019. 89 2. Board meetings Board of Directors Meeting 5th Meeting (13th Term) 2019.2.22 1. Approved of the Company obtaining credit facilities from financial institutions Major Resolutions 1. Approved the Internal Control System Statement for the year 2018 2. Approved the proposal of the distribution of compensation to employees and directors for 2018 3. Approved the 2018 audited Financial Statements and Consolidated Financial Statements 4. Approved the Business Report for 2018 5. Approved the Business Plan for 2019 6. Approved the proposal for Distribution of Earnings for 2018 7. Approved the proposal of cash distribution from Capital Surplus 8. Approved the CPAs’ independence and competence of performing the financial report audit. 6th Meeting (13th Term) 2019.3.22 9. Approved the convention of the 2019 Annual General Shareholders’ Meeting 10. Approved the targets and plans of the 2019 Corporate Social Responsibility 11.Approved the issuance of the Letter of Support by the Company to facilitate its subsidiaries in obtaining credit facilities from financial institutions 12. Approved of the Company obtaining credit facilities from financial institutions 90 Board of Directors Meeting Major Resolutions 1. Approved the amendment to the “Articles of Incorporation” 2. Approved the amendment to the “Procedures for Acquisition or Disposal of Assets” 3. Approved the amendment to the “Procedures for Financial Derivatives Transactions” 4. Approved the amendment to the “Procedures for Endorsement and Guarantee” 5. Approved the amendment to the “Procedures for Lending Funds to Other Parties” 6. Approved the amendment to the “Corporate Governance Best-Practice Principles” 7. Approved the amendment to the “Rules and Procedures for Board of Directors Meetings” 8. Approved the release of non-competition restrictions for the managers 9. Approved the release of non-competition restrictions for Directors 10. Approved the establishment of Compal Electronics Kaohsiung Branch Office 11. Approved the appointment of the Corporate Governance Officer 12. Approved the first mid-year employees’ bonus of 2019 13. Approved employees’ salary adjustment of 2019 14. Approved the proposal for the appropriate percentage for the remuneration of employees and Directors of 2019 15. Approved the loan to the 100% owned subsidiary Compal (Vietnam) Co., Ltd. 16. Approved the loan to the 100% owned subsidiary Compalead Eletrônica do Brasil Indústria e Comércio Ltda. 17. Approved the issuance of the Letter of Support by the Company to facilitate its subsidiary in obtaining credit facilities from financial institutions 18. Approved of the Company obtaining credit facilities from financial institutions 1. Approved the relevant matters regarding the distribution of the year 2018 cash dividends and cash distribution from capital surplus to shareholders 2. Approved the issuance of Letter of Support by the Company to facilitate its subsidiary in obtaining credit facilities from financial institutions 3. Approved the Company to obtain credit facilities from financial institutions 1. Approved the Directors’ Remuneration of 2018 2. Approved 2nd mid-year employees’ bonus of 2019 3. Approved for a loan to Henghao Technology Co. Ltd. 4. Approved for a loan to Unicom Global, Inc. 5. Approved the Company to obtain credit facilities from financial institutions 1. Approved for senior level management change 2. Approved the compensation of Employee bonuses in cash of year 2018 3. Approved the proposal for 2019 year-end employees’ bonus 4. Approved for approval of annual audit plan for year 2020 5. Approved the amendment to the “Ethical Corporate Management Best Practice Principles” and related matters 6. Approved the proposal of leasing the office (building) and car parking lots, with Shin Kong Life Insurance Co., Ltd. 7. Approved the issuance of Letter of Support by the Company to facilitate its subsidiaries in obtaining credit facilities from financial institution 8. Approved the Company to obtain credit facilities from financial institutions 7th Meeting (13th Term) 2019.5.13 8th Meeting (13th Term) 2019.6.27 9th Meeting (13th Term) 2019.8.13 10th Meeting (13th Term) 2019.11.11 11th Meeting (13th Term) 2020.2.14 1. Approved for the issuance of Letter of Support by the Company to facilitate its subsidiaries in obtaining credit facilities from financial institutions 2. To authorize the Company to obtain credit facilities from financial institutions 91 Board of Directors Meeting Major Resolutions 12th Meeting (13th Term) 2020.3.30 13th Meeting (13th Term) 2020.5.13 1. Approved for the Internal Control System Statement for the year 2019 2. Approved for the proposal of the distribution of compensation to employees and directors for the year 2019 3. Approved for 2019 Audited Consolidated Financial Statements and Parent Company Only Financial Statements 4. Approved for the Business Report for the year 2019 5. Approved for the Business Plan for the year 2020 6. Approved for the proposal for Distribution of Earnings for the year 2019 7. Approved for the proposal for cash dividends from Earnings for the year 2019 8. Approved for the proposal of cash distribution from Capital Surplus 9. Approved for the convention of 2020 Annual General Shareholders’ Meeting 10. Approved for the targets and plans of Corporate Social Responsibility for the year 2020 11. Approved for the CPAs’ independence and competence of performing financial report audit. 12. Approved for the rove the enactment to the “Rules of Self-Evaluation of the Board of Directors and Functional Committees Performance” 13. Approved for the enactment to the “Colleague Integrity Code” 14. Approved for the Company to obtain credit facilities from financial institutions 1. Approved for senior level management change 2. Approved for the amendment to the “Rules and Procedures for Board of Directors Meetings” 3. Approved for the amendment to the “Audit Committee Charter” 4. Approved for the amendment to the “Remuneration Committee Charter” 5. Approved for the amendment to the “Corporate Governance Best-Practice Principles” 6. Approved for the amendment to the “Corporate Social Responsibility Best Practice Principles” 7. Approved for the release of non-competition restrictions for the managers 8. Approved for the release of non-competition restrictions for Directors 9. Approved for the first mid-year employees’ bonus of the year 2020 10. Approved for employees’ salary adjustment of the year 2020 11. Approved for e the proposal for the appropriate percentage for the remuneration of employees and Directors of the year 2020 12. Approved for fund loan to 100% owned subsidiary Compalead Eletrônica do Brasil Indústria e Comércio Ltda. 13. Approved for the issuance of Letter of Support by the Company to facilitate its subsidiary in obtaining credit facilities from financial institutions 14. Approved for authorize the Company to obtain credit facilities from financial institutions 92 3.3.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors: None. 3.3.13 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit, Corporate Governance and R&D: None. 93 3.4 Information Regarding the Company’s Audit Fees and Independence 3.4.1 Audit Fees Accounting Firm Name of CPA Period Covered by CPA’s Audit Remarks KPMG Chien, Szu Chuan Au, Yiu Kwan 2019.01.01~2019.12.31 - Fee Range 1 2 3 4 5 6 Under NT$ 2,000,000 NT$2,000,000 ~ NT$4,000,000 NT$4,000,000 ~ NT$6,000,000 NT$6,000,000 ~ NT$8,000,000 NT$8,000,000 ~ NT$10,000,000 Over NT$100,000,000 Fee Items Audit Fee Non-audit Fee - - - - - 10,420 - 5,950 - - - - Unit: NT$ thousand Total - 5,950 - - - 10,420 (1) Non-audit fees paid to CPAs, accounting firms, and affiliated companies thereof that amount to more than 1/4 of the audit fees: Non-Audit Fee Period Covered by CPA’s Audit Remarks Unit: NT$ thousands System Company Human Others Design Registration Resource (Note) Subtotal Firm Name of CPA Audit Fee Chien, Szu- Chuan KPMG 10,420 - 80 - 5,870 5,950 2019.01.01~2019.12.31 - Au, Yiu-Kwan Note: Other non-audit fees: Transfer pricing report of $600,000, tax consultation of $4,974,000, and others of $296,000. (2) Changes in the accounting firm that result in lesser audit fees paid in comparison to the previous year: None (3) Reduction of audit fees by more than 15% compared to the previous year: None 94 3.5 Replacement of CPA: None. 3.6 If the chairman, president, and financial or accounting manager of the Company had worked for the accounting firm or related parties thereof in the most recent year, the name, title, and the term of service with the accounting firm or the related party must be disclosed: None. 3.7 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders Title Name Chairman Sheng-Hsiung Hsu Vice Chairman And CSO Jui-Tsung Chen Binpal Investment Co., Ltd. Representative: Wen- Being Hsu Kinpo Electronics, Inc. Representative: Shyh- Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Director Director Director Director Director Director and President Director Chiung-Chi Hsu Director And EVP Ming-Chih Chang Director Anthony Peter Bonadero Director And EVP Independent Director Independent Director Independent Director Executive Vice President Senior Vice President Senior Vice President Senior Vice Sheng-Hua Peng Min-Chih Hsuan Duei Tsai Duh-Kung Tsai Chen Chang Hsu Chun-Te Shen Kuo-Chuan Chen Pei-Yuan Chen 2019 Up till April 21, 2020 Shares held Increase (Decrease) Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) Unit: shares 0 0 0 1,000,000 0 0 0 (405,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 95 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (162,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Chyou-Jui Wei (120,000) President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Ying Chang Wen-Da Hsu Wei-Chang Chen Shi-Kuan Chen Chi-Wai Wan Min-Tung Weng Lo-Chun Lee Sheng-Hung Li Vice President Chih-Chuan Cheng Senior Vice President Bor-Heng Chen Vice President Ching-Hsiung Lu Vice President Po-Tang Wang Vice President Tzong -Ming Wang Vice President Fu-Chuan Chang Vice President Yung-Nan Chang Vice President Yong-Ho Su Vice President Jyh-Shyan Liang Vice President Chiao-Lie Huang Vice President Chung-Hsing Tan Vice President Yi-Yun Chang Vice President Hsin-Kung Mao Vice President Hsin-Hsiung Huang Vice President Shih-Hong Huang Vice President Yi-Chiang Chiu Jui-Chun Shyur Vice President Vice President Shyh-An Lee Vice President Ta-Chun Wang Vice President Jen-Liang Lin General Counsel Peng-Hong Chan Vice President Wei-Chia Wang Accounting & Corporate Governance Officer Vice President Cheng-Hui Su Cheng-Chiang Wang 0 0 0 0 0 0 0 0 0 0 (110,000) 0 (30,000) 30,000 (54,000) 0 (15,000) 0 (70,000) 0 0 0 0 8,000 0 0 0 0 0 0 0 0 96 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20,000 0 0 0 0 0 0 0 0 0 (8,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Vice President Vice President Tu-Chuan Tu Chang-Chieh Tien Vice President Hsiao-Wei Lo Vice President Guo-Dung Yu Internal Audit Officer Po-Wen Hsieh Vice President Po-Hsiung Chang Vice President Tsing-Fa Lee Vice President Fei-Long Chen 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - 0 0 20,000 0 0 - - - 0 0 0 0 0 Note: Vice Presidents Hsiao-Wei Lo, Guo-Dung Yu were promoted and Vice Presidents Po-Hsiung Chang, Tsing-Fa Lee, and Fei-Long Chen resigned in 2019. 3.7.1 Shares Trading with Related Parties: Reason Name for transfer Transaction date Counterparty's relationship with the Company, Directors, Counterparty Supervisors, Managers, Shares Transaction price and shareholders with more than 10% ownership interest Ching-Hsiung Lu Gift 2019/6/28 Shao-Hsuan Lu Father and Daughter 110,000 20.15 3.7.2 Shares Pledged with Related Parties: None 97 3.8 Relationship among the Top Ten Shareholders April 21, 2020 Unit: Shares Name Self Shares held Shareholdings of spouse and minors Total shares held in the names of others Shares held Shares Shareholding Percentage Shares Shareholding Percentage Shares Shareholding Percentage Spouse, relative of second degree or closer, and relationships among top 10 shareholders Name Relationship 0 0 0 0 0 0 0 0 0 0 0 0 0% N/A N/A 0% N/A 0% N/A 0% N/A N/A 0% N/A N/A 0% N/A 0% N/A 0% N/A N/A N/A N/A 0% N/A N/A 0% N/A 0% N/A 0% N/A N/A N/A N/A Silchester International Investors International Value Equity Trust Kinpo Electronics Inc. Representative: Sheng- Hsiung Hsu Silchester International Investors International Value Equity Group Trust Yuanta/P-shares Taiwan Dividend Plus ETF New Labor Pension Fund Labor Insurance Fund Silchester International Investors International Value Equity Taxable Trust JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds Fubon Life Insurance Co., Ltd Representative: Ming- Hsing Tsai Vanguard Emerging Markets Stock Index Fund, A Series of Vanguard International Equity Index Funds 232,018,000 5.26% - - 151,628,692 8,975,401 - 3.44% 0.20% 17,107,025 - 0.39% 116,881,000 2.65% 104,411,487 2.37% 89,120,000 2.02% 79,747,331 78,322,000 1.81% 1.78% 74,595,652 1.69% 64,200,991 1.46% 0 0% 60,877,900 1.38% - - - - - - - 0% - - - - - - - - 0 - 98 3.9 Ownership of Shares in Affiliated Enterprises December 31, 2019 Unit: Shares; % Investees (Note) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Aggregate investment Shares Shareholding percentage Shares Shareholding percentage Shares Shareholding percentage Panpal Technology Corp. Gempal Technology Corp. Hong Ji Capital Co., Ltd. Hong Jin Investment Co., Ltd. HippoScreen Neurotech Corp. SHENNONA CO.,Ltd. Aco Smartcare Co.,Ltd. Rayonnant Technology Co., Ltd. RiPAL Optotronics Co., Ltd. Unicom Global Inc. Palcom International Corporation Henghao Technology Co., Ltd. Compal Broadband Networks Inc., Crownpo Technology Co., Ltd. Kinpo Group Management Consultant Company Mactech Co., Ltd. General life Biotechnology Co., Ltd. Lead-honor Optoelectronic Co., Ltd. Infinno Technology Corporation Accesstek Inc. Allied Circuit Co., Ltd. Arcadyan Technology Corp. Maxima Ventures I, Inc. Avalue Technology Inc. Core Profit Holdings Ltd. Flight Global Holding Inc. Just International Ltd. High Shine Industrial Corp. Compal International Holding Co., Ltd. Big Chance International Co., Ltd. Compal Rayonnant Holdings Limited 500,000,000 90,000,000 100,000,000 29,500,000 42,000,000 600,000 100,000,000 100.00 100.00 100.00 100.00 70.00 100.00 52.04 29,500,000 100.00 6,000,000 10,000,000 100.00 100.00 10,000,000 100.00 20,014,952 100.00 - - - - - - - - - - - - - 500,000,000 - 90,000,000 - 100,000,000 29,500,000 - 42,000,000 - 600,000 - - 100,000,000 29,500,000 6,000,000 10,000,000 10,000,000 - - - - - 29,060,176 43.45 13,672,854 20.44 42,733,030 3,738,668 33.23 6,184,135 54.97 9,922,803 300,000 37.50 300,000 37.50 600,000 21,756,192 52.88 274,954 0.67 22,031,146 20,014,952 100.00 15,000,000 50.00 2,772,000 42.00 - - - 15,000,000 - 2,772,000 42.00 5,649,625 27.20 154,308 0.75 5,803,933 899,160 10,157,730 41,304,504 126,000 15,240,070 147,000,000 89,755,495 48,010,000 42,700,000 3,000 27.78 319,707 20.42 7,232,701 19.81 32,006,132 22.55 21.40 682,000 100.00 - 100.00 - 100.00 - 53.58 37,000,000 9.88 1,218,867 14.54 17,390,431 15.35 73,310,636 129,000 0.54 15,706,070 0.97 - 147,000,000 89,755,495 - 48,010,000 - 79,700,000 46.42 53,001,000 100.00 90,820,000 100.00 12,500,000 100.00 99 - - - - - - 53,001,000 90,820,000 100.00 12,500,000 100.00 100.00 100.00 100.00 100.00 70.00 100.00 52.04 100.00 100.00 100.00 100.00 63.89 88.20 75.00 53.55 50.00 27.95 37.66 34.96 35.16 23.09 22.37 100.00 100.00 100.00 100.00 100.00 Shareholding percentage 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Investees (Note) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Aggregate investment Shares Shareholding percentage Shares 3,000,000 100.00 Shareholding percentage - - Shares 3,000,000 Auscom Engineering Inc. Compal Europe (Poland) Sp. z o.o. Bizcom Electronics, Inc. Compal Electronics (Holding) Ltd. 136,080 100.00 100,000 100.00 1,000 100.00 Compalead Electronics B.V. 6,426,516 100.00 - - - - - - - - 136,080 100,000 1,000 6,424,516 Etrade Management Co., Ltd. 46,900,000 65.23 25,000,000 34.77 71,900,000 Webtek Technology Co., Ltd. 100,000 100.00 Forever Young Technology Inc. 50,000 100.00 - - - - 100,000 50,000 100.00 Lipo Holding Co., Ltd. 98,000 49.00 102,000 51.00 200,000 100.00 Ascendant Private Equity Investment Ltd. 31,253,125 34.72 41,754,275 46.39 73,007,400 81.11 UniCore BioMedical Co., Ltd. 20,000,000 100.00 Shennona Corporation 2,600,000 100.00 Note: Investments made by the Company using the Equity Method. 20,000,000 2,600,000 100.00 100.00 100 IV. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital Year Month Issuance Price Authorized capital Paid-up capital Shares Amount (NTD) Shares Amount (NTD) Source of capital Remarks Paid in properties other than cash Others May 13, 2020 2018 2018 3 5 Share Type Ordinary shares 10 6,000,000,000 60,000,000,000 4,419,191,625 44,191,916,250 Cancellation of Restricted Employee N/A Change of capital approved by the Ministry of Shares of $10,890,000 Economic Affairs on March 21, 2018 10 6,000,000,000 60,000,000,000 4,407,146,625 44,071,466,250 Cancellation of Restricted Employee N/A Change of capital approved by the Ministry of Shares of $120,450,000 Economic Affairs on May 29, 2018 Outstanding shares (public listed) Unissued shares Total Authorized capital Remarks 4,407,146,625 1,592,853,375 6,000,000,000 Approved to include 100,000,000 shares of employees shares and corporate bonds with warrant in capital. ■ Shelf registration system information: None 101 4.1.2 Status of Shareholders Analysis Government Agencies Financial Institutions Other Institutions Foreign Institutions & Natural Persons Domestic Natural Persons Treasury stocks Total Number of Shareholders Shareholding (shares) Percentage 3 40 290 1,016 188,531 0 189,880 8 139,275,291 580,813,193 2,133,825,795 1,553,232,338 0 4,407,146,625 0.00% 3.16% 13.18% 48.42% 35.24% 0.00% 100.00% April 21, 2020 4.1.3 Share Ownership Distribution Range of Shareholding (Unit: Shares) 1 ~ 999 1,000 ~ 5,000 5,001 ~ 10,000 10,001 ~ 15,000 15,001 ~ 20,000 20,001 ~ 30,000 30,001 ~ 40,000 40,001 ~ 50,000 50,001 ~ 100,000 100,001 ~ 200,000 200,001 ~ 400,000 400,001 ~ 600,000 600,001 ~ 800,000 800,001 ~ 1,000,000 1,000,001 and over Total Number of Shareholders Shareholding (Shares) Percentage April 21, 2020 44,039 97,449 23,923 8,420 4,735 4,088 1,838 1,194 2,094 984 445 166 94 59 352 189,880 8,559,129 222,417,897 180,761,010 103,725,875 86,370,813 102,588,897 65,209,237 55,149,410 150,141,809 135,628,716 122,624,594 82,857,102 65,963,617 51,974,136 2,973,174,383 4,407,146,625 0.19% 5.05% 4.10% 2.35% 1.96% 2.33% 1.48% 1.25% 3.41% 3.08% 2.78% 1.88% 1.50% 1.18% 67.46% 100.00% 4.1.4 List of Major Shareholders Shares Shareholder’s name Silchester International Investors International Value Equity Trust Kinpo Electronics Inc. Silchester International Investors International Value Equity Group Trust Yuanta/P-shares Taiwan Dividend Plus ETF New Labor Pension Fund Labor Insurance Fund 102 April 21, 2020 Shares held Percentage (%) 232,018,000 151,628,692 116,881,000 104,411,487 89,120,000 79,747,331 5.26% 3.44% 2.65% 2.37% 2.02% 1.81% Silchester International Investors International Value Equity Taxable Trust JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds Fubon Life Insurance Co., Ltd Vanguard Emerging Markets Stock Index Fund, A Series of Vanguard International Equity Index Funds 78,322,000 1.78% 74,595,652 64,200,991 60,877,900 1.69% 1.46% 1.38% 4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Year Measurement Per-share market price High Low Average Per-share net worth (Note) Before dividend After dividend 2018 22.15 16.65 19.16 24.26 23.05 2019 20.65 17.05 18.79 24.32 23.11 Year-to-date March 31, 2020 19.25 15.30 18.05 23.13 - Before adjustment After adjustment Weighted average outstanding shares Earnings per share Weighted average outstanding shares Earnings per share Cash dividends Stock dividends From earnings From capital reserves Cumulative unpaid dividends P/E ratio Price to dividends ratio Cash dividend yield Earnings per share Per-share dividend Analysis of investment returns 4,356,447,549 4,357,129,194 4,357,129,194 2.05 1.60 0.14 4,356,447,549 4,357,129,194 2.05 1.20 - - - 9.35 15.97 6.26% 1.60 1.20 - - - 11.74 15.66 6.39% - - - - - - - - - Note: The 2019 distribution of earnings was resolved at the March 30, 2020 Board of Directors’ Meeting and will be submitted to the 2020 shareholders’ meeting for final approval. 4.1.6 Dividend Policy and Implementation Status (1) Dividend Policy If there is any profit after closing of books in a given year, the Company shall first defray tax due, cover accumulated losses and set aside ten percent (10%) of it as legal reserve and then set aside or reverse a special reserve in accordance with laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the unappropriated retained earnings of previous years. The board of directors may set aside a certain amount to cope with the business operation conditions, and shall prepare the proposal for distribution of the balance amount thereof after a resolution has been adopted and 103 then allocated in accordance with Second Paragraph of this Article or Article 29. The Company authorizes the board of director to distribute all or part of the dividends and bonuses, capital surplus or legal reserve in cash to shareholders after a resolution has been adopted by a majority vote at a meeting of the board of directors attended by at least two-thirds of the total number of directors; and in addition thereto a report of such distribution shall be submitted to the shareholders’ meeting. The lifecycle of the industry of the Company is in the growing stage. To meet the future capital needs and in consideration of capital budget, long-term financial planning and onshore and offshore competition condition, as well as the need of shareholders for cash flow, if there is any profit after close of books, the dividend and bonds to be distributed to shareholders should not be less than thirty percent (30%) of the after-tax profit of such year and the cash dividend allocated by the Company each year shall not be lower than ten percent (10%) of the total dividend (including cash and share dividend) for such year. (2) The board of directors' resolution on dividend distribution ● ● The 2019 distribution of earnings of shareholders’ dividends in the amount of NTD 4,407,146,625 was approved by the Board of Directors Meeting on March 30, 2020. The aforementioned amount is set to be distributed as an all cash dividend of NTD 1 per share and incurred capital surplus generated from the excess of the issuance price over the par value of the capital stock in the amount of NTD 881,429,325, or NTD 0.2 per share. The total cash distribution amounts to NTD 5,288,575,950. For the proposal for Dividend Distribution Plan and Cash Distribution from Capital Surplus, if the number of outstanding shares is changed, the distribution ratio for the cash dividend or the cash distribution from capital surplus must be adjusted accordingly. Chairman was granted full authority by the Board of Directors to deal with this matter. (3) When there is a significant change in the expected dividend policy, it should be stated: None. 4.1.7 Impact to 2019 Business Performance and EPS resulting from Stock Dividend Distribution: Not Applicable (The Company did not disclose 2020 annual financial forecast) 4.1.8 Employees’ and Directors’ Compensation (1) Employees’ and directors’ compensation policies as stated in the Articles of Incorporation When the Company makes a profit in a fiscal year, the Company’s pre-tax profits in such fiscal year, prior to the deduction of compensation to employees and directors, shall be distributed to employees as compensation in the amount of no less than two percent (2%) thereof and to directors as compensation in an amount of no more than two percent (2%) of such profits. In the event that the Company has accumulated losses, the Company shall reserve an amount to offset the accumulated losses. The compensation to employees as mentioned above may be distributed in the form of stock or cash. Employees entitled to receive the said stock or cash may include the employees of the Company’s subordinate companies who meet certain requirements. (2) Basis for estimating employees ‘and directors’ compensation and stock dividends, and accounting treatments for any discrepancies between the amounts estimated and the amounts paid. ● ● ● Compensation to directors and employees, as denoted in the Articles of Incorporations, shall be estimated based on income before tax prior to the subtraction of directors and employees compensation during the current year and multiplied by the ratio as denoted in the Article of Incorporation (shall not be more than 2% or less than 2% of the remainder, respectively.) If the compensation approved for distribution to employees is to be in the form of common shares, the number of shares is determined by dividing the amount of the compensation by the closing price of the shares on the day preceding the Board of Directors’ meeting. If the actual amounts differ from the amounts estimated, the differences are recorded as gains/losses in the subsequent year as a change in accounting estimate. 104 (3) (4) 2019 employees compensation proposal passed by the board of directors ● ● Accrued employees compensation is NTD $731,321,511 and directors compensation is NTD $38,671,525. If the estimated distribution amount differs from the amounts estimated in accrued expenses, the variance, reason, and resolution should be disclosed: No variance. The proposed distribution of employee stock compensation, and the size of such an amount as a percentage of the sum of the after-tax net income stated in the individual financial reports for the current period and total employee compensation: Not applicable (no employee stock compensation). ● Actual distribution of 2018 employee and directors compensation: ● ● The employee compensation is NTD $930,857,503 and the directors compensation is NTD $49,222,782. The 2018 actual distribution of employee and directors compensation remained as proposed by the board of directors. 4.1.9 Company Buyback of Own Shares: None 105 4.2 Bonds: 4.2.1 Oversea Corporate Bonds: None 4.2.2 Domestic Corporate Bonds: (Information for the subsidiary Arcadyan Technology Corp.) 1. Corporate Bonds Type of corporate bonds First domestic unsecured convertible corporate bonds Issue (Execute) date Face value June 6, 2019 NT$100 thousand Issuance and trading location Republic of China; listed in Taipei Exchange Issue price Total amount Coupon rate Tenor Issued at 101% of par value NT$1,000,000 thousand 0% Three year, expiry date: June 6, 2022 Credit guarantee institution None. Trustee Underwriter Legal counsel CPAs Redemption KGI Bank Co., Ltd KGI Securities Handsome Attorneys-at-Law: Chiu Ya-Wen KPMG Kuo Kuan-Ying, Yen Hsin-Fu Except where the holders of the convertible corporate bond convert it into Arcadyan’s common shares in accordance with Article 10 of the regulations governing the issuance of Arcadyan’s corporate bonds, or Arcadyan repurchases the convertible corporate bond at the business premises of securities firms and cancel it, Arcadyan shall redeem this corporate bond in cash at its maturity in one go in accordance with the par value of the bond. Outstanding NT$1,000,000 thousand Redemption or early repayment clause Covenants None. None. Credit rating agency, date of rating, rating of corporate bond Not applicable. Other rights of Bondholders The amount of converted (exchanged or subscribed) ordinary shares, global depository receipts or other securities as of the publication date of the annual report Issuance and conversion (exchange or subscription) method No conversion initiated by Bondholder as yet. Please refer to the regulations governing the issuance and conversion method of Arcadyan’s first domestic unsecured convertible corporate bonds. Dilution effect and other adverse effects According to the current conversion price, if all corporate 106 on existing Shareholders bonds are converted to common shares, Arcadyan is required to re-issue 10,752,688 common shares. The dilution rate amounts to 4.9%. Further, the coupon rate of this corporate bond is 0%, which allows Arcadyan to obtain a low-cost financing and reduce interest expenses. Moreover, the conversion price is issued by referring to the premium price of common share. As such, the effect on existing shareholders is limited. Custodian Not applicable. 2. Convertible Bonds Type of corporate bonds First domestic unsecured convertible corporate bonds Year Item Market price of convertible bonds Highest Lowest Average Conversion Price 2019 120.80 104.35 110.33 (Note) As of April 30, 2020 for the current year 112.50 100.50 105.61 93 Issue date: June 6, 2019, conversion price at issuance was NT$98.3. Issue (Execute) date and conversion price at issuance Conditions for conversion Note: Conversion price between June 6, 2019 and August 9, 2019 was NT$98.3; conversion price between August 10, 2019 and November 14, 2019 was NT$94.7; conversion price between November 15, 2019 and December 31, 2019 was NT$93.0. Issuance of new shares 4.2.3 Exchangeable Bonds: None 4.2.4 Blanket declaration of issued corporate bonds: None 4.4.5 Corporate bonds with warrants: None 4.3 Preferred shares: None 107 4.4 Global Depository Receipts 1. Issuance Details Date of issue: November 9, 1999 May 21, 2001 Issuance and trading location Total sum issued Issuance price per unit Number of units issued Luxembourg USD 122,160,000 USD 15.27 8,000,000 units Source of represented securities Participating shareholder(s): Kinpo Electronics, Inc. Quantity of represented securities 40,000,000 ordinary shares of Compal Electronics 1. Voting rights: Luxembourg USD 174,816,000 USD 6.07 28,800,000 units 1. Participating shareholder(s): 44,000,000 shares contributed by (1) Kinpo Electronics, Inc. (2) Panpal Technology Corporation (3) Gempal Technology Corporation 2. New cash issue of Compal shares: 1,000,000,000 shares 144,000,000 ordinary shares of Compal Electronics GDR holders’ rights and obligations Trustee Depository bank Custodian Unredeemed balance Allocation of expenses incurred at issuance and over the duration Key terms of the depository and custodian agreements According to the terms of the depository agreement and the laws of the Republic of China, the beneficiary certificate holder is entitled to the voting rights of shares represented under the beneficiary certificate. 2. Rights to dividend distribution, share subscription, and other rights: Unless otherwise specified in the agreement, the GDR carries identical rights as do ordinary shares N/A The Bank of New York Mega International Commercial Bank Mega International Commercial Bank 3,991,275 units (May 13, 2020) N/A The Bank of New York Borne by participating shareholder(s) Allocated proportionally between the Company and participating shareholders See descriptions below Per Unit Market Price 2019 Year-to-date May 13, 2020 High USD Low USD Average USD High USD Low USD Average USD $ 3.32 $ 2.77 $ 3.04 $ 3.21 $ 2.55 $ 3.04 108 2. Key terms of the depository and custodian agreement (1) Key terms of the depository agreement ■ Depository receipts Each depository certificate represents 5 Compal ordinary shares. ■ Transfer/settlement Ownership and transfer of depository receipts shall be certified through the book-entry settlement system of The Depositary Trust Company ("DTC"). Depository receipts shall be settled over DTC's book-entry system. Unless otherwise specified by law, ownership and transfer of depository receipts may only be completed over DTC's records. In Europe, depository receipts are still held under DTC, but transactions are settled through the book-entry system of Euroclear or Clearstream. ■ Deposit and redemption of Compal shares Three months after issuance of depository receipts, holders may request to redeem and receive shares represented by the depository receipt after paying the relevant charges according to the terms of the depository contract, or request the depository institution to sell shares represented by the depository receipt (provided that Compal has placed an adequate quantity of ordinary shares for sale with the depository institution). Once the shares represented by the depository receipt have been sold, the depository institution shall deduct the relevant charges, taxes, and government levies from the sales proceeds, and convert the remainder into USD before paying the depository receipt holder who has requested redemption. Subsequent issues of depository receipts are subject to the procedures outlined by the Securities and Futures Institute of the Republic of China, the terms of the depository contract, and the consent of both Compal and the depository institution. The depository receipts have been listed on the Luxembourg Stock Exchange and are traded through the PORTAL of National Association of Securities Dealers Inc. ■ Distribution of dividends, gains, and rights For cash dividends on Compal shares, the depository institution is required to convert the amount of cash received into USD according to the laws of the Republic of China, deduct taxes and relevant charges, and distribute the remainder to depository receipt holders based on the percentage of shares represented in each depository receipt. For stock dividends on Compal shares (including shares issued against capitalized earnings and reserves), the depository institution is required to adjust the number of shares represented in each depository receipt according to the laws of the Republic of China and terms of the depository contract. DTC will then produce additional depository receipts based on the size currently held and distribute them to the respective holders. Sale of stock dividends is subject to compliance with the terms of the depository contract and laws of the Republic of China. ■ Tax Any dividends (cash or stock) paid to the depository institution are subject to withholding tax at the prevailing tax rate when payment is made. Holders who request the redemption of depository receipts by having the depository institution sell the underlying shares through the Taiwan Stock Exchange Corporation (TWSE) will be charged securities transaction tax at the prevailing rate when the sale takes place. 109 Capital gains tax on securities transactions is currently suspended according to the laws of the Republic of China. Practices may be adjusted to reflect changes in the laws of the Republic of China. (2) Key terms of the custodian agreement ■ Placing securities for the issuance of global depository receipts Compal is required to place securities with the custodian and hand over all documents mentioned in the custodian contract, which provide the basis for the issuance of global depository receipts. ■ Notifying the depository institution for the issuance of depository receipts Once the custodian has received Compal's ordinary shares, the custodian shall immediately notify the depository institution for the issuance of global depository receipts. As soon as the depository institution receives the above notice, it shall produce and issue global depository receipts representing the number of entitled securities to the parties mentioned in the custodian's notice above. ■ Delivery of securities upon redemption of depository receipt If a holder requests the redemption of depository receipts, the depository institution shall immediately notify the custodian to transfer the number of securities represented to the party specified by the depository institution. The custodian may collect a sum sufficient to cover the taxes or expenses incurred from the party specified by the depository institution as a result. ■ Confirmation of share quantity on baseline date The custodian is required to report to the depository institution the number of securities held in custody by the end of each baseline date. 4.5 Employee Warrants: None 4.6 Subscription of New Shares by Employees and Restricted Shares: None 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions: None 4.8 Financing Plans and Implementation: (1) Execution of the previous issue or private placement of securities that have not been completed: None (2) The latest three-year issuance or private placement of securities has been completed and the project benefits have not yet been revealed: none 110 V. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope (1) Main areas of business operations The development, design, manufacture, and sales of Notebooks, Ultra slim notebooks, 2 in-1 Notebooks, AIO, 5G Module & Products, Tablets, Smartphones, Smart Wearable Devices, Smart Hearable Devices, Smart Display Products, AR/VR Smart Devices, Smart Home Devices, IoT Vertical Solutions, Smart Medical and Healthcare, Auto electronics, and Servers. (2) 2019 Revenue distribution Major Divisions (%) of Total Sales Unit: NTD thousands 5C electronics Other products Total (3) New product development ■ Notebooks 99.7% 0.3% 100% In 2019, Compal adopted the most efficient R&D methods for the launch of their latest notebook PC hardware, which included laptops with Intel 9th and 10th generation processors and the AMD new Ryzen platform. Compal has special expertise in system integration, R&D, and manufacturing to assist clients in the development and mass- production of new products with the latest specifications in a relatively short time. The Compal price-competitive, slim, and stylish notebooks were launched at a time when the market favored more affordable and portable devices. They received mostly positive responses from consumers. The purchase signal in the high-end gaming laptop market has been relatively stable, making the gaming laptop market new ground for brand name companies to vie for growth. The injection of more money into this aspect of the notebook market has intensified competition in the global gaming notebook market. After years of operation as an ODM of gaming laptops for our brand partners, Compal has accumulated profound experience in their design and development. Together with our clients, we shall secure our share in the gaming laptop market. Compal has also been improving its ability to design customized models for customers in different countries and markets. Significant resources have been devoted to the development of commercial notebooks. Compal invests a significant amount into R&D resources to create a win-win situation with our customers. 111 ■ Ultra slim Notebooks Innovative technology and extensive R&D capabilities have allowed Compal to maintain a leading position in the industry. Compal produces an ultra-thin Notebook, which uses the latest generation processor from Intel and AMD. Not only is it slim and light but it has most excellent performance and allows users to really be productive. Compal will introduce more Ultra slim notebooks in 2020. In addition to compatibility with the Intel design specifications, like “Project Athena,” for their latest generation products, we will also be introducing slimmer products at a lower price to meet market demand. They will feature the stylish and elegant body that is typical of Compal products, yet offer computing power that can rival a high-performance PC. Compal will also continue to develop newer and more competitive technologies that consumers around the world will get to enjoy, but will also give our clients faster access to these markets. In addition, gaming notebooks, which usually cannot have a slim design will start to phase in nVIDIA Max-Q technology to achieve both high-performance and an Ultra slim design. ■ 2-in-1 Notebooks The 2-in-1 Notebook is a novel product that borrows the concept of “Transformers” – in addition to having a standard laptop keyboard for diverse functional operations, the product also features Tablet PC touch versatility. The touch-sensing display module coupled with the latest Microsoft Windows 10 OS attracts both the consumer base for standard laptops as well as that for tablet PCs. We have utilized our rich R&D experience to present several innovative concepts that incorporate exclusive technology as well as materials. The fan-less design of the 2-in-1 Notebook with its different designs and form factors, has allowed the Company to create new market demand and earn unanimous praise from clients and consumers alike. 5G will become a hot topic for 2-in-1 notebooks which focus on mobility. ■ All-in-one (AIO) The AIO has been on the market for years. It is an elegant design combination of screen and computer with a thin, special shape. The product has replaced the desktop in many households and corporations. Compal has also enhanced the design to allow the AIO to lie flat while also being portable (Portable AIO). Because Compal has the fundamental technical capabilities required for notebook PCs as featured in the AIOs, it can also commence production in a very short time. Our AIO product lines have been very well received by clients. ■ 5G Module & Products 5G communication and 5G applications are global development trends. The three major use scenarios provided by 5G communication are mobile broadband service (eMBB), multi-machine type communication (mMTC), ultra-high reliability and ultra-low-latency communication (URLCC). In coming years, 5G communication will be widely deployed in various industries and various domain applications. Compal adheres to its long-term technical advantages in the communication field, provides 5G communications solutions, the 5G universal integrated module complies with 3GPP Release R15 specification, is backward compatible with 4G LTE / 3G WCDMA, supports high-speed LTE Cat20, and supports both 5G NSA & SA networking modes. Modules with multi-band support include WCDMA/ TDD-LTE/ FDD-LTE, 5G FR1 (Sub-6GHz) & 5G FR2 millimeter waves etc. Modules also built with GPS / GNSS global positioning system, eSim and other functions, are all needed features of coming 5G IOT (Internet of Things) applications & devices. Based on the long-term experience in consumer electronics design, research & development, and product 112 manufacturing, Compal also provides all kinds of reference designs of 5G terminal products, collaborates with existing customers and partners, to provide 5G products such as 5G Mifi, 5G routers, 5G CPE, 5G notebook, 5G AR/VR, 5G drone, 5G robots… etc. These 5G Products will be widely used in various industries such as entertainment, culture, tourism, finance, health, transportation, education, industry, agriculture, government, and power utilities, etc. ■ Tablets Compal has been deeply cultivating tablet and e-book products used by industrial, commercial, and consumers for a long time, and has a rich mass production record, with high performance, technical design experience, and reliable production quality. In recent years, global tablet product shipments have slowed down. Compal focuses on breakthroughs in technologies, focusing on special applications in a rugged commercial market, and the benefits of extended products have gradually emerged. ■ Smartphones Compal targets variant groups of smartphone users and general consumers, and the pioneers of technology continue to strengthen technical design and operation efficiency to develop core communication technologies. Since 2019, we have invested in the design of 5G smartphone models and promoted 5G models to maintain our leadership in the industry. In the future, we will develop mid-end 5G smartphone models, equipped with under- screen fingerprint recognition, under-screen camera technology, hundred-million-pixel camera, narrower bezel design, and high-speed fast charging technology to meet market demands and customer expectations. At the same time, it has also continued to dig deep into the design of rugged mobile phones, improved the anti- scratch, anti-panel crack, drop resistance, and waterproof and dustproof designs for rugged outdoor usage. The stylish appearance reverses the traditional & monotonous shape of rugged phones and can meet the military standard requirements, also bringing a new & fashion ID look to rugged smartphones. ■ Smart Wearable Devices Compal began to ship wearable devices starting in 2016. Based on the design engineering capabilities and manufacturing experience with smart devices, we have made great progress in terms of the shipping quantities for Google Wear OS-based smart watches. In addition to the development of more compact and energy efficient smart watches, we are also devoted to expanding our wearable product lines to satisfy various requirements from our customers. ■ Smart Hearable Devices The trend to remove audio jack on smartphones is one key driver to the fast-booming Smart hearable market. Convenience of usage and affordable price also stimulate the market demand. Based on our rich experiences in wireless and acoustic technology, Compal aggressively joins into the smart hearable market. In addition to the consumer Bluetooth headset and TWS earbuds, we also have deep cooperation with hearing experts to develop hearable and acoustics related products with AI technology. ■ Smart Display Products Smart display products equipped with intelligent voice assistants are already a trend. We continue to deepen and strengthen the development of related technologies for smart TVs and smart video products such as, integrating far-field microphones, ultra-high-resolution 8K display solutions, Mini and Micro LED backlight solution, the introduction of artificial intelligence (AI) image processing and sound processing technologies, to improve the 113 product's interactive convenience in use, visual and auditory immersive experience, to create and meet users' expectation in the new generation of smart display products. ■ AR/VR Smart Devices Worldwide leading technical companies have invested in the development of VR (virtual reality) and AR (augmented reality) for many years. In recent years, with the leap forward of semiconductor process technology, breakthroughs in optical display technology and the development of AI, AR, & VR are expected to be part of the next generation personal computing platform. A Compal base in product manufacture, mobility design, and communication capabilities, applied to AR/VR devices and cooperated deeply with Qualcomm. In the future, for vertical customers, Compal will combine hardware, software solutions, and 5G communication into a standard 5G AR/VR solution to meet customer needs. ■ Smart Home Devices Smart Home has been in development for many years, and the rise of the Internet of Things (IoT) and AI technologies, has allowed the speaker hub with smart voice assistants to become the focal point of competition in several relevant industries. We have already received client recognition for our development of the Smart Speaker and Smart Camera by Compal design and development capability. In the future, Compal will also use its core capabilities to expand product coverage in many different applications and devices in Smart Home. ■ IoT Vertical Solutions Vertical solutions have been one of the key demands in the development of IoT with an extensive range of applications covering smart cities, Industry 4.0, smart buildings, smart retail, and smart medical care. Such solutions feature integrated software and hardware and are designed specifically to accommodate client needs. Demands from B2B customers not only account for a higher portion of the existing IoT market but also bring Compal more immediate profit. As Artificial Intelligence (AI) applications have become more popular, Compal is now offering competitive products to address the primary needs of development in many different fields, not just as a hardware manufacturer, but also as a full-Service Solution Provider. ■ Smart Medical and Healthcare The aging population, China’s new two-child policy, the flourishing health care industry, and the rise of sports fashion, especially the popular and convenient smart devices, have all contributed to smart healthcare becoming a focus of attention. It has also become a major matter of cross industry cooperation. Compal has responded to market demand and the rapid advent of the IoT era by active engagement in the healthcare market. The Company has reached out to major hospitals and point of care (POC) centers such as those engaged in long term or postpartum care, using our strengths in integration and extensive experience in product development. The designs, which include science, technology, and humanity, help caregivers to provide higher quality services and also give hope of a better quality of life and personal dignity to those who need healthcare. ■ Auto electronics (AE) Car PCs consist of an in-car communication system (Telematics) and an in-car AV entertainment system (in- Vehicle-Infotainment). As telematics systems are governed by special regulations on safety and communications control, we have long been working with car manufacturers to ensure the relevant processes were in sync. Due to the similarity in system framework between in-car AV entertainment and PCs, the field became a natural starting point for a Compal foray into the car PC market. After years of hard work in the field, Compal products have been 114 adopted by several major car manufacturers around the world. ■ Servers The Cloud application market is growing, and a significant portion of data storage and computing analytics have shifted to cloud servers in the back end. To meet the demand from both Enterprises and Data Centers, Compal has mastered the R&D of High-density computing power and precision performance management and has the capacity to design and manufacture servers with high C/P value. 5.1.2 Industry Overview 1. Current and future industry prospects ■ Notebooks The growth of the notebook market over recent years has been driven by corporate equipment renewals and educational purchases. However, the shipment is limited by Intel CPU shortage issues. According to IDC, notebook shipments amounted to 170 million units worldwide in 2019, up 4% from 2018. Commercial replacement demand will be a little bit cooling down because of Windows 7 EOS in January 2020. Moreover, COVID-19 will impact the global economy, and the notebook shipment will be declined in 2020. As the PC industry matures, brand manufacturers are shifting focus towards higher priced and more featured products, such as Ultra slim Notebooks, 2-in-1s, gaming notebooks and creator PCs in search of more market opportunities, revenue and profit. This transformation requires more precise market segmentation, product positioning and innovative design. Compal, with its extensive industrial experience, fine craftsmanship and proprietary patents, can coordinate with suppliers and customers in creating market demand by developing innovative products that progress with time. ■ Ultra slim Notebooks Slimness and lightweight continue to be two dominant design trends in the PC market today. As solid-state drives (SSD) become popular, Ultra slim Notebooks no longer present a luxury that only high-end consumers can afford but are gradually becoming accessible to mainstream consumers as more affordable models become available. According to IDC, the shipment of ultra slim notebooks (<21mm thick) in 2019 was close to 83.5 million units worldwide, representing an annual growth rate of 23%. Ultra slim notebooks are expected to account for 49% of the total notebook shipment worldwide by 2020 and will officially become the mainstream variant. However, Compal will continue exploring new lightweight materials, power-saving solutions, and cooling technologies to help our clients provide the most competitive products and earn market recognition. ■ 2-in-1 Notebooks Owing to effort across the entire supply chain, the cost and selling price of 2-in-1s have dropped considerably, which has made them more available and acceptable by a wider group of consumers. There are two types of 2-in- 1: flip-screen and detachable. Flip-screen notebooks can be physically converted for use under different scenarios, such as video sharing, multi-user sharing and tablet mode. In recent years, manufacturers have introduced notebooks with flip screens that are both lightweight and thin, making them even more appealing. Detachable notebooks are characterized by smaller screen size. This is a feature that appeals to both tablet and notebook users. The smaller form factor combined with a detachable keyboard can better satisfy users who have higher 115 need for portability. According to IDC, the shipment of 2-in-1 devices totaled about 52.6 million units worldwide in 2019, and manufacturers are expected to introduce more diverse products with 5G/ AI in 2020. This has the potential to increase shipment by nearly 29% to more than 68 million units. These 2-in-1 Notebooks will inject new vitality into the notebook PC market. ■ All-in-one (AIO) The AIO market is currently dominated by HP, Lenovo, Dell and Apple. Those top brands account for more than 85% of market share today. The AIO market is currently divided between two extremes. One end of the spectrum is characterized by the use of entry-level CPUs such as Intel Celeron and Pentium. Their main purpose being to replace desktop PCs as learning machines for children. On the other end of the spectrum there lies the mid-range and high-priced products. Their main advertised features include multimedia playback, a high-end desktop or notebook CPU, an advanced video processor, and a large touch screen panel. These high-end specifications combined with aesthetic design have revolutionized the PC market and these products are starting to replace desktops. According to IDC, the 3-year decline of AIOs has ended and shipments should remain stable with 11.7 million units in 2020. In terms of design trend, the market should expect touch-based applications, graphical user interfaces or e-sport grade AIOs in the future. The potential for AIOs to replace desktop PCs in broader scenarios should further stimulate product growth. ■ 5G Module & Products According to the GSA, by March 2020, there are 63 operators officially providing 5G network communication products & services in more than 35 countries worldwide. Cisco Annual Internet Report states that by 2023, about 70% of the world's population (5.7 billion) will have mobile network communication, at least 10% of which is provided by 5G communication. There are more than 250 5G consumer products available in the global market. Include 16 product categories such as mobile phones, tablet, network sharing devices (CPE/MiFi), router, dongle, notebook, TVs, robots, vending machine etc. Many products have adopted Compal 5G solutions already. Compal will continue to expand partners in different 5G domains to develop more 5G application services and consumer products. ■ Tablet The continuous growth of smartphones with large displays has weakened the demand for tablets. The global tablet market continued to decline in the year 2019. The overall annual recession rate was about 1.5%, and global tablet shipments totaled 144 million units. The cost-effectiveness of the product is the key factor of consumers. The demand for voice tablets is relatively stable. There will be 5G tablets coming to market soon and Compal also continues to pay attention to and respond to these changes in the market and provides consumers with competitive and diverse types of tablet products. ■ Smartphone According to IDC, the global smartphone sales volume in 2019 was about 137.1 million units, with a decline YOY rate of 2.25%. The overall decline in sales is due to the lower shipment growth in the China market. Observe that consumers are waiting for the upcoming 5G network deployment and the launch of 5G smartphones into the market. Compal aggressively invests in the development of new technologies for 5G smartphones, and provides built-in AI (artificial intelligence) enhancement, virtual personal voice assistants, and a more intuitive user interface. In addition, it will also bring a more attractive new generation of smartphone products. 116 ■ Smart Wearable Devices According to IDC, smartwatch shipment increased steadily by 23% YoY in 2019. This dynamic growth is being led by strong sales of the Apple watch. Other major players also launched new generation 4G LTE smart watches in the second half of 2019. Providing technology support and manufacturing services timely, Compal is also planning to release an original designed LTE watch this year. To build our core value for customers, Compal not only consults our upstream partners, but also provides diversified designs and solutions to meet various needs of the end users. ■ Smart Hearable Devices According to the market research data, TWS earbuds shipment surpassed 100 million units in 2019, revealing double to triple growth compared to the shipment in 2018. Apple Airpods have dominated and driven the whole market since its launch in 2017. Stimulated by the popularity of Apple Airpods, smartphone and traditional earphone vendors are also eager to develop TWS earbuds products. Global tech giants such as Amazon, Microsoft, and Google have also joined in order to spread AI voice assistants through mobile devices. In addition to music streaming and smart assistants, TWS earbuds also have new features like hearing protection. According to the World Health Organization (WHO), about 460 million people worldwide have hearing loss problems, and about 1 billion people have potential risk of hearing loss due to loudspeakers and long-term listening to entertainment headphones. Compal develops smart hearable products and co-works with professional research centers to bring customers a great sound and music experience. ■ Smart Display Products According to statistics from the IHS Markit, the overall annual growth rate of global LCD TV industry shipments in 2019 was only 0.7%, and the total number of global shipments was about 222 million units, of which the UHD specification ratio was nearly 60% together with the proportion of Smart TVs also exceeded 80% in the fourth quarter. Looking forward to 2020, we will actively develop smart TV and smart video-related products with ultra- high picture quality, immersive audio quality and built-in voice assistants, and continue to cultivate strategic partnerships to maintain a good business and keep flexibility to respond to market dynamics. ■ AR/VR Smart Devices In response to the use of new forms of media and information technology, humans can accelerate the efficiency of processing, solving problems in work, life, and entertainment. Through VR experience, learning, training, and AR (augmenting reality) to solve problems in a timely manner. Therefore, AR/VR applications have gradually become the main force for the development of technology giants in various fields, especially Microsoft, Facebook, and Google. The application of AR/VR head-mounted display devices has achieved breakthrough development in vertical markets such as smart factories, smart healthcare, and remote collaboration. Personal gaming and 3D holographic streaming media have also been produced in entertainment. In the future, AR/VR will further deepen computer vision, AI (artificial intelligence), and IoT applications, and become the new personal computing platform. ■ Smart Home Devices Mobile devices have become an inseparable part of daily life. As wireless technology matures, an “Always Connected” environment is starting to take shape to cater for our work, living, and leisure needs. Smart Home applications have become a mainstream development topic for technology giants such as Amazon and Google. 117 Smart voice assistants and AI embedded smart devices have been a breakthrough for progress in Smart Home applications. More and more players are joining this market. In the future, there will be more applications based on voice interaction, image recognition and interaction, as well as security. The implementation of AI technology will provide users with a more convenient and intuitive experience. ■ IoT Vertical Solutions Industries have maintained high interest in IoT over the last few years. We hope to resolve the inherent problems in collaboration with ICT businesses. In this sector, we have engaged in cross-sector alliances with leaders of other industries to develop automated guided vehicles (AGVs) to enhance plant production efficiency and smart cameras equipped with artificial intelligence (AI) for use on brand-new retail solutions or smart cold- chain transportation to resolve the long-time pain point of businesses. To Compal Electronics, this is a favorable opportunity to enter the IoT market. ■ Smart Medical and Healthcare Increasing shortages of medical staff over recent years has imposed a heavy burden on medical personnel. The result is that medical institutions are desperately searching for more efficient ways to manage personnel and resources. In the United States, hospitals have responded to this crisis with the full implementation of digital charts and modern hospital management systems. Compal is actively introducing promising solutions from abroad to help Taiwanese medical institutions provide better service for patients. Furthermore, the aging population and shifting focus of medical technology towards convenience have resulted in a change in healthcare practice from always being hospital-based to some home-based and personalized solutions. In light of this, Compal has invested significant resources in the development of integrated products that make it possible for many healthcare services to be carried out at home or at other fixed locations. Compal also develops smart sports solutions and smart assistive tools, and is collaborating with professional athlete training centers, both local and abroad, in the development of exclusive high-end products for professional athletes. ■ Auto electronics (AE) In recent years, governments all over the world have been tightening the exhaust emissions standard and safety standards of vehicles and have set a timeframe for implementation. Therefore, electrification, connectivity, and ADAS/AD have become the three main trends in automotive development. To keep up with these trends, traditional suppliers have made disruptive innovation and changes. IT companies (e.g. Google), startups (e.g. AI and sensor startups), and service platforms (e.g. Uber) enter the automotive industry, while automakers also adjust its business structure and purchasing model under the influence of new technology implementation. In response to such an industrial change, we passed the certification of ISO 26262 Road vehicles — Functional safety system (the first automotive electronics manufacturer in Taiwan to acquire the ISO 26262 certificate) and engaged in the R&D of ADAS-related technologies in 2017, hoping to cultivate new product and market business opportunities under the existing EV business. ■ Servers Server shipments have grown progressively at about 2.8% per year mainly due to increased demand for cloud services. According to IDC, shipment of x86 servers totaled 11.2 million units in 2019. This is expected to rise to nearly 11.4 million units in 2020. X86 servers accounted for 95% of total server shipments. Rack mounted servers 118 represent a higher market share because they are both energy efficient and expandable. 2. Association between upstream, midstream, and downstream industry participants ■ Notebooks The notebook industry is now mature and Taiwanese manufacturers have developed comprehensive partnerships with upstream, mid-stream, and downstream suppliers. This fully-fledged supply system gives manufacturers the advantage of being able to quickly and flexibly adjust to market changes. It also enables Compal to keep up to date with the latest technology and pricing of key components such as CPUs, chipsets, LCD panels, hard disk drives (HDD), and solid-state drives (SSD). However, we still suffer the tariff issue between the US and China and trade disputes between Japan and Korea, as it has caused difficulty in global production and logistics since 2018. Compal and other Taiwanese ODMs/OEMs possess distinctive know-how on system integration, from design to manufacturing, as well as operational management. Taiwan now accounts for more than 80% of the world's notebook ODM/OEM production. The downstream customers including brand manufacturers such as Dell, Lenovo, HP, Acer, Asus, and Apple all have strong marketing strategies and comprehensive sales support systems to ensure success. ■ Ultra slim Notebooks As an Ultra slim Notebook supplier, access to metal for casings and lightweight carbon fiber materials is especially important. Compal has already developed a robust upstream, mid-stream, and downstream supply system, and acquired the equipment and technology to produce the needed metal products for customer satisfaction. Compal will now shift focus gradually towards products in the mainstream price range, such as Ultra slim Notebooks made with plastic materials. This will ensure quick launch of new customer products and growth in this market. ■ 2-in-1 Notebooks The supply chain and manufacturers of 2-in-1s are generally identical to those of convention notebooks, with the addition of some tablet parts suppliers and manufacturers. Support of the existing supply system and its advantage of integration across suppliers, allows Compal to maintain full control of the development of key components. This speeds up research and innovation of new features because brand manufacturers and users of 2-in-1s continue to add new requirements. Despite the increasing complexity and challenges ahead, Compal remains confident and continues to make improvements as well as continuing to bring new products and concepts to the market. ■ All-in-one (AIO) The supply chain and manufacturers of AIOs are generally identical to those of conventional notebooks. The upstream supply structure is similar to that for general PCs, with the addition of suppliers of large touch screen panels. HP, Lenovo, and Dell focus not only on commercial users but also home multimedia users. Apple’s emphasis is on professional applications and usage. ■ 5G Module & Products Compal 5G module and the reference device design has combined upstream and downstream and dozens of 119 well-known customers and operators to establish a complete 5G product ecosystem, providing flexible and diversified 5G related products to fulfill various 5G domains services & requirements. ■ Tablet In addition to relying on the existing supplier chain and industry advantages, Compal also actively explores competitive suppliers to ensure that the price and quality of its products conform to both customer and market expectations. ■ Smartphone Compal actively explores competitive suppliers to ensure the quality of sourced material meets both customer and market needs. Furthermore, Compal is building up a 5G related component supplier chain, as well as new technology, to assist customers in remaining competitive. ■ Smart Wearable Devices Compal works closely with suppliers for chipsets, sensors, wearable displays, and touchscreen modules to secure parts for wearable devices. In addition to coordinating with upstream suppliers and developing new technologies for new customers, Compal also reaches out to suppliers with advanced technologies. From the technical collaboration between Compal and Tech partners, Compal can quickly adjust the supply chain and product development strategies to accommodate the fast-changing market. ■ Smart Hearable Devices Compal has plenty of resources for smart hearable platforms and related components based on our past development experiences in smart devices. We have built strict standards for acoustic, reliability, and regulation tests so that we can guarantee to our customers that Compal can deliver reliable and high-quality products. ■ Smart Display Products Affected by the uncertainties of the China-US tariff dispute, the supply chain began to develop outside China to diversify risks. We continue to integrate resources across regions from upstream to downstream, deploy production base resources, control and manage operating costs, and provide flexible order fulfillment to meet customer’s demands. ■ AR/VR Smart Devices For AR/VR application, Compal provides a complete set of software and hardware solutions, combined with 5G communication to provide high-performance application solutions. Compal has also built up a strong partnership with Qualcomm to provide the standard device reference design, creating a highly cost-effective solution for customers, which can further seize consumer market applications and take leadership in future personal computing platforms. ■ Smart Home Devices Compal provides diversified terminal devices such as smart speakers and smart cameras for this application segment. Compal also coordinates across upstream, mid-stream, and downstream partners, to provide all kinds of customized hardware devices, software support, and platform solutions on demand. This allows different system integration providers and our many industrial customers, to fulfill all kinds of Smart Home applications. ■ IoT Vertical Solution As product positioning and requirements vary in different regions, countries, customers, and applications, 120 fulfilling the specific specifications and stringent environmental requirements in product design is the main difference between vertical specific industry and ordinary consumer computers. In addition, we began to develop integrated system services and products, such as computer-vision AI applications, in collaboration with suppliers with respect to the customer’s application requirements. ■ Smart Medical and Healthcare (1) Management system: • Digital charts and smart ward solutions Compal has been introducing digital charts through an alliance with some foreign partners. Unlike the conventional management system adopted by existing medical institutions, this product offers the potential to provide both diagnostic aid to physicians and also reduces the workload on nurses. It can also be integrated with many different data management systems currently used in hospitals. Digital transformation is already happening within the healthcare system. Compal is currently working with several hospitals to develop digital charts and smart ward solutions. Medical institutions will no longer have to operate in isolation but will be able to coordinate their activities with each other towards the establishment of a uniform standard to reduce the wastage of medical resources. • Point of care solutions Compal aims to address the recent increase in demand, as well as the shortage of manpower, at nursing and postpartum centers. This is being done by the introduction of human-operated healthcare solutions, such as proprietary bedside systems that are compatible with the instruments and specifications of other manufacturers. However, flexibility and the ability to customize products to customer needs will still be maintained. The most important feature of this product is that it works with different types of Smart Home devices and medical instruments, and also supports multiple services. It is intended to provide at home comfort in nursing and postpartum centers, while also allowing professional care facilities to be set up at home. (2) Instruments, equipment, and accessories: • Smart sports Compal has invested substantial resources into the development and integration of smart sports vital sign monitors. These can gather measurable data and are also useful for professional course design. Compal solutions can be further combined with the services of professional fitness training centers to provide users and trainers with physiological information in real-time. This information can be exchanged over the cloud to facilitate remote training and communication between athletes and trainers. This helps athletes undertake the most effective physical and technical training methods and helps to avoid sports injuries. • Smart assistance devices and healthcare-related products Compal is actively investing in the digital transformation of medical equipment. With the incorporation of Internet connectivity, data from medical equipment can be exchanged and calculations can be made in real-time over the cloud. This can make various user services available, such as auto record-keeping, reminders, behavior prediction, and so on. These devices can even be connected to advanced and back-end medical service providers for professional medical consultation, to accomplish the Compal vision of a mobile and real-time medical service. 121 • Innovative medical devices Compal has been working with partners in both the industry and the medical segment for several years and has invested in the development of some rather innovative medical devices. These include: CGM (Continuous Glucose Monitoring), 24-hour BPM (24 hour blood pressure monitoring), handheld smart ultrasound, i-AED, and others. We expect to provide users and physicians with many more options to help develop a smart medical industry and improve the quality of healthcare. (3) Medical AI • Cardiovascular disease prediction To reduce the problem of a lack of medical manpower, Compal has been working with the Chi-Mei Hospital and medical center on the development of AI in medicine. Using the existing abundant medical resources of the hospital, Compal is helping to build up a cardiovascular disease prediction AI system which can be used in hospitals and medical centers. The product will include long term tracking and users may be able to predict the timing and probability of cardiovascular complication. This will allow preventative action to be taken and reduce the risk of such events as stroke, myocardial infarction, etc. Compal also expects to help with the medical technology upgrade after the integration of the products in professional medical establishments in Taiwan. ■ Auto electronics (AE) The mid-stream players in the supply of auto electronics are represented by tier 1 AE integrated system providers. This integrated system handles in-car information, communications and entertainment, and is also linked to other auto parts. These products are sold to downstream automobile makers, which places the Company between the midstream and upstream of the AE supply chain. ■ Servers Server technology is a highly mature industry and one in which Taiwanese manufacturers have developed a comprehensive supply system of upstream, mid-stream, and downstream partners. Main parts such as CPUs, memory, and storage drives are easily secured and downstream customers such as HPE, DELL, and Lenovo all have long-term notebook manufacturing relationships with Compal. Compal has now developed extensive experience and has a reputation for the design and manufacturing of server products. 3. Product trends and competition ■ Notebooks ‧ The Notebook has matured to a point where brand manufacturers are shifting focus towards higher priced and more fully featured products, such as ultra slim notebooks, 2-in-1s, and gaming notebooks in a search for greater market opportunities, revenue, and profit. ‧ More user scenarios for notebooks, for example, gaming notebooks for eSports and creator PCs for content creation. ‧ The Intel 10th generation CPUs were the mainstream processors used in 2019. ‧ AMD started to gain CPU market share in 2018 2H because of Intel’s CPU shortage issue. In 2020, AMD will launch the new 7nm CPU. 122 ‧ The increasing popularity of mobile devices and online applications have called for more robust and diverse security functions, from fingerprints, to facial and voice recognition. These are all intended to enhance information flow and convenience without compromising security. ■ Ultra slim Notebooks ‧ Light weight, slimness, and high-quality design will become the main decision factors for consumers. ‧ The new CPUs will provide consumers with adequate power for multi-tasking and the handling of day- to-day computing tasks. ‧ Long-lasting batteries will free users from the need for frequent recharging when traveling. ‧ Metallic casing material allows thinner, lighter, and higher value products. ■ 2-in-1 Notebooks ‧ Consumers nowadays expect more from 2-in-1s than light weight and portability. Multi-tasking processors, long-lasting batteries and the capacitive stylus have become the new mainstream features. ‧ 5G will bring more modern usage for 2-in-1 notebooks. ■ All-in-one (AIO) ‧ High-end home entertainment AIOs and new flat, portable AIOs present new opportunities. ‧ There is room for improvement in touch-based applications and graphical user interfaces. ‧ The product exterior can be designed to match interior decoration and furniture. ‧ Portable products can be designed with screens that can move in several directions. The AIO target market is no longer confined to first-time PC users, or as replacement for conventional office desktops. More advanced components are becoming available and these devices will benefit from broadened applications to achieve higher market acceptance. ■ 5G Module & Products 5G communication and applications have expected explosive growth in the coming 5 years. 5G terminal & consumer products will come out with different product categories such as network devices (CPE / Mifi), notebook computers, routers, televisions, and robots… etc. 5G requirements come from various industries. Compal provides the leading communication technology, product manufacturing and technical know-how. Our integrated 5G module solutions provide complete technical support and development tools to help our customers develop their 5G products & services. ■ Tablet ‧ Extend R&D technology to 5G communications. ‧ Focus on higher cost/performance ratio and better quality design. ‧ Explore collaborative opportunities with content providers or telecommunications operators. ‧ Explore opportunities in education, for kids, industrial, and medical applications. ‧ Develop tablets for the Smart Home and IoT and use them as control centers or as multi-functional platforms. The Tablet is a mature product, and what manufacturers should focus on for the next step is the exploration of new use cases and more convenient user operation and support for more diversified applications. Education, kids, e-commerce, Smart Home hub, and IoT applications are all possibilities that Compal is actively exploring. ■ Smartphone 123 4G Smartphones are the mainstream products in the smartphone market. In 2020, the communication technology enters into the next generation: 5G communications. In addition to mobile broadband service (eMBB), multi-machine type communication (mMTC), ultra-high reliability and ultra-low-latency communication (URLCC), these features will increase consumer demand for entertainment, application, and services. ‧ Integrates multi-core architecture and strengthens 4G&5G carrier aggregation mobile broadband communication to provide faster transmission speed & data throughput. ‧ Support AI image processing & applications, drive video streaming services to meet the needs of consumers in daily work and life entertainment. ‧ Higher screen ratio, high picture quality, narrower border touch products. ‧ Integrating under-screen fingerprint recognition technology and under-screen camera technology to create full screen experience for consumers. ‧ Continuously improve the functions required for rugged mobile phones, scratch-resistant, crack- resistant, drop-resistant, waterproof, dustproof, etc. ■ Smart Wearable Devices ‧ More and more smart, fashionable, and compact watches for sports and health are following Apple to the market. ‧ Customers who use smart wearable devices for sports also want high accuracy GPS, steps count, heart rate monitoring, and other bio-measurements. However, power efficiency remains a key requirement common to all users. ‧ Customers who use smart wearable devices for health reasons need accurate algorithms and convenient user operation. This will be one of the key success factors of the products. To satisfy customer needs, Compal not only continues to make more power-efficient and compact designs, but also enhances the flexibility of its production processes. ■ Smart Hearable Devices Evolving due to keen competition, smart hearable devices will not only serve for music streaming, but also include more advanced features such as active noise cancellation, smart assistant, bio-detection, etc. Besides the functionality enhancements, the design will also aim to improve user experiences like water resistance, ergonomics for comfortable wearing, and applications with AI technologies to make it smarter. Compal has been professional in both hardware and software development for a long time. We have also co- worked with hearing experts for more professional acoustic products development to create product differentiation and make us more competitive in the market. ■ Smart Display Products We team up with strategic partners to develop high-end models, integrating far-field microphones, ultra- high-resolution 8K display solutions, Mini and Micro LED backlight solutions, and introducing technologies such as artificial intelligence image processing and artificial intelligence sound processing, continue to accumulate the latest technology and experience, make use of the essence of innovation, and integrate research and development resources across fields, combining applications in mobile phones, wearables and home networking products to create an industrial ecological chain, improve user experience, stay on top of the industry's technology, and maintain long-term competitiveness. 124 ■ AR/VR Smart Devices ‧ AR head-mounted displays and spatial sensing modules have been adopted by vertical application customers and entered the European and American markets. ‧ AR/VR Qualcomm Platform (XR Platform) completed the development stage and entered mass production in 2020. ■ Smart Home Devices ‧ The voice input and interaction provided, and AI enhanced applications of the smart speaker and smart camera are trends of the future Smart Home devices. Compal will create more intuitive and convenient Smart Home products. ‧ Software services are integrated with cloud computing, and data analysis and user behavior learning will be the key competitiveness of Smart Home products. ■ I IoT Vertical Solution Given the high entry barriers, not may investors have engaged in the vertical specific industry over time. The rise of IoT has also attracted increasing competitors. As an ICT leader, therefore, we will implement some new technologies, such as AI and the design capacity of energy-efficient devices, to increase our competitive strengths. ■ Smart Medical and Healthcare (1) Management system: ‧ Digital charts and smart ward solutions The United States currently has the most popular (Level 7) digital chart and hospital management system, and other countries around the world are following closely behind. The purpose of this product is to deliver functions that will be of assistance to physicians and nurses while still being easy to operate. Alliances with world industry leaders has made it possible for Compal to introduce the solution to medicine in Taiwan, where its success will be replicated in our medical systems and it will also be moved to other countries in Asia. ‧ Point of care solutions An aging society, combined with a need for differentiated medical services, make nursing centers and postpartum care centers especially popular in Taiwan. This management system provides them with a comprehensive solution and makes it possible for communications to be established between several different medical devices while patient privacy remains protected. Compal has invested in the development of related hardware and software and is working with existing medical instrument suppliers on the growth in this market. (2) Instruments, equipment, and accessories: ‧ Smart sports There is already a strong and growing demand from professional athletes for assistive technologies and devices. Compal has invested significant R&D effort in collaboration with top world sports experts for the development of products that are more suitable for professional athletes. Compal is also working with fitness centers on the creation of customized, exclusive packages that deliver the most effective sports solutions and communications to users and businesses. 125 ‧ Medical equipment and healthcare-related products Medical equipment with Internet connectivity is a trend of the future. Devices that have functionality that allows access to information from a health management platform will be easier to operate and is also more competitive in the market. Compal will continue investing in the development of medical instruments and equipment with such connectivity and will bring better quality services to customers with the help of a management platform and cloud service. ‧ Innovative medical devices As the new biosensors and related hardware such as MCU/firmware/ biomaterials and software have matured over recent years, development of the innovative medical devices industry has also moved to another stage. Continuous investment and development by Compal have led to more and more customers gaining trust in our design and development capacity, and the market trend is now moving towards an alternative device generation. ■ Auto electronics (AE) Telematics and in-vehicle-infotainment. ■ Servers The rack-mounted server is still the mainstream product today because it can be easily maintained and expanded as business grows. Tower servers are still favored among SMEs for their low cost, but the market share has been steadily declining. Blade servers are relatively expensive to set up and may gradually be replaced by more simplified High Density servers. ‧ The number of servers required for Data Centers has increased continuously year after year. Although the demand for conventional enterprise-grade servers has gone down a little, demand for both types of servers will ultimately reach equilibrium. ‧ In addition to cost-performance, design flexibility and quick response to customer needs are the two most decisive factors for a product’s success. 126 5.1.3 Research and Development 1. Research and Development Expenses over the past year: Year R&D expenses Operating revenue Unit: NTD thousands; % R&D expenses as a percentage of operating revenue 2019 2020 first quarter 14,156,793 3,181,272 980,442,346 182,047,046 1.5 1.8 2. New products developed ■ Notebooks • High-end products: These are high-performance professional models combined with an ultra-high definition display and a powerful GPU that targets users who seek ultimate performance such as gamers or creators. • Mainstream products: 15.6-inch and 14-inch products with slim bezel design that are powered by the latest CPU from Intel or AMD, are distinguished by integrated or discrete GPU models. • Business products: Business notebooks designed specifically for corporate users. These products feature enhanced structural design and security, and are offered to large corporations, SME, and the education sector. Security mechanisms such as fingerprint, facial or voice recognition are incorporated to satisfy the user’s need for security and data confidentiality. • Special products: Compal has directed resources into developing notebooks of extreme slimness and will lead the industry in technological innovation in this area. Dual screen and foldable notebooks will be a hot new topic. ■ Ultra slim Notebooks • Compal has successfully mass-produced and launched many Ultra slim Notebooks, and its designs have been recognized by several international awards. • Performance will not be sacrificed. • Not only thinner but also lighter are key requirements for good user experience. • New ultra slim notebook will feature thin frame displays for a more fashionable and cleaner appearance; the display quality will also be improved. ■ 2-in-1 Notebooks • Compal has successfully designed, mass-produced devices and launched a new 2-in-1. • An innovative hinge design is being developed to provide a more secure and precise connection while allowing easier detachment, this allows better user convenience when 2-in-1s are used in different scenarios. ■ All-in-one (AIO) • Compal has successfully designed, mass-produced, and launched AIOs for mainstream users. • Compal has successfully designed, mass-produced, and launched a new flat type of AIO. • Compal has developed, mass-produced, and launched AIOs that are targeted at e-sports. • Compal plans to acquire touch control technologies with pen support and introduce AIOs in sizes ranging from 19" to 27." • Compal has successfully designed AIOs with a wireless charging dock. 127 ■ 5G Module & Products • 5G M.2 / LGA module will be mass-produced in 2020. • 5G M.2 / LGA module obtained product certification, including GCF, CE, CCC, TELEC, FCC, and PTCRB…etc. • 5G products obtain interoperability test and certification from major worldwide 5G operators. • 5G indoor/ outdoor CPE, and MiFi will be in development and MP in 2020. To extend 5G module to various types of devices. ■ Tablet • Compal has successfully developed and mass-produced WiFi tablets of high performance-to-cost ratio for video streaming and entertainment. • Compal has successfully developed and mass-produced a new generation of e-books. ■ Smartphone • Compal has successfully developed and mass-produced smartphones with 3CA (carrier aggregation) technology that work on 4G LTE (TDD-LTE/FDD-LTE). • Mass-produced various smartphones equipped with 21: 9 aspect ratio FHD + large full-screen smartphones. • Mass-produced the world's first thinnest rugged mobile phone, with a stylish appearance, and military-grade requirements, bringing a new ID look to rugged smartphones. • Successfully developed a 5G smartphone, which is planned to be shipped in 2020. ■ Smart Wearable Devices • More than 40 models launched in 2019. • Compal supports a variety of product types, such as luxurious material and design, wireless charging, offline map, high accuracy GPS, and high-level water resistant for sports watches. Customized product design and more power efficient to support 3C and fashion brand requests. • A new generation of lighter, smaller, narrow border, multi-purpose smart watches with diversified designs will be introduced soon. • LTE smart watches and other wearable devices have also been scheduled for mass production. ■ Smart Hearable Devices • Bluetooth headset with smart assistant is developed and in mass production. • Long-term investing in high-end AI technology to develop Bluetooth headset with more intelligent noise cancellation features. ■ Smart Display Products Compal has successfully developed up to 65-inch UHD TV with Dolby Vision HDR, DTS Virtual X and built-in smart assistant models for the North American market. ■ AR/VR Smart Devices • In the industrial markets, Compal has developed VR/ AR all-in-one and spatial sensing integrated optical modules, which have been adopted by customers to integrate in enterprise-specific systems. • Deeply cooperating with Qualcomm to develop the next generation 5G+AR/VR device reference design, Compal will be the leader in 5G+AR/VR device & ecosystem. ■ Smart Home Devices • Compal has successfully launched several smart display & smart speaker products for the Worldwide Smart Home market. 128 • Compal has successfully developed several smart camera devices that will be launched soon. ■ IoT Vertical Solution • The development of computer-vision AI products was completed, and shipping to foreign customers has begun. • Mass production of the shield-type and uplift-type AVGs has begun. Apart from implementing all Compal plants, we have started cooperation with system integrators to promote products to the industry. ■ Smart Medical and Healthcare • Digital charts and a smart ward solution Compal is promoting business opportunities in this respect. Several hospitals have begun adopting and exploring our smart ward solution this year. • Point of care solutions More than 10 point-of-care centers in Taiwan have begun trials and official use of this solution. In addition to this, several prominent nursing centers in China have also shown interest and commenced collaborating in the use of this solution. • Smart sports Smart sports solutions have been introduced at several places in Taiwan and promotion in the Taiwan and China market is ongoing. A case has also been built up in Kaohsiung. • Innovative medical devices Many innovative medical device cases have been executed and plans for the achievement of FDA/ NMPA/CE certification have been established. Launch is expected by the end of 2019 and 2020. ■ Auto Electronics (AE) • Compal has mass-produced various systems and modularized several products that it has designed and developed. ■ Servers • General Purpose Rack-mounted Servers According to the Intel product roadmap, the launch of 1U and 2U general purpose rack-mounted servers is undemanding and the factory can quickly fulfill customer requirements by a simple BOM Option change. • Edge Computing Servers The system has been designed for 5G telecommunication facilities in collaboration with China telecom service providers. This system provides tremendous and responsive acceleration for all aspects of edge computing. • High Capacity Storage Servers The 4U server includes 36 3.5inch hard drives and dual Intel Xeon processors, to provide cloud service providers with massive computing performance and huge capacity to fulfill any user scenario. 129 5.1.4 Long-term and Short-term Development (1) Short-term Development • We will adapt to market changes, follow current trends, strengthen new design concepts, maintain the focus on product difference, and launch ahead of our competitors. • We will enhance operational efficiency, to further increase our product competitiveness and push the sales growth rate higher than the market average. • We will improve logistics management and flexibility to shorten delivery time. • We will elaborate different market strategies for different product markets. Mainstream products will be bundled with new technology and modular features to boost the added value and diversity of products. For featured products, we will adopt a prospective standpoint in our design concept for new products to become the focal point of the product market. User functionality should be taken into consideration as well as competitive pricing for lower priced products. • Production bases will be diversified to spread the risk of single production, reduce the cost of manufacturing and improve product competitiveness. Globalized production can reduce the political and economic impacts in the region. • We will pay closer attention to market trends and evolution in smart devices and develop product concepts suitable for OEM customers and the market. We will help customers create differentiated products of feasible design. • Product development times will be further shortened to optimize supply chain management, maintain persistent high quality, and provide customers with more competitive products. • More effort will be made to maintain existing customer relations. Apart from maintaining a high degree of customer satisfaction, we will work towards increasing the volume of product cooperation. We will also seek other opportunities for cooperation with new customers to achieve a growth rate that is better than the market average for smart device products. • We will improve product profitability to achieve the maximum utilization of capacity and enhance overall operational efficiency and profitability. • We will tap our accumulated communications industry R&D energy resources to quickly and efficiently cut into the high growth 5G networking market. • Several different industry alliance strategies will be used for the rapid development of a diversified product line that will strengthen customer relationships in the shortest possible time. (2) Long-term Development • A spirit of innovation will strengthen value-added Company products and improve long-term core competitiveness. • Cooperation with our customers will be improved to allow better product planning, development and manufacture as well as comprehensive after-sales service. • Horizontal and vertical integration of all parts and products of the Group’s affiliates will be strengthened strategically and aligned with customer needs, to give them more convenient and complete services. • Optimization of the quality of sophisticated products will be enhanced by new development and cost structures 130 and strategic alliances with main parts providers to give customers better and more competitive products and services. • Closer horizontal and vertical integration will be made with affiliates in the Group to create and improve the loyalty of long-term customers. • Our ability to innovate will be further cultivated, aimed at more accurate prediction of market trends, before the clients do, and provide them with products and services and high value-added solutions to improve long- term core competitiveness. • The Company has established a service-oriented business model and new revenue sources through careful long- term upstream and downstream integration and cooperation. • We are strengthening the breadth of learning of our team in preparation for future new business and product development through cross-industry alliances. • We are cultivating the ability to control key technology, strategize high-end product lines, and gain cooperation opportunities with big manufacturers around the world. • In addition, we will continue to strengthen our core R&D technology & communication capability and capacity for integrated services for smart devices. 131 5.2 Market and Sales Overview 5.2.1 Market Analysis 1. 2019 Sales (Service) by Regions Area Americas Europe Asia (Including Taiwan) Other Area Total 2. Market Share ■ Notebook Percentage 42.1% 28.6% 26.8% 2.5% 100.0% According to IDC statistics, the total number of notebook PCs sold around the world in 2019 came to approximately 170 million units. In terms of total shipping quantity, Compal’s notebook PCs have approximately 25% of the global market share and the Company remains a world leading manufacturer of this product. As the market for notebook PCs is entering the era of vertical integration, Compal will continue to improve upon its technological capabilities, broaden the scope of its influence, and expand the market scale while challenging the limits and striving for continual improvement to maintain our lead over the competition. ■ Smartphones & 5G Products The Smartphone market has become quite saturated. However, Compal will continue to ship smartphone products with customers and regional carriers. Expand investment in 5G smartphone technology, provide customized solutions, product reference designs, and flexible ODM / JDM / EMS and services. Compal continues to catch market trends and develop new applications to meet market needs. ■ Smart Wearable Devices Compal is the biggest ODM supplier for more than 50 models of Google Wear OS Smartwatch. The smartwatch market is expected to maintain its high growth for the next three years. Compal will endeavor to win more world-wide brand customers while studying market demand and adjusting the direction of product development to meet market trends. ■ Smart Hearable Devices Compal already shipped several models of smart hearable products, including Bluetooth headsets and TWS earbuds. Because smart hearable products requires high accuracy and miniature manufacturing, Compal is also devoting to optimize the product design and improve manufacturing process to enhance production efficiency. ■ Smart Display Products Developed mass-produced ultra-high-resolution smart TVs and successfully gained 7% of the North American smart TV market. Understanding the market needs in advance to adjust the product development direction is crucial to successfully winning the existing customer cooperation plan. In the future, we will continue to maintain 132 the momentum of shipments, and actively expand new product lines to maintain stable growth. ■ AR/VR Smart Devices Successfully developed the AR/VR all-in-one model, which was adopted by several industrial information system integration companies in Taiwan as an exemplary solution. AR/VR modules are also adopted by some China companies, for health, manufacturers used to develop and integrate into various applications. So far, high-end AR/VR devices are dominated by vertical market applications. In the future, in accordance with the AR/VR market trend and the 5G communication deployment, Compal will invest more resources to develop both commercial and consumer products. 3. Future Supply and Demand Situation and Growth of the Market ■ Notebooks According to IDC statistics, the global shipping quantity for notebook PCs in 2019 grew by 4%. Looking towards 2020, Commercial replacement demand will be a little bit cooling down because of Windows 7 EOS in January 2020. Moreover, COVID-19 will impact the global economy, and the notebook shipment will decline in 2020. ■ Ultra slim Notebooks The Ultrabook PC has been well-received and is not limited to the premium market. More and more mid- line and entry-level models have also shifted towards more compact design. IDC statistics show the global shipping quantity for Ultra slim laptops (no thicker than 21mm) in 2019 was approximately 83.6 million units. An annual growth rate of 23% is expected for 2020 with a total shipping quantity exceeding 84.6 million units. ■ 2-in-1 Notebooks Much effort and hard work from the industrial chain, has resulted in the costs and prices for 2-in-1 Notebooks to become substantially lower as consumers have gradually become more receptive and familiar with the product. IDC statistics show the global shipping quantity for 2-in-1 Notebooks in 2019 was approximately 52.6 million units. It is expected by that 2020, different manufacturers will offer more diversified products and new features such as 5G/ AI. It will contribute to an annual growth rate of close to 29%, with a global shipping quantity exceeding 68 million units. 2-in-1 Notebooks will inject new vitality into the notebook PC market. ■ All-in-one (AIO) IDC statistics show the global shipping quantity for AIO PCs in 2019 was 12.2 million units and the number is expected to remain about the same at 11.7 million units in 2020. Compal will continue to cultivate the market. ■ 5G Module & Products Cisco internet report points out that in the next 3 years, 70% of the world's population (5.7 billion people) will have mobile networks, and at least 10.6% (600 million people) of mobile networks will be enabled by 5G networks. 5G products will have rapid growth, and it’s estimated more than 2 billion 5G devices of various types (average 2 to 3.6 connected devices per person) will be purchased. Compal will develop 5G products with customers and various 5G domain partners. ■ Tablet Forecasts predict a continued decline in terms of shipping quantity for tablets in 2020. However, Compal still 133 anticipates some gradual growth in demand. This will be the result of increased network coverage and telecommunication facilities, as well as active promotion of 4G connectivity by the service providers in emerging regions. Compal will direct its experience in smartphone design towards the development of tablets with carrier access and also design entry-level tablets, also with carrier access, to accommodate the growing demand. ■ Smartphone According to IDC's, the impact of the COVID-19 epidemic in 2020 will impact the short-term global outlook. It is estimated that the global smartphone market will recover in the second half of 109 and the world will return to strong replacement demand from the third quarter 2020. Compal invests in high cost-effectiveness 5G Smartphone models with existing customers, also expands to new customers, to ensure stable sales momentum. ■ Smart Wearable Devices IDC predicts that smart watches will continue high growth until 2022 with CAGR 23% and shipping volume of 115 million units. To be well-prepared for the potential momentum, Compal is developing more advanced features such as sensors for activity detection, 4G LTE for always connection, Voice control and AI integration. Compal will continue to accumulate the relevant technologies to extend its reach into more diversified wearable device product lines. ■ Smart Hearable Devices According to research from IDC, the global hearable market will remain strong until 2023, driven by different marketing strategies: independent product or accessory of smartphone and smartwatch. More vendors join into the market and it becomes more competitive. To create more value, Compal is focusing on new technologies for longer battery life, better sound quality, more efficient connection, and smarter user interaction. ■ Smart Display Products According to IHS estimates, the global LCD TV in 2020 was affected by the COVID-19 epidemic and is expected to decline by more than 10%. However, the market's development of high-end LCD TV products will continue to focus on such as artificial intelligence image processing and artificial intelligence sound processing, 8K ultra-high resolution, built-in voice assistant, Mini and Micro LED backlight solutions, large size, high dynamic range (HDR) and wide color gamut (WCG), makes TV pictures closer to natural scenes when rendered, and provides consumers with true-to-life audiovisual enjoyment. ■ AR/VR Smart Devices According to IDC estimation, the annual average growth rate (CGAR) of AR/VR will exceed 80%, the global AR/VR device shipments have strong growth power. Compal actively taps into both commercial and consumer markets. ■ Smart Home Devices According to Strategy Analytics, Smart Home sales will continue to grow with 11% CGAR and more than 15% worldwide households will have one or more Smart Home devices. Compal will actively establish its presence in the Smart Home market. ■ IoT Vertical Solution According to the Gartner forecast, in 2020, over one billion devices will use vertical solutions for smart 134 manufacturing, smart transportation, and smart retail, suggesting that the market demand is escalating. ■ Smart Medical and Healthcare (1) Management Systems: • Electronic Medical Records (EMR) and Smart Ward Solutions: According to estimates by FMI, the global market for Electronic Medical Records (EMR) and management systems is expected to grow from USD 11.4 billion in 2015 to USD19.7 billion by 2025, with an annual growth rate of 5.6%. • Point of Care Solutions: A report published by Markets and Markets, shows that factors such as the aging populations and digital medical services, will cause the global market for patient and point of care solution related management systems to reach USD 16 billion by 2020 with an annual growth rate of 19.7%. (2) Instruments, Equipment, and Accessories: • Smart sports products: Estimates of Market Reports Hub show that the value of smart sports goods will increase to US$15 billion in 2021, with professional athletes, professional teams, amateur athletes, and highly self-demanding trainers as the major consumer groups. • Medical devices and healthcare-related products: Estimates of Research and Markets show that the scale of the global medical device market will expand from US$370 billion in 2018 to over US$400 million in 2023, with an annual growth of 4.5%. • Innovative medical devices: The sales of innovative medical devices, such as the continuous blood sugar monitoring system, reached US$1.8 million in 2018 and will hit US$2.5 billion in 2026, with a CAGR of 33%. • Severe cardiovascular diseases monitoring AI: Estimates of Global Markets Insights show that the scale of the global medical AI market will reach US$13 billion in 2025, with a CAGR of 40%. ■ Auto electronics (AE) IHS estimated average global light vehicle production will stay stable at 90 million units annually, with 1.5% CAGR from 2019 to 2022. ■ Server IDC statistics show that the demand for x86 servers was 112 million sets in 2019 and will reach 114 million sets in 2020. The server demand will continue to rise in the next few years as boosted by the cloud computing demand, which is the major source of x86 server demand accounting for nearly 99% of the shipping volume. As the frame-type server has a higher market share, we have actively engaged in the server market. 4. Competitive advantage: Compal is a long-time player in the IT industry and has committed to its role as an ODM. The following is a description of our competitive advantages in terms of R&D and mass production capacity: ■ Notebooks The Company has been manufacturing notebooks since 1989 and is one of the most experienced notebook manufacturers in Taiwan. Products designed by the Company have won many Editor's Choice awards from 135 renowned magazines worldwide as well as awards from the Taiwan External Trade Development Council. Furthermore, our design team has great sensitivity and responds to market changes with new commercialized products. To enhance product competitiveness, Compal has assembled an R&D team that specializes in the research of new materials and technologies as well as to adding more value to products. The Company also has an intellectual property rights system in place to protect new technologies developed by the R&D team. The demand for notebooks by general consumers has dwindled consistently due to the rise of handheld devices. This has forced manufacturers to switch competitive strategy towards faster response and more ergonomic design. The Company has always been sensitive to changes in the market and product trends. The next generation of products is planned well in advance to capture market opportunities and generate revenue. ■ Ultra slim Notebooks Compal continues to stay ahead of its competitors in terms of technology advancement and R&D and strives to bring innovation to its designs. The Company expects to maintain this advantage in 2020 and will actively assist customers in the development of more competitive Ultra slim Notebooks. ■ 2-in-1 Notebooks Compal has extensive experience in the development and manufacture of both notebooks and tablets. By adding a bit of innovation, Compal is confident of their ability to create new demand for this product. ■ All-in-one (AIO) Compal possesses the advantage and ability to commercialize products quickly in this respect. To further emphasize product differentiation, a dedicated software development team has been assembled to carry out software development and man-machine interface integration, to make the products more suitable for consumer needs. ■ 5G Module & Products Compal has long-term communication technology development and has involved itself in the evolution of global communications standards (2/3/4/5G). With complete technical capabilities and manufacturing advantages, Compal can provide customers and partners with the most competitive and flexible solutions. • One-stop capability & services from communication and whole machine design and manufacturing • Obtained carrier Interoperability test (IOT) and certification • Obtained product certifications, including GCF, CE, CCC, TELEC, FCC, and PTCRB ... etc. ■ Tablet Compal remains somewhat optimistic about the future of the tablet market. We will continue to introduce differentiated and competitively priced products to consumers. The Company will also explore the possibility of introducing products that support 4G/LTE/5G CA (Carrier Aggregation), using the experience and knowledge accumulated in smartphone manufacture, to meet rising demand. ■ Smartphone Compal has accumulated many years of experience in smartphones. The ability to develop software and hardware and incorporate research outcomes and technologies into products has earned us the recognition of 136 customers all over the world. Furthermore, the advantage of producing at a scaled economy provides exceptional bargaining power with respect to the pricing and timing of material supply. This allows much more flexibility and control over raw material purchases. • Development of 5G communication technology and keeping pace with emerging technologies. • The introduction of AI, the virtual personal assistant and a more intuitive user interface. • The enhanced application of biometric technologies. • Consolidate the research and development of 5G system and RF antenna design. • Integrating upstream and downstream supply chains, providing ODM / JDM / EMS flexible product design solutions. ■ Smart Wearable Devices Compal has developed many different types of wearable device ahead of international peers. We have long-term strategic partnerships with technology leading companies such as Google and Qualcomm for development of innovative technology. Compal currently offers an extensive range of products, and leads the industry in many advanced technologies, including video, audio, wireless, and wearable materials. ■ Smart Hearable Devices Compal has years of experience in acoustic, wireless communication, mechanical structure design for smart mobile devices. We have experienced engineering teams, systematic development processes, and complete test processes and facilities. We can also provide supply chain management service and excellent cost and quality control. All these can be beneficial to our brand customers or distributors. ■ Smart Display Products • Continue to develop artificial intelligence in the improvement of picture and sound quality and the application of voice assistants, integrate cross-domain product research, and development resources to expand the industrial ecological chain. • Continue to cultivate strategic partnerships between customers and suppliers, and actively adjust the allocation of resources between production bases and supply chains, further improving our competitive advantage in order to create a win-win business and strive for market share. ■ AR/VR Smart Devices Compal continues tight cooperation with Qualcomm, in the R&D and design capabilities of the existing product line, linked to 5G communications capabilities and develop cloud software platforms, to provide customers full software and hardware solutions, and also provide customized services to fulfill market & user requirements. ■ Smart Home Devices Compal will leverage its hardware design, software, and firmware capabilities in consumer devices and communication fields, and invest in the development of a cloud computing software/ platform. To provide the complete Smart Home solutions and bring customers more integrated solutions and customizable applications to meet customer & market users’ expectations. 137 ■ IoT Vertical Solution Compal aims to expand its notebook design capabilities to that of industrial computers with different capabilities and specifications to provide customers with the most comprehensive solutions. Furthermore, Compal will be re-designing its factory production lines to conform with special specifications and test requirements for new product applications for medial and vertical industries. AI will be incorporated in vertical solutions as needed to complement the overall service package and to ensure greater reliability of the products offered. ■ Smart medical and healthcare Compal will leverage its existing ITC capabilities and cloud platform to explore cross-industry alliances and opportunities to satisfy customer needs with diverse products and services. ■ Auto electronics (AE) In response to the three main trends of automotive development (electrification, connectivity, and ADAS/AD), we will continue to integrate key technologies and demonstrate the characteristics and features of the IT industry based on our foundation in related industries to engage in synchronous development with customers, provide various cost-effective, and 0 ppm IVI systems and ICT solutions, and combine it with new product technologies developed progressively to strive for new product, customer, and market business opportunities. ■ Servers Compal has many years of experience in the design and manufacturing of computers, and this has helped with our entry into the server industry. Compal's existing business relationships with world leading server manufacturers also works in our favor. 5. Future opportunities, threats, and responsive strategies ■ Opportunities • New product concepts such as the 2-in-1, Ultra slim Notebook, and e-sports will continue stimulating market demand. • Renewal demands for corporate notebooks remain consistent following new products introduced by Intel and Microsoft. • Innovation from world leading brands puts the Company in a position to dictate new products and markets. • Expansion of software development, aesthetic design and man-machine interface talent has greatly improved the ergonomics of products manufactured by Compal, which adds both value and appeal to customers. • Compal's strong R&D, manufacturing and operational management experience has earned the trust of world- renowned brands. • Compal has rigorous processes in place to monitor cost from initial R&D to manufacturing and is therefore able to maintain a competitive edge with our products. • A rational pricing strategy supported by an alliance with parts suppliers helps secure market growth. • Connectivity not only brings convenience, but also adds value and competitiveness to the products offered. • Compal actively forms alliances with participants in different industries. This helps the Company to increase product and customer diversity. 138 • Compal remains active in developing innovative technologies and exploring new product concepts. The Company works alongside customers in developing new product lines, and in so doing secures access to new products and technologies. • The growing scale of 4G LTE infrastructures in emerging markets provides users with the incentive to renew mobile devices and supports the growth of smartphone demand. • Demand for entry-level tablets and tablets with voice features continue to rise. The Company offers some of the most competitive products in the industry to meet this demand. • Compal has the technical capabilities to make smartphones and tablets in ways that support new IoT applications such as smart speakers, smart voice assistance, etc. as well as the ability to explore new opportunities across different industries. • Driven by growing demand for wearable devices, Compal continues to mass-produce products and develop new proposals and innovations with major customers, continuing to maintain the Company’s position as the leading producer of wearable devices. • Compal is aggressively investing in 5G development and puts much innovative energy into 5G and product development to provide the 5G applications requested by their customers. • The US trade war is expected to enhance Compal’s design opportunities and slow down the price competition among China manufacturers. • • Integrate 5G communication capabilities with partners inside and outside the Compal group to develop various 5G domain & industrial applications. Integrate holographic 3D streaming media, 5G communication technology, artificial intelligence (AI) to build the next generation AR / VR. • Actively apply for audio and voice analysis patents to enhance global patent deployment. • Enhance artificial intelligence technology as the foundation of the next generation of smart devices. ■ Threats • CPU shortage and weak consumer demand continued to affect the shipment of notebooks in the first half of 2020. • New Chinese manufacturers have joined the race with competitively priced mid-range and high-end notebooks. This has intensified price competition in this product category. • The industry now competes in terms of vertical integration as opposed to specialization, which involves more costly investment, higher market complexity and more challenging business management. Faced with the rise of the Chinese supply chain, Taiwanese notebook manufacturers need to coordinate operations to be able to match the integrated design, development and assembly capacity from China. • The Notebook is a highly matured product and requires more diverse, value-adding, and innovative features for differentiation from other market participants. • Products with Internet connectivity tend to involve many different communication protocols at the same time, this poses a challenge in product development and can make products unacceptable to some consumers. • Too many competitors in the IoT market can give rise to inconsistent quality and make competition in the industry more difficult. • Ongoing price competition among smartphones has a significant impact on large-brand customers. • Overall demand for tablets has declined, which adds to the competitive pressure. 139 • Wearable devices are still in the early stages of development and require sustained periods of expansion to reach an economy of scale. • Due to the outbreak of COVID-19 pneumonia, the consumer market demand was lower than expected. • 5G will be used in various domains, while many industries are in the infrastructure construction and POC stage. Many 5G innovative new business models are still under development, and large scale applications still take time. ■ Strategies • Accelerating the manufacturing recovery to reduce the impact from COVID-19. • The Company will adopt strategies that focus primarily on innovation, product added value, and service. • Quality and production efficiency will be improved to reduce manufacturing costs. • The use of land and human resources in emerging countries throughout the world will be optimized to reduce the cost of production and basic R&D. • We will enhance product design review and develop a comprehensive database of documents to improve design efficiency and quality while reducing costs. • New customers and new product lines will be explored in emerging markets. • Launch ultra slim notebooks integrating high performance and portability in response to the machine renewal demand in the commercial market to seize the commercial market together with customers. • The gaming market has grown in diversity with new technologies constantly being introduced to entice consumers into replacing old products. Compal is in the position to offer gaming notebooks at various price levels to meet consumer demand. • Offer complete solutions and form alliances across industries to quickly tap into market demand while retaining the flexibility to satisfy customer needs. • Progressively nurture innovative talent within the organization, enhance the development capacity for high- end medical equipment and engage world-renowned medical equipment suppliers in strategic, long-term, and mutually beneficial cooperation. • Continue to strengthen working relationships with platform operators by providing hardware and software solutions. • Continuous to extend 5G communication capabilities to various 5G domains and types of product, build up leadership in 5G, and provide complete total solutions. • Provide complete AR/VR solutions and collaborate with various domain partners, to create market penetration, and increase customer satisfaction. • Continuously develop high-end acoustic technologies for smart hearable products, and collaborate with audio professors and Taiwan Top acoustic research centers. • Cultivate internal R&D talents of AI (artificial intelligence) technologies, hold artificial intelligence seminars, and training courses. 5.2.2 Major Products and Their Main Uses 1. Main product applications 140 ■ Notebooks An analog-digital application hardware platform combined with dedicated software to enable a variety of applications such as data editing/processing, word processing, layout, graphics applications, web browsing, communications, digital multimedia entertainment, gaming, and others. ■ Ultra slim Notebooks A laptop that emphasizes thinness and is lightweight and takes into account computing as well as battery performance to meet the consumer need for both portability and productivity. ■ 2-in-1 Notebooks These devices use the Windows 10 operating system, have an optional stylus, and satisfy the growing consumer demand for mobile computing. In addition to multiple operating modes, the device has a touch screen that enables it to be used as a tablet. ■ All-in-one (AIO) Beautiful aesthetics suited for home, commercial, and design use, with emphasis on a touch screen input interface, a range of software applications and high computing power. ■ Smart Home Devices Smart appliances, controls and sensors that provide users with diversified services for a smart lifestyle. ■ Tablets Portable touch screen multimedia, mobile viewing, and online information applications. ■ Smart Display Products Graphics displays with audio output. ■ Smartphones and Modules Personal communication and internet access. ■ IoT Vertical Solutions Flexible hardware designs allow a range of customized software applications along with the cloud and big data analysis for horizontal alliance. We offer clients complete solutions and services by the creation of novel applications. Unlikely conventional IT products, such as AGV and AI products usually need customization for various needs, but they elicit greater brand loyalty. ■ Smart Medicine and Healthcare Penetration into households and point-of-care areas using technology, including that of the IoT, and gradual integration with our own peripheral software products allows the provision of comprehensive solutions. These can give convenient and instant smart health care that will enhance dependence on the products as well as engender user brand loyalty. ■ Auto electronics (AE) • In-Vehicle Infotainment system • Vehicle communication (3G/4G) system. • Voice controlled natural sound navigation. • Android Auto/Carplay connection. Smartphone Connection. 141 • Smartphone Auto connection • Accident alarm. • Integrated peripheral safety warning systems such as wireless tire pressure and collision avoidance radar. ■ Servers Designed for high power computing, capable of storing massive amounts of data and compatible with different processing programs for data analysis. Built to accommodate different applications required by enterprises, data centers, and cloud platforms. 2. Production processes of main products 142 ■ Notebooks 143 Casing of logic board Preparation of LCD display Assembly Preparation of main board Preparation of keyboard Fasten LED board Inspect LCD panel Input inspection Input inspection Prepare plunger + frame Fasten power switch board Fasten interface board to lower casing Fasten motherboard to frame Parts processing Install frame onto metal board Produce LED frame Fix LCD panel to lower casing Prepare battery spring SMT (surface mount technology) Apply double-sided tape Apply hook to casing Prepare battery wire Insert add-ons Insert keys Combine upper & lower casing Prepare disk drives Visual inspection Press keys and check Assemble LCD casing & logic board upper casing Fasten disk drives+motherboard to bottom casing Soldering furnace Production process inspection Fasten power board to motherboard Remove board Install PCB to lower casing Production process inspection Trip conductor Install wires to lower casing & fasten Fasten LCD casing & bottom casing Machine wash Assemble upper casing Battery assembly Apply heat sink Prepare name plate Keyboard installation Secondary soldering Process quality inspection Function test Brush clean Accelerated aging test Visual observation Function test Repair Prepare name plate & paste onto unit Process quality inspection Wipe down unit Automated machine testing Exterior inspection Accelerated aging test Unit packaging Automated machine testing QA testing ■ LCD TVs and Monitors 144 Display panel Power panel Assembly of LCD TV & monitor ↓ ↓ ↓ Parts processing Parts processing Prepare parts ↓ ↓ ↓ SMT SMT Assemble LCD panel ↓ ↓ ↓ SMT visual inspection SMT visual inspection Fasten metal parts ↓ ↓ ↓ Manually insert add-ons Manually insert add-ons Assemble display panel ↓ ↓ ↓ Visual inspection Visual inspection Assemble power panel ↓ ↓ ↓ Auto soldering Auto soldering Install connecting wires ↓ ↓ ↓ Manual soldering Manual soldering Assemble back casing ↓ ↓ ↓ Apply heat sink Apply glue Structural inspection ↓ ↓ Apply glue Functional test ↓ ↓ Substrate test Accelerated aging test ↓ ↓ QA random inspection Screen adjustment ↓ Pressure test ↓ Electrical test ↓ Wipe down exterior ↓ Exterior inspection ↓ Paste front and back name plates ↓ QA testing ↓ Packaging ↓ Box and package ↓ Final product inspection IMEI OK Packaging OK Shipment ■ Smartphones and tablet PCs Design/analyze OK Input material OK SQE test OK Install PCB SMD OK Welding of parts OK Base band TEST OK Assembly OK Vibration & appearance OK Function test OK FINAL TEST OK CALL TEST OK Current IDEL OK Exterior NO NO NO NO NO NO NO NO Repair Repair Repair Repair Repair Repair Repair Repair OK OK OK OK OK OK OK OK 145 5.2.3 Supply Status of Main Materials ■ CPU/Chipset ● Notebooks To solve the shortage situation, Intel invested 1 billion US dollars in 2018 to increase production capacity and began mass production in 2019Q3. Because of the trade war between China and the USA, most brands have prepared the material in advance and that makes too much demand for the market. Also, Intel’s 10 Nano yield rate did not improve that much and there is some problem with 14 Nano yield that makes less production in the second half of 2019. Plus, the demand for server and cloud drive has increased so that makes CPU out of stocks in the first half of 2020. Intel estimates that the shortage will not be relieved until the second quarter of 2020. The shortage of Intel in 2019Q4 continues to increase, making the proportion of AMD models continue to increase. Most companies have started to use AMD CPU in their consumer model, the attach rate comes to 16.7%. But the proportion of consumer models decreases slightly in 2020 Q1 because AMD CPUs are usually equipped in standard models and the proportion falls sharply in this quarter. In this situation, AMD’s consumer model rises a little but the whole percentage decreases to 16.2%. In terms of Intel ’s new products, 14-nanometer high-end products will launch an eight-core 14-nanometer Comet Lake H in the second quarter of 2020, and the mid-range product Rocket Lake will be launched at the end of the fourth quarter of 2020 and will be used to Continue 14nm Nano Comet Lake. As for 10-nanometer, the eight-core Tiger Lake H for high-end products is expected to be launched in the first quarter of 2011 but the memory only supports DDR4. The mid-range product Tiger Lake UP3 will be launched in the third quarter of 2020. It will support LPDDR5. Low-end CPUs for low-power Chromebooks and small notebook computers are expected to be launched in the fourth quarter of 2020 with Jasper Lake at 10 nm. Overall, even though Intel’s shipping strategy in 2020 has 14-nm Comet Lake CPUs supporting brand customer shipments, the main shipment will focus on 10-nanometer Ice Lake CPU and Tiger Lake CPU which will be launched in the third quarter of 2020. In 2021, Intel will only launch 10 nanometer Alder Lake and no 14-nanometer product will be released. ● Smartphones and Modules The end of 2019 with 5G Network global market, 61 operators around the world have provided 5G service, and more Devices have been released. Most 5G markets are still in the niche and early stage of development, the major factor is that many operators are still observing the business working model from 5G Network. Investment costs and infrastructure construction will take time, 5G is an important technology. Beyond faster speeds, 5G offers low latency, increased capacity, and higher data rates. Once realized, 5G will be a massive improvement from 4G and will signify a new chapter of next-gen connectivity. Although 5G communication technology and application can optimize the current 4G communication quality and expand the scope of application, there are still limitations. In order to achieve high-speed transmission rates, 5G needs to have a larger bandwidth than 4G. Therefore, 5G is mainly based on Sub-6GHz and mmWave. The 5G smartphones need to support more frequencies and multi-modes compared to 4G, and need to solve the inherent limitation of high-frequency wireless communication in the mmWave. There would be a number of RFFE modules and antennas needed to be increased accordingly, as well as the design and integration of RF 146 components. Therefore, SoC, baseband chips, complete RF front-end (RFFE) will support sub-6GHz to millimeter wave (mmWave) antennas and other end-to-end product portfolio applications. ■ Memory ● DRAM When it comes to using DRAM, mobile stands for 41%, followed by server 28%, consumer 12%, PC 14% and graphics 5%. The trade war between China and the USA caused uncertainty in tariffs and import and export trade and there were no breakthroughs in 3C products. As a result, consumer expectations for replacement are weak, and market demand may be postponed, causing an oversupply of DRAM in the market and DRAM prices falling to the bottom. After the factories have begun to reduce production, DRAM's inventory has reached a healthy level, and the price downward tendency has ended at the end of 2019. It is estimated that the average server capacity GB / sys in 2020 will grow from 303.17GB to 396.33GB, and the annual shipment growth will be about 10%; the average smartphone capacity GB / sys will grow from 3.82GB to 4.49GB, and the annual shipment decline will be about 2.4 %. The average PC loading capacity has grown from 7.5GB to 8.2GB, and the number of PC shipments has declined by about 7.1% annually. In terms of DRAM process, the top three suppliers Samsung, SK Hynix, and Micron have moved their mainstream products from 1xnm to 1ynm. Samsung and SK Hynix have also entered the 1znm generation. DDR5 is expected to be launched in 2020Q3, and the frequency can reach 6400Mbps. However, since INTEL NB CPU equipped with DDR5 was mass-produced in 2021Q3, DDR5 for servers will be launched this year. The mobile market will have new generation designs such as 5G, multi-lens, foldable phones or tablets in 2020. As the functions become more powerful, the demand for LPDDR on each device increases. The mobile phone with 12GB memory appeared in 2019, and the mobile phone with 16GB memory will make a debut in the first quarter of 2020, this increases the demand for LPDDR. As for new products, Samsung first used the world’s first 12GB LPDDR5 as a mobile DRAM, which is expected to be equipped with 5G functions and high-end smartphones that implement AI applications. The situation is unclear for the mobile device, increasing memory capacity has become one of the major growth drivers to suppliers. Since the second half of 2019, DRAM prices have begun to stabilize due to product reduction and inventory closeout. It is expected that DRAM prices will continue to rise in 2020. As for Graphic Memory, since Nvidia launched the N18 refresh version in 2020Q2, NB and graphics cards have launched new models simultaneously, making the demand for Q2-Q3 to rise, and this brings about graphic memory being out of stock and the price getting higher and higher. The three major manufacturers observed that consumer products were affected by the Coronavirus, and the buying popularity gradually declined. Suppliers began to adjust their production, making mobile and PC switch to servers. The server market benefited from the launch of INTEL Cascade Lake, AMD Rome new platforms and the demand from Microsoft and Amazon upturned. In 2020, new bids for Q1 China Data Center were launched one after another, and the overall demand was strong, resulting in the current market shortage and price increase. If the three major manufacturers continue to switch to the server, it is estimated that the supply may exceed the demand in the second half of 2020. Also, if the inventory of North American and Chinese data center customers reaches a certain level, they will quickly stop purchasing and the price for memory may collapse. Looking forward to 2020, the global economic recession caused by COVID-19 will reduce the demand for the 147 DRAM market. Hand-held devices, personal computers, consumer electronics, etc., have all been impacted by the sales aspect. Although the server market continues to develop in 5G / AI / IoT, and COVID-19 unexpectedly brought about the demand for data centers, it is estimated that the overall DRAM shipments in 2020 will still decline compared to 2019. As for the extent of the recession, it will depend on the control of the Coronavirus. ■ NAND flash For the past three quarters of 2019, due to the weak demand for servers and the low replacement rate of mobile phones, the price of NAND Flash dropped sharply. Nevertheless, in 2018Q4 KIOXIA (Toshiba memory name change to KIOXIA since 2019/10/1) caused a power outage issue, and purchase demand increased in the peak season, which caused prices to rise in 2019 Q4. The price of SATA-SSD rose about 4-7% and PCIe-SSD rose about 6-9%. As for the SSD, the attach rate was 77% in 2018, and will expect to increase to 80-85% in 2020. The capacity in the PC market is still dominated by 256GB, with 512GB replacing 128GB as the second-largest mainstream capacity. Because of the continued rise in 2020, the current 512GB attach rate has been revised to become the mainstream capacity in 2021. In terms of the process to each manufacturer, Samsung / Hynix / Micron will focus on 96-layer 3D TLC products this year. In the future, due to increased capacity, the three manufacturers will all introduce 128-layer 3D TLC in 2020, 112-layer 3D TLC will be launched in Q3 of 2020. As for the 3D QLC process, there are few suppliers actively promoting it, only Samsung and Micron have 3D QLC SSD products on the market, and Hynix will introduce QLC products this year. In the future, whether manufacturers will follow up on 3D QLC or INTEL 144-layer QLC can be accepted by customers is two big issues in 2020. According to the impact of the Coronavirus this year, long-distance work and home economics have brought the demand for servers to a peak. 5G smartphones and new game consoles XBOX-X / PS5 are about to be launched, and it has taken the majority of NAND FLASH Capacity. Due to the impact of the epidemic, all major suppliers have expressed reservation to capacity expansion, making the SSD market even scarcer. It is expected that the price of NAND FLASH will continue to rise this year, but it may converge as the epidemic gets worse. As for eMMC, since 5G smartphones are an important topic this year, the demand for transmission speed has exceeded the load of eMMC. The UFS with better performance than eMMC is expected to greatly increase the attach rate this year and make more shipments of 256GB / 512GB products. ■ HDD The attach rate for HDD has been reduced year by year because of the improvement of cloud storage and the weight of notebooks has become lighter than before. Most notebooks have equipped SSD and that makes the attach rate of HDD down to 20% in 2020. The usage rate of 1TB was the highest in 2019. In 2020, the usage rate of 500G may become 40%, 1TB about 58%, and 2TB around 2%. As for price in 2020, 500G may not change, 1TB may decrease 0.7% and 2TB may decrease 2.4%. As for new technology, WD is developing MAMR technology to make the capacity to 18TB and 20TB, which is the new product named “Ultrastar” series; Seagate came up with HAMR technology as a response which can also make the capacity to 20TB. The new product gives the Company another option to store their inactive information. 148 HDD is still having a price advantage when compared to SSD and because the price of SSD rises, it can slow down the trend of HDD being replaced by SSD. ■ ODD ODD’s functions have been replaced by other technology like external hard drives, USD, and cloud storage. This reason makes fewer models which are still using ODD. The attach rate may decrease to 12% in 2020. There will be no new models in 2020, so most notebooks may still equip DVD-RW. Due to the high price and fully developed technology of social media, Blu-ray drives may only be specially equipped in some models. Inactive information storage may be a big issue soon. Panasonic and Sony have cooperated to develop AD drives for information centers to store these messages, so it may be a trend in further future. ■ Batteries Looking back on 2019, the shipment of cylindrical battery cells increased by 6% compared with 2018. The growth of shipments mainly came from automotive batteries (EV, E-Motorcycle), which grew by 5% and E- Motorcycle 23%. Besides, in the shipment of Polymer batteries, the growth came from 17% of NB and 69% of wearable devices, but there was no growth in the mobile phone market, making the overall shipment increase only 20% in 2019. It is estimated that due to the impact of the coronavirus in 2020, the overall mobile phone battery shipment will decline by 9%. Although the NB part has increased the demand for remote work and teaching due to the epidemic, the overall European and American consumer markets have turned weak. It is estimated that NB battery shipments will decline by about 10% in the first half of 2020. Although the overall global car sales fell by about 4.7% in 2019, the number of electric vehicle sales is still growing at the rate of 20%. Major automakers are still investing resources in the development of electric vehicles. Cylindrical’ s demand for automotive batteries (EV, E-Motorcycle) still showed no signs of weakening in 2020. Many battery manufacturers have shifted their production to Cylindrical’ s capacity to automotive batteries. To view from other angles of notebook market supply, because Japanese manufacturers (Panasonic) and Korean factories (LGC, SDI), which mainly produce Cylindrical have quit the market, only a few old organic models and selectively order, making Chinese manufacturers to enter the market. The Polymer segment topped the list with 13.4% growth in ATL shipments, followed by CosMX at the rate of 12.8%. While at the Polymer suppliers with larger NB shipments, SDI and LGC grew 9% and 3% respectively, while BYD decreased 11%. It is estimated that in 2020, the benefit of lithium-ion batteries and the demand for servers will continue to increase. As for backup power for cloud data centers, lithium-ion batteries will gradually replace traditional lead-acid batteries in the future. Although lead-acid batteries are still the bulk of current backup batteries in data centers, lithium-ion batteries have the advantage of long service life, faster speed of charging and smaller size, it may replace lead-acid batteries in the future. In 2019, lithium-ion batteries stand for 12% of the backup batteries in the data center, and it is estimated that it will rise to 16% in 2020. ■ LCD panels and Touch control modules Factors such as Brexit, Japan’s weak economy, US-China trade war, and China ’s economic slowdown in 2019 contributed to the slowdown in the global economy. The growth rate of the global economy in 2018-2019 slowed from 3.2% to 2.8%. 149 Due to the condition of mentioned above, affecting the growth of demand is not as expected, the prosperity of the panel industry continues to decline, further makes global output value still unable to resist recession, however due to the rapid growth of China's panel production capacity, drive the panel component industry boom to a steady trend, According to statistics, the output value of global LCD panel components in 2019 is about 42.8 billion US dollars, no big difference compared with 2018, the annual growth rate declined by 0.09% . For touch modules, in 2019 the dependence rate on NB will increase by 15%, accounting for about 20% of all NBs. According to statistics, touch panels used in smartphones in the first half of 2020 are the most versatile application products, accounting for about 85% of the total shipments. The second is the use of tablet and notebook computers, accounting for about 9%; automotive applications are 1.5%; others are about 4.5% (industrial equipment / automatic cash registers, etc.). In 2020 many brands will try dual-screen design, it is expected that the proportion of NB will still improve, and the market’s acceptance of dual-screen design will be the growth of the main factor for touch in NB. For OLED panels, Korean manufacturers look forward to their excellent display quality, and have been investing in product development for a long time. As the demand for mobile phones gradually increases, further which affects their output value, the China manufacturers also believe OLED flexible characteristics and better display quality with development potential. They were gradually mass-produced, according to statistics, the annual growth rate of the annual output value of 2019 was about 20%. The growth strength is obviously better than other products, and it has also become one of the main growth items of the panel component industry. The growth rate in 2020 is expected to be 15%. The main application market is still in the field of mobile phones, because the current OLED technology is not as good as the LCD in terms of cost and service life, and the yield rate has not yet stabilized for production. In the future, the product life extension and improved yield rate will be the main key of market share. Evaluation of industry development in 2020, technology has entered the 5G era, is expected to drive the gradual growth of related demand, various new market developments will emerge, including smart transportation, large medical industries, wearable devices, robots, etc. All are to drive the growth of the demand for human- machine interfaces, and the demand for panel / touch modules is expected to maintain a stable growth trend. In addition to the expansion of production capacity, the development of new products and the introduction of differentiated technologies to improve competitiveness, the most important thing for the manufacturer to do is actively invest in new niche markets or new business models to expand profitability. Looking forward to 2020, under the influence of the epidemic, facing the shrinking of products and weak demand, it can be predicted that the global economy will remain at a low level, which will further impact the products demand. Therefore, the annual growth rate of panel and touch module production capacity will slow down, and the global economic situation will still not be improved. After the outbreak of the epidemic, it is estimated that the recession rate in the first half of the year will be about 10-12%. In the second half of the year, the new market analysis will depend on the epidemic situation control state. 150 5.2.4 Major Suppliers and Clients (1) Major Suppliers in the Last Two Years Unit: NTD thousand 2018 2019 Party 1 2 Name Amount As a percentage to 2018 net purchases (%) Relations hip with the issuer Name Amount As a percentage to 2019 net purchases (%) Relationshi p with the issuer Name Company E Company B Others Net Purchase 328,103,409 113,241,981 475,877,885 35.77 12.35 51.88 917,223,275 100.00 N/A Company E N/A Company B Others Net Purchase 301,780,015 89,789,108 527,842,635 32.82 9.77 57.41 919,411,758 100.00 N/A Company E N/A Company B Others Net Purchase 2020 first quarter As a percentage to 2020 first quarter net purchases (%) Amount 67,063,738 15,711,786 105,966,807 35.53 8.33 56.14 188,742,331 100.00 Relationship with the issuer N/A N/A (2) Major Clients in the Last Two Years Unit: NTD thousand 2018 2019 2020 first quarter Party Name Amount As a percentage to 2018 net sales (%) Relationship with the issuer Name Amount As a percentage to 2019 net sales (%) Relationshi p with the issuer Name Amount As a percentage to 2020 first quarter net sales (%) Relationshi p with the issuer 1 2 3 4 Company a Company d Company e Company f Others Net sales 128,790,649 414,474,616 66,783,151 187,925,666 169,732,329 967,706,411 13.31 42.83 6.90 19.42 17.54 100.00 N/A Company a N/A Company d N/A Company e N/A Company f Others Net sales 96,591,070 390,210,303 105,890,275 212,262,458 175,488,240 980,442,346 9.85 39.80 10.80 21.65 17.90 100.00 N/A Company a N/A Company d N/A Company e N/A Company f Others Net sales 15,692,413 83,841,867 15,202,473 42,406,589 24,903,704 182,047,046 8.62 46.06 8.35 23.29 13.68 100.00 N/A N/A N/A N/A 151 5.2.5 Production in the Last Two Years Unit: thousand devices; NTD thousands Year Production volume/ value Main products 2018 2019 Production capacity Production volume Production value Production capacity Production volume Production value 5C electronics 122,631 106,027 934,122,749 136,388 115,443 942,905,972 5.2.6 Shipments and Sales in the Last Two Years Unit: devices; NTD thousands Year Sales volume Main products 5C electronics 5.3 Human Resources 2018 2019 Domestic sales Export sales Domestic sales Export sales Volume 398 Value 1,818,019 Volume 102,797 Value Volume Value 965,888,392 266 1,134,242 Volume 117,245 Value 979,308,104 Year December 31, 2018 December 31, 2019 March 31, 2020 Number of employees Average age Average years of service Academic qualifications Doctoral Degree Master’s degree University High school / Below/ others 82,374 27.69 2.06 0.05% 3.64% 18.83% 77.48% 81,743 95,765 28.84 2.08 0.05% 3.81% 19.33% 76.81% 152 29.54 1.82 0.04% 3.26% 16.88% 79.82% 5.4 Environmental Protection Expenditure (1) Compal is an assembler of electronic products and produces no significant pollution: The Company is an information electronic product assembly plant, a non-high energy consumption, high water consumption and high pollution industry. In order to protect the environment, it fulfills its social responsibilities, saves energy and reduces carbon, and reduces the impact of global warming. The Taiwan and Mainland China plants together incurred expenses of NT$766,350(excluding regular maintenance and green R&D) in 2019. We are keeping the promises we made as an earth citizen and hope to make substantial contributions to the protection of the global environment. We will continue our commitment to efforts in this respect. In 2019 and as of the date of report published, Compal had no violation of environmental laws, and will keep abreast of relevant regulatory updates and respond immediately to reduce the risk of violations. (2) Compliance with EU RoHS directives: All Compal products are 100% compliant with EU RoHS Directives. There have been no cases of returns for non-compliance. Compal requires suppliers to adjust the revised exclusion clause, and the relevant specifications for the use of plasticizers DEHP, BBP, DBP and DIBP, which came into effect in 2019, and have been effective since July 2, 2018. To manufacture environmentally friendly green products and meet the requirements of both international environmental laws and client demand, the Company has implemented “Management Standards for the Control of Environment-Related Substances in Parts and Materials” that covers all hazardous substances currently prohibited by law and banned by customers. We have implemented efficient and effective methods of inspection for hazardous substances using recognized component classification and risk control to establish a plant monitoring mechanism for oversight and verification. (3) Responsive strategies and possible expenses: In the future, the Company will continue to implement its environmental responsibilities including the boosting of staff knowledge of environmental matters, and the advocation of updated green living knowledge, the Company’s response to government policy with respect to green consumption, and the regular priority assessment of green product content in procurement, as well as continuous improvement in the energy efficiency of our plants. This includes scrutiny for all kinds of possible violations of environmental regulations in the operations management system, and the mandate to have a timely response to all environmental laws. 5.5 Labor Relations (1) Availability and execution of employee welfare, education, training, and retirement policies. Elaboration of the agreements between employers and employees, and protection of employee rights. ■ Employee welfare: In addition to all their statutory labor rights and to help employees find a balance between work and personal life, both physical and mental, and to improve their vitality in the workplace, the Company has established an Employee Benefits Committee, a Life Committee, and other groups responsible for promoting worker welfare. The employee health benefits and activities include a fitness center, a medical facility, periodic health checks, 153 recreational team competitions, family activities, travel, the arts, and leisure and all kinds. Group Life Insurance is covered by the Company that includes accident, medical, and cancer. Employee dependents may also join the scheme at a discounted rate, but at their own expense. We also have benefits such as scholarships for employees and their children. The Company actively supports the government in resolving the low birth rate crisis and childcare policy in Taiwan. Since 2011, we have provided generous maternity grants for employees and their spouses and children. By the end of 2019, the Company had provided NT$167.44 million in maternity allowances and bonuses. There were 30 counts of employees who took parenting leave, with the right to return, in 2019. ■ Education and training: The Company set training credits and outlined the credit system according to the needs of each level. The Company also integrates all training records in an online learning platform to further assist the competent staff in keeping abreast of learning progress. In 2019, a total of 891 training sessions (both internal and external) were organized; these courses delivered 179,984 hours of training and 50,948 persons enrolled. The total training expenses were NT$23,532 thousand. The training courses included: ‧ Orientation: New hire seminars and corporate culture experience camps were organized to help new hires better understand Company culture, the current status of the industry, and Company strategy and vision. ‧ Language training: Basic to advanced English and Japanese courses that train employees to respond to customers and gives them a global vision through workspace situational training. ‧ Managerial skills Training: To establish a comprehensive blueprint of development level, strengthen core competency at all levels in such aspects as teamwork, problem analysis, innovative thinking... and soon, to conduct planning for Company talent training at various stages. ‧ Professional training: Categorized new professional knowledge lectures, courses, and experience heritage job training to enhance employee expertise and technology and to enhance Company core competitiveness through systematic management. ‧ E-learning: Offers related courses in new hire requisites, IT, 6 sigma, language, management, CSR, and occupational safety. The Company uses Internet learning and resource sharing to offer real- time learning. The effect is maximized with a complete learning and training mechanism that utilizes a comprehensive knowledge management system. ■ Retirement system To arrange retirement for employees, the Company has issued regulations of labor retirement, which stipulate the conditions and standards for retirement, application, as well as operation of labor Pension Preparation Fund based on law. The supervisory committee of workers’ retirement preparation fund has also been established. According to the Regulations for the Allocation and Management for the Pension Preparation Fund, we contribute and deposit labor pension preparation funds into the dedicated account of the Bank of Taiwan per month to protect employees’ rights. Adopted the Labor Pension Act in the meanwhile, we have contributed 6% pension into personal account for befitted employees. Also, for those who volunteered to contribute pension, voluntary withholding rate is deducted from the employees’ monthly wage to the individual retirement account of the Labor Insurance Bureau since 1st July in 2005. 154 ■ Employer-employee communications and the enforcement of worker rights. The Company has always valued employer-employee relations and has communication channels available to facilitate two-way communication that allows the Company to respond to the thoughts and opinions of employees in a prompt manner. The Company not only has policies in place to protect employee rights, but also makes decisions in the best interests of its employees. (2) Personnel management The Company has clear policies in place to manage human resources and to guide employee behavior. There are specific levels of approval authority and detailed rules to guide decisions concerning employee recruitment, promotion, appraisal, assignment, leave of absence, resignation, confidentiality agreements, reward and discipline. These policies and rules exist to eliminate subjective judgment and to create a fair, open, and systematic corporate culture. (3) Work environment ‧ Buildings are subjected to annual fire safety inspections and reports. ‧ Buildings, plants and equipment are inspected daily and maintained on a regular basis. ‧ The Company hires regular cleaning services to ensure the cleanliness of its work environment. (4) Employee safety ‧ Personnel entry and exit is controlled by a security system. ‧ Security personnel are stationed 24 hours a day to patrol plant premises and monitor the surveillance system. ‧ Lectures and rehearsals are organized annually to demonstrate proper responses to cases of emergency. (5) Actual or estimated losses arising as a result of employment disputes in the recent year up to the publication date of this annual report, and any responsive measures taken: ‧ The Company did not suffer any losses due to employment dispute in the recent year. However, the Company was found to have violated the Labor Standards Act because of the results of the labor inspection. (i) the Company was issued a fine for NT$900,000 following a labor inspection result dated April 8, 2019 due to overtime applications not being timely processed (Labor Standards Act Article 24); working hours exceeding the permitted limit (Labor Standards Act Article 32) and the attendance records were not be registered the attendance of workers on a daily basis to the minute (Labor Standards Act Article 30). (ii) the Company was issued a fine for NT$600,000 following a labor inspection result dated July 25, 2019 due to working hours exceeding the permitted limit (Labor Standards Act Article 32) and (iii) the Company was issued a fine for NT$100,000 following a labor inspection result dated Aug 20, 2019 due to working hours exceeding the permitted limit (Labor Standards Act Article 32). The Company has reviewed the working hour management 155 N/A N/A process and strengthened communication to employees to better manage overtime application. ‧ Responsive strategies and possible expenses: none. 5.6 Important Contracts Agreement Counterparty Patent Phoenix licensing Technologies agreement Co Period Since 2010.1.1 Auto-renewed upon expiry 1. Tool Licenses 2. Source Code licenses 3. Maintenance Major Contents Restrictions Trading and manufacturing agreement Under this agreement, the buyer will Since procure computer products developed and Dell Products 1997.06.26 manufactured by the seller, while the seller L.P. Auto-renewed will grant the buyer proper licenses to use upon expiry the products and provide after-sales Trading and manufacturing Acer Inc. agreement Since 2001.10.01 Yearly Auto-renewed upon expiry technical services. Under this agreement, the buyer will procure computer products developed and manufactured by the seller, along with N/A after-sales technical services provided by the seller. 156 VI. Financial Information 6.1 Five-Year Financial Summary ▓ Consolidated Condensed Balance Sheet – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2020 Analysis Current assets Property, plant, and equipment Intangible assets Other assets Total assets Prior to Current distribution liabilities After distribution 2015 2016 2017 2018 2019 277,783,476 300,469,007 321,782,654 362,745,250 343,154,813 316,194,904 24,308,631 20,952,677 18,179,367 20,418,228 19,972,347 19,934,781 1,194,193 1,291,281 1,284,660 1,516,253 24,639,275 24,303,146 22,109,740 15,115,092 1,553,342 17,967,917 1,624,402 17,183,570 327,925,575 347,016,111 363,356,421 399,794,823 382,648,419 354,937,657 202,757,075 209,232,199 231,955,732 274,207,898 255,820,033 233,467,179 208,009,032 214,478,756 237,184,287 279,436,453 (Note 2) - Non-current assets 15,570,384 25,500,097 22,752,717 12,425,077 12,069,042 12,279,244 Total liabilities Prior to distribution After distribution Equity attributable to parent company shareholders Ordinary shares Capital reserves Prior to Retained distribution earnings After distribution 218,327,459 234,732,296 254,708,449 286,632,975 267,889,075 245,746,423 223,579,416 239,978,853 259,937,004 291,861,530 (Note 2) - 103,775,795 105,804,389 101,895,584 105,723,646 105,972,633 100,796,178 44,711,266 44,241,606 44,191,916 44,071,466 44,071,466 44,071,466 12,838,638 11,779,274 10,938,773 9,932,434 9,159,259 8,338,999 51,877,511 55,289,409 56,557,146 60,060,381 57,726,604 53,924,166 47,450,840 50,867,256 52,149,999 55,653,234 (Note 2) - Other equity interests (3,926,881) (4,624,653) (8,911,004) (7,459,388) (4,103,449) (4,657,206) Treasury stock (1,724,739) (881,247) (881,247) Non-controlling interests 5,822,321 6,479,426 6,752,388 (881,247) 7,438,202 (881,247) 8,786,711 (881,247) 8,395,056 Total equity Prior to distribution After distribution 109,598,116 112,283,815 108,647,972 113,161,848 114,759,344 109,191,234 104,346,159 107,037,258 103,419,417 107,933,293 (Note 2) - Note: 1. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2020, is reviewed by the CPA. 2. The 2019 annual financial statements have not been approved at a shareholders’ meeting. Therefore, the amount after allocation is not listed. 157 ▓ Consolidated Condensed Statement of Comprehensive Income – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2020 Analysis Net sales revenue Gross profit 2015 2016 2017 2018 2019 847,305,698 766,810,035 887,656,959 967,706,411 980,442,346 182,047,046 33,378,357 32,836,970 31,964,569 30,567,091 33,908,828 5,945,911 Net operating income 11,312,452 11,063,645 9,208,429 9,261,746 10,586,368 905,849 Non-operating income and expense 479,641 749,700 (1,094,152) 2,527,839 (578,492) 182,811 Net income before tax 11,792,093 11,813,345 8,114,277 11,789,585 10,007,876 1,088,660 Net income from continuing operations Net loss from discounting operations 9,007,147 8,968,006 6,158,037 9,589,301 7,895,719 771,302 - - - - - - Net income (loss) 9,007,147 8,968,006 6,158,037 9,589,301 7,895,719 771,302 Income (Loss) from Other comprehensive income (loss) (101,970) (1,265,546) (4,604,412) 387,887 (1,534,980) (494,144) (net after tax) Comprehensive income 8,905,177 7,702,460 1,553,625 9,977,188 6,360,739 277,158 Net income attributes to shareholders of the Parent Net income attributes to non- controlling interests Comprehensive income attributed to owners of parent Comprehensive income 8,684,610 8,130,890 5,749,525 8,913,365 6,955,899 605,011 322,537 837,116 408,512 675,936 939,820 166,291 8,552,926 6,916,562 1,189,818 9,278,187 5,456,508 51,428 attributed to non-controlling 352,251 785,898 363,807 699,001 904,231 225,730 interests Earnings per share (unit: dollar) 2.01 1.88 1.32 2.05 1.60 0.14 Note: 1. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2020 is reviewed by the CPA. 2. The 2019 annual financial statement for the current year has not yet been approved at a shareholders’ meeting. 158 ▓ Parent-Company-Only Condensed Balance Sheet – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2020 Analysis 2015 2016 2017 2018 2019 Current assets 207,496,808 237,412,415 240,677,588 265,372,906 245,522,829 Property, plant, and equipment 2,181,737 2,132,114 2,092,272 2,128,181 2,620,638 Intangible assets 378,454 268,316 146,813 378,745 438,334 Other assets Total assets Prior to Current distribution liabilities After distribution 86,182,040 88,808,075 85,179,393 87,932,981 89,201,687 296,239,039 328,620,920 328,096,066 355,812,813 337,783,488 177,664,877 197,566,162 203,492,102 237,882,742 220,871,943 182,976,882 202,872,746 208,780,678 243,171,318 (Note 2) Non-current assets 14,798,367 25,250,369 22,708,380 12,206,425 10,938,912 Prior to Total distribution liabilities After distribution Ordinary shares Capital reserves Prior to Retained distribution earnings After distribution 192,463,244 222,816,531 226,200,482 250,089,167 231,810,855 197,775,249 228,123,115 231,489,058 255,377,743 (Note 2) N/A 44,711,266 44,241,606 44,191,916 44,071,466 44,071,466 12,838,638 11,779,274 10,938,773 9,932,434 9,159,259 51,877,511 55,289,409 56,557,146 60,060,381 57,726,604 47,450,840 50,867,256 52,149,999 55,653,234 (Note 2) Other equity interests (3,926,881) (4,624,653) (8,911,004) (7,459,388) (4,103,449) Treasury stock (1,724,739) (881,247) (881,247) (881,247) (881,247) Total equity Prior to distribution After distribution 103,775,795 105,804,389 101,895,584 105,723,646 105,972,633 98,523,838 100,557,832 96,667,029 100,495,091 (Note 2) Note: 1.The financial information is audited by the CPA every year. 2. The 2019 annual financial statements have not been approved at a shareholders’ meeting. Therefore, the amount after allocation is not listed. 159 ▓ Parent-Company-Only Condensed Statement of Comprehensive Income – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Analysis Net sales revenue Gross profit Net operating income Non-operating income and expense 2015 2016 2017 2018 2019 802,994,930 725,653,095 841,309,602 911,050,122 916,280,028 22,737,590 21,281,171 21,544,440 21,880,841 24,849,149 7,305,278 5,972,854 5,170,549 6,936,706 8,536,952 2,857,612 3,398,892 1,508,171 3,021,610 (713,273) Unit: NT$ thousands As of March 31, 2020 Net income before tax 10,162,890 9,371,746 6,678,720 9,958,316 7,823,679 Net income from continuing operations Net loss from discounting operations 8,684,610 8,130,890 5,749,525 8,913,365 6,955,899 - - - - N/A - Net income (loss) 8,684,610 8,130,890 5,749,525 8,913,365 6,955,899 Income (loss) from other comprehensive income (131,684) (1,214,328) (4,559,707) 364,822 (1,499,391) (net after tax) Comprehensive income 8,552,926 6,916,562 1,189,818 9,278,187 5,456,508 Earnings per share(unit: dollar) 2.01 1.88 1.32 2.05 1.60 Note: 1.The financial information is audited by the CPA every year. 2. The 2019 financial statement has not yet approved by the shareholders’ meeting. Auditors’ Opinions Year 2015 2016 2017 2018 2019 Accounting Firm KPMG KPMG KPMG KPMG KPMG CPA Audit Opinion Kuo, Kuan Ying; Lo, Jui Lan Kuo, Kuan Ying; Au, Yiu Kwan Kuo, Kuan Ying; Au, Yiu Kwan Chien, Szu Chuan; Au, Yiu Kwan Chien, Szu Chuan; Au, Yiu Kwan Modified unqualified opinion (Note) Unqualified opinion Unqualified opinion Unqualified opinion Unqualified opinion Note: Impact of retroactive adjustments to the 2014 financial statement due to adoption of the 2013 version of the International Financial Reporting Standards (IFRS) endorsed by the Financial Supervisory Commission (FSC) of the ROC. 160 6.2 Five-Year Financial Analysis ▓ Consolidated Financial Analysis – Based on IFRS Analysis Year Financial Analysis for the Last Five Years As of March 31, 2020 Debt ratio 66.58 67.64 70.09 71.70 70.01 69.23 2015 2016 2017 2018 2019 Capital Structure (%) Long term fund to property, plants, and equipment ratio Current ratio (%) Liquidity analysis Quick ratio (%) Operating Performance Analysis Interest coverage Accounts receivable turnover (times) Average collection turnover Inventory turnover (times) Accounts payable turnover (times) Average inventory turnover days Property, plant and equipment turnover (times) Total assets turnover(times) Return on total assets (%) Return on equity (%) 514.91 657.59 722.80 615.07 635.02 609.33 137.00 113.71 143.60 138.72 120.22 108.19 132.29 103.06 134.14 135.43 102.94 96.96 14.11 4.93 74.03 14.31 5.42 25.50 13.47 4.50 81.11 15.51 5.68 7.25 5.03 72.56 14.55 6.30 23.53 25.08 5.47 5.08 71.85 12.61 6.33 28.95 4.67 4.96 3.84 4.20 73.58 86.90 12.01 6.34 8.46 4.91 30.39 43.14 34.74 33.88 45.36 50.14 48.55 36.49 2.40 2.74 8.35 2.27 2.87 8.08 2.49 2.01 5.57 2.54 3.08 8.65 2.51 2.57 6.93 Profitability Analysis Operating income to paid-in capital ratio (%) 26.37 26.70 18.36 26.75 22.71 Net margin (%) Earnings per share (dollar) Cash flow ratio (%) Cash flow Cash flow adequacy ratio (%) Cash reinvestment ratio (%) Leverage Operating leverage Financial leverage Note: 1. The ratio is negative. 1.06 2.01 4.70 1.16 1.88 0.69 1.32 0.99 2.05 0.61 (Note1) (Note1) (Note2) 1.95 42.42 (Note1) 1.58 1.09 1.57 1.09 48.05 (Note1) 1.63 1.16 44.84 (Not1) 1.60 1.40 0.81 1.60 8.18 37.92 9.89 1.61 1.35 1.97 0.28 0.68 2.47 0.42 0.14 - - - - - 2. Not applicable as financial information, for more than five years, in accordance with IFSR has not yet been disclosed. 3. The financial ratio has changed by up to 20% in the past two years: ‧Earnings per share: Mainly due to the decrease in profit compared to the earlier period. ‧Cash flow ratio: Mainly due to net cash inflow in operating activities. ‧Cash reinvestment ratio: Mainly due to net cash inflow in operating activities. 4. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2020, is reviewed by the CPA. 5.The 2019 financial statement has not yet been approved at a shareholders’ meeting 161 ▓ Formula Financial Structure 1. (1) Debt Ratio = Total liabilities/Total assets (2) Ratio of long-term capital to property, plants, and equipment = (Net shareholders’ equity + Long-term liability)/Net property, plants, and equipment Solvency 2. (1) Current ratio = Current Assets/Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses)/Current liability (3) Interest coverage ratio = Net income before income tax and interest expense/Interest expense 3. Operating Efficiency (1) Accounts receivable (including accounts receivable and notes receivable from business activities) turnover = Net sales/Average accounts receivable balance (including accounts receivable and notes receivable from business activities) Inventory turnover = Cost of Goods Sold/Average inventory balance (2) A/R turnover days = 365/accounts receivable turnover (3) (4) Accounts payable (including accounts payable and notes payable from business activities) turnover = Cost of goods sold/Average accounts payable balance (including accounts payable and notes payable from business activities) Inventory turnover days = 365/Inventory turnover (5) (6) Property, plants, and equipment turnover = Net sales/Average Net Property, plants, and equipment (7) Total assets turnover = Net sales/Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)]/average asset balance (2) Return on equity = PAT/average net equity (3) Pre-tax income to paid-in capital = Net income before tax/Issued capital stock (4) Net profit ratio = PAT/Net sates (5) EPS = (PAT - preferred stock dividends)/weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities/Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities/Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend)/(Gross fixed assets + long-term investment + other assets + working capital) Leverage 6. (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense)/operating income (2) Financial leverage = Operating income/(Operating income - interest expenses) 162 ▓ Parent-Company-Only Financial Analysis – Based on IFRS Year Financial Analysis for the Last Five Years As of March 31, 2020 Analysis Capital Structure (%) Debt ratio Long term fund to property, plants, and equipment ratio Current ratio (%) Liquidity analysis Quick ratio (%) Operating Performance Analysis Interest coverage Accounts receivable turnover (times) Average collection turnover Inventory turnover (times) Accounts payable turnover (times) Average inventory turnover days property, plants, and equipment turnover (times) Total assets turnover(times) Return on total assets (%) Return on equity (%) Profitability Operating income to paid-in capital Analysis ratio (%) Net margin (%) Earnings per share (dollar) Cash flow ratio (%) Cash flow Cash flow adequacy ratio (%) Cash reinvestment ratio (%) Leverage Operating leverage Financial leverage Note: 1.The ratio is negative. 2015 2016 2017 2018 2019 64.97 67.80 68.94 70.29 68.63 5,434.85 6,146.71 5,955.44 5,541.36 4,461.19 116.79 120.17 118.27 111.56 111.16 102.28 105.89 96.92 89.79 88.45 17.81 14.03 5.03 4.61 72.57 79.14 23.34 26.42 5.16 5.16 7.85 5.06 72.13 23.11 5.65 6.14 5.08 4.97 4.97 71.80 73.46 18.82 17.55 5.95 5.86 15.64 13.81 15.79 19.39 20.79 364.02 336.43 398.31 431.73 385.90 N/A 2.51 2.87 8.47 2.32 2.79 7.76 2.56 2.00 5.54 2.66 3.06 8.59 2.64 2.46 6.57 22.73 21.18 15.11 22.60 17.75 (Note1) (Note2) (Note1) 1.08 2.01 1.12 1.88 0.68 1.32 0.98 2.05 3.15 (Note1) (Note1) 38.20 11.48 5.45 (Note1) 0.68 (Note1) (Note1) 2.41 1.09 2.74 1.14 2.86 1.23 2.59 1.39 0.76 1.60 6.80 8.29 2.43 1.30 2. Not applicable as the financial information, for more than five years, in accordance with IFRS has not yet been disclosed. 3. The financial ratio has changed by up to 20% in the past two years: ‧Return on Equity: Mainly due to the decrease in net income compared to the earlier period. ‧Operating Income to Paid-in Capital Ratio: Mainly due to the decrease in income before tax compared to the earlier period. ‧Net Margin: Mainly due to the decrease in net income compared to the earlier period. ‧Earnings Per Share: Mainly due to the decrease in net income compared to the earlier period. ‧Cash flow ratio: Mainly due to the increase in net cash inflow from operating activities compared to the earlier period. ‧Cash flow adequacy ratio: Mainly due to the decrease in net cash inflow from operating activities for the last five years compared to the earlier period. ‧Cash reinvestment ratio: Mainly due to the increase in net cash inflow from operating activities compared to the earlier period. 4. The financial information is audited and certified by the CPA every year. 5. The 2019 financial statement has not yet been approved at a shareholders’ meeting. 163 ▓ Formula Financial Structure 1. (1) Debt Ratio = Total liabilities/Total assets (2) Ratio of long-term capital to property, plants, and equipment = (Net shareholders’ equity + Long-term liability)/Net property, plants, and equipment Solvency 2. (1) Current ratio = Current Assets/Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses)/Current liability (3) Interest coverage ratio = Net income before income tax and interest expense/Interest expense 3. Operating Efficiency (1) Accounts receivable (including accounts receivable and notes receivable from business activities) turnover = Net sales/Average accounts receivable balance (including accounts receivable and notes receivable from business activities) Inventory turnover = Cost of Goods Sold/Average inventory balance (2) A/R turnover days = 365/accounts receivable turnover (3) (4) Accounts payable (including accounts payable and notes payable from business activities) turnover = Cost of goods sold/Average accounts payable balance (including accounts payable and notes payable from business activities) Inventory turnover days = 365/Inventory turnover (5) (6) Property, plants, and equipment turnover = Net sales/Average Net Property, plants, and equipment (7) Total assets turnover = Net sales/Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)]/average asset balance (2) Return on equity = PAT/average net equity (3) Pre-tax income to paid-in capital = Net income before tax/Issued capital stock (4) Net profit ratio = PAT/Net sates (5) EPS = (PAT - preferred stock dividends)/weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities/Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities/Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend)/(Gross fixed assets + long-term investment + other assets + working capital) Leverage 6. (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense)/operating income (2) Financial leverage = Operating income/(Operating income - interest expenses) 164 6.3 Audit Committee’s Report for the Most Recent Year Audit Committee’s Review Report The Company’s 2019 financial statements have been approved by the Audit Committee and by the Board of Directors. Szu-Chuan Chien and Yiu-Kwan Au, certified public accountants of KPMG, have completed the audit of the financial statements and issued an audit report relating thereto. In addition, the Board of Directors has prepared and submitted to us the Company’s 2018 business report and proposal for distribution of earnings. We, the Audit Committee members, have duly examined and determined such business report and proposal for distribution of earnings to be in line with the requirements under the Company Law and relevant laws and regulations. According to Article 14-4 of the Securities and Exchange Act and Article 219 of Company Law, we hereby submit this report. Compal Electronics, Inc. Chairman of the Audit Committee: March 30, 2020 165 6.4 Consolidated Financial Statements and Independent Auditors’ Report Please refer to Attachment I. 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report Please refer to Attachment II. Status of Financial Difficulties for the Company and its Subsidiaries 6.6 Incidence of financial difficulties for the Company and subsidiaries between the period of 2019 to the publication date of this annual report: None. 166 VII. Review of Financial Conditions, Financial Performance, and Risk Management Unit: NT$ thousands Difference Amount (19,590,437) % 7.1 Analysis of Financial Status Analysis Year 2019 2018 Current Assets Investments accounted for using equity method Property, plant and equipment Other Assets Total Assets Current Liabilities Other Liabilities Total Liabilities Ordinary Share Capital surplus Retained Earnings Other Equity Interests Treasury stock Non-controlling Equity 343,154,813 362,745,250 7,319,086 7,364,485 (45,399) 19,972,347 12,202,173 382,648,419 255,820,033 12,069,042 267,889,075 20,418,228 9,266,860 399,794,823 274,207,898 12,425,077 286,632,975 (445,881) 2,935,313 (17,146,404) (18,387,865) (356,035) (18,743,900) 44,071,466 9,159,259 57,726,604 (4,103,449) (881,247) 8,786,711 114,759,344 44,071,466 9,932,434 60,060,381 (7,459,388) (881,247) 7,438,202 113,161,848 - (773,175) (2,333,777) 3,355,939 - 1,348,509 1,597,496 -5.40 -0.62 -2.18 31.68 -4.29 -6.71 -2.87 -6.54 - -7.78 -3.89 -44.99 - 18.13 1.41 Total Equity Note: Analysis of variations exceeding 20% and amounting to more than NTD10 million: Decrease in losses in other equity interests: Mainly due to the decrease in unrealized losses on financial assets Increase in other assets: Mainly due to increase in the Right-of-use assets measured at fair value through other comprehensive income. Effect of changes on the company’s financial position and Future response actions:: Judging from the aforementioned causes, the effect from changes on the Company’s financial position in the last two years are normal outcomes from standard operating activities. 167 7.2 Analysis of Financial Performance Analysis Year 2019 2018 Unit: NT$ thousands Difference Amount % Net Sales Cost of Sales Gross Profit Operating Expenses Operating Income Non-operating Income and Expenses Profit Before Tax Less: Income Tax Expense Net Profit (loss) Other Comprehensive Income (after tax) 980,442,346 967,706,411 12,735,935 946,533,518 937,139,320 30,567,091 21,305,345 9,261,746 9,394,198 3,341,737 2,017,115 1,324,622 1.32 1.00 10.93 9.47 14.30 2,527,839 (3,106,331) -122.88 11,789,585 (1,781,709) 2,200,284 (88,127) 9,589,301 (1,693,582) -15.11 -4.01 -17.66 33,908,828 23,322,460 10,586,368 (578,492) 10,007,876 2,112,157 7,895,719 (1,534,980) 387,887 (1,922,867) -495.73 Total Comprehensive Income 6,360,739 9,977,188 (3,616,449) -36.25 Note: Analysis of variations exceeding 20%: Income decrease in Non-operating income and expenses: Mainly due to the decrease in gains on disposal of investments, decrese in gains on financial assets and liabilities at fair value through profit or loss, decrease in foreign currency exchange losses. Income decrease in other comprehensive income (after tax): Mainly due to the decrease of gains of exchange differences on translation of foreign financial statements and decrease in unrealized losses from investments in equity instruments measured at fair value through other comprehensive income. Income decrease in total comprehensive Income: Mainly due to the decrease in other comprehensive income (after tax). ■ Forecast for sales for next year and basis for the forecast. Potential impact on the Company’s finances and sales in the future and response plan: Forecast for sales for next year and basis for the forecast Due to the global consumer demand and economic slowdown caused by the COVID-19 epidemic, several market research institutions estimate that the market outlook for both computing products and smart devices will be challenging and may face the single-digit to double-digit annual shipment declines in year 2020. While Compal is in the global technology product supply chain, it will be inevitably affected by the industry fluctuations. However, besides the negative impact of the epidemic, it also bought about changes in people’s lifestyles. More online work, learning, entertainment and trading activities also bought many new opportunities, such as the increasing demand in commercial and educational devices, cloud servers, and stable and faster networks. Compal will capture those new opportunities via related technologies and products development and be prepared for the Company’s long-term sustainable growth. The related market analysis please refer to page115 ～119 for “Industry Overview–current and future industry prospects”. Potential impact on the Company’s finances and sales in the future and response plan: In light of the growth in operation and future investments, the Company has established relevant financial strategies. 168 7.3 Analysis of Cash Flow 7.3.1 Cash Flow Analysis for the Current Year Cash and Cash Equivalents, Beginning of Year (1) 70,296,545 Net Cash Flow from Operating Activities (2) 20,921,069 Other Cash Inflow (Outflow) (3) (24,658,217) Cash Surplus (Deficit) (1)+(2)+(3) 66,559,397 Financing of Cash Deficit Investment Plans - Financing Plans - Unit: NT$ thousands Note: 1. Other Cash Inflow (Outflow) includes the Cashflow in investing activities, financing activities, and foreign exchange impacts. 2. Analysis of the change of 2019 cash flows: •Net cash inflow in operating activities: Mainly due to profit making and increase of net changes of assets and liabilities from operating activities. •Net cash outflow in investing activities: Mainly due to the purchase of property, plants, and equipment, right-of-use assets and the disposal of financial assets at fair values through profit or loss as well as financial assets at fair values through other comprehensive income. •Net outflow of financing activities: Mainly due to the repay loan and distribution of cash dividend. 3. Financing of cash deficits and liquidity analysis: There is no cash deficits situation. 7.3.2 Cash Flow Analysis for the Coming Year The Company takes the prudent planning and aims to maintain the stable cash liquidity, as the cash balance in the beginning of the year plus the net cash inflows from operating activities are adequate in meeting the Company’s investing and financing needs. 7.4 Major Capital Expenditures 7.4.1 Major Capital Expenditures and Sources of Capital Project Actual or Planned Source of Capital Actual or Planned Date of Completion Total Capital Unit: NT$ thousands Actual or Expected Capital Expenditure 2019 Property, plant and equipment Cash flow generated from operations and loans 7.4.2 Expected Benefits 2019 5,850,532 5,850,532 The Company’s major capital expenditure is invested to meet the needs of business growth and capacity expansion. Meanwhile to increase the automation equipment to enhance the production efficiency and achieve the goal of smart manufacturing, in which to build the Company’s long-term competitiveness. 169 7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year (1) Investment policy 1. Competition in the industry has accelerated and Compal is in full thrust integration mode. “Enlightened Living and Computing with a Green Connection” is the Compal vision. Our long-term investment strategies are to focus on products that relate to our core business, to provide the best quality in computing, communications, consumer, cloud and connection, to provide full solutions in cost and technology, and to put emphasis on our partner’s compliance with labor regulations, and the avoidance of human trafficking and slavery. We also want to strengthen the core resources, through vertical integration, diversification, and strategic investments or acquisitions as well as integration and horizontal competition. 2. Improve post investment performance, strengthen the integration of Group resources and strategic partnerships with investment businesses, facilitate the cooperation between the Company and invested business, and require their full compliance with labor regulations and those against human trafficking and slavery. Connect related customers to an information network, and form strategic alliances with other industries. Sustain the performance of operating output in social, economic, and environmental aspects using a high standard of specification. This includes increasing the efficiency and productivity, improving the rights of the workers, proper economic development, and environmentally friendly production in a clean operating base. The Company fully supports investment companies with good performance to plan for IPO to accelerate the realization of good returns on investments. (2) Main causes of profits or losses incurred on investments, and any corrective actions planned The 2019 consolidated profits from investment using the equity method came to approximately NTD 198 million, coming mainly from the performance of Compal Precision Module Co., Ltd., ALLIED CIRCUIT CO., LTD, and Avalue Technology Incorporation. (3) 2019 investment plans The long-term investment plan next year will be based on the Company’s operating policy to position ourselves as the pioneer provider of mobile device solutions and provide products, through the integration of R&D resources and clients, of an all-in-one computer, TV, AE and enterprise servers. The Company follows the principle of steady operation and always focuses on our core businesses. We will expand on the foundation of our existing businesses, make some vertical integration where appropriate, and expand horizontally into related activities, while continuing to grow our core business. In the vertical integration of upstream and downstream businesses that are not involved in hardware production, we also will expand the size of our developers and the proportion of software and firmware, to increase the value of their tangible assets and bring in value from additional sales. We expect horizontal mergers and expansions to provide full IoT solutions for our clients which include applications in cross-industry automation, industrial computers, security control, the healthcare industry, cars, smart cities, smart buildings, restaurants and retail outlets, with the primary aim of providing new investment opportunities and challenges. In practice, apart from achieving internal growth under the existing business framework, we also accept the possibility of mergers, acquisitions, joint ventures, technical calibrations, and investment activities through bilateral or multi-lateral collaboration between business entities. The Company and affiliates will proceed with the aforementioned expansion based on the consideration of whether the expansion can strengthen the Group’s advantage and assessment of reasonable risks. In terms of reinvestments, we follow the above mentioned principles and set basic principles in the following three directions: 170 1. The vertical integration of upstream and downstream businesses to increase the proportion of self-made parts and improve overall competitiveness. 2. Horizontal mergers and expansion of related products and services, as well as other industries that provide prominent synergy or growth. 3. Develop technology which is beneficial to the Company or its affiliates, or invest in assets that provide synergy or growth. 7.6 Analysis of Risk Management 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates, and Inflation on Corporate Finance, and Future Response Measures Items Net interest revenue and expense Net gain and loss on foreign exchange (including valuation of financial instruments) Net revenues Pre-tax income (Note) Net interest revenue/expense to net revenues Net interest revenue/expense to pre-tax income Net foreign exchange gain/loss to net revenues Net foreign exchange gain/loss to pre-tax income Unit: NTD thousand; % 2019 (1,060,761) (273,264) 980,442,346 10,007,876 (0.108%) (10.600%) (0.028%) (2.730%) 1. Interest rate changes: According to the U.S. Fed meeting statement, the coronavirus outbreak weighed on economic activity in the near term and will pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 0.25%. The Committee expected to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. With regards to the interest rate for NTD, in light of the coronavirus pandemic, to help support business continuity and to caution against the adverse implications of massive cross-border capital flows for financial stability, the Central Bank decided to reduce the discount rate by 0.25%. As of the end of 2019, the Company’s cash balance came to approximately NTD 66.559 billion. The long and short-term bank loans came to about NTD 86.700 billion, with net interest income and expenses for the year at NTD (1,060,761) thousand. The amount accounted for (0.108%) and (10.600%) of the Company’s net sales and income before tax, respectively. The Company will continue to monitor the change of interest rate closely and respond in a timely manner. 2. Exchange rate changes: The Company is export-oriented. And as such, the change and movement of exchange rate have a considerable impact on annual profit and loss. To minimize the impact on the Company’s operating profit/loss, the Company mainly utilizes hedging such as forward foreign exchange contracts and swaps to minimize the risks of exchange rate movements. The full year net exchange gains and losses, including the valuation of financial instruments, came to NTD (273,264) thousand, accounting for (0.028%) and (2.730%) of net revenue and net profit before tax, respectively. We 171 will take all necessary actions based on the fluctuation of the exchange rate in the future. 3. Inflation: In terms of the inflation outlook, considering the adverse impact on domestic consumption demand caused by the spread of the coronavirus, combined with plunging international oil and raw material prices, the Central Bank trimmed the forecasts of the CPI and core CPI annual growth rates for 2020 to 0.59% and 0.55%, respectively. We will continue to watch for potential impact on prices. 7.6.2 Policies, Main Causes of Gain or Loss, and Future Response Measures with Respect to High-risk, High-leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions 1. The Company does not make high-risk, high-leveraged investments. 2. The Company only offers financing to its related parties, mainly providing short-term financing for their operating needs. 3. The Company is engaged in endorsement and guarantee activities which are only negotiated between subsidiaries and the parent company. The arrangements are covered by proper Endorsement and Guarantee Procedures. 4. The Company uses a hedging strategy for assets and liabilities valued in foreign currencies. Such hedging, done through forward foreign exchange contracts and swap trading, covers the amount of net assets and liabilities to achieve the objective of risk aversion. The Company will continue to pay close attention to changes in exchange rates and execute timely hedging in the future. 5. In addition to prudent evaluation and control of the execution of related policies, the Company also relies on regulations such as “Guidelines for Handling Acquisition and Disposal of Assets”, “Endorsement and Guarantee Procedures”, “Third Party Lending Procedures”, and “Procedures for the Handling of Derivatives Trading”. 7.6.3 Future Research & Development Projects and Corresponding Budget Other than the Company’s efforts in innovation and improvement of computers, TVs, and other peripheral products, the Company also deems innovative research and development works as a niche for the Company’s sustainable growth. Various R&D programs are developed and proposed by R&D team based on their forecast of new technologies, understand of market trends, and integration of add-on function. They also team with clients to meet their market planning and detail product developments. In general, the Company usually has less than a one year product development cycle and aims to shorten the R&D cycle year after year. The IT industry is highly competitive, and the timing of product development is of vital importance. The rapid growth of sales has made the quality, experience, and capacity of R&D a decisive factor that will become the key as to whether the Company can achieve its business target and whether the existing customers continue their cooperation with the Company. The 2020 R&D expenses are expected to be NT$ 14.6 billion. 7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales The Company’s management team is paying close attention to any policies or regulations that may impact the Company’s operation. In 2019, the Company made all the necessary responses to significant changes in international 172 and domestic policies and regulations, without a significant impact on Company operation. 7.6.5 Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales The constant arrival of new technology products to replace dated ones has changed the habits of users. This has consequently led to the emergence of different demands, and the development of ARM and Android has also impacted Wintel, which used to monopolize the market. Not only that, the emergence of cloud applications has also resulted in significant changes in the traditional PC market. The rising technology trend of IOT, Artificial Intelligence (AI), and 5G communication will also bring significant developments of industry as well as market opportunities. To cope with these changes, the Company has expanded new businesses to its existing product lines to embrace the latest industrial trends. As such, the Company has established its Innovation Center that is responsible for following and studying the latest developments in market trends. Not only that, the Innovation Center is also involved in the development of innovative products, technologies, and designs to strengthen the Company’s research on consumer behavior and thereby provide more accurate market segregation and product positioning to satisfy user needs. At the same time, we will also focus on boosting our innovative technology capabilities and plans for future product and market opportunities. 7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures Compal has concentrated on the IT and Communications industry for many years and has firmly adhered to our business philosophy of transcendence, sincerity, and harmony in a culture of ethics and honesty. We aim to be the best in world-class professional design, manufacturing, and services. As we pursue business growth, we always remember our obligations as a corporate citizen. We have strengthened corporate governance, fulfilled corporate social responsibility, and have established a good corporate image. In recent years, the Company business has expanded, the number of employees has increased, and our global production branches have increased in number. We have become acutely aware of the need for periodic checks of the external environment, a self-management system, and operational strategies for the early detection of potential corporate crises and the need for concrete and positive response plans and corrective measures. For many years, Compal has placed amongst the Top 500, Top 2000 businesses, and Top 2000 manufacturers in Taiwan by Fortune, Forbes Magazine, and CommonWealth Magazine respectively. In 2019, the Company placed within the top 6%-20% in the TWSE-listed Companies in the 5th round of “Corporate Governance Evaluation” and the distinction of the Award in the “Taiwan Corporate Sustainability Award” organized by the Taiwan Institute of Sustainable Energy. These prestigious awards once again reaffirmed the Company’s corporate image. There was no company crisis in 2019 nor was there any significant event that affected the Company image in any way. 7.6.7 Expected Benefits from, Risks Relating to, and Response to Merger and Acquisition Plans In addition to continued cultivation of the existing information and communication technology (ICT) operations and enhancement of the core profit base, we are actively seeking out upcoming industries for merger, acquisition, joint venture, technical collaboration and other patterns, with the aim being to move into industrial computing, medical networking, IoT networking, vehicle networking and the medical equipment market. We will maintain stable 173 development of existing businesses and also move ahead of the curve in other areas which have high growth momentum. The Company will integrate resources to increase R&D capacity, improve operational efficiency, and increase competitiveness. We expect to benefit from synergy, have a positive impact on future shareholder equity, and maintain adequate control of organizational integration matters and financial risks. 7.6.8 Expected Benefits from, Risks Relating to, and Response to Factory Expansion Plans: None 7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration: None 7.6.10 Effects of, Risks Relating to, and Response to Large Share Transfers or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10%: None 7.6.11 Effects of, Risks Relating to, and Response to the Changes in Management: None 7.6.12 Litigation or Non-litigation Matters Qualcomm Inc., filed litigation against the Company regarding a dispute over payment of royalties for a patent licensed on May 17, 2017. In response, the Company filed a counter suit against Qualcomm Inc., in the United States on July 19, 2017 for violation of the antitrust law. The above case was settled on April 16, 2019, and the two parties agreed to revoke the lawsuit filed against the other party. In August 2019, Inventec Corporation filed a lawsuit to the Taiwan Taipei District Prosecutors Office against the Company concerning its former employees who joined the Group. This is deemed as an act of violation according to the Trade Secret Law and Copyright Law. The Company engaged lawyers to defend its right on this matter. Currently, the case is still in progress; therefore, the Group cannot make any reasonable estimation regarding the possible impact on its business operation. 7.6.13 Other Major Risks Information Security In order to maintain the competitive advantage and precious intellectual property of the Company, the business division of Compal Electronics, Inc. followed the “Compal Information Security Management System” to establish information management processes and protection specifications in accordance with the government information security related laws and regulations to ensure the interests of the Company, customers and employees, and maintain the competitiveness of the Company. With the implementation of the Plan-Do-Check-Act (PDCA) management cycle, we continued to improve our information security system and comply with customer contracts properly to ensure the information security of the customers. Compal Electronics, Inc. had no proven complaints regarding intrusions to customer privacy or the loss of customer data in 2019. In response to external changes and the evolving of attack techniques, we continuously focus and invest in new information security knowledge and technologies for the effective advanced protection and detection of new information security threats to reduce operational risks. 174 Compal Electronics, Inc. passed the ISO 27001:2005 information security certification in 2005, received the “Information Security Management System ISO 27001:2005” certification issued by the certification agency British Standards Institution (BSI) and gradually expanded the certification range while conducting regular tracking twice a year as well as reviewing audits every three years. In 2015 and 2017, we also passed the ISO 27001:2013 certification and received the “Information Security Management System ISO 27001:2013” certification, meeting the requirements of the new specifications. The scope of certification includes the information headquarters, research and development for portable computer products, research and development for all-in-one computer products, research and development for vehicle electronics, and research and development for server products. In April and October of 2019, we also passed external audit reviews and obtained certifications as valid proof based on the review results, ensuring the effective operations of the information security management systems. After the integration of the smart device business group information security system, the Company has further enforced information security policies, as well as executing the risk assessment of the information assets duly, and maintaining the confidentiality, integrity and availability of important information assets. In order to fulfill our commitment to “sustainable operations and customer satisfaction,” the Company has assembled an “Information Committee” to serve as the highest governing body of information security within the Company meeting semi-annually for management reviews, the Committee is responsible for coordinating issues concerning information security projects, policies, goals, and resources, and ensuring participation from all employees for the protection of information security. The six major information security goals are measured monthly to monitor the control measures of information security management. Business Continuity Planning (“BCP”) recovery exercises are executed regularly to ensure the validity of the BCP plan and that it meets the system recovery goals. Internal and external audits are executed regularly every six months to ensure that the management system is followed and improved continuously. Risk assessment is executed regularly every six months. Risk evaluation is performed through asset values and business processes, and risk processing measures are performed for the high-level risks evaluated. To boost employees’ awareness of information security, our employees are required to receive social engineering exercises and a briefing on information security and training. Year Information security training completion rate 2018 93.28 % 2019 95.57 % Others International conglomerates face many risks such as regulatory compliance, business competition, localization, and globalization. It is the responsibility of each Company employee to turn such challenges into future opportunity. Ex ante risk identification, weekly risk assessment and prevention, and post-crisis management, have all been added to the Company target management cycle (PDCA), key performance indicators (KPI), and control system for internal use. Such processes allow the dedicated units responsible for these specific risks to establish rigorous and rapid means for response and a problem-solving culture. By working through regular and intermittent reviews and combining education, training and a performance risk appraisal system, they can cope with significantly different kinds of risk management based on local conditions. The Company did not face any significant risk in 2019. 175 7.7 Other material issues: None. 176 VIII. Special Disclosure 8.1 Summary of Affiliated Companies (As of Dec 31, 2019) 8.1.1 Affiliated enterprises report 1. Chart 177 4 1 Mithera Capital Io LP 99.00% 46.42% Compal Broadband Networks Netherlands B.V. 100% Shennona Corporation 100% 178 4 Arcadyan Technology Affiliated Business Organization Chart Henghao Technology Co., Ltd. Affiliated Organization Chart Allied Power Affiliatedcal Business Organization Chart General Life Biotechnology Affiliated Business Organization Chart UniCore Biomedical Affiliated Business Organization Chart Arcadyan Technology (Vietnam) Co., Ltd. 100% Great Arch Group Ltd. Leading Images Limited Astoria Networks Inc. Astoria Networks GmbH 31.6% 100% 100% 100% 100% 100% 2. Backgrounds of affiliated enterprises (December 31, 2019) Company name Compal Electronics, Inc. Date of establishment 1984.06.01 No. 581 and 581-1, Ruiguang Road, Neihu District, Taipei City Address Paid-up capital Main business activities or products Unit: thousand dollars 2000.01.12 P.O. Box 2221, Road Town, Tortola, British Virgin Islands 2008.08.11 Room 511, 5F, Silvercord Tower 1, No. 30 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong Compal International Holding Co., Ltd. Compal International Holding (HK) Limited Compal Electronics Technology (Kunshan) Co., Ltd. Compal Information (Kunshan) Co., Ltd. Compal Information Technology (Kunshan) Co., Ltd. Compal Digital Technology (Kunshan) Co., Ltd. 2000.05.19 2003.01.07 2003.06.20 2010.03.05 Kunshan Botai Electronics Co., Ltd. 2001.08.20 Compower Global Service Co., Ltd. 2012.04.23 Prospect Fortune Group Ltd. Jenpal International Ltd. Fortune Way Technology Corp. 2000.01.18 2010.12.27 2015.12.18 Just International Ltd. Compal Display Holding (HK) Limited Compal Electronics (China) Co., Ltd. 1992.08.25 2008.08.11 1995.12.25 Compal Smart Device (Chongqing) Co.,LTD. 2018.04.13 NT$44,071.466 Manufacturing, processing and trading of notebooks, computer monitors, LCD TVs, cellphones, and electronic parts General investments US$53,001 US$74,803 General investments US$12,000 Production of notebooks, cellphones and electronics US$12,000 Production of notebooks, tablets and electronics US$24,000 Production of notebooks and electronics US$20,000 Production and sale of notebooks, cellphones and digital products US$1,000 Production and after-sale service of notebooks and cellphones RMB $ 2,000 Maintenance and after-sale service of notebooks and cellphones US$1 General investments US$7,350 General investments US$14,900 General investments US$48,010 General investments US$62,298 General investments US$37,000 Manufacturing and sale of displays RMB$60,000 Development, production and sale of communication equipment, cellphones, computers and smart watches, and provision of relevant technical services No. 25, Third Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China No. 15, Third Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China No. 58, First Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China No. 9, Second Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China No. 1881, Liji Road, Shipai, Bacheng Town, Kunshan City, Jiangsu, China No. 58, First Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China P.O. Box 2221, Road Town, Tortola, British Virgin Islands P.O. Box 2221, Road Town, Tortola, British Virgin Islands P.O. Box 4342, Road Town, Tortola, VIRGIN ISLANDS, BRITISH P.O. Box 2221, Road Town, Tortola, British Virgin Islands Room 511, 5F, Silvercord Tower 1, No. 30 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong No. 988 Tongfengdong Road, Kunshan City Development Area, Jiangsu, China NO.18-5,BAOHONG AVENUE,LIANGJIANG NEW DISTRICT,CHONGQING,CHINA(N O.D05,ZONE D,AIR PORT SECTION OF LIANGLU CUNTAN FREE TRADE PORT 179 Company name Compal Optoelectronics (Kunshan) Co., Ltd. Compal System Trading (Kunshan) Co., Ltd. Compal Investment (Jiangsu) Co., Ltd. Date of establishment 2003.02.28 2007.10.24 2011.02.17 Compal Display Electronics (Kunshan) Co., Ltd. Compal International Ltd. Compal Electronics International Ltd. Smart International Trading Ltd. Amexcom Electronics, Inc. Mexcom Technologies, LLC Mexcom Electronics, LLC Big Chance International Co., Ltd. Center Mind International Co., Ltd. Compal Investment (Sichuan) Co., Ltd. Compal Electronics (Chengdu) Co., Ltd. 2011.03.30 1997.04.15 1997.04.22 1998.09.03 2011.07.22 2011.07.22 2011.07.22 2011.04.01 2011.04.01 2011.04.02 Compal Management (Chengdu) Co., Ltd. Prisco International Co., Ltd. Compal Electronics (Chongqing) Co., Ltd. 2011.05.25 2011.06.02 2011.06.02 Core Profit Holdings Ltd. 2012.04.02 Address Paid-up capital Main business activities or products No. 988 Tongfengdong Road, Kunshan City Development Area, Jiangsu, China No. 435 Weiye Road, Kunshan City Development Area, Jiangsu, China China Business Section, Kunshan Economic & Technological Development Zone, Jiangsu, China (south of Zhonghuayuan Road and west of Renmin South Road) No. 1881, Liji Road, Shipai, Bacheng Town, Kunshan City, Jiangsu, China P.O. Box 2221, Road Town, Tortola, British Virgin Islands P.O. Box 2221, Road Town, Tortola, British Virgin Islands P.O. Box 2221, Road Town, Tortola, British Virgin Islands 318 N. Carson Street, #208, Carson City, NV 89701 318 N. Carson Street, #208, Carson City, NV 89701 318 N. Carson Street, #208, Carson City, NV 89701 P.O. Box 2221, Road Town, Tortola, British Virgin Islands US$12,100 Production and sale of LCD TVs US$1,400 International trade and distribution of computers and electronic components US$15,600 General investments US$15,000 Production and sale of LCD TVs US$500 US$9,245 Sale of monitors, LCD TVs and related parts General investments US$1 General investments US$1,000 Sale and maintenance of LCD TVs US$1 General investments US$8,234 General investments US$90,820 General investments US$80,820 US$80,000 US$800 US$10,000 US$10,000 External investment and consultation service Development and production of notebooks, tablets, digital products, network switches, wireless APs, and auto electronics Management consultation, training, business information, tax advisory, investment consultation, and investment management General investments Development, production and sale of notebooks and related components, and provision of maintenance and after-sale services US$147,000 General investments No. 6, Shenglong Street, Wuhou District, Chengdu, Sichuan No. 88, Sec.1, ZongBao Avenue Chengdu Hi-tech Comprehensive Bonded Zone,Shuangliu County, Chengdu, Sichuan, China No. 6, Shenglong Street, Wuhou District, Chengdu, Sichuan P.O. Box 2221, Road Town, Tortola, British Virgin Islands No.10-3,BaoHong Avenue, YuBei District, ChongQing, China (NO.A03,ZoneA,AirPort Section of LiangLu CunTan Free Trade Port Area) Vistra Corporate Services Centre, Wickhams Cay II, Tortola VG1110, British Virgin Islands 180 2011.04.01 P.O. Box 2221, Road Town, Tortola, British Virgin Islands US$80,820 General investments Company name Billion Sea Holdings Ltd. Date of establishment 2012.04.02 Mithera Capital Io LP 2019.06.01 High Shine Industrial Corp. 2007.07.04 Intelligent Universal Enterprise Ltd. 2007.08.02 Compal (Vietnam) Co., Ltd. 2007.10.04 2007.07.03 2007.07.03 Goal Reach Enterprises Ltd. Compal Development & Management (Vietnam) Co., Ltd. Panpal Technology, Inc. Gempal Technology, Inc. Hong Ji Capital, Inc. 2004.06.28 1997.08.20 1997.10.29 Hong Jin Investment, Inc. Compalead Eletrônica do Brasil Indústria e Comércio Ltda. Compal Electronics India Private Limited Accesstek Inc., Inc. Arcadyan Technology Corporation Arcadyan Technology N.A. Corp. Arcadyan Germany Technology GmbH Arcadyan Technology Corporation Korea Arcadyan do Brasil Ltda. 2004.07.02 2008.07.15 1996.05.21 2000.08.18 2003.05.09 2003.07.30 2007.04.11 2014.10.16 2015.04.24 Address Paid-up capital Main business activities or products US$147,000 General investments US$5,000 General investments US$79,700 General investments US$67,000 General investments VND1,398,683,500 Production, development, sale and repair of notebooks, computer monitors, LCD TVs and electronic components General investments US$12,700 VND216,428,500 Construction and investment of infrastructures at Ba-Thien Industrial Zone, Vietnam NT$5,000,000 General investments NT$900,000 General investments NT$1,000,000 General investments NT$295,000 General investments BRL20,109 Production and after-sale service of notebooks, cellphones and electronics INR386,000 Production and after-sale service of cellphones NT$32,369 NT$2,085,350 US$669 EUR25 KRW100,000 Design, manufacturing and trading of optical disc writers and kits Research, development, production and sale of WLAN, integrated digital home and mobile office products Sale of wireless network products Sale and technical support of wireless networking products Sale of wireless networking products BRL9,682 Sale of wireless network products Vistra Corporate Services Centre, Wickhams Cay II, Tortola VG1110, British Virgin Islands PO Box 472, 2nd Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands P.O. Box 4342, Road Town, Tortola, VIRGIN ISLANDS, BRITISH P.O. Box 4342, Road Town, Tortola, VIRGIN ISLANDS, BRITISH Ba Thien Industrial Zone, Binh Xuyen County, Vinh Phuc Province, Vietnam P.O. Box 2221, Road Town, Tortola, British Virgin Islands Ba Thien Industrial Zone, Binh Xuyen County, Vinh Phuc Province, Vietnam No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City Rua Kanebo 175, Galpões C1 a C6, e C12 Distrito Industrial, Jundiaí, São Paulo, CEP:13213- 090, Brazil B-4, Ecotech 1 Ext., Surajpur Kasna Rd., Greater Noida- 201308, UP, India 5F-1, No. 65, Lane 525, Section 1, Guangfu Road, Hsinchu City 8F, No. 8, Section 2, Guangfu Road, East District, Hsinchu City 5450 Thornwood Dr, Unit J Floor 2 San Jose CA 95123- 1222, USA Koelner Strasse 10b D-65760 Eschborn, Germany 103-1109RM SK Ventium 166, Gosan-ro, Gunpo-si, Gyeonggi- do, Republic of Korea 15850 Avenida Dr. Delfim Moreira, 356-SL 202, Centro, Minas Gerais, Santa Rita, Brazil, CEP 37540-000 181 Company name Arcadyan Technology Limited Arcadyan Technology Australia Pty Ltd Arcadyan Holding (BVI) Corp. Sinoprime Global Inc. Arcadyan Technology (Shanghai) Corp. Arcadyan Technology (Vietnam) Co., Ltd. Arch Holding (BVI) Corp. Compal Network Information Technology (Kunshan) Co., Ltd. Zhi-pal Technology Inc Tatung Technology Inc. 2007.03.07 2004.12.29 2002.04.17 2019.03.26 2007.05.24 2006.06.26 2009.08.10 2008.01.21 2012.12.11 2018.11.22 Tatung Technology of Japan Co., Ltd. Quest International Group Co., Ltd. Exquisite Electronic Co., Ltd. Tatung Home Appliances (Wu Jiang) Co., Ltd. Acbel Telecom Inc. 2004.11.29 2012.02.03 2001.02.13 Leading Images Limited Astoria Networks GmbH Compal Broadband Networks Inc. 2008.01.02 2008.09.22 2009.08.19 Date of establishment 2016.08.16 2018.03.28 Address Paid-up capital Main business activities or products 183 Fraser Road, Sheffield, S80JP, United Kingdom 37 Midlothian Street Malvern East VIC 3145 GBP50 AUD 50 Technical support for wireless networking products Sale of wireless networking products Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands P.O. Box 2221, Road Town, Tortola, British Virgin Island 4F, Block 2, No. 80 Huashen Road, Free Economic Pilot Zone, Shanghai, China Ba Thien Industrial Park, Ba Hien commune, Binh Xuyen district, Vinh Phuc Province P.O. Box 2221, Road Town, Tortola, British Virgin Island No. 520 Nanbang Road, Economic & Technological Development Zone, Kunshan, Jiangsu, China, China 5F, No. 58, Lane 188, Ruiguang Road, Neihu District, Taipei City 10F, No. 288, Section 6, Civic Boulevard, Xinyi District, Taipei City 1 Chome-2-18, Mita, Minato-ku, Tokyo-to, Japan Level 2, Lotemau Centre, Vaea Street, Apia, Samoa. Level 2, Lotemau Centre, Vaea Street, Apia, Samoa. No. 508 Youming Road, Songling Town, Wujiang District, Suzhou, Jiangsu, China 5F, No. 58, Lane 188, Ruiguang Road, Neihu District, Taipei City P.O. Box 2221, Road Town, Tortola, British Virgin Island Koelner Strasse 10b D-65760 Eschborn, Germany 13F-1, No. 1, Taiyuan 1st Street, Zhubei City, Hsinchu County US$59,780 General investments US$9,050 General investments US$13,100 Development and sale of WLAN products US$9,000 Manufacturing of WLAN products US$10,550 General investments US$12,450 Production and sale of WLAN products NT$349,800 General investments NT$410,000 Development and sale of digital home electronics JPY 15,000 Sale of digital home electronics US$1,200 General investments US$1,170 General investments US$3,350 Production and sale of digital home electronics NT$87,990 General investments US$50 EUR25 NT$668,871 General investments Sale of wireless networking products Development and sale of cable modems, set-top boxes and communication products Import and export of broadband network products and related components, and provision of technical support and consultation services Import and export of broadband network products and related components, and provision of technical support and consultation services Compal Broadband Networks Belgium BVBA Compal Broadband Networks Netherlands B.V. 2017.01.01 Bekersveld 19, 2630 Aartselaar, BELGIUM EUR$200 2019.11.25 Het Poortgebouw Beech Avenue 54-62 Schiphol 1119 PW Netherlands EUR$200 182 Company name Henghao Technology Co., Ltd. Address Date of establishment 2010.12.10 No. 2-1, Wenhua Rd., Hsin-chu Industrial Park, Hukou Shiang, Hsin-chu County 30352, Taiwan R.O.C. Paid-up capital Main business activities or products NT$200,150 Manufacturing of electronic components, computers and peripherals 2010.12.10 P.O. Box 2221, Road Town, US$46,882 General investments Tortola, British Virgin Island 2010.12.14 P.O. Box 2221, Road Town, US$46,882 General investments HengHao Holdings A Co., Ltd. HengHao Holdings B Co., Ltd. HengHao Optoelectronics Technology (Kunshan) Co., Ltd. HengHao Trading Co., Ltd. Lucom Display Technology (Kunshan) Ltd. Mactech Inc. 2010.05.07 2010.12.15 2010.11.01 2000.05.23 Ripal Optotronics Co, Ltd. 2013.8.26 Rayonnant Technology Co., Ltd Compal Rayonnant Holdings Ltd. Allied Power Holding Corp. 2010.03.23 2011.12.02 2005.04.07 Primetek Enterprises Ltd. Rayonnant Technology Holdings (HK) Co., Ltd. Rayonnant Technology (Taicang) Co., Ltd. Bizcom Electronics, Inc. Compal Europe (Poland) Sp. z o.o. Auscom Engineering Inc. Flight Global Holding Inc. Compalead Electronics B.V. General Life Biotechnology Co., Ltd. 2005.01.28 2010.03.31 2010.06.04 1992.04.13 2008.03.05 2008.10.27 2007.08.09 2014.02.19 1999.01.16 Tortola, British Virgin Island NO.520, Nanbang Rd., Kunshan City, Jiangsu Province, China P.O. Box 2221, Road Town, Tortola, British Virgin Island NO.520, Nanbang Rd., Kunshan City, Jiangsu Province, China No. 89, Land 36, Section 2, Tanxing Road, Tanyang Village, Tanzi District, Taichung City 2F, No. 256, Section 3, Zhongzheng Road, Rende District, Tainan City No. 581, Ruiguang Road, Neihu District, Taipei City P.O. Box 2221, Road Town, Tortola, British Virgin Island P.O. Box 4342, Road Town, Tortola, VIRGIN ISLANDS, BRITISH P.O. Box 2221, Road Town, Tortola, British Virgin Island. Room 1904, 19 F, phuket commercial centre, 5 Hanoi road, Tsim Sha Tsui, Kowloon, Hong Kong No.9 Tainan Road,Industry Park, Taicang, Jiangsu, China 1171 Montague Express Way, Milpitas, CA 95035, USA Techniczna 792-518 Lodz, Poland One Dell Way, MSC PS2-88, Round Rock, Texas 78682, USA P.O. Box 4342 Road Town, Tortola, VIRGIN ISLANDS, BRITISH Prins Bernhardplein 200, 1097 JB Amsterdam, the Netherlands No.581-1, Ruiguang Rd., Neihu Dist., Taipei City 183 US$40,000 Production touch panels and related components US$10 Trading US$15,000 Production touch panels and LCD displays NT$411,458 NT$60,000 Manufacturing of machinery and lighting equipment, retail sale of machinery, and international trade Manufacturing of home appliances and audiovisual electronics NT$295,000 US$12,500 Manufacturing and sale of computers and peripherals General investments US$21,151 General investments US$3,151 General investments US$18,000 General investments US$18,000 US$100 PLN6,804 US$3,000 US$89,755 Development and production of aluminum and magnesium alloy-based products Marketing and after-sale of computer monitors and notebooks Maintenance and after-sale service of notebooks and cellphones Development of notebooks and related components, hardware and software General investments US$6,427 General investments NT$300,000 Production and wholesaling of medical equipment Address Paid-up capital Main business activities or products Company name Rapha Bio Ltd. Date of establishment 2011.09.29 Etrade Management Co., Ltd. Compal Communications (Nanjing) Co., Ltd. Compal Digital Communications (Nanjing) Co., Ltd. 2000.07.05 2003.09.23 2004.03.26 Compal Wireless Communications (Nanjing) Co., Ltd. Webtek Technology Co., Ltd. Forever Young Technology Inc. 2006.02.13 2000.07.07 2004.11.25 Giant Rank Trading Limited HANHELT Communications (Nanjing) Co., Ltd. 2004.11.25 2009.03.11 Unicom Global. Inc 2006.03.21 Palcom International Corporation Compal Electronics (Holding) Ltd. UniCore Biomedical Co., Ltd. Raycore Biotech Co., Ltd. Shennona Corporation HippoScreen Neurotech Corp. 2006.03.22 1997.04.22 2018.01.25 2017.10.18 2018.01.10 2019.01.28 5F, No.240, Shinshu Rd., Shin Juang Dist., New Taipei City P.O. Box 2221, Road Town, Tortola, British Virgin Island No.68-2, Suyuan Road, Export Processing Zone (South Area). Jiangning Nanjing China No.77 Gaohu Street, Jiangning Economic & Technological Development Zone, Nanjing, China No.68-2, Suyuan Road, Export Processing Zone (South Area). Jiangning Nanjing China P.O. Box 2221, Road Town, Tortola, British Virgin Island P.O. Box 4342, Road Town, Tortola, VIRGIN ISLANDS, BRITISH P.O. Box 2221, Road Town, Tortola, British Virgin Island Room 301 3rd floor 43#, Headquarters Park,N0.70# Phoenix Road Jiangning District, Nanjing, China No. 581, Ruiguang Road, Neihu District, Taipei City 8F, No. 385, Yangguang St., Neihu District, Taipei City P.O. Box 2221, Road Town, Tortola, British Virgin Island 1F, No. 50, Section 1, Jiuzong Road, Neihu District, Taipei city No. 581-1, Ruiguang Road, Neihu District, Taipei City 1171 Montague Express Way, Milpitas, CA 95035, USA No. 581-1, Ruiguang Road, Neihu District, Taipei City SHENNONA CO., LTD. 2019.03.21 No. 581-1, Ruiguang Road, Neihu District, Taipei City NT$6,000 Aco Smartcare Co.,Ltd. 2019.02.20 No. 141, Ln. 89, Sec. 1, Guangfu Rd., East Dist., Hsinchu City NT$30,748 184 NT$12,750 In vitro test supplies and equipment US$71,900 General investments US$22,000 Production of cellphones and tablets US$5,800 Production of cellphones and tablets US$49,000 Production of cellphones and tablets US$100 General investments US$50 General investments US$ - Sale of cellphones US$2,000 Development of electronic communication equipment NT$100,000 NT$100,000 Manufacturing and retail of computers and electronic components Sale of cellphones US$1 General investments NT$200,000 NT$25,000 US$1,100 NT$600 Management consultation, leasing, and wholesale/retail of medical equipment Wholesaling and retailing of veterinary drugs Medical care IOT business Management consultation, leasing, wholesale/retail of Precision Instruments and International Trade Management consultation, leasing, wholesale/retail of Precision Instruments and International Trade wholesale/retail of Computer Software, Software Design Services, Data Processing Services, Electrical Machinery, Supplies Manufacturing, wholesale/retail of Electronic Materials, wholesale/retail of Precision Instruments, Product Designing, Biotechnology Services and International Trade 3. Business activities and relationships of affiliated enterprises (December 31, 2019) Industry category Investment holding company Name of affiliated enterprise Business relationship with other affiliated enterprises Compal International Holding Co., Ltd. Compal International Holding (HK) Limited Jenpal International Ltd. Fortune Way Technology Corp. Just International Ltd. Compal Display Holding (HK) Limited Compal Investment (Jiangsu) Co., Ltd. Compal Electronics International Ltd. Mexcom Technologies, LLC Mexcom Electronics, LLC Big Chance International Co., Ltd. Center Mind International Co., Ltd. Compal Investment (Sichuan) Co., Ltd. Prisco International Co., Ltd. Core Profit Holdings Ltd. Billion Sea Holdings Ltd. Mithera Capital Io LP High Shine Industrial Corp. Intelligent Universal Enterprise Ltd. Goal Reach Enterprises Ltd. Panpal Technology Corporation Gempal Technology Co., Ltd. Hong Ji Capital Co., Ltd. Hong Jin Investment Co., Ltd. Compal Rayonnant Holdings Ltd. Allied Power Holding Corp. Flight Global Holding Inc. Compalead Electronics B.V. Etrade Management Co., Ltd. Compal Electronics (Holding) Ltd. Arcadyan Holding (BVI) Corp. Arch Holding (BVI) Corp. Zhi-pal Technology Inc Holds investment interest in Compal International Holding (HK) Limited, Prospect Fortune Group Ltd., Jenpal International Ltd., and Fortune Way Technology Corp. Holds investment interest in Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd.,Compal Digital Technology (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., and Compal Investment (Jiangsu, China) Co., Ltd. General investments General investments Holds investment interest in Compal Display Holding (HK) Limited, Compal International Ltd., and Compal Electronics International Ltd. Holds investment interest in Compal Electronics (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal System Trading (Kunshan) Co., Ltd., and Compal Investment (Jiangsu, China) Co., Ltd. Holds investment interest in Compal Display Electronics (Kunshan) Co., Ltd. Holds investment interest in Smart International Trading Ltd., Amexcom Electronics, Inc., Mexcom Technologies, LLC, and Mexcom Electronics, LLC General investments General investments Holds investment interest in Center Mind International Co., Ltd. and Prisco International Co., Ltd. Holds investment interest in Compal Investment (Sichuan) Co., Ltd. Holds investment interest in Compal Electronics (Chengdu) Co., Ltd. and Compal Management (Chengdu) Co., Ltd. Holds investment interest in Compal Electronics (Chongqing) Co., Ltd. Holds investment interest in Billion Sea Holdings Ltd. Holds investment interest in High Shine Industrial Corp. and Mithera Capital Io LP. General investments Holds investment interest in Intelligent Universal Enterprise Ltd. and Goal Reach Enterprises Ltd. Holds investment interest in Compal (Vietnam) Co., Ltd. Holds investment interest in Compal Development & Management (Vietnam) Co., Ltd. General investments General investments General investments General investments General investments General investments General investments General investments General investments General investments Holds investment interest in Sinoprime Global Inc., Arch Holding (BVI) Corp., and Shanghai Guangzhi Technology Development Co., Ltd. Holds investment interest in Compal Network Information Technology (Kunshan) Co., Ltd. Holds investment interest in Compal Broadband Networks Inc. and Arcadyan do Brasil Ltda. 185 Industry category Name of affiliated enterprise Business relationship with other affiliated enterprises Quest International Group Co., Ltd. Exquisite Electronic Co., Ltd. Acbel Telecom Inc. Holds investment interest in Exquisite Electronic Co., Ltd. Holds investment interest in Tatung Home Appliances (Wu Jiang) Co., Ltd. Holds investment interest in Leading Images Limited and Great Arch Group Ltd. Holds investment interest in Astoria Networks GmbH Holds investment interest in Arcadyan Technology (Vietnam) Co., Ltd. General investments Leading Images Limited Sinoprime Global Inc. Rayonnant Technology Holdings (HK) Co., Ltd. HengHao Holdings A Co., Ltd. General investments HengHao Holdings B Co., Ltd. General investments Primetek Enterprises Ltd. General investments Prospect Fortune Group Ltd. General investments Compal International Ltd. General investments Webtek Technology Co., Ltd. General investments Forever Young Technology Inc. General investments Smart International Trading Ltd. General investments Compal System Trading (Kunshan) Co., International trade and distribution of computers and electronic Ltd. components Giant Rank Trading Limited Sale of cellphones Palcom International Corporation Sale of cellphones Sale of wireless networking products Arcadyan Technology N.A. Corp. Arcadyan Technology Corporation Korea Sale of wireless networking products Sale of wireless networking products Arcadyan do Brasil Ltda. Sale of wireless networking products Arcadyan Technology Australia Pty Ltd. Development and sale of digital home electronics Tatung Technology Inc. Sale of digital home electronics Tatung Technology of Japan Co., Ltd. Sale of wireless networking products Astoria Networks GmbH Sale and technical support of wireless networking products Arcadyan Germany Technology GmbH Trading HengHao Trading Co., Ltd. Import and export of broadband network products and related Compal Broadband Networks Belgium components, and provision of technical support and consultation BVBA services Import and export of broadband network products and related components, and provision of technical support and consultation services wholesale/retail of Computer Software, Software Design Services, Data Processing Services, Electrical Machinery, Supplies Manufacturing, wholesale/retail of Electronic Materials, wholesale/retail of Precision Instruments, Product Designing, Biotechnology Services, International Trade Manufacturing, processing and trading of notebooks, computer monitors, LCD TVs, cellphones, and electronic parts Production of notebooks, cellphones and electronics Compal Broadband Networks Netherlands B.V. Compal Electronics, Inc. Aco Smartcare Co.,Ltd. Compal Electronics Technology (Kunshan) Co., Ltd. Compal Information (Kunshan) Co., Ltd. Production of notebooks, tablets and electronics Compal Information Technology (Kunshan) Co., Ltd. Compal Digital Technology (Kunshan) Co., Ltd. Kunshan Botai Electronics Co., Ltd. Compal Electronics (China) Co., Ltd. Compal Smart Device (Chongqing) Co., Ltd. Production of notebooks and electronics Production and after-sale service of notebooks and cellphones Manufacturing and sale of displays Development, production and sale of communication equipment, cellphones, computers and smart watches, and provision of relevant technical services Production and sale of LCD TVs Production and sale of notebooks, cellphones and digital products Compal Optoelectronics (Kunshan) Co., 186 Electronic products wholesaling Electronic products manufacturing Industry category Name of affiliated enterprise Business relationship with other affiliated enterprises Ltd. Compal Display Electronics (Kunshan) Co., Ltd. Amexcom Electronics, Inc. Compal Electronics (Chengdu) Co., Ltd. Production and sale of LCD TVs Sale and maintenance of LCD TVs Development and production of notebooks, tablets, digital products, network switches, wireless APs, and auto electronics Compal Electronics (Chongqing) Co., Ltd. Development, production and sale of notebooks and related Compal (Vietnam) Co., Ltd. Compalead Eletrônica do Brasil Indústria e Comércio Ltda. Unicom Global. Inc Accesstek Inc. Arcadyan Technology Corp. Compal Broadband Networks Inc. Henghao Technology Co., Ltd. Mactech Co., Ltd. components, and provision of maintenance and after-sale services Production, development, sale and repair of notebooks, computer monitors, LCD TVs and electronic components Production and after-sale service of notebooks, cellphones and electronics Manufacturing and retail of computers and electronic components Design, manufacturing and trading of optical disc writers and kits Research, development, production and sale of WLAN, integrated digital home and mobile office products Development and sale of cable modems, set-top boxes and communication products Manufacturing of electronic components, computers and peripherals Manufacturing of machinery and lighting equipment, retail sale of machinery, and international trade Manufacturing and sale of computers and peripherals Production of cellphones and tablets Production of cellphones and tablets Production of cellphones and tablets Rayonnant Technology Co., Ltd. Compal Communications (Nanjing) Co., Ltd. Compal Digital Communications (Nanjing) Co., Ltd. Compal Wireless Communications (Nanjing) Co., Ltd. RiPAL Optotronics Co., Ltd. Compal Electronics India Private Limited Production and after-sale service of cellphones Compal Information Technology (Kunshan) Co., Ltd. Arcadyan Technology (Vietnam) Co., Ltd. Production and sale of WLAN products Tatung Home Appliances (Wu Jiang) Co., Ltd. HengHao Optoelectronics Technology (Kunshan) CO., LTD Rayonnant Technology (Taicang) Co., Ltd. Development and production of aluminum and magnesium alloy- Manufacturing of home appliances and audiovisual electronics Production touch panels and related components Production and sale of digital home electronics Production and sale of WLAN products Technology service Lucom Display Technology (Kunshan) Ltd. Production touch panels and LCD displays Compower Global Service Co., Ltd. Compal Management (Chengdu) Co., Ltd. Management consultation, training, business information, tax Maintenance and after-sale service of notebooks and cellphones based products HANHELT Communications (Nanjing) Co., Ltd. Bizcom Electronics, Inc. Compal Europe (Poland) Sp. z o.o. Auscom Engineering Inc. Arcadyan Technology (Shanghai) Corp. Arcadyan Technology Limited Compal Development & Management (Vietnam) Co., Ltd. advisory, investment consultation, and investment management Development of electronic communication equipment Marketing and after-sale of computer monitors and notebooks Maintenance and after-sale service of notebooks and cellphones Development of notebooks and related components, hardware and software Development and sale of WLAN products Technical support for wireless networking products Construction and investment of infrastructures at Ba-Thien Industrial Zone, Vietnam UniCore Biomedical Co., Ltd. Management consultation, leasing, and wholesale/retail of medical equipment 187 Construction and development Leading and management Industry category Name of affiliated enterprise Business relationship with other affiliated enterprises consulting HippoScreen Neurotech Corp. Management consultation, leasing, wholesale/retail of Precision Instruments and International Trade SHENNONA CO., LTD. Management consultation, leasing, wholesale/retail of Precision Raycore Biotech Co., Ltd. Instruments and International Trade Wholesaling and retailing of veterinary drugs General Life Biotechnology Co., Ltd. Rapha Bio Ltd. Manufacturing and sale of medical equipment Sale of test instruments and supplies Shennona Corporation Medical care IOT business Wholesale and retail of veterinary drugs Manufacturing and sale of medical equipment Medical care 4. Directors, supervisors, and President of affiliated enterprises December 31, 2019 Unit: NTD thousands; shares; % Company name Title Name or name of representative Compal Electronics, Inc. Chairman Director and President Director Director Sheng-Hsiung Hsu Jui-Tsung Chen Binpal Investment Co., Ltd. (Representative: Wen-Being Hsu ) Kinpo Electronics, Inc. (Representative: Shyh-Yong Shen) Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Director Director Director President and Director Director Chiung-Chi Hsu Director Ming-Chih Chang Director Anthony Peter Bonadero Sheng-Hua Peng Director Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh Kung Tsai Representative Representative Director Compal International Holding Co., Ltd. Compal International Holding (HK) Limited Compal Electronics Technology (Kunshan) Co., Ltd. Director Director Director Chairman Director Wen-Being Hsu Shyh-Yong Shen Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal International Holding Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) 188 Shares held Shares (Note) 8,975,401 35,352,587 5,000,000 151,628,692 7,896,867 8,714,297 8,022,874 6.618,618 2,117,731 1,919,489 0 835,000 0 0 0 5,000,000 0 Shareholding percentage 0.20% 0.80% 0.11% 3.44% 0.18% 0.20% 0.18% 0.15% 0.05% 0.04% 0% 0.02% 0.00% 0.00% 0.00% 0.11% 0.00% 53,001,000 100.00% 53,001,000 100.00% 74,802,500 100.00% 74,802,500 100.00% NT$359,760 100.00% NT$359,760 100.00% Company name Title Name or name of representative Compal Information (Kunshan) Co., Ltd. Compal Information Technology (Kunshan) Co., Ltd. Compal Digital Technology (Kunshan) Co., Ltd. Kunshan Botai Electronics Co., Ltd. Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor Compower Global Service Co., Ltd. President Managing Director Supervisor President Director Director Jenpal International Ltd. Director Director Fortune Way Director Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Ming-Chih Chang) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Kunshan Botai Electronics Co., Ltd. (Representative: Chung-Pin Wong) Kunshan Botai Electronics Co., Ltd. (Representative: Cheng-Chiang Wang) Ming-Chih Chang Compal International Holding Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal International Holding Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal International Holding Co., Ltd. 189 Shares held Shares (Note) Shareholding percentage NT$359,760 100.00% NT$359,760 100.00% 0 0.00% NT$359,760 100.00% NT$359,760 100.00% NT$359,760 100.00% NT$359,760 100.00% 0 0.00% NT$719,520 100.00% NT$719,520 100.00% NT$719,520 100.00% NT$719,520 100.00% 0 0.00% NT$599,600 100.00% NT$599,600 100.00% NT$599,600 100.00% NT$599,600 100.00% 0 NT$29,980 0.00% 100.00% NT$29,980 100.00% NT$29,980 100.00% NT$29,980 0 NT$8,607 NT$8,607 0 100.00% 0.00% 100.00% 100.00% 0.00% 1,000 100.00% 7,350,000 100.00% 7,350,000 14,900,000 100.00% 100.00% Prospect Fortune Group Ltd. 100.00% 1,000 Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Technology Corp. Just International Ltd. Compal Display Holding (HK) Limited Director Director Director Director Director Compal Electronics (China) Co., Ltd. Chairman Compal Smart Device (Chongqing) Co., Ltd. Compal Optoelectronics (Kunshan) Co., Ltd. Compal System Trading (Kunshan) Co., Ltd. Compal Investment (Jiangsu) Co., Ltd. Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Just International Ltd. (Representative: Sheng-Hsiung Hsu ) Just International Ltd. (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hua Peng) Compal Display Holding (HK) Limited (Representative: Ching-Hsiung Lu) Fu-Chuan Chang Compal Electronics (China) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Electronics (China) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics (China) Co., Ltd. (Representative: Sheng-Hua Peng) Compal Electronics (China) Co., Ltd. (Representative: Cheng-Chiang Wang) Sheng-Hua Peng Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hua Peng) Compal Display Holding (HK) Limited (Representative: Ching-Hsiung Lu) Fu-Chuan Chang Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal Display Holding (HK) Limited (Representative: Chung-Pin Wong) Compal Display Holding (HK) Limited (Representative: Cheng-Chiang Wang) Ming-Chih Chang Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited 190 14,900,000 100.00% 48,010,000 100.00% 48,010,000 100.00% 62,297,500 100.00% 62,297,500 100.00% NT$1,109,260 100.00% NT$1,109,260 100.00% NT$1,109,260 100.00% NT$1,109,260 100.00% 0 0.00% NT$258,198 100.00% NT$258,198 100.00% NT$258,198 100.00% NT$258,198 100.00% 0 0.00% NT$362,758 100.00% NT$362,758 100.00% NT$362,758 100.00% NT$362,758 100.00% 0 NT$41,972 0.00% 100.00% NT$41,972 100.00% NT$41,972 100.00% NT$41,972 0 100.00% 0.00% NT$467,688 100.00% NT$467,688 100.00% NT$467,688 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Supervisor President Chairman Director Director Supervisor President Director Director Director Director Compal Display Electronics (Kunshan) Co., Ltd. Compal International Ltd. Compal Electronics International Ltd. Smart International Trading Ltd. Director Amexcom Electronics, Inc. Mexcom Technologies, LLC Mexcom Electronics, LLC Big Chance International Co., Ltd. Center Mind International Co., Ltd. Director Director Director Director President Director Director Director Director Director Director Compal Investment (Sichuan) Co., Ltd. Chairman Director Director (Representative: Sheng-Hua Peng) Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited (Representative: Ching-Hsiung Lu) Sheng-Hua Peng Compal Investment (Jiangsu, China) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Investment (Jiangsu, China) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Investment (Jiangsu, China) Co., Ltd. (Representative: Sheng-Hua Peng) Compal Investment (Jiangsu, China) Co., Ltd. (Representative: Ching-Hsiung Lu) Sheng-Hua Peng Just International Ltd. (Representative: Sheng-Hsiung Hsu ) Just International Ltd. (Representative: Jui-Tsung Chen ) Just International Ltd. (Representative: Sheng-Hsiung Hsu ) Just International Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics International Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Electronics International Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics International Ltd. (Representative: Sheng-Hua Peng) Compal Electronics International Ltd. (Representative: Hsin-Kung Mao) Compal Electronics International Ltd. (Representative: Chung-Pin Wong) Hsin-Kung Mao Compal Electronics International Ltd. (Representative: Hsin-Kung Mao ) Compal Electronics International Ltd. (Representative: Hsin-Kung Mao ) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Big chance International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Big chance International Co., Ltd. (Representative: Jui-Tsung Chen ) Center Mind International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Center Mind International Co., Ltd. (Representative: Jui-Tsung Chen ) Center Mind International Co., Ltd. 191 NT$467,688 100.00% 0 0.00% NT$449,700 100.00% NT$449,700 100.00% NT$449,700 100.00% NT$449,700 100.00% 0 500,000 0.00% 100.00% 500,000 100.00% 9,245,000 100.00% 9,245,000 100.00% 1,000 1,000 100.00% 100.00% 1,000,000 100.00% 1,000,000 100.00% 1,000,000 0 NT$30 100.00% 0.00% 100.00% NT$246,855 100.00% 90,820,000 100.00% 90,820,000 100.00% 80,820,000 100.00% 80,820,000 100.00% NT$2,422,984 100.00% NT$2,422,984 NT$2,422,984 100.00% 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Compal Electronics (Chengdu) Co., Ltd. Compal Management (Chengdu) Co., Ltd. Prisco International Co., Ltd. Compal Electronics (Chongqing) Co., Ltd. Core Profit Holdings Ltd. Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor President Director Director Billion Sea Holdings Ltd. Director Director Director Mithera Capital Lo LP High Shine Industrial Corp. Director Director Intelligent Universal Enterprise Ltd. Director Director (Representative: Chung-Pin Wong) Center Mind International Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal Investment (Sichuan) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Investment (Sichuan) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Investment (Sichuan) Co., Ltd. (Representative: Chung-Pin Wong) Compal Investment (Sichuan) Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal Investment (Sichuan) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Investment (Sichuan) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Investment (Sichuan) Co., Ltd. (Representative: Chung-Pin Wong) Compal Investment (Sichuan) Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Big chance International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Big chance International Co., Ltd. (Representative: Jui-Tsung Chen ) Prisco International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Prisco International Co., Ltd. (Representative: Jui-Tsung Chen ) Prisco International Co., Ltd. (Representative: Chung-Pin Wong) Prisco International Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Core Profit Holdings Ltd. (Representative: Sheng-Hsiung Hsu ) Core Profit Holdings Ltd. (Representative: Jui-Tsung Chen ) Billion Sea Holdings Ltd. (Representative: David Liu ) Compal Electronics, Inc. & Billion Sea Holdings Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. & Billion Sea Holdings Ltd. (Representative: Jui-Tsung Chen ) High Shine Industrial Corp. (Representative: Sheng-Hsiung Hsu ) High Shine Industrial Corp. 192 NT$2,422,984 100.00% 0 0.00% NT$2,398,400 100.00% NT$2,398,400 100.00% NT$2,398,400 100.00% NT$2,398,400 100.00% 0 NT$23,984 0.00% 100.00% NT$23,984 100.00% NT$23,984 100.00% NT$23,984 0 10,000,000 100.00% 0.00% 100.00% 10,000,000 100.00% NT$299,800 100.00% NT$299,800 100.00% NT$299,800 100.00% NT$299,800 100.00% 0 0.00% 147,000,000 100.00% 147,000,000 100.00% 147,000,000 100.00% 147,000,000 100.00% NT$149,900 99.00% 79,700,000 100.00% 79,700,000 100.00% 67,000,000 67,000,000 100.00% 100.00% Company name Title Name or name of representative Compal (Vietnam) Co., Ltd. Goal Reach Enterprises Ltd. Director Director Director Director Compal Development & Management (Vietnam) Co., Ltd. Panpal Technology Chairman Director and President Director Supervisor Gempal Technology Co., Ltd. Chairman Hong Ji Capital Co., Ltd. Director and President Director Supervisor Chairman Director and President Director Supervisor Hong Jin Investment Co., Ltd. Chairman Director and President Director Supervisor President President Director Director Supervisor Chairman Director Compalead Eletrônica do Brasil Indústria e Comércio Ltda. Compal Electronics India Private Limited Accesstek Inc. Arcadyan Technology Corp. (Representative: Jui-Tsung Chen ) Intelligent Universal Enterprise Ltd. (Representative: Jui-Tsung Chen ) High Shine Industrial Corp. (Representative: Sheng-Hsiung Hsu ) High Shine Industrial Corp. (Representative: Jui-Tsung Chen ) Goal Reach Enterprises Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Sheng-Chieh Hsu) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Sheng-Hua Peng) Compal Electronics, Inc. (Representative: Sheng-Chieh Hsu) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Sheng-Hua Peng) Compal Electronics, Inc. (Representative: Sheng-Chieh Hsu) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Sheng-Chieh Hsu) Hsiao-Li Chao Guo-Dung Yu UJJAWAL SINGH KATIYAR Cheng-Chiang Wang Panpal Technology Corporation (Representative: Ching-Hsiung Lu) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. 193 Shares held Shares (Note) Shareholding percentage NT$2,008,660 100.00% 12,700,000 100.00% 12,700,000 100.00% NT$380,746 100.00% 500,000,000 100.00% 500,000,000 100.00% 500,000,000 100.00% 500,000,000 100.00% 90,000,000 100.00% 90,000,000 100.00% 90,000,000 100.00% 90,000,000 100.00% 100,000,000 100.00% 100,000,000 100.00% 100,000,000 100.00% 100,000,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 0 0 0 0 159,742 41,304,504 41,304,504 0.00% 0.00% 0.00% 0.00% 4.94% 19.81% 19.81% Company name Title Name or name of representative Director Director (Representative: Sheng-Hua Peng) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Chung-Pao Liu) Arcadyan Technology N.A. Corp. Arcadyan Germany Technology GmbH Arcadyan Technology Corporation Korea Arcadyan do Brasil Ltda. Arcadyan Technology Limited Arcadyan Technology Australia Pty Ltd. Arcadyan Holding (BVI) Corp. Sinoprime Global Inc. Arcadyan Technology (Vietnam)Co., Ltd Arch Holding (BVI) Corp. Arcadyan Technology (Shanghai) Corp. Che-He Wei Compal Electronics, Inc. (Representative: Chao-Peng Tseng) Director Director and President Independent Director Ying-Jen Li Independent Director Ching-Jang Wen Independent Director Wen-An Yang Director Director President Managers Director Arcadyan Technology Corp. (Representative: Jui-Tsung Chen ) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Chao-Peng Tseng Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Managers Nien-Che, Hsiung Director Director Director Director Director Chairman Director Chairman Director Chairman Director Chairman Director Chairman Director Director Director Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Keng-Tien Lin) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Technology Corp. (Representative: Linda, Chu ) Arcadyan Technology Corp. (Representative: Jui-Tsung Chen ) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Jui-Tsung Chen ) Arcadyan Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Sinoprime Global Inc. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Jui-Tsung Chen ) Arcadyan Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Ching-Hsiung Lu) Arcadyan Holding (BVI) Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Holding (BVI) Corp. 194 Shares held Shares (Note) Shareholding percentage 41,304,504 19.81% 41,304,504 0 41,304,504 0 0 0 1,000 1,000 0 500 19.81% 0.00% 19.81% 0.00% 0.00% 0.00% 100.00% 100.00% 0.00% 100.00% 20,000 100.00% 964,510 99.00% 50,000 50,000 50,000 50,000 50,000 100.00% 100.00% 100.00% 100.00% 100.00% 59,780,148 100.00% 59,780,148 100.00% 9,050,000 100.00% 9,050,000 100.00% NT$269,820 100.00% 34,900 34,900 100.00% 100.00% NT$392,738 100.00% NT$392,738 100.00% NT$392,738 NT$392,738 100.00% 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Director Supervisor President Chairman Director Director Director Director Director Director Supervisor Supervisor Supervisor President Director Director Compal Network Information Technology (Kunshan) Co., Ltd. Zhi-pal Technology Inc Tatung Technology Inc. Tatung Technology of Japan Co., Ltd. Quest International Group Co., Ltd. Director Director Exquisite Electronic Co., Ltd. Director (Representative: Chung-Pao, Liu) Arcadyan Holding (BVI) Corp. (Representative: Chien-Lin Chen ) Arcadyan Holding (BVI) Corp. (Representative: Shih-Wei Huang) Chung-Pao, Liu Arch Holding (BVI) Corp. (Representative: Fong-Yu, Lu) ) Arch Holding (BVI) Corp. (Representative: Jui-Tsung Chen ) Arch Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Arch Holding (BVI) Corp. (Representative: Ching-Hsiung Lu) Chung-Pao, Liu Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Sheng-Hua Peng) Arcadyan Technology Corp. (Representative: Ching-Hsiung Lu) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Technology Corp. (Representative: Shih-Wei Huang) Chao-Peng Tseng Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Technology Corp. (Representative: Chien-Lin Chen) Arcadyan Technology Corp. (Representative: Nien-Che, Hsiung) Arcadyan Technology Corp. (Representative: Li-Wei Dang) Shang Chi Investment Co., Ltd. (Representative: Chia-Tien Lin ) Chunghwa Investment Holding Company (Representative: Chih-Chen Chien) Shih-Wei Huang Yi-Yu Liang Chi Sheng Investment Co., Ltd. (Representative: Chang-Chuan Lin) Li-Wei Dang Tatung Technology Inc. (Representative: Li-Wei Dang) Tatung Technology Inc. (Representative: Chao-Peng Tseng) Tatung Technology Inc. (Representative: Chao-Peng Tseng) Tatung Technology Inc. (Representative: Li-Wei Dang) Quest International Group Co., Ltd. (Representative: Chao-Peng Tseng) 195 NT$392,738 100.00% NT$392,738 100.00% 0 0.00% NT$373,251 100.00% NT$373,251 100.00% NT$373,251 100.00% NT$373,251 100.00% 0 0.00% 34,980,000 100.00% 34,980,000 100.00% 34,980,000 100.00% 34,980,000 100.00% 34,980,000 100.00% 0 25,027,910 0.00% 61.04% 25,027,910 61.04% 25,027,910 61.04% 25,027,910 61.04% 25,027,910 61.04% 1,027,056 2.51% 4,570,830 11.15% 0 0 2,727,272 1,062,935 300 300 0.00% 0.00% 6.65% 2.59% 100.00% 100.00% 1,200,000 100.00% 1,200,000 100.00% 1,170,000 100.00% Company name Title Name or name of representative Tatung Home Appliances (Wu Jiang) Co., Ltd. Director Chairman Director Director Supervisor President Acbel Telecom Inc. Chairman Director Director Supervisor President Director Director Director Managers Managers Leading Images Limited Astoria Networks GmbH Compal Broadband Networks Inc. Chairman Director Director Director Quest International Group Co., Ltd. (Representative: Li-Wei Dang) Exquisite Electronic Co., Ltd. (Representative: Fong-Yu, Lu) ) Exquisite Electronic Co., Ltd. (Representative: Chao-Peng Tseng) Exquisite Electronic Co., Ltd. (Representative: Li-Wei Dang) Exquisite Electronic Co., Ltd. (Representative: Shih-Wei Huang) Li-Wei Dang Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) AcBel Polytech Inc. (Representative: Ching-Shang Kao) Shih-Wei Huang Fong-Yu, Lu Acbel Telecom Inc. (Representative: Chao-Peng Tseng) Acbel Telecom Inc. (Representative: Ching-Hsiung Lu) Acbel Telecom Inc. (Representative: Chung-Pao, Liu) Leading Images Limited (Representative: Tsai-Yen Chuang) Leading Images Limited (Representative: Yu-Yu Wang) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Realsun Investment Co., Ltd (Representative: Tsai , Jon-Jinn ) Compal Electronics, Inc. (Representative: Yu- Ho Wang) Independent Director Wong, Jen-Zen Independent Director Mao, Yin-Wen Independent Director Chen, Miao- Ling President Director Yu- Ho Wang Compal Broadband Networks Inc. (Representative: Yu- Ho Wang) Compal Broadband Networks Belgium BVBA Compal Broadband Networks Netherlands B.V. Henghao Technology Co.,Ltd. Shares held Shares (Note) Shareholding percentage 1,170,000 100.00% NT$100,433 100.00% NT$100,433 100.00% NT$100,433 100.00% NT$100,433 100.00% 0 4,494,111 4,494,111 4,292,216 0 0 50,000 50,000 50,000 25,000 25,000 0.00% 51.08% 51.08% 48.78% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 29,060,176 43.45% 29,060,176 43.45% 3,575,000 5.34% 29,060,176 43.45% 0 0 0 1,086,810 0.00% 0.00% 0.00% 1.62% 20,300 100.00% Director Compal Broadband Networks Inc. (Representative: Shao- Yang Chiu ) 20,300 100.00% Chairman Vice Chairman and President Director Director Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Chen-Chang Hsu) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Sheng-Hua Peng) 196 20,014,952 100.00% 20,014,952 100.00% 20,014,952 100.00% 20,014,952 100.00% Company name Title Name or name of representative HengHao Holdings A Co., Ltd. HengHao Holdings B Co., Ltd. HengHao Optoelectronics Technology (Kunshan) CO., LTD HengHao Trading Co., Ltd. Lucom Display Technology (Kunshan) Ltd. Mactech Inc. Rayonnant Technology Co., Ltd. Supervisor Director Director Director Director Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor President Chairman Director Director Director Director Director Director Supervisor Chairman Director and President Director Supervisor Compal Rayonnant Holdings Ltd. Director Director Chyou-Jui Wei Henghao Technology Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Henghao Technology Co., Ltd. (Representative: Chung-Pin Wong) HengHao Holdings A Co., Ltd. (Representative: Sheng-Hsiung Hsu ) HengHao Holdings A Co., Ltd. (Representative: Chung-Pin Wong) HengHao Holdings B Co., Ltd. (Representative: Chen-Chang Hsu) HengHao Holdings B Co., Ltd. (Representative: Chia-Tien Liu HengHao Holdings B Co., Ltd. (Representative: Jui-Hsiang Yang) HengHao Holdings B Co., Ltd. (Representative: Cheng-Chiang Wang) Chen-Chang Hsu HengHao Holdings B Co., Ltd. (Representative: Sheng-Hsiung Hsu) HengHao Holdings B Co., Ltd. (Representative: Chung-Pin Wong) HengHao Holdings B Co., Ltd. (Representative: Chen-Chang Hsu) HengHao Holdings B Co., Ltd. (Representative: Chia-Tien Liu ) HengHao Holdings B Co., Ltd. (Representative: Jui-Hsiang Yang ) HengHao Holdings B Co., Ltd. (Representative: Hsiu-Chuan Hsu) Chen-Chang Hsu Compal Electronics, Inc. (Representative: Yung-Ching Chang) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Chen-Chang Hsu) Compal Electronics, Inc. (Representative: Ming-Chih Chang) Wen-Pin Kuo Chuan-Kuei Lin Chyou-Jui Wei Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Pao-Jui Cheng) Compal Electronics, Inc. (Representative: Hsi-Kuan Chen) Compal Electronics, Inc. (Representative: Chyou-Jui Wei) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. 197 Shares held Shares (Note) 0 46,882,022 46,882,022 46,882,022 46,882,022 Shareholding percentage 0.00% 100.00% 100.00% 100.00% 100.00% NT$1,199,200 100.00% NT$1,199,200 100.00% NT$1,199,200 100.00% NT$1,199,200 0 10,000 10,000 NT$449,700 NT$449,700 NT$449,700 NT$449,700 0 21,756,192 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 52.88% 21,756,192 52.88% 21,756,192 52.88% 21,756,192 52.88% 21,756,192 52.88% 1,301,505 1,609,172 0 3.16% 3.91% 0.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 12,500,000 12,500,000 100.00% 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Allied Power Holding Corp. Primetek Enterprises Ltd. Rayonnant Technology Holdings (HK) Co., Ltd. Rayonnant Technology (Taicang) Co., Ltd. Bizcom Electronics, Inc. Compal Europe (Poland) Sp. z o.o. Auscom Engineering Inc. Flight Global Holding Inc. Director Director Director Director Director Director Chairman Director Director Supervisor President Director Director Director Director Director Director Chairman Director and President Director Director Director RiPAL Optotronics Co., Ltd. Chairman Director Director Supervisor (Representative: Jui-Tsung Chen ) Compal Rayonnant Holdings Ltd. (Representative: Chung-Pin Wong) Rayonnant Technology Co., Ltd. (Representative: Pao-Jui Cheng) Allied Power Holding Corp. (Representative: Chung-Pin Wong) Allied Power Holding Corp. (Representative: Pao-Jui Cheng) Allied Power Holding Corp. (Representative: Chyou-Jui Wei) Allied Power Holding Corp. (Representative: Pao-Jui Cheng) Rayonnant Technology Holdings (HK) Co., Ltd. (Representative: Pao-Jui Cheng) Rayonnant Technology Holdings (HK) Co., Ltd (Representative: Shyh-An Lee). Rayonnant Technology Holdings (HK) Co., Ltd. (Representative: Hsi-Kuan Chen) Rayonnant Technology Holdings (HK) Co., Ltd. (Representative: Chyou-Jui Wei) Pao-Jui Cheng Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Sheng-Hua Peng) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Po-Tang Wang ) Compal Electronics, Inc. (Representative: Po-Tang Wang ) Compal Electronics, Inc. (Representative: Ming-Chih Chang) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Min-Tung Weng) Compal Electronics, Inc. (Representative: Chun-Te Shen) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Sheng-Hua Peng) Compal Electronics, Inc. 198 12,500,000 59.10% 8,651,000 40.90% 3,151,000 100.00% 3,151,000 100.00% 18,000,000 100.00% 18,000,000 100.00% NT$539,640 100.00% NT$539,640 100.00% NT$539,640 100.00% NT$539,640 100.00% 0 100,000 0.00% 100.00% 100,000 100.00% 100,000 100.00% 100,000 100.00% 136,080 100.00% 136,080 100.00% 3,000,000 100.00% 3,000,000 100.00% 3,000,000 100.00% 89,755,495 100.00% 89,755,495 100.00% 6,000,000 100.00% 6,000,000 100.00% 6,000,000 6,000,000 100.00% 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Compal Electronics (Holding) Ltd. Etrade Management Co., Ltd. Compal Communications (Nanjing) Co., Ltd. Compal Digital Communications (Nanjing) Co., Ltd. Compal Wireless Communications (Nanjing) Co., Ltd. Webtek Technology Co., Ltd Forever Young Technology Inc. HANHELT Communications (Nanjing) Co., Ltd. Director Director Director Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor Unicom Global. Inc. Chairman Director Director Supervisor (Representative: Chyou-Jui Wei) Compal Electronics, Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Etrade Management Co., Ltd. (Representative: Sheng-Hua Peng) Etrade Management Co., Ltd. (Representative: Ching-Hsiung Lu) Etrade Management Co., Ltd. (Representative: Hsin-Hsiung Huang) Etrade Management Co., Ltd. (Representative: Guo-Dung Yu) Sheng-Hua Peng Etrade Management Co., Ltd. (Representative: Sheng-Hua Peng) Etrade Management Co., Ltd. (Representative: Ching-Hsiung Lu) Etrade Management Co., Ltd. (Representative: Hsin-Hsiung Huang) Etrade Management Co., Ltd. (Representative: Guo-Dung Yu) Sheng-Hua Peng Etrade Management Co., Ltd. (Representative: Sheng-Hua Peng) Etrade Management Co., Ltd. (Representative: Ching-Hsiung Lu) Etrade Management Co., Ltd. (Representative: Hsin-Hsiung Huang) Etrade Management Co., Ltd. (Representative: Guo-Dung Yu) Sheng-Hua Peng Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative:Jui-Tsung Chen ) Forever Young Technology Inc. (Representative: Sheng-Hua Peng) Forever Young Technology Inc. (Representative: Chung-Shing Tan) Forever Young Technology Inc. (Representative: Wen-Da Hsu) Forever Young Technology Inc. (Representative: Chiao-Lie Huang) Compal Electronics, Inc. (Representative: Chung-Pin Wong ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen) Compal Electronics, Inc. (Representative: Hsin-Kung Mao) Compal Electronics, Inc. (Representative: Chyou-Jui Wei) 199 1,000 1,000 100.00% 100.00% 46,900,000 65.23% NT$659,560 100.00% NT$659,560 100.00% NT$659,560 100.00% NT$659,560 100.00% 0 0.00% NT$173,884 100.00% NT$173,884 100.00% NT$173,884 100.00% NT$173,884 100.00% 0 0.00% NT$1,469,020 100.00% NT$1,469,020 100.00% NT$1,469,020 100.00% NT$1,469,020 100.00% 0 100,000 0.00% 100.00% 50,000 100.00% NT$59,960 100.00% NT$59,960 100.00% NT$59,960 100.00% NT$59,960 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% Company name Title Name or name of representative Palcom International Corporation Compalead Electronics B.V. General Life Biotechnology Co., Ltd. Rapha Bio Ltd. Chairman Director Director Supervisor Director Director Chairman Director Director Director Director Supervisor Supervisor Chairman Director Director Supervisor Giant Rank Trading Limited UniCore Biomedical Co., Ltd. Director Chairman Director Director Director Director Supervisor Chairman Director Director Supervisor Director Director Raycore Biotech Co., Ltd. Shennona Corporation Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Sheng-Hua Peng) Compal Electronics, Inc. (Representative: Cheng-Chiang Wang) Compal Electronics, Inc. (Representative: Guo-Dung Yu) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Hsin-Kung Mao) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Chyou-Jui Wei) Alltek Technology Corp. (Representative: Yu-Wen Wu) WK Technology Fund IV China Development Industrial Bank Sheng-Hua Peng General Life Biotechnology Co., Ltd. (Representative: Chyou-Jui Wei) General Life Biotechnology Co., Ltd. (Representative: Cheng-Ta Chen) General Life Biotechnology Co., Ltd. (Representative: Tung-Pang Lin) General Life Biotechnology Co., Ltd. (Representative: Kuo-Hsiung Chung) Forever Young Technology Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Jui-Tsung Chen ) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Sheng-Hua Peng) Compal Electronics, Inc. (Representative: Tzu-Chen Yen) Compal Electronics, Inc. (Representative: Chyou-Jui Wei) Compal Electronics, Inc. (Representative: Shu-Fen Ning) UniCore Biomedical Co., Ltd. (Representative:Jui-Tsung Chen ) Raypal Biomedical Co., Ltd. (Representative: Yen-Liang Lin) UniCore Biomedical Co., Ltd. (Representative: Chyou-Jui Wei) Shu-Fen Ning Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. 200 Shares held Shares (Note) Shareholding percentage 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 6,426,516 100.00% 6,426,516 100.00% 15,000,000 50.00% 15,000,000 50.00% 15,000,000 50.00% 6,922,940 604,800 2,520,000 0 1,275,000 1,275,000 1,275,000 1,275,000 - 23.08% 2.02% 8.40% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 1,275,000 51.00% 1,225,000 49.00% 1,275,000 0 2,600,000 2,600,000 51.00% 0.00% 100.00% 100.00% Company name Title Name or name of representative HippoScreen Neurotech Corp. SHENNONA CO., LTD. Aco Smartcare Co.,Ltd. Director Chairman Director Director Director Director Supervisor Chairman Chairman Director Director Director Director Supervisor (Representative: Wei Chang Chen ) Compal Electronics, Inc. .(Representative: Chun-Te Shen) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Wei Chang Chen) Compal Electronics, Inc. (Representative Chun-Te Shen) Po-Jen Liu Long-Song Lin Cheng-Chiang Wang Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative:Jui-Tsung Chen) Compal Electronics, Inc. (Representative: Chung-Pin Wong) Compal Electronics, Inc. (Representative: Hsuan-Bin Chen) Jian-Hung Liu Shu-Chin Su Chyou-Jui Wei Shares held Shares (Note) Shareholding percentage 2,600,000 100.00% 4,200,000 4,200,000 4,200,000 684,000 180,000 0 600,000 70.00% 70.00% 70.00% 11.40% 3.00% 0.00% 100.00% 100,000,000 52.04% 100,000,000 52.04% 100,000,000 22,227,778 22,227,778 0 52.04% 11.57% 11.57% 0.00% Note: Limited liability companies are shown in terms of amount and percentage of capital contribution. (Exchange rates for amount of capital contribution: USD 1: TWD 29.98, CNY 1: TWD 4.3033, and VND 1: TWD 0.001297.) 201 Compal International Holding Co., Ltd. and subsidiaries Just International Ltd. and subsidiaries Big Chance International Co., Ltd. and subsidiaries High Shine Industrial Corp. and subsidiaries Panpal Technology Corporation and subsidiaries Gempal Technology Co., Ltd. Hong Ji Capital Co., Ltd. Hong Jin Investment Co., Ltd. Accesstek Inc. and subsidiaries UniCore Biomedical Co., Ltd. and subsidiaries 5. Overview of Operating Status for Affiliated Companies in 2019 Company Name Capital Net asset value Total liabilities Net worth Operating Operating Net loss/profit for the EPS (in NTD) revenue income period (after tax) (After tax) Unit: NTD thousand Compal Electronics, Inc. 44,071,466 337,783,488 231,810,855 105,972,633 916,280,028 8,536,952 6,955,899 1,787,680 110,899,804 76,354,283 34,545,521 199,880,145 290,325 473,752 1,480,509 21,116,483 13,161,582 7,954,901 33,547,573 (48,000) 209,804 Core Profit Holdings Ltd. 4,318,860 7,670,141 483 7,669,658 - (3,489) 2,636,051 26,843,341 20,662,304 6,181,037 28,125,522 273,906 296,502 232,282 2,465,140 5,257,887 3,570,173 1,687,714 4,571,653 (214,925) (180,050) (2.26) 5,000,000 10,820,535 4,923,880 5,896,655 11,566,319 308,457 900,000 1,000,000 295,000 1,948,710 1,078,704 342,239 32,369 32,268 1,909 253 70 1,508 1,946,801 1,078,451 342,169 30,760 - - - - (295) (238) (208) (930) 251,626 97,031 61,266 29,773 (6,575) 200,000 182,631 19,985 162,646 17,593 (23,229) (18,865) Shennona Corporation 32,665 1,372 - 1,372 - (7,151) (7,150) Arcadyan Technology Corp. and subsidiaries Compal Broadband Networks Inc. and subsidiaries 2,085,350 25,530,985 14,190,051 11,340,934 32,897,900 1,727,512 1,356,986 668,871 2,632,528 927,587 1,704,941 2,832,098 763 10,514 Henghao Technology Co., Ltd. 200,150 5,740,252 6,225,326 (485,074) 7,071,841 (450,834) (569,058) 202 1.60 8.94 4.37 3.26 1.58 0.50 1.08 0.61 1.01 (2.03) (0.94) (2.75) 6.85 0.16 (28,43) Company Name Capital Net asset value Total liabilities Net worth Operating Operating Net loss/profit for the EPS (in NTD) revenue income period (after tax) (After tax) and subsidiaries Mactech Co., Ltd. 411,458 Ripal Optotronics CO, LTD. Co., Ltd. 60,000 606,582 137,585 91,767 60,953 514,815 76,632 334,365 108,490 14,929 24,859 General life Biotechnology Co., Ltd. and subsidiaries 300,000 795,052 403,852 391,200 612,922 95,396 Rayonnant Technology Holdings Ltd., 295,000 99,674 36,726 62,948 - (25,146) 377,328 965,555 833,855 131,700 1,274,880 32,369 Compal Rayonnant Holdings Ltd. and subsidiaries Bizcom Electronics, Inc. Compal Europe (Poland) Sp.z o.o. Auscom Engineering Inc. 3,031 90,156 101,747 572,796 221,302 184,530 Flight Global Holding Inc. 2,754,741 4,543,626 Compalead Electronics B.V. 197,463 827,325 126,606 203,929 57,931 80,753 3,896 446,190 17,373 126,699 4,462,873 823,429 296,359 263,765 170,946 - - 12,648 11,104 11,182 (111) (937) Etrade Management Co., Ltd and subsidiaries Webtek Technology Co., Ltd Forever Young Technology Inc. and subsidiaries Unicom Global Inc. Palcom International Corporation Compal Electronics (Holding) Ltd. HippoScreen Neurotech Corp. SHENNONA CO., LTD. Aco Smartcare Co.,Ltd. 3,340 1,575 100,000 100,000 34 600 732,743 - 732,743 34,565,202 (2,548) 1,946,829 492,996 1,453,833 22,334,087 (4,966) 423,520 138,897 882,816 33,274 3,531,243 - 37,715 5,722 12,775 3,297 6,000 17,067 30,748 115,076 (459,296) 105,623 3,531,243 31,993 4,292 (79,013) (3,550) - 546,070 118,368 - - 9,635 (1,726) 111,779 - (7,934) 6. Common shareholders in controlling and controlled companies: None 203 25,927 24,978 90,284 24,014 27,808 16,483 (11,992) 3,918 131,815 16,393 2,206 1,519 (83,033) (2,710) - (1,708) (7,729) 0.63 4.16 3.01 0.81 2.22 164.83 (88.12) 1.31 1.47 2.55 (1.67) 22.07 30.38 (8.30) (0.27) - (1.70) (2.85) (0.04) 2,295,154 8,312,012 8,902,214 (590,202) 29,134,208 68,410 (120,091) (10,324) (10,187) 8.1.2 Consolidated financial statements of affiliated enterprises Representation Letter The entities that are required to be included in the combined financial statements of COMPAL ELECTRONICS, INC. as of and for the year ended December 31, 2019 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 endorsed by the Financial Supervisory Commission, "Consolidated and Separate Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, COMPAL ELECTRONICS, INC. and its subsidiaries do not prepare a separate set of combined financial statements. Company name: COMPAL ELECTRONICS, INC. Chairman: Sheng-Hsiung Hsu (Rock Hsu) Date: March 30, 2020 8.1.3 Affiliation reports: None 204 8.2 8.3 Private Placement of Securities in the Most Recent Year: None Company Shares Held or Disposed by Subsidiaries in the Most Recent Year: Name of Share Capital Funding of Shares Subsidiary Acquired Source Held by the Percentage Company Panpal Technology NTD 5,000,000,000 Corporation Gempal Technology NTD 900,000,000 Co., Ltd. Proprietary capital 100% Proprietary capital 100% Date of Shares and Shares and Acquisition or Amount Amount Disposition Acquired Disposed Investment Gain (Loss) Shareholdings and Amount as of March Collateralized 31, 2020 Amount of Endorsements Made for the Subsidiary Amount Loaned to the Subsidiary Unit: NT$ thousands; Shares; % - - - - - - - - 31,648,082 shares NTD 559,812,000 18,369,349 shares NTD 321,435,000 N/A N/A - - - - Note: Impacts on the Company’s financial performance and position: none of the subsidiaries had acquired or disposed the Company’s shares in the current year up till the publication date of this annual report, hence there were no impacts. 8.4 Other supplementary notes, where applicable: None 8.5 Any Events in 2019 and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Interests or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None 205 1 Compal Electronics, Inc. Chairman: Sheng-Hsiung Hsu (Rock Hsu) Chief Executive Officer (CEO): Chung-Pin Wong (Martin Wong) Attachment I 1 Stock Code:2324 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Financial Statements With Independent Auditors’ Report For the Years Ended December 31, 2019 and 2018 Address: Telephone: No.581 & 581-1, Ruiguang Rd., Neihu District, Taipei, Taiwan (02)8797-8588 Table of contents 2 Contents Page 1. Cover Page 2. Table of Contents 3. Representation Letter 4. Independent Auditors’ Report 5. Consolidated Balance Sheets 6. Consolidated Statements of Comprehensive Income 7. Consolidated Statements of Changes in Equity 8. Consolidated Statements of Cash Flows 9. Notes to the Consolidated Financial Statements (1) Company history (2) Approval date and procedures of the consolidated financial statements (3) New standards, amendments and interpretations adopted (4) Summary of significant accounting policies (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty (6) Explanation of significant accounts (7) Related-party transactions (8) Pledged assets (9) Commitments and contingencies (10) Losses due to major disasters (11) Subsequent events (12) Other (13) Other disclosures 1 2 3 4 5 6 7 8 9 9 9～12 12～41 41 42～95 95～97 98 98 98 98 99 (a) Information on significant transactions (b) Information on investees (c) Information on investment in Mainland China (14) Segment information 99, 103～114 100, 115～119 100, 120～122 100～102 Representation Letter 3 The entities that are required to be included in the combined financial statements of COMPAL ELECTRONICS, INC. as of and for the year ended December 31, 2019 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 endorsed by the Financial Supervisory Commission, "Consolidated and Separate Financial Statements." In addition, the information required to be disclosed in the combined financial statements and is included in the consolidated financial statements. Consequently, COMPAL ELECTRONICS, INC. and Subsidiaries do not prepare a separate set of combined financial statements. Company name: COMPAL ELECTRONICS, INC. Chairman: Sheng-Hsiung Hsu (Rock Hsu) Date: March 30, 2020 4 Independent Auditor’s Report To COMPAL ELECTRONICS, INC.: Opinion We have audited the consolidated financial statements of COMPAL ELECTRONICS, INC. and its subsidiaries (the “ Group” ), which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the consolidated statement of comprehensive income, changes in equity and cash flows for the years ended December 31, 2019 and 2018, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended December 31, 2019 and 2018, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“ IFRSs” ), International Accounting Standards (“ IASs” ), Interpretations developed by the International Financial Reporting Interpretations Committee (“IFRIC”) or the former Standing Interpretations Committee (“SIC”) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audit of the consolidated financial statements as of and for the year ended December 31, 2019 in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants, Rule No. 1090360805 issued by the Financial Supervisory Commission, and the auditing standards generally accepted in the Republic of China. Furthermore, we conducted our audit of the consolidated financial statements as of and for the year ended December 31, 2018 in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants, and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditor’ s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“ the Code” ), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1. Account receivable valuation Please refer to Note (4)(g) for the accounting policy of accounts receivable. Information of account receivable valuation are shown in Note (6)(f) of the consolidated financial statements. 4-1 Description of key audit matters: The Group devotes to develop new product lines and customers in emerging countries, and the credit risks of these customers are higher than other world leading enterprises. Therefore, valuation of accounts receivable has been identified as a key audit matter. Our key audit procedures performed in respect of the above area included the following: In order to evaluate the reasonableness of the Group's estimations for bad debts, our key audit procedures included reviewing if the measurement of impairment loss of accounts receivable is accordance with accounting policy, examining the historical recovery records, analyzing the aging of accounts receivable, and the current credit status of customers, as well as inspecting the amount collected in the subsequent period. 2. Inventory valuation Please refer to Note (4)(h) and Note (5) for the accounting policy of inventory valuation, as well as the estimation and assumption uncertainty of the valuation of inventory, respectively. Information of estimation of the valuation of inventory are disclosed in Note (6)(g) of the consolidated financial statements. Description of key audit matters: The inventory is measured at the lower of cost or net realizable value. The short life cycle of electronic products may cause significant changes in customers’ demand and sales of related products. Consequently, the book value of inventory may be lower than the net realizable value of inventory. Therefore, the valuation of inventory is one of the key audit matters. Our key audit procedures performed in respect of the above area included the following: In order to verify the rationality of assessment of inventory valuation estimated by the Group, our key audit procedures included reviewing the consistency of prior year and accounting policy, inspecting the Group's inventory aging reports, analyzing the change of inventory aging, as well as verifying the inventory aging reports and the calculation of lower of cost or net realizable value. Other Matter Compal Electronics Inc. has prepared its parent-company-only financial statements as of and for the years ended December 31, 2019 and 2018, on which we have issued an unqualified opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the IFRSs, IASs, IFRC, SIC, endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance (including the Audit committee) are responsible for overseeing the Group’ s financial reporting process. 4-2 Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Szu-Chuan Chien and Yiu-Kwan Au. 4-3 Taipei, Taiwan (Republic of China) March 30, 2020 The accompanying consolidated financial statements are intended only to present the consolidated statement of financial position, financial performance and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. Notes to Readers COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars) Assets Current assets: December 31, 2019 December 31, 2018 Amount % Amount % Cash and cash equivalents (note (6)(a)) $ 66,559,397 17.4 70,296,545 17.6 Current financial assets at fair value through profit or loss (note (6)(b)) 1,346,379 0.4 4,611,134 1.1 Current derivative financial assets for hedging (note (6)(d)) Current financial assets at amortized cost (note (6)(e)) Notes and accounts receivable, net (note (6)(f)) 61 - - - - - 350,000 0.1 191,692,152 50.1 203,715,965 51.0 Notes and accounts receivable due from related parties, net (notes (6)(f) and (7)) 44,512 - 58,106 - Other receivables, net (notes (6)(f) and (7)) Inventories (note (6)(g)) Other current assets (note (8)) Non-current assets: 2,006,113 0.5 1,665,249 0.4 78,433,538 20.5 79,148,922 19.8 3,072,661 0.8 2,899,329 0.7 343,154,813 89.7 362,745,250 90.7 Investments accounted for using equity method (note (6)(h)) 7,319,086 1.9 7,364,485 1.9 Non-current financial assets at fair value through profit or loss (note (6)(b)) Non-current financial assets at fair value through other comprehensive income (note (6)(c)) Property, plant and equipment (notes (6)(l) and (8)) Right-of-use assets (note (6)(m)) Intangible assets Deferred tax assets (note(6)(u)) Long-term prepaid rents (note(6)(s)) Other non-current assets (note (8)) 115,359 4,928,053 19,972,347 3,350,172 1,553,342 1,637,626 - - 1.3 5.2 0.9 0.4 0.4 - 617,621 0.2 69,390 5,172,295 20,418,228 - 1,516,253 1,023,948 891,147 593,827 39,493,606 10.3 37,049,573 - 1.3 5.1 - 0.4 0.3 0.2 0.1 9.3 1100 1110 1135 1136 1170 1180 1200 1310 1470 1550 1510 1517 1600 1755 1780 1840 1985 1990 Total assets $ 382,648,419 100.0 399,794,823 100.0 See accompanying notes to consolidated financial statements. Liabilities and Equity Current liabilities: Short-term borrowings (note (6)(n)) Current financial liabilities at fair value through profit or loss (note (6)(b)) Current derivative financial liabilities for hedging (note (6)(d)) Current contract liabilities (note (6)(y)) Notes and accounts payable Notes and accounts payable to related parties (note (7)) Other payables (note (7)) Current tax liabilities Current provisions (note (6)(r)) Current lease liabilities (note (6)(q)) Other current liabilities Current refund liabilities Long-term borrowings, current portion (note (6)(o)) Non-Current liabilities: Bonds payable (note (6)(p)) Long-term borrowings (note (6)(o)) Deferred tax liabilities (note(6)(u)) Non-current lease liabilities (note (6)(q)) Non-current net defined benefit liability (note (6)(t)) Non-current liabilities, others (note (6)(h)) Total liabilities Equity: Equity attributable to owners of parent (notes (6)(v) and (6)(x)): Ordinary share Capital surplus Retained earnings Other equity interest Treasury shares 2100 2120 2125 2130 2170 2180 2200 2230 2250 2280 2300 2365 2322 2530 2540 2570 2580 2640 2670 3110 3200 3300 3400 3500 36XX Non-controlling interests Total equity Total liabilities and equity 5 December 31, 2019 December 31, 2018 Amount % Amount % $ 60,951,844 15.9 72,350,197 18.1 5,854 4,932 - - 26,913 - - - 956,455 0.2 1,476,304 0.4 142,940,869 37.4 152,300,093 38.1 1,504,908 21,916,685 4,428,716 830,757 717,021 1,990,243 1,382,374 18,189,375 0.4 5.7 1.2 0.2 0.1 0.5 0.4 4.8 1,976,620 19,558,007 3,722,191 426,981 - 3,255,135 1,579,832 17,535,625 0.5 4.9 0.9 0.1 - 0.8 0.4 4.4 255,820,033 66.8 274,207,898 68.6 966,492 7,559,063 1,009,218 1,550,067 738,164 246,038 0.3 2.0 0.3 0.4 0.2 - - 10,998,438 478,169 - 710,146 238,324 12,069,042 3.2 12,425,077 - 2.7 0.1 - 0.2 0.1 3.1 267,889,075 70.0 286,632,975 71.7 44,071,466 11.5 44,071,466 11.0 9,159,259 2.4 9,932,434 2.5 57,726,604 15.1 60,060,381 15.0 (4,103,449) (1.1) (7,459,388) (1.8) (881,247) (0.2) (881,247) (0.2) 105,972,633 27.7 105,723,646 26.5 8,786,711 2.3 7,438,202 1.8 114,759,344 30.0 113,161,848 28.3 $ 382,648,419 100.0 399,794,823 100.0 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share) 6 Net sales revenue (notes (6)(y) and (7)) Cost of sales (notes (6)(g), (6)(t), (7) and (12)) Gross profit Operating expenses: (notes (6)(s), (6)(t) and (12)) Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: Other gains and losses, net (notes (6)(d), (6)(h), (6)(j), (6)(aa) and (6)(ac)) Finance costs (notes (6)(n) and (6)(o)) Other income (note (6)(aa)) Miscellaneous disbursements Share of profit (loss) of associates and joint ventures accounted for using equity method (note (6)(h)) Total non-operating income and expenses Profit from continuing operations before tax Less: Income tax expenses (note (6)(u)) Profit Other comprehensive income: 2019 2018 Amount % Amount % $ 980,442,346 100.0 967,706,411 100.0 946,533,518 96.5 937,139,320 96.8 33,908,828 3.5 30,567,091 3.2 4,961,131 4,204,536 14,156,793 23,322,460 10,586,368 0.5 0.4 1.5 2.4 1.1 4,319,991 4,204,419 12,780,935 21,305,345 9,261,746 0.4 0.4 1.4 2.2 1.0 (166,133) - 2,256,958 0.2 (2,725,564) (0.3) (2,636,443) (0.3) 2,151,357 0.2 2,132,864 0.2 (35,160) 197,008 - - (22,908) - 797,368 (578,492) (0.1) 2,527,839 10,007,876 2,112,157 7,895,719 1.0 0.2 0.8 11,789,585 2,200,284 9,589,301 0.1 0.2 1.2 0.2 1.0 Components of other comprehensive income that will not be reclassified to profit or loss Gains (losses) on remeasurements of defined benefit plans Unrealized gains (losses) from investments in equity instruments measured at fair value through other comprehensive income Share of other comprehensive income of associates and joint ventures accounted for using equity method, components of other comprehensive income that will not be reclassified to profit or loss Income tax related to components of other comprehensive income that will not be reclassified to profit or loss (note (6)(u)) Components of other comprehensive income that will not be reclassified to profit or loss Components of other comprehensive income (loss) that will be reclassified to profit or loss (40,786) 407,276 109,246 35,847 439,889 - - - - - (16,260) - (1,188,635) (0.1) (124,949) (75,832) - - (1,254,012) (0.1) Exchange differences on translation of foreign financial statements (1,711,990) (0.2) 1,807,381 0.1 Gains (losses) on hedging instrument (note (6)(ab)) Share of other comprehensive income of associates and joint ventures accounted for using equity method, components of other comprehensive income that will be reclassified to profit or loss Income tax related to components of other comprehensive income that will be reclassified to profit or loss (note (6)(u)) Components of other comprehensive income that will be reclassified to profit or loss Other comprehensive income Total comprehensive income Profit, attributable to: Profit, attributable to owners of parent Profit, attributable to non-controlling interests Comprehensive income attributable to: Comprehensive income (loss), attributable to owners of parent Comprehensive income (loss), attributable to non-controlling interests Earnings per share (note 6(x)) Basic earnings per share Diluted earnings per share (4,871) (268,686) (10,678) (1,974,869) (1,534,980) 6,360,739 6,955,899 939,820 7,895,719 5,456,508 904,231 6,360,739 - - - (0.2) (0.2) 0.6 0.7 0.1 0.8 0.5 0.1 0.6 1.60 1.58 $ $ $ $ $ $ $ - (162,189) 3,293 1,641,899 387,887 9,977,188 8,913,365 675,936 9,589,301 9,278,187 699,001 9,977,188 - - - 0.1 - 1.0 0.9 0.1 1.0 0.9 0.1 1.0 2.05 2.02 4000 5000 6100 6200 6300 7020 7050 7190 7590 7770 7900 7950 8300 8310 8311 8316 8320 8349 8360 8361 8368 8370 8399 8300 8500 8610 8620 8710 8720 9750 9850 See accompanying notes to consolidated financial statements. COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars) Equity attributable to owners of parent 7 Retained earnings Special reserve 4,339,549 - - - - 4,491,599 - - - - - - - - 8,831,148 - - - - (1,363,317) - - - - - - - Unappropriated retained earnings 34,458,787 8,913,365 14,094 8,927,459 (574,953) (4,491,599) (4,407,147) - (521,643) Total retained earnings 57,051,197 8,913,365 14,094 8,927,459 - - (4,407,147) - (521,643) (1,156) 36,141 (1,156) 36,141 - - (1,024,470) - 32,401,419 6,955,899 (30,420) 6,925,479 (891,336) 1,363,317 (4,407,147) (1,024,470) - 60,060,381 6,955,899 (30,420) 6,925,479 - - (4,407,147) - - (27,199) (27,199) - - - - - 7,467,831 30,539,623 (4,824,910) (4,824,910) - 57,726,604 Balance at January 1, 2018 Profit for the year ended December 31, 2018 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for company's cash dividends received by subsidiaries Disposal of investments in equity instruments measured at fair value through other comprehensive income Changes in non-controlling interests Balance at December 31, 2018 Profit for the year ended December 31, 2019 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Adjustments of capital surplus for company's cash dividends received by subsidiaries Disposal of investments in equity instruments measured at fair value through other comprehensive income Changes in non-controlling interests Balance at December 31, 2019 Ordinary shares $ 44,191,916 - - - Capital surplus 10,938,773 - - - - - - - - - (120,450) - - - (881,429) (32,706) (459) (151,766) - 60,021 Legal reserve 18,252,861 - - - 574,953 - - - - - - - - - 44,071,466 - - - - - - - - - - - - 9,932,434 - - - - - - (881,429) 43,473 4,760 60,021 - - 18,827,814 - - - 891,336 - - - - - - - - $ 44,071,466 - - 9,159,259 - - 19,719,150 See accompanying notes to consolidated financial statements. Total equity attributable to owners of parent Treasury shares (881,247) 101,895,584 8,913,365 364,822 9,278,187 - - - Non- controlling interests Total equity 108,647,972 9,589,301 387,887 9,977,188 6,752,388 675,936 23,065 699,001 Total other equity interest Unrealized gains (losses) on financial assets measured at fair value through other comprehensive income Unearned employee benefit and others Exchange differences on translation of foreign financial statements (3,477,376) (5,847,823) - 1,624,424 1,624,424 - (1,273,696) (1,273,696) (79,856) - - - Total other equity interest (9,405,055) - 350,728 350,728 - - - - 489,483 1,130 79,856 - 79,856 1,024,470 - (7,459,388) - (1,706) (1,706) (1,468,971) (1,468,971) - - - - - - - - - - - - (4,407,147) (881,429) (64,866) (485) (156,219) 60,021 - - (881,247) 105,723,646 6,955,899 (1,499,391) 5,456,508 - - - - - - - - - - 4,824,910 - - - - - - - - - - - - (4,407,147) (881,429) 43,473 (22,439) 60,021 - - (1,706) (4,103,449) (881,247) 105,972,633 - - - - - - - - - - - - - - 489,483 1,130 - - 1,024,470 - (1,852,952) (5,606,436) - (1,942,028) (1,942,028) - 474,763 474,763 - - - - - - - - - (3,794,980) - - - - - - - 4,824,910 - (306,763) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (4,407,147) (881,429) (64,866) (485) (156,219) 60,021 - (13,187) 7,438,202 939,820 (35,589) 904,231 - (13,187) 113,161,848 7,895,719 (1,534,980) 6,360,739 - - - - - - - - - - (4,407,147) (881,429) 43,473 (22,439) 60,021 - 444,278 8,786,711 444,278 114,759,344 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation and amortization Increase (decrease) in expected credit loss Net loss (gain) on financial assets or liabilities at fair value through profit or loss Finance cost Interest income Dividend income Compensation cost of share-based payments Share of loss (profit) of associates and joint ventures accounted for using equity method Loss (gain) on disposal of property, plant and equipment Gain on disposal of investments Long-term prepaid rents Others Total adjustments to reconcile profit (loss) Changes in operating assets and liabilities: Changes in operating assets: Decrease (increase) in financial assets at fair value through profit or loss Decrease (increase) in notes and accounts receivable Decrease (increase) in other receivables Decrease (increase) in inventories Decrease (increase) in other current assets Decrease (increase) in other non-current assets Total changes in operating assets Changes in operating liabilities: Increase (decrease) in financial liabilities at fair value through profit or loss Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Increase (decrease) in refund liabilities Increase (decrease) in provisions Increase (decrease) in contract liabilities Increase (decrease) in other current liabilities Others Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash inflow (outflow) generated from operations Interest received Dividends received Interest paid Income taxes paid Net cash flows from (used in) operating activities Cash flows from (used in) investing activities: Redemption from financial assets at amortized cost Acquisition of financial assets at fair value through profit or loss and through other comprehensive income Proceeds from disposal of financial assets at fair value through profit or loss and through other comprehensive income Acquisition of investments accounted for using equity method Proceeds from disposal of investments accounted for using equity method Net cash flow from disposal of subsidiaries Proceeds from capital reduction of investments Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Acquisition of right-of-use assets Increase in long-term prepaid rents Others Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase (decrease) in short-term borrowings Proceeds from issuing bonds Proceeds from long-term borrowings Repayments of long-term borrowings Payment of lease liabilities Cash dividends paid Acquisition of non-controlling interests Change in non-controlling interests Others Net cash flows from (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period See accompanying notes to consolidated financial statements. 8 2019 2018 $ 10,007,876 11,789,585 6,419,421 (10,355) (24,217) 2,725,564 (1,664,803) (127,349) 125,281 (197,008) (40,245) (66,837) - 16,668 7,156,120 2,630,896 12,043,387 (571,592) 715,384 (174,770) (66,117) 14,577,188 (21,059) (9,831,480) 2,735,002 (197,458) 403,776 (519,849) (991,160) 6,789 (8,415,439) 6,161,749 13,317,869 23,325,745 1,898,096 266,110 (3,112,013) (1,456,869) 20,921,069 350,000 (264,261) 1,511,226 (43,200) 18,033 143,495 10,120 (5,850,532) 168,226 (498,402) (281,637) - 110,944 (4,625,988) (11,398,353) 1,007,240 66,462,300 (69,247,925) (832,815) (5,228,555) - 258,360 (34,005) (19,013,753) (1,018,476) (3,737,148) 70,296,545 66,559,397 $ 4,940,672 (17,449) (117,677) 2,636,443 (1,463,658) (279,044) (121,765) (797,368) 23,228 (2,513,207) 13,302 - 2,303,477 (3,936,569) (26,227,099) (680,718) (9,691,835) 551,607 (101,686) (40,086,300) 2,450 12,258,889 1,434,494 60,526 39,834 (189,017) 231,592 50,649 13,889,417 (26,196,883) (23,893,406) (12,103,821) 1,403,559 414,120 (2,399,912) (2,576,795) (15,262,849) 350,000 (155,814) 1,003,163 - 7,386,224 - 15,082 (5,154,447) 48,354 (575,232) - (315,395) (163,176) 2,438,759 15,834,672 - 34,267,200 (33,186,025) - (5,228,555) (1,801) (110,954) 58,117 11,632,654 1,425,268 233,832 70,062,713 70,296,545 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified) 9 (1) Company history Compal Electronics, Inc. (the “Company”) was incorporated in June 1984 as a company limited by shares and registered under the Ministry of Economic Affairs, R.O.C. The address of the Company's registered office is No.581 and No.581-1 Ruiguang Rd., Neihu Dist., Taipei City, Taiwan. In accordance with Article 19 of the Business Mergers and Acquisitions Act, the Company merged its subsidiary, Compal Communications, Inc. (“ CCI” ) (the “ Merger” ), pursuant to the resolutions of the Board of Directors in November, 2013. The Company was the surviving company and CCI was the dissolved company. The effective date of the Merger was February 27, 2014. The Company and its subsidiaries (together referred to as the “Group” and individually as the “Group entities”) primarily are involved in the manufacture and sale of notebook personal computers (“notebook PCs”), monitors, LCD TVs, mobile phones and various components and peripherals. (2) Approval date and procedures of the consolidated financial statements: These consolidated financial statements were authorized for issuance by the Board of Directors and issued on March 30, 2020. (3) New standards, amendments and interpretations adopted: (a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted. The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019. New, Revised or Amended Standards and Interpretations IFRS 16 “Leases” IFRIC 23 “Uncertainty over Income Tax Treatments” Effective date per IASB January 1, 2019 January 1, 2019 Amendments to IFRS 9 “Prepayment features with negative compensation” January 1, 2019 Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” January 1, 2019 Amendments to IAS 28 “Long-term interests in associates and joint ventures” January 1, 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019 Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of significant changes are as follows: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 10 (i) IFRS 16“Leases” IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The Group applied IFRS 16 using the modified retrospective approach, there was no effect on retained earnings on January 1, 2019. The details of the changes in accounting policies are disclosed below, 1) Definition of a lease Previously, the Group determined at contract inception whether an arrangement is or contains a lease under IFRIC 4. Under IFRS 16, the Group assesses whether a contract is or contains a lease based on the definition of a lease, as explained in note (4)(l). On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019. 2) As a lessee As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under IFRS 16, the Group recognizes right-of-use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet. The Group decided to apply recognition exemptions to short-term leases of machinery and leases of office equipment. ● Leases classified as operating leases under IAS 17 At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments – the Group applied this approach to all leases. In addition, the Group used the following practical expedients when applying IFRS 16 to leases. － Applied a single discount rate to a portfolio of leases with similar characteristics. － Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than 12 months of lease term. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 11 － Excluded initial direct costs from measuring the right-of-use asset at the date of initial application. － Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. ● Leases previously classified as finance leases For leases that were classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and the lease liability at January 1, 2019 are determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date. 3) As a lessor The Group is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor. The Group accounted for its leases in accordance with IFRS 16 from the date of initial application. 4) Impacts on financial statements On transition to IFRS 16, the Group recognized additional $2,981,097 of right-of-use assets and $2,089,950 of lease liabilities, recognizing the difference in long-term prepaid rents. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied is 2.78%. The explanation of differences between operating lease commitments disclosed at the end of the annual reporting period immediately preceding the date of initial application, and lease liabilities recognized in the statement of financial position at the date of initial application disclosed as follows: Operating lease commitment at December 31, 2018 as disclosed in the Group’s consolidated financial statements Recognition exemption for: short-term leases leases of low-value assets Variable lease payment based on an index or a rate Discounted using the incremental borrowing rate at January 1, 2019 Finance lease liabilities recognized as at December 31, 2018 Lease liabilities recognized at January 1, 2019 January 1, 2019 2,280,672 $ $ $ $ (56,654) (176) (28,660) 2,195,182 2,089,950 - 2,089,950 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 12 (b) The impact of IFRS endorsed by FSC but not yet effective The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2020 in accordance with Ruling No. 1080323028 issued by the FSC on July 29, 2019: New, Revised or Amended Standards and Interpretations Amendments to IFRS 3 “Definition of a Business” Effective date per IASB January 1, 2020 Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform” January 1, 2020 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 The Group assesses that the adoption of the above-mentioned standards would not have any material impact on its consolidated financial statements. (c) The impact of IFRS issued by IASB but not yet endorsed by the FSC As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (“IASB”), but have yet to be endorsed by the FSC: New, Revised or Amended Standards and Interpretations Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Effective date per IASB Effective date to be determined by IASB January 1, 2021 Amendments to IAS 1 “Classification of Liabilities as Current or Non-current” January 1, 2022 The Group is evaluating the impact of its initial adoption of the above-mentioned standards or interpretations on its consolidated financial position and consolidated financial performance. The results thereof will be disclosed when the Group completes its evaluation. (4) Summary of significant accounting policies: The significant accounting policies presented in the consolidated financial statements are summarized as follows. The following accounting policies were applied consistently throughout the periods presented in the financial statements. (a) Statement of compliance These consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as the Regulations), the International Financial Reporting Standards, the International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed and issued into effect by the FSC (hereinafter referred to as the IFRS endorsed by the FSC). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 13 (b) Basis of preparation (i) Basis of measurement Except for the following significant accounts in the statement of financial position, the consolidated financial statements have been prepared on the historical cost basis: 1) 2) 3) 4) Financial instruments (including derivative financial instruments) measured at fair value through profit or loss are measured at fair value; Financial instruments measured at fair value through other comprehensive income are measured at fair value; Hedging financial instruments are measured at fair value; The defined benefit liability (or asset) is recognized as plan assets less the present value of the defined benefit obligation and the effect of the asset ceiling mentioned in note (4)(r). (ii) Functional and presentation currency The functional currency of each Group entities is determined based on the primary economic environment in which the entities operates. The consolidated financial statements are presented in New Taiwan Dollar, which is the Company's functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. (c) Basis of consolidation (i) Principles of preparation of the consolidated financial statements The consolidated financial statements comprise the Company and its subsidiaries. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its control over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group. Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any differences between the Group’ s share of net assets before and after the change, and any considerations received or paid, are adjusted to or against the Group reserves. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 14 When the Group loses control over a subsidiary, it derecognizes the assets (including any goodwill) and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any interest retained in the former subsidiary is measured at fair value when control is lost, with the resulting gain or loss being recognized in profit or loss. The Group recognizes as gain or loss in profit or loss the difference between (i) the fair value of the consideration received as well as any investment retained in the former subsidiary at its fair value at the date when control is lost; and (ii) the assets (including any goodwill), liabilities of the subsidiary as well as any related non-controlling interests at their carrying amounts at the date when control is lost, as gain or loss in profit or loss. When the Group loses control of its subsidiary, it accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if it had directly disposed of the related assets or liabilities. (ii) List of subsidiaries in the consolidated financial statements Name of investor The Company Name of Subsidiary Panpal Technology Corp. (“Panpal”) Nature of Operation Investment 〞 〃 〃 〃 〃 Gempal Technology Corp. (“Gempal”) Hong Ji Capital Co., Ltd. (“Hong Ji”) Hong Jin Investment Co., Ltd. (“Hong Jin”) Zhaopal Investment Co., Ltd. (“Zhaopal”) Kaipal Investment Co., Ltd. (“Kaipal”) 〃 〃 〃 〃 〃 The Company, Panpal, et al. Accesstek, Inc. (“ATK”) Design, manufacturing and sales of optical disk drives and components 〃 Arcadyan Technology Corp. (“Arcadyan”) The Company Rayonnant Technology 〃 Co., Ltd. (“Rayonnant Technology”) HengHao Technology Co., Ltd. (“HengHao”) R&D, manufacturing and sales of wireless network, integrated household electronics, and mobile office products Manufacturing and sales of PCs, computer periphery devices, and electronic components Manufacturing and sales of PCs, computer periphery devices, and electronic components Percentage of ownership December 31, 2019 100% December 31, 2018 Description 100% Panpal held 31,648 100% thousand shares of the Company as of December 31, 2019, which represented 0.7% of the Company’s outstanding shares. 100% Gempal held 18,369 thousand shares of the Company as of December 31, 2019, which represented 0.4% of the Company’s outstanding shares. 100% 100% 100% 100% - - 38% 35% 100% The liquidation procedures had been completed in February 2019. 100% The liquidation procedures had been completed in May 2019. 38% The Group had control over ATK, which was liquidated on November 20, 2019, wherein the liquidation procedures has yet to be completed. 35% The Group had the ability to control Arcadyan. 100% 100% 100% 100% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 15 Name of investor The Company 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 The Company and BSH The Company 〃 〃 〃 〃 Panpal and Gempal 〃 Name of Subsidiary Ripal Optoelectronics Co., Ltd. (“Ripal”) Mactech Co., Ltd (“Mactech”) General Life Biotechnology Co., Ltd. (“GLB”) Unicore BioMedical Co., Ltd. (“Unicore”) Hippo Screen Neurotech Co., Ltd. (“Hippo Screen”) Shennona Taiwan Co., Ltd. (“Shennona TW”) Aco Smartcare Co., Ltd. (“Aco Smartcare”) Shennona Corporation (“Shennona”) Auscom Engineering Inc. (“Auscom”) Just International Ltd. (“Just”) Compal International Holding Co., Ltd. (“CIH”) Compal Electronics (Holding) Ltd. (“CEH”) Bizcom Electronics, Inc. (“Bizcom”) Flight Global Holding Inc. (“FGH”) Nature of Operation Manufacturing of electric appliance and audiovisual electric products Manufacturing of equipment and lighting, retailing of equipment and international trading Manufacturing and sales of medical equipment Management consulting services, rental and leasing business, wholesale and retail sale of medical equipment Management consulting services, rental and leasing business, wholesale and retail sale of precision instruments and international trading Management consulting services, rental and leasing business, wholesale and retail sale of precision instruments and international trading Wholesale and retail sale of computer software, software design services, data processing services, wholesale and retail sale of electronic materials, wholesale and retail sale of precision instruments, and biotechnology services Medical care IOT business R&D of notebook PC related products and components Investment 〃 〃 Warranty services and marketing of monitors and notebook PCs Investment High Shine Industrial Corp. 〃 Maintenance and warranty services of notebook PCs Investment 〃 〃 〃 Manufacturing of notebook PCs (“HSI”) Compal Europe (Poland) Sp. z o.o. (“CEP”) Big Chance International Co., Ltd. (“BCI”) Compal Rayonnant Holdings Limited (“CRH”) Core Profit Holdings Limited (“CORE”) Compalead Electronics B.V. (“CPE”) Compalead Eletronica do Brasil Industria e Comercio Ltda. (“CEB”) Compal Electronics India Private Limited (“CEIN”) Description Percentage of ownership December 31, 2019 December 31, 2018 100% 100% 53% 53% 50% 50% 100% 100% 70% 100% 52% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - 70% shares of Hippo Screen were acquired in February 2019. Shennona TW was established in March 2019. 52% shares of Aco Smartcare were acquired in July 2019. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Manufacturing and warranty service of mobile phones 100% 100% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 16 Name of investor Just 〃 〃 CDH (HK) 〃 〃 Name of Subsidiary Compal Display Holding (HK) Limited (“CDH (HK)”) Compal Electronics International Ltd. (“CII”) Compal International Ltd. (“CPI”) Compal Electronics (China) Co., Ltd. (“CPC”) Compal Optoelectronics (Kunshan) Co., Ltd. (“CPO”) Compal System Trading (Kunshan) Co., Ltd. (“CST”) Nature of Operation Investment Percentage of ownership December 31, 2019 December 31, 2018 100% 100% Description 〃 100% 100% Sales of monitors, LCD TVs and related components Manufacturing and sales of monitors 100% 100% 100% 100% Manufacturing and sales of LCD TVs 100% 100% International trade and distribution of computers and electronic components 100% 100% CPC Compal Smart Device (Chongqing) Co., Ltd. (“CSD”) CII Smart International Research, manufacture and sales of communication devices, mobile phones, electronic computer, smart watch, and provide related technical service Investment 〃 〃 〃 Trading Ltd. (“Smart”) Amexcom Electronics Inc. (“AEI”) Sales and maintenance of LCD TVs Mexcom Electronics, LLC Investment (“MEL”) Mexcom Technologies, LLC (“MTL”) 〃 MEL and MTL CENA Electromex S.A. de CIH 〃 〃 〃 CIH (HK) 〃 〃 〃 〃 C.V. (“CMX”) Compal International Holding (HK) Limited (“CIH (HK)”) Jenpal International Ltd. (“Jenpal”) Prospect Fortune Group Ltd. (“PFG”) Fortune Way Technology Corp. (“FWT”) Compal Electronics Technology (Kunshan) Co., Ltd. (“CET”) Compal Information (Kunshan) Co., Ltd. (“CIC”) Compal Information Technology (Kunshan) Co., Ltd. (“CIT”) Kunshan Botai Electronics Co., Ltd. (“BT”) Compal Information Research and Development (Nanjing) Co., Ltd. (“CIN”) Manufacturing, sales, and maintenance of LCD TVs Investment 〃 〃 〃 Manufacturing of notebook PCs 〃 〃 〃 100% 100% 100% 100% 100% 100% - 100% 100% 100% 100% 100% CMX was disposed in August 2019. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Software and hardware R&D of computers, mobile phones and electronic components - 100% The liquidation procedures has been completed in September 2019. 〃 Compal Digital Technology (Kunshan) Co., Ltd. (“CDT”) Manufacturing and sales of notebook PCs, mobile phones, and digital products 100% 100% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 17 Name of investor BT CDH (HK) and CIH (HK) CIJ Name of Subsidiary Compower Global Service Co., Ltd. (“CGS”) Compal Investment (Jiansu) Co., Ltd. (“CIJ”) Compal Display Nature of Operation Maintenance and warranty service of notebook PCs Investment Percentage of ownership December 31, 2019 December 31, 2018 100% 100% 100% 100% Description Manufacturing and sales of LCD TVs 100% 100% Electronics (Kunshan) Co., Ltd. (“CDE”) Etrade Management Co., The Company and Webtek The Company Webtek Technology Co., Ltd. (“Etrade”) 〃 〃 〃 Etrade Ltd. (“Webtek”) Forever Young Technology Inc. (“Forever”) UniCom Global, Inc. (“UCGI”) Palcom International Corporation (“Palcom”) Compal Communication (Nanjing) Co., Ltd. (“CCI Nanjing”) 〃 Compal Digital 〃 Forever 〃 ATK 〃 Communication (Nanjing) Co., Ltd. (“CDCN”) Compal Wireless Communication (Nanjing) Co., Ltd. (“CWCN”) Hanhelt Communication (Nanjing) Co., Ltd. (“Hanhelt”) Giant Rank Trading Ltd. (“GIA”) OptoRite Inc. MSI-ATK Otpics Holding Corporation (“MSI-ATK”) Investment 〃 〃 Manufacturing and sales of computers and electronic components Sales of mobile phones Manufacturing and processing of mobile phones and tablet PCs 〃 〃 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% R&D and manufacturing of electronic communication equipment 100% 100% Sales of mobile phones Sales of optical disc drives Investment 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 〃 Maitek (BVI) Corporation 〃 (“Maitek”) Arcadyan Arcadyan Technology N.A. Sales of wireless network products 〃 〃 〃 〃 〃 Corp. (“Arcadyan USA”) Arcadyan Germany Technology GmbH (“Arcadyan Germany”) Arcadyan Technology Corporation Korea (“Arcadyan Korea”) Arcadyan Holding (BVI) Corp. (“Arcadyan Holding”) Arcadyan Technology Limited (“Arcadyan UK”) Arcadyan Technology Australia Pty Ltd. ("Arcadyan AU") Technical support of wireless network products 100% 100% Sales of wireless network products 100% 100% Investment 100% 100% Technical support of wireless network products 100% 100% Sales of wireless network products 100% 100% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 18 Name of investor Arcadyan and Zhi-pal Arcadyan 〃 〃 The Company, Arcadyan, and its subsidiaries CBN 〃 〃 Name of Subsidiary Arcadyan do Brasil Ltda. (“Arcadyan Brasil”) Zhi-pal Technology Inc. (“Zhi-pal”) Tatung Technology Inc. (“TTI”) AcBel Telecom Inc. (“AcBel Telecom”) Compal Broadband Network Inc. (“CBN”) Speedlink Tradings Limited (“Speedlink”) Compal Broadband Networks Belgium BVBA (“CBNB”) Compal Broadband Nature of Operation Sales of wireless network products Investment R&D and sales of household digital electronic products Investment R&D and sales of cable modem, digital set-up box, and other communication products Import and export business Import and export business, technical support and consulting service of broadband networks 〃 〃 Arcadyan Holding Networks Netherlands B.V. (“CBNN”) Sinoprime Global Inc. (“Sinoprime”) Arcadyan Technology (Shanghai) Corp. (“SVA Arcadyan”) Arch Holding (BVI) Corp. (“Arch Holding”) Arch Holding Compal Networking (Kunshan) Co., Ltd. (“CNC”) Arcadyan Technology (Vietnam) Co., Ltd. (“Arcadyan Vietnam”) Sinoprime 〃 Investment R&D and sales of wireless network products Investment Manufacturing of wireless network products Manufacturing of wireless network products AcBel Telecom Leading Images Ltd. Investment (“Leading Images”) Leading Images Astoria Networks GmbH Sales of wireless network products TTI 〃 Quest Exquisite HSI 〃 IUE Goal (“Astoria GmbH”) Quest International Group Co., Ltd. (“Quest”) Tatung Technology of Japan Co., Ltd. (“TTJC”) Exquisite Electronic Co., Ltd. (“Exquisite”) Tatung Home Appliances (Wujiang) Co., Ltd. (“THAC”) Intelligent Universal Enterprise Ltd. (“IUE”) Goal Reach Enterprises Ltd. (“Goal”) Compal (Vietnam) Co., Ltd. (“CVC”) Compal Development & Management (“Vietnam”) Co., Ltd. (“CDM”) Investment Sales of household digital electronic products Investment Manufacturing of household digital electronic products Investment 〃 R&D, manufacturing, sales, and maintenance of notebook PCs, computer monitors, LCD TVs and electronic components Construction of and investment in infrastructure in Ba-Thien industrial district of Vietnam Percentage of ownership December 31, 2019 December 31, 2018 Description 100% 100% 61% 51% 64% - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 61% 51% 64% 100% 100% (note 1) - CBNN was established in February 2019. 100% 100% 100% 100% - Arcadyan Vietnam was established in March 2019. (note 2) 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 19 Percentage of ownership December 31, 2019 December 31, 2018 100% 100% 100% 100% 100% 100% Description Manufacturing and sales of aluminum alloy and magnesium alloy products 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Manufacturing of touch panels and LCD TVs 100% 100% Name of investor Rayonnant Technology and CRH APH 〃 Rayonnant Technology (HK) HengHao Name of Subsidiary Allied Power Holding Corp. (“APH”) Nature of Operation Investment 〃 〃 Primetek Enterprises Limited (“PEL”) Rayonnant Technology (HK) Co., Ltd. (“Rayonnant Technology (HK)”) Rayonnant Technology (Taicang) Co., Ltd. (“Rayonnant Technology (Taicang)”) HengHao Holdings A Co., Ltd. (“HHA”) Investment HHA HengHao Holdings B Co., 〃 Ltd. (“HHB”) HengHao Trading Co., Ltd. Marketing and international trade HengHao Optoelectronics Technology (Kunshan) Co., Ltd. (“HengHao Kunshan”) Production of touch panels and related components Lucom Display Technology (Kunshan) Limited (“Lucom”) Center Mind International Co., Ltd. (“CMI”) Prisco International Co., Ltd. (“PRI”) Compal Investment (Sichuan) Co., Ltd. (“CIS”) Compal Electronics (Chongqing) Co., Ltd. (“CEQ”) Compal Electronics (Chengdu) Co., Ltd. (“CEC”) Compal Management (Chengdu) Co., Ltd. (“CMC”) Investment 〃 Outward investment and consulting services R&D, manufacturing and sales of notebook PCs, related components, related maintenance and warranty services R&D and manufacturing of notebook PCs, tablet PCs, digital products, network switches, wireless AP, and automobile electronic products Corporate management consulting, training and education, business information consulting, financial and tax consulting, investment consulting, and investment management services Investment Investment CORE BSH Billion Sea Holdings Limited (“BSH”) Mithera Capital Io LP (“Mithera”) GLB Unicore Rapha Bio Ltd. (“RBL”) Detector and feature Raycore Biotech Co., Ltd. Animal medication retail and wholesale (“Raycore”) HHB 〃 〃 BCI 〃 CMI PRI CIS 〃 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 100% 51% - Mithera was established in June 2019. 100% 51% Note 1: The shares were recovered in November 2019. As of December 31, 2019, Speedlink has yet to complete its liquidation procedures. Note 2: Astoria GmbH applied for liquidation in December 2018. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 20 (d) Foreign currency (i) Foreign currency transaction Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortized cost in the functional currency at the beginning of the year adjusted for the effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for the following differences which are recognized in other comprehensive income arising on the retranslation: 1) 2) fair value through other comprehensive income financial assets; a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or 3) qualifying cash flow hedges to the extent the hedge is effective (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Group entities' functional currency at exchange rates of the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Group entities' functional currency at average rate. Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation differences in equity. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Group disposes of only part of investment in an associate of joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 21 When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. (e) Classification of current and non-current assets and liabilities An asset is classified as current under one of the following criteria, and all other assets are classified as non-current. (i) It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; (ii) It holds the asset primarily for the purpose of trading; (iii) It expects to realize the asset within twelve months after the reporting period; or (iv) The asset is cash and cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. A liability is classified as current under one of the following criteria, and all other liabilities are classified as non-current. (i) It expects to settle the liability in its normal operating cycle; (ii) It holds the liability primarily for the purpose of trading; (iii) The liability is due to be settled within twelve months after the reporting period; or (iv) The Group does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not impact its classification. (f) Cash and cash equivalents Cash comprise cash on hand and demand deposits. Cash equivalents are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. The time deposits which meet the above definition and are held for the purpose of meeting short- term cash commitments rather than for investment or other purposes are reclassified as cash equivalents. (g) Financial instruments (i) Financial assets Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (“ FVOCI” ) and fair value through profit or loss (“FVTPL”). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 22 The Group shall reclassify all affected financial assets only when it changes its business model for managing its financial assets. 1) Financial assets measured at amortized cost A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and •its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 2) Fair value through other comprehensive income (“FVOCI”) A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and •its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Some accounts receivables are held within a business model whose objective is achieved by both collecting contractual cash flows and selling by the Group, therefore, those receivables are measured at FVOCI and presented as accounts receivable. On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’ s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis. A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 23 are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. Dividend income derived from equity investments is recognized on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally on the date the shareholders' meeting approved the earning distribution. 3) Fair value through profit or loss (“FVTPL”) All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 4) Impairment of financial assets The Group recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, financial assets measured at amortized costs, notes and accounts receivable, other receivable, guarantee deposit and other financial assets), debt investments measured at FVOCI, and accounts receivable measured at FVOCI. The Group measures loss allowances at an amount equal to lifetime expected credit loss (“ECL”), except for the following which are measured as 12-month ECL: •debt securities that are determined to have low credit risk at the reporting date; and • other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 24 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group’s historical experience and informed credit assessment as well as forward-looking information. The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of “investment grade which is considered to be BBB- or higher per Standard & Poor’ s, Baa3 or higher per Moody’ s or twA or higher per Taiwan Ratings”. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Group considers a financial asset to be in default when the financial asset is more than 90 days past due or the borrower is unlikely to pay its credit obligations to the Group in full. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset. At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is credit- impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. An evidence that a financial assets is credit-impaired includes the following observable data: •significant financial difficulty of the borrower or issuer; •a breach of contract such as a default or being more than 90 days past due; •the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider; •it is probable that the borrower will enter bankruptcy or other financial reorganization; or •the disappearance of an active market for a security because of financial difficulties. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 25 Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Group recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss. The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. 5) Derecognition of financial assets Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a debt instrument in its entirety, the Group recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “ other equity – unrealized gains or losses on fair value through other comprehensive income” , in profit or loss, and presented it in the line item of non- operating income. On derecognition of a financial asset other than in its entirety, the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss, and presented in the line item of non-operating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. (ii) Financial liabilities and equity instruments 1) Classification of debt or equity Debt or equity instruments issued by the Group are classified as financial liabilities or equity in accordance with the substance of the contractual agreement. Equity instruments refer to surplus equities of the assets after the deduction of all the debts for any contracts. Equity instruments issued are recognized as the amount of consideration received, less, the direct cost of issuing. Interest and loss or gain related to financial liabilities are recognized as profit or loss and (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 26 are reported under non-operating income and expenses. Financial liabilities are reclassified as equity when converted, and conversions do not generate profit or loss. 2) Financial liabilities at fair value through profit or loss A financial liability is classified in this category if acquired principally for the purpose of selling in the short term. This type of financial liability is measured at fair value at the time of initial recognition, and attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein, which take into account any interest expense, are recognized in profit or loss, and are included in non-operating income or expenses. 3) Other financial liabilities Financial liabilities not classified as held-for-trading or designated as at fair value through profit or loss, which comprise loans and borrowings, and trade and other payable, are measured at fair value, plus, any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method other than significant interest on short-term loans and payables. Interest expense not capitalized as capital cost is recognized in profit or loss, and is included in non-operating income or expenses. 4) Derecognition of financial liabilities The Group derecognizes a financial liability when its contractual obligation has been discharged, cancelled or expired. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, and is included in non- operating income or expenses. 5) Offsetting of financial assets and liabilities The Group presents financial assets and liabilities on a net basis when the Group has the legally enforceable right to offset and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously. (iii) Derivative financial instruments and hedge accounting The Group holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Derivatives are initially measured at fair value. Any attributable transaction costs thereof are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss and are included in the line item of non-operating income. When a derivative is designated as, and effective for, a hedging instrument, its timing of recognition in profit or loss is determined based on the nature of the hedging relationship. When the fair value of a derivative instrument is positive, it is classified as a financial asset, whereas when the fair value is negative, it is classified as a financial liability. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 27 Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the non-financial asset’ s host contract are not closely related to the embedded derivatives and the host contract is not measured at FVTPL. The Group designates its hedging instruments, including derivatives, embedded derivatives, and non-derivative instruments for a hedge of a foreign currency risk, as a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign operation. Foreign exchange risks of firm commitments are treated as fair value hedges. At initial designated hedging relationships, the Group documents the risk management objectives and strategy for undertaking the hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged items and hedging instrument are expected to offset each other. The Group shall discontinue hedge accounting prospectively only when the hedging relationship (or a part of a hedging relationship) ceases to meet the qualifying criteria (after taking into account any rebalancing of the hedging relationship, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. Cash flow hedges When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in “other equity－gains (losses) on hedging instruments”. The effective portion of changes in the fair value of the derivative that is recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss, and is presented in the line item of non-operating income and expenses in the statement of comprehensive income. The Group designates only the change in fair value of the spot element of the forward exchange contract as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of the forward exchange contracts is separately accounted for as a cost of hedging and accumulated in a separate component within equity. When the hedged item is recognized in profit or loss, the amount accumulated in equity and retained in other comprehensive income is reclassified to profit or loss in the same period or in the periods during which the hedged item affects the profit or loss, and is presented in the same accounting item with the hedged item recognized in the consolidated statement of comprehensive income. However, for a cash flow hedge of a forecast transaction recognized as a nonfinancial asset or liability, the amount accumulated in “ other equity－ gains (losses) on hedging instruments in cash flow hedging securities” and retained in other comprehensive income is reclassified as the initial cost of the nonfinancial asset or liability. In addition, if that amount is a loss and the Group expects that all or a portion of that loss will not be recovered in future periods, it shall immediately reclassify the amount in profit or loss. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 28 When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the cash flow hedge reserve (and costs of hedging) remains in equity until the hedged future cash flows are no longer expected to occur. Otherwise, that amount would be adjusted within the carrying amount of the non-financial item. For other cash flow hedges, the amount is reclassified to profit or loss in the same period or in the periods as the hedged expected future cash flows affect the profit or loss. However, if the hedged future cash flows are no longer expected to occur, the amount shall immediately be reclassified from cash flow reserve (and the cost of hedging reserve) to profit or loss. (h) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average-cost principle and includes expenditure incurred in acquiring the inventories, production or transition costs, and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less, the estimated costs of completion and selling expenses. (i) Investment in associates Associates are those entities in which the Group has significant influence, but not control or join control, over the financial and operating policies. Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill arising from the acquisition, less, any accumulated impairment losses. The consolidated financial statements include the Group’ s share of the profit or loss and other comprehensive income of equity-accounted investees after adjustments to align the accounting policies with those of the Group from the date that significant influence commences until the date that significant influence ceases. When changes in an associate’s equity are not recognized in 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 recognizes the changes in ownership interests of its associate in capital surplus in proportion to its ownership. Unrealized profits resulting from the transactions between the Group and an associate are eliminated to the extent of the Group’ s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired. When the Group’ s share of losses exceeds its interest in associates, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 29 The Group shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture. The Group shall measure the retained interest at fair value. The difference between the fair value of retained interest and proceeds from disposal, and the carrying amount of the investment at the date the equity method was discontinued is recognized in profit or loss. The Group shall account for all the amounts previously recognized in other comprehensive income in relation to that investment on the same basis as would have been required if the associates had directly disposed of the related assets or liabilities. If a gain or loss previously recognized in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity shall reclassify the gain or loss from equity to profit or loss when the equity method is discontinued. If an entity’s ownership interest in an associate or a joint venture is reduced while the entity continues to apply the equity method, the entity shall reclassify the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest to profit or loss. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Group shall continue to apply the equity method without remeasuring the retained interest. When the Group subscribes to additional shares in an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the net assets of the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus, however, when the balance of the capital surplus arising from the investment was insufficient, the difference charged or credited to retained earnings. If the Group’ s ownership interest is reduced due to the additional subscription to the shares of associate by other investors, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as would be required if the associate had directly disposed of the related assets or liabilities. (j) Joint venture A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the arrangement. A joint venture shall recognize its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 “Investments in Associates and Joint Ventures”, unless, the entity is exempted from applying the equity method as specified in that Standard. When assessing the classification of a joint arrangement, the Group shall consider the structure and legal form of the arrangement, the terms in the contractual arrangement and other facts and circumstances. The Group had previously reviewed the contractual structure of the joint arrangement, and has now decided to reclassify the investments in “Jointly Controlled Entities” to “Joint Ventures”. Although the investments have been reclassified, they are still recorded under the equity method. Thus, there is no effect in the recognized assets, liabilities and other comprehensive income. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 30 (k) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating. 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 shall be depreciated separately, unless the useful life and the depreciation method of a significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and it shall be recognized as other gains and losses. (ii) Subsequent cost Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance are expensed as incurred. (iii) Depreciation The depreciable amount of an asset is determined after deducting its residual amount, and it shall be allocated on a systematic basis over its useful life. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge for each period shall be recognized in profit or loss. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonably certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life. Land has an unlimited useful life and therefore is not depreciated. The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: 1) 2) Buildings: 9~50 years Building improvement: 0.5~20 years 3) Machinery and equipment: 1~10 years (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 31 4) Research equipment: 1~10 years 5) Modeling equipment: 0.5~5 years 6) Other equipment: 1~15 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change is accounted for as a change in an accounting estimate. (l) Leases Applicable after January 1, 2019 (i) Identifying a lease At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether: 1) 2) 3) the contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; and the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and the Group has the right to direct the use of the asset when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Group has the right to direct the use of an asset if either: － the Group has the right to operate the asset and the providers do not have the right to vary; or － the Group designed the asset in a way that predetermines how and for what purpose it will be used. At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non- lease components as a single lease component. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 32 (ii) As a lessee The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be reliably determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: － fixed payments, including in-substance fixed payments － variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; － amounts expected to be payable under a residual value guarantee; and － payments for purchase or termination options that are reasonably certain to be exercised. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when: － there is a change in future lease payments arising from the change in an index or rate; or － there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee; or － there is a change in the lease term resulting from a change of its assessment on whether it will exercise an option to purchase the underlying asset, or － there is a change of its assessment on whether it will exercise an extension or termination option; or － there is any lease modifications When the lease liability is remeasured, other than lease modifications, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or in profit and loss if the carrying amount of the right-of-use asset has been reduced to zero. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 33 When the lease liability is remeasured to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease, the Group accounts for the remeasurement of the lease liability by decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, and recognize in profit or loss any gain or loss relating to the partial or full termination of the lease. The Group presents right-of-use assets that do not meet the definition of investment and lease liabilities as a separate line item respectively in the statement of financial position. The Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases of machinery and office equipment that have a lease term of 12 months or less and leases of low-value assets. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. (iii) As a lessor When the Group acts as a lessor, it determines at lease commencement whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then the lease is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. Applicable before January 1, 2019 (i) As lessor Lease income from operating lease is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straight-line basis so that the lease income received is reduced accordingly. (ii) As lessee Operating leases are not recognized in the Group’s balance sheets. Payments made under operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. (m) Intangible assets (i) Goodwill 1) Initial recognition Goodwill arising from acquisition of subsidiaries is included in intangible assets. The measurement of initial recognition of goodwill, please refer to note (4)(u). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 34 2) Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. Goodwill related to an investment accounted for using equity method is included in the carrying amount of the investment, and not allocated to any asset, including goodwill, forms part of the carrying amount of the investment accounted for using the equity method. (ii) Research & Development During the research phase, activities are carried out to obtain and understand new scientific or technical knowledge. Expenditures during this phase are recognized in profit or loss as incurred. Expenditures arising from the development phase shall be recognized as an intangible asset if all the conditions described below can be demonstrated; otherwise, they will be recognized in profit or loss as incurred. 1) 2) 3) 4) 5) 6) The technical feasibility of completing the intangible asset so that it will be available for use or sale. Its intention to complete the intangible asset and use or sell it. Its ability to use or sell the intangible asset. How the intangible asset will generate probable future economic benefits. The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. Its ability to measure reliably the expenditure attributable to the intangible asset during its development. Capitalized expenditure arising from the development phase is measured at cost less accumulated amortization and accumulated impairment losses. (iii) Other intangible assets Other intangible assets that are acquired by the Group are measured at cost, less accumulated amortization and any accumulated impairment losses. (iv) Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 35 (v) Amortization The amortizable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill and intangible assets with all indefinite useful life, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows: 1) 2) 3) 4) Patents: the shorter of contract period and estimated useful lives Royalty: amortized by contract period Computer software: 1~10 years Copyright: 10 years The residual value, the amortization period, and the amortization method for an intangible asset with a finite useful life shall be reviewed at least annually at each fiscal year-end. Any change shall be accounted for as changes in accounting estimates. (n) Impairment of non-derivative financial assets Non-derivative financial assets except for inventories, deferred tax assets, assets arising from employee benefits and non-current assets classified as held for sale are assessed at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Group shall estimate the recoverable amount of the asset. If it is not possible to determine the recoverable amount (fair value less cost to sell and value in use) for the individual asset, then the Group will have to determine the recoverable amount for the asset's cash-generating unit. The Group assesses goodwill and intangible assets, which have indefinite useful lives and are not available for use, on an annual basis and recognizes an impairment loss on excess of carrying value over the recoverable amount. The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value, less costs to sell and its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss shall be recognized immediately in profit or loss. For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’ s cash-generating units, or groups of cash- generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or group of units. If the carrying amount of the cash-generating units exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss and the impairment loss shall be allocated to reduce the carrying amount of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 36 The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount. That increase is a reversal of an impairment loss. (o) Provisions A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probably that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (p) Treasury stock Repurchased shares are recognized under treasury shares (a contra-equity account) based on its repurchase price (including all directly accountable costs), and net of tax. Gains on disposal of treasury shares should be recognized under Capital Reserve – Treasury Shares Transactions; losses on disposal of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. The carrying amount of treasury shares should be calculated using the weighted average different types of repurchase. During the cancellation of treasury shares, Capital Reserve – Share Premiums and Share Capital should be debited proportionately. Gains on cancellation of treasury shares should be recognized under existing capital reserves arising from similar types of treasury shares; losses on cancellation of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. (q) Recognition of Revenue Revenue from contracts with customers Revenue is measured based on the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer. The Group recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Group’s main types of revenue are explained below. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 37 (i) Sale of goods The Group manufactures and sells electronic products to electronic products brand vendor. The Group recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied. The Group assesses sales discounts based on historical experience, management's judgment and other known reasons. Such allowances are recognized as a deduction of sales revenue in the same period in which sales are made. The aforementioned provisions are expected to settle over the next year. A refund liability is recognized for expected discounts payable to customers in relation to sales made until the end of the reporting period. No element of financing is deemed present as the sales of electronic products are made with a credit term which is consistent with the market practice. A receivable is recognized when the goods are delivered as this is the point in time that the Group has a right to an amount of consideration that is unconditional. (ii) Financing components The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. (r) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’ s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 38 The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realizable during the life of the plan, or on settlement of the plan liabilities. If the benefits of a plan are improved, the pension cost incurred from the portion of the increased benefit relating to past service by employees, is recognized immediately in profit or loss. Re-measurement of net defined benefit liability (asset) (including actuarial gains, losses and the return on plan asset and changes in the effect of the asset ceiling, excluding any amounts included in net interest) is recognized in other comprehensive income (loss). The effect of re- measurement of the defined benefit plan is charged to retained earnings. The Group recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets and change in the present value of defined benefit obligation. (iii) Short term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (s) Share-based payment The grant-date fair value of share-based payment awards granted to employee is recognized as employee expenses, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of award that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share- based payment is measured to reflect such conditions, and there is no true-up for differences between expected and actual outcomes. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 39 (t) Income taxes Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years. Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes shall not be recognized for the following exceptions: (i) Assets and liabilities that are initially recognized but are not related to the business combination and have no effect on net income or taxable gains (losses) during the transaction. (ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse. (iii) Initial recognition of goodwill. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities may be offset against each other if the following criteria are met: (i) The entity has the legal right to settle tax assets and liabilities on a net basis; and (ii) the taxing of deferred tax assets and liabilities fulfill one of the below scenarios: 1) 2) levied by the same taxing authority; or levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched. A deferred tax asset should be recognized for the carry-forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and they shall be adjusted based on the probability that future taxable profit that will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. The surtax on unappropriated earnings is recoded as current tax expense in the following year after the resolution to appropriate retained earnings is approved in a stockholders’ meeting. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 40 (u) Business combination Goodwill is measured as an aggregation of the consideration transferred (which generally is measured at fair value at the acquisition date) and as an amount of any non-controlling interest in the acquiree, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed (generally at fair value). If the residual balance is negative, the Group shall re-assess whether it has correctly identified all of the assets acquired and liabilities assumed, and recognize a gain on the bargain purchase thereafter. All the transaction costs incurred for the business combination are recognized immediately as the Group’s expenses when incurred, except for the issuance of debt or equity instruments. If the business combination is achieved in stages, the Group shall measure any non-controlling equity interest in the acquire, either at fair value or at the non-controlling interest’ s proportionate share of the acquiree’s identifiable net assets. Other non-controlling interest is measured (1) at fair value at the acquisition date or (2) by using other valuation techniques acceptable under the IFRS as endorsed by the FSC. In a business combination achieved in stages, the Group shall re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss. In prior reporting periods, the Group may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the Group had disposed directly of the previously held equity interest. If the disposal of the equity interest required a reclassification to profit or loss, such an amount shall be reclassified to profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Group shall retrospectively adjust the provisional amounts recognized at the acquisition date, or recognize additional assets or liabilities to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date. (v) Earnings per share The Group discloses the basic and diluted earnings per share attributable to ordinary equity holders of the Group. The calculation of basic earnings per share is based on the profit attributable to the ordinary shareholder of the Group divided by weighted average number of ordinary shares outstanding. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders of the Group divided by weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise restricted employee stock and employee compensation not yet approved by the Board of Directors. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 41 (w) Operating segments An operating segment is a component of the Group that engages in business activities from which it may incur revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group). Operating results of the operating segment are regularly reviewed by the Group’ s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Each operating segment consists of standalone financial information. (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty: The preparation of the consolidated financial statements in conformity with the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates. The management continues to monitor the accounting estimates and assumptions. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the next period. There are no critical judgments in applying the accounting policies that have significant effect on the amounts recognized in the consolidated financial statements. In addition, information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is as follows: (a) Recognition and measurement of refund liabilities Because of the sales returns and allowances, the Group records a refund liabilities (sales returns and allowance provisions) for estimated returns and other allowances in the same period the related revenue is recorded. The estimate is made based on historical experience, market and economic conditions, and any other known factors using the expected value or the most likely amount and it could be different from actual sales returns and allowances, therefore, the management periodically reviews the adequacy of the estimation used. (b) Valuation of inventories As inventories are stated at the lower of cost or net realizable value, the net realizable value of the inventory is mainly determined based on assumptions as to future demand within a specific time horizon. Due to the rapid industrial changes, there may be significant differences in the net realizable value of inventories. Refer to note (6)(g) for further description of the valuation of inventories. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 42 (6) Explanation of significant accounts: (a) Cash and cash equivalents Cash on hand Checking accounts and demand deposits Time deposits Bonds purchased under resale agreements December 31, 2019 December 31, 2018 $ 19,217 10,834 10,455,819 12,389,146 56,034,361 57,033,555 50,000 863,010 $ 66,559,397 70,296,545 Please refer to note (6)(ac) for the disclosure of the exchange rate risk, the interest rate risk and the fair value sensitivity analysis of the financial assets and liabilities of the Group. (b) Financial assets and liabilities at fair value through profit or loss Mandatorily measured at fair value through profit or loss: Non-derivative financial assets Structured deposits Stock listed in domestic markets Stock unlisted in domestic markets Fund in domestic or foreign markets Derivative instruments not used for hedging Foreign exchange contracts Swap contracts Total Current Non-current Financial liabilities held-for-trading: Derivative instruments not used for hedging Foreign exchange contracts Total December 31, 2019 December 31, 2018 $ 1,330,458 3,965,062 - 24,350 91,009 466 15,455 633,859 - 69,390 10,168 2,045 1,461,738 4,680,524 1,346,379 4,611,134 115,359 69,390 1,461,738 4,680,524 December 31, 2019 December 31, 2018 5,854 5,854 26,913 26,913 (Continued) $ $ $ $ $ COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 43 The Group uses derivative instruments to hedge foreign currency risk the Group is exposed to arising from its operating activities. The following derivative instruments not applied hedge accounting were classified as mandatorily measured at fair value through profit or loss and held-for- trading financial liabilities : December 31, 2019 Contract amount (in thousand) Currency Maturity date Derivative financial assets: Foreign exchange contracts: Forward exchange purchased USD 84,500 USD to BRL January 14~May 26, 2020 Swap contracts: Currency Swap Derivative financial liabilities: Foreign exchange contracts: USD 55,000 USD to TWD January 13~March 30, 2020 Forward exchange sold EUR 21,000 EUR to USD January 10~March 13, 2020 Forward exchange purchased USD 1,000 USD to BRL September 23, 2020 December 31, 2018 Contract amount (in thousand) Currency Maturity date Derivative financial assets: Foreign exchange contracts: Forward exchange sold USD 30,200 EUR to USD January 14~March 28, 2019 Swap contracts: Currency swap Derivative financial liabilities: Foreign exchange contracts: USD 27,300 USD to TWD February 14, 2019 Forward exchange sold EUR 21,000 EUR to USD January 10~March 28, 2019 Forward exchange sold EUR 1,000 EUR to TWD March 25, 2019 Forward exchange purchased USD 136,900 USD to BRL January 3~April 16, 2019 The market risk related to the financial instruments please refer to note (6)(ac). As of December 31, 2019 and 2018, the Group did not provide any aforementioned financial assets as collaterals for its loans. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 44 (c) Financial assets at fair value through other comprehensive income Equity investments at fair value through other comprehensive income: Stock listed in domestic markets Stock listed in foreign markets Stock unlisted in domestic markets Stock unlisted in foreign markets Total December 31, 2019 December 31, 2018 $ 2,055,890 2,730,648 448,110 400,184 2,246,932 1,990,100 177,121 51,363 $ 4,928,053 5,172,295 The purpose that the Group invests in the above-mentioned equity securities is for long-term strategies, but rather for trading purpose. Therefore, these equity securities are designated as at FVOCI. For the year ended December 31, 2019, the Group had sold all of its shares in PrimeSensor Technology Inc., Macroblock Inc., and Innolux Corporation (“ Innolux” ), which were measured at fair value through other comprehensive income. The fair value of the shares was $845,202 when disposed and the cumulative losses amounted to $4,824,910, which had been transferred to retained earnings from other comprehensive income. For the year ended December 31, 2018, the Group has sold parts of its shares held in Innolux Corporation and Parawin Venture Capital Corp., which were measured at fair value through other comprehensive income. The fair value of the shares was $428,635 when disposed, and the cumulative losses amounted to $1,513,953, which has been transferred to retained earnings from other equity. If there is an increase (decrease) in the market price by 5% on the reporting date of the equity securities hold by the Group, the increase (decrease) in other comprehensive income (pre-tax) for the years ended December 31, 2019 and 2018, will be $246,403 and $258,615, respectively. These analyses are performed on the same basis for the period and assume that all other variables remain the same. The Group’s information of market risk please refer to note (6)(ac). As of December 31, 2019 and 2018, the Group did not provide any financial assets at fair value through other comprehensive income as collaterals for its loans. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 45 (d) Financial instruments used for hedging (i) Financial instruments used for hedging were as follows: Cash flow hedge: Financial assets used for hedging: Forward exchange contracts Financial liabilities used for hedging: Forward exchange contracts (ii) Cash flow hedge December 31, 2019 December 31, 2018 $ $ 61 4,932 - - The Group’ s strategy is to use forward exchange contracts to hedge its foreign currency exposure in respect of forecasted future sales. As of December 31, 2018, the Group did not enter into any hedge contract. As of December 31, 2019, the amount related to the items designated as hedge instruments were as follows: December 31, 2019 Contract amount (in thousands) Currency Maturity period Average strike price Derivative financial assets used for hedging Forward exchange EUR 6,000 EUR to USD January 31~ 1.1278 sold Derivative financial liabilities used for hedging June 29, 2020 Forward exchange USD 39,000 EUR to USD January 31~ 1.1327 sold December 29, 2020 Forward exchange USD 3,589 USD to MXN February 26~ 19.507 purchased March 30, 2020 (iii) For the years ended December 31, 2019 and 2018, the ineffective portion of cash flow hedge recognized in profits (losses) amounted of $(5,934) and $559, respectively, recorded as “other gains and losses, net”. (iv) For the years ended December 31, 2019 and 2018, the profits (losses) of changes in fair value of derivative financial instruments used for hedging reclassified from other equity to profit or loss is recognized as revenue in the statement of comprehensive income. Please refer to note (6)(ab). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 46 (e) Current financial assets measured at amortized costs Common bonds – Taiwan Star Telecom Corporation Limited (“Taiwan Star”) December 31, 2019 December 31, 2018 $ - 350,000 The Group has assessed that these financial assets are held to maturity to collect contractual cash flows, which consist solely of payments of principal and interest on the principal amount outstanding. Therefore, these investments were classified as financial assets measured at amortized cost. As of December 31, 2018, the Group did not provide the aforementioned financial assets as collaterals for its loans. (f) Notes and accounts receivable Notes receivables from operating activities December 31, 2019 December 31, 2018 $ 42,418 102,775 Accounts receivables – measured at amortized cost 167,615,217 184,671,402 Accounts receivables – fair value through other comprehensive income Less: allowance for uncollectible accounts Notes and accounts receivable Notes and accounts receivable – related parties 28,007,745 23,020,497 195,665,380 207,794,674 (3,928,716) (4,020,603) $ 191,736,664 203,774,071 $ 191,692,152 203,715,965 $ 44,512 58,106 The Group has assessed a portion of its trade receivables that was held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; therefore, such trade receivables were measured at fair value through other comprehensive income. The Group applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 47 (i) The loss allowance provision of IT product segment of the Group was determined as follows: December 31, 2019 Carrying amount of accounts receivable 172,692,844 13,008,324 3,817,340 189,518,508 Weighted- average ECL rate 0% 0.547% 100% December 31, 2018 Carrying amount of accounts receivable 186,203,302 11,907,279 3,830,424 201,941,005 Weighted- average ECL rate 0% 1.208% 100% $ $ $ $ Credit rating Level A Level B Level C Credit rating Level A Level B Level C Lifetime ECLs - 71,101 3,817,340 3,888,441 Lifetime ECLs - 143,862 3,830,424 3,974,286 Credit- impaired No No Yes Credit- impaired No No Yes (ii) The loss allowance provision of strategically integrated product segment of the Group was determined as follows: December 31, 2019 Carrying amount of accounts receivable 2,620,806 2,713,406 783,004 - 29,656 6,146,872 Weighted- average ECL rate 0% 0.10% 1.00% 100% Credit rating Level A Level B Level C Level D~E Level F $ $ Lifetime ECLs - 2,789 7,830 - 29,656 40,275 Credit- impaired No No No - Yes (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 48 December 31, 2018 Carrying amount of accounts receivable 1,550,848 3,024,709 1,247,546 - 30,566 5,853,669 Weighted- average ECL rate 0.01% 0.11% 1.00% - 100% Credit rating Level A Level B Level C Level D~E Level F $ $ Lifetime ECLs 82 3,194 12,475 - 30,566 46,317 Credit- impaired No No No - Yes The aging analysis of notes and accounts receivable were determined as follows: Overdue 1 to 180 days Overdue 181 to 365 days Overdue 365 days and over December 31, 2019 December 31, 2018 $ 1,707,265 2,919,586 285 - 15,809 25,555 $ 1,707,550 2,960,950 The movement in the allowance for notes and accounts receivable was as follows: Balance at January 1 Impairment losses recognized Amounts written off Effect of changes in exchange rates Balance at December 31 2019 2018 4,020,603 4,021,894 (7,790) (85,907) 1,810 (1,085) - (206) 3,928,716 4,020,603 $ $ Allowance for uncollectible account is the balance of accounts receivable which are uncollectable. Except for evaluating the situation of the customers’ payment records and widely analyzing the credit rating of customers, the Group also takes all the necessary procedures for collection. The Group believes that there is no doubt for the recovery of the due but unimpaired accounts receivable, therefore, no allowance recognized. The Group entered into accounts receivable factoring agreements with banks. As of December 31, 2019 and 2018, except for the amount used under the actual sales amount in accordance with certain agreements, the factoring amount granted by the banks was USD 1,000,000 thousand and EUR 59,700 thousand, USD 950,000 thousand and EUR 20,000 thousand, respectively. Based on the agreements, the Group is not responsible for guaranteeing the ability of the accounts receivable obligor to make payment when it is affected by credit risk. Thus, this is a non-recourse accounts receivable factoring. The Group derecognized the above accounts receivable because it has transferred substantially all of the risks and rewards of their ownership and it does not have any (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 49 continuing in involvement in them. After the transfer of the accounts receivable, the Group can request partial advanced amount, while the interest calculated at an agreed rate is paid to the bank in the period during the time of receiving advance and the accounts receivable is collected. The remaining amounts with no advance are received when the accounts receivable are settled by the customers. As of December 31, 2019 and 2018, accounts receivable factored were recovered and derecognized since the conditions of derecognition were met. The Company, customers, and banks signed the three-party contracts in which the banks purchase accounts receivable from the Company. The total amount of the accounts receivable should not exceed the facility limit provided by the banks to the Company’s customers. Based on the contracts, the banks have no right to request the Company to repurchase the accounts receivable. Thus, this is a non-recourse accounts receivable transfer. As of December 31, 2019 and 2018, accounts receivable factored were recovered and derecognized since the conditions of derecognition were met. As of December 31, 2019 and 2018, the details of the factored accounts receivable but unsettled were as follows: Accounts receivable factored (gross) Purchaser Financial Institution $ 25,672,764 Accounts receivable factored (gross) Purchaser Financial Institution $ 32,098,074 December 31, 2019 Amount advanced Paid Unpaid Amount recognized in other receivable Amount Collateral derecognized Interest rate - 25,672,764 - - 25,672,764 2.21%~2.80% December 31, 2018 Amount advanced Paid Unpaid Amount recognized in other receivable Amount Collateral derecognized Interest rate - 32,098,074 - - 32,098,074 3.02%~3.52% As of December 31, 2019 and 2018, the Group did not provide any aforementioned notes and accounts receivable as collaterals. (g) Inventories Finished goods Work in progress Raw materials Raw materials in transit December 31, 2019 30,269,057 $ December 31, 2018 33,463,627 6,455,035 6,830,625 41,213,675 38,526,674 495,771 327,996 $ 78,433,538 79,148,922 (i) During the years ended December 31, 2019 and 2018, inventory cost recognized as cost of sales amounted to $946,533,518 and $937,139,320, respectively. (ii) The write-down of inventories to net realizable value amounted to $587,759 and $263,774, for (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 50 the years ended December 31, 2019 and 2018, respectively. (iii) As of December 31, 2019 and 2018, the Group did not provide any inventories as collaterals for its loans. (h) Investments accounted for using equity method A summary of the Group’s financial information for equity-accounted investees at the reporting date is as follows: Associates Joint venture Plus: credit balance of investment in equity method (other non-current liability) Less: unrealized profits or losses (i) Associates December 31, 2019 December 31, 2018 $ 7,410,134 7,469,153 (14,725) 16,180 7,395,409 7,485,333 41,719 - (118,042) (120,848) $ 7,319,086 7,364,485 1) The fair value of the shares of listed company based on the closing price was as follow: Allied Circuit Co., Ltd. (“Allied Circuit”) Avalue Technology Inc. (“Avalue”) December 31, 2019 December 31, 2018 $ $ 1,838,621 1,147,839 2,986,460 1,061,543 586,743 1,648,286 2) The Group’s share of the net gain (loss) of associates was as follows: The Group’s share of the gain (loss) of associates $ 229,152 2019 2018 813,796 3) The Group’s financial information for investments accounted for using the equity method that are individually immaterial was as follows: Carrying amount of individually immaterial associates $ 7,410,134 7,469,153 December 31, 2019 December 31, 2018 The Group’s share of the net income (loss) of associates: Profit (loss) from continuing operations Other comprehensive income 2019 2018 229,152 813,796 (159,440) (287,138) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 51 Total comprehensive income $ 69,712 526,658 4) 5) In October 2019, the Group had sold part of its shares held in Avalue Technology Inc. (“ Avalue” ), with a consideration (net of costs of disposal) amounting to $18,033. The transaction has been completed and the price has been fully recovered, wherein the Group recognized a gain of $8,990, which was accounted for as other gain and loss. In August 2018, the Group has sold all of its shares held in LC Future Center Limited Ltd. (“LCFC”), with consideration (net of costs of disposal) amounting to USD 246,792 thousands. The transaction has been completed and the price has been fully recovered. The Group recognized a gain of $2,511,085 (USD 83,925 thousands), which was accounted for as other gain and loss. (ii) Joint venture In April 2010, the Group and another company established a jointly controlled entity, Compal Connector Manufacture Ltd. (“CCM”), and obtained an ownership interest of 51%. CCM’s actual paid-in capital amounted to USD10,000 thousands. Moreover, in May 2014, the Group and another company established a jointly controlled entity, Zheng Ying Electronics (Chongqing) Co., Ltd., (“ Zheng Ying” ), and obtained an ownership interest of 51%. Zheng Ying’s actual paid-in capital amounted to USD2,500 thousands. The Group’s financial information for investment accounted for using the equity method that are individually insignificant was as follows: December 31, 2019 December 31, 2018 The carrying amount of the Group’s interests in all individually insignificant joint ventures $ (14,725) 16,180 The Group’s share of the net income (loss) of joint ventures: Losses from continuing operations (also the total comprehensive losses) $ (32,144) (16,428) 2019 2018 (iii) As of December 31, 2019 and 2018, the Group did not provide any investments accounted for using equity method as collaterals for its loans. (i) Changes in subsidiaries’ equity (i) Changes in ownership interests while retaining control (increase in ownership interest) The Group purchased shares of TTI from non-controlling interest amounting to $634 in 2018. The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of the subsidiaries: Acquisition of non-controlling interest (carrying amount) 2018 $ 631 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 52 Consideration paid for the non-controlling interest Difference Capital surplus – changes in ownership interests in subsidiaries (634) (3) (3) $ $ (ii) Changes in subsidiaries’ equity did not result in the Group’s loss of control 1) Subsidiaries’ employee stock options exercised CBN issued 69 thousand and 351 thousand new shares because of its employees' exercised stock options in 2019 and 2018, respectively, which resulted in the reduce of the Group’s ownership of CBN by 0.07% and 0.41%, respectively. 2) Issuance of new shares for cash of subsidiaries The Group purchased newly issued shares of Arcadyan amounting to $323,917 at a percentage different from its existing ownership percentage in the fourth quarter of 2019, resulting in a decrease in the ownership of the Group in Arcadyan by 0.37%. The Group did not purchase newly issued shares of CBN in the fourth quarter of 2018, which resulted in a decrease in the ownership of the Group’s in CBN by 7.27%. 3) Issuance and cancellation of subsidiaries’ restricted shares Arcadyan canceled 84 thousand restricted shares and issued 4,500 thousand restricted new shares in the years ended December 31, 2019 and 2018, respectively, which resulted in an increase of 0.01% and a decrease of 0.84%, respectively, of the ownership of the Group in Arcadyan. 4) The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of subsidiaries: Capital surplus – changes in ownership interest in subsidiaries Retained earnings 2019 2018 $ $ 43,473 - 43,473 (32,703) (32,160) (64,863) (j) Loss control of subsidiaries The Group had sold all of its shares in CMX, at the amount of $218,133, to a third party in August 2019, resulting in its losing control over CMX. The entire amount had been fully received. The gain on disposal amounting to $58,107 was recorded as other gains and losses. The carrying amounts of assets and liabilities of CMX were as follows: Cash and cash equivalents Other current assets $ 74,638 2,918 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 53 Property, plant and equipment Notes and accounts payable Other payables Other current liabilities Carrying amount net assets 117,625 (644) (33,716) (966) $ 159,855 (k) Material non-controlling interests of subsidiaries The material non-controlling interests of subsidiaries were as follows: Subsidiaries Arcadyan Technology Corporation Main operation place Taiwan Percentage of non-controlling interests December December 31, 2018 31, 2019 %65 %65 The following information of the aforementioned subsidiaries have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Included in these information are the fair value adjustment made during the acquisition and relevant difference in accounting principles between the Group as at the acquisition date. Intra-group transactions were not eliminated in this information. Arcadyan’s collective financial information Current assets Non-current assets Current liabilities Non-current liabilities Net assets Non-controlling interests Sales revenue Net income Other comprehensive income Comprehensive income Profit, attributable to non-controlling interests Comprehensive income, attributable to non-controlling interests December 31, 2019 22,052,835 $ December 31, 2018 18,638,678 3,478,150 2,614,802 (13,044,806) (11,620,412) (1,145,245) (159,270) 11,340,934 9,473,798 7,625,040 6,330,768 2019 2018 32,897,900 26,621,262 1,356,986 (53,703) 1,303,283 894,962 859,763 880,183 31,652 911,835 567,101 587,791 $ $ $ $ $ $ $ (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 54 Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Effect of exchange rate changes on cash and cash equivalents $ 2,496,825 1,815,108 (837,786) (369,128) 2,779 (30,312) 702,117 16,667 Net increase (decrease) in cash and cash equivalents $ 1,631,506 2,164,764 (l) Property, plant and equipment The cost, depreciation, and impairment of the property, plant and equipment of the Group for the years ended December 31, 2019 and 2018, were as follows: Buildings and building improvement Machinery Other equipment Land Under construction and prepayment for purchase of equipment Total Cost: Balance on January 1, 2019 $ 1,772,214 17,020,270 26,201,597 10,642,904 1,003,490 56,640,475 Additions 25,888 382,049 1,956,846 1,900,557 1,561,601 5,826,941 Disposals and derecognitions (93,905) (440,934) (773,288) (1,003,600) - (2,311,727) Reclassifications - 221,513 406,831 104,464 (1,007,468) (274,660) Effect of movements in exchange rates 1,023 (216,119) (747,345) (354,892) (247,065) (1,564,398) Balance on December 31, 2019 Balance on January 1, 2018 Additions Disposals and derecognitions Reclassifications Effect of movements in exchange rates Balance on December 31, 2018 Depreciation and impairments loss: Balance on January 1, 2019 Depreciation for the period Disposals and derecognitions Effect of movements in exchange rates Balance on December 31, 2019 Balance on January 1, 2018 Depreciation for the period Disposals and derecognitions Effect of movements in exchange rates Balance on December 31, 2018 Carrying amounts: Balance on December 31, 2019 Balance on January 1, 2018 Balance on December 31, 2018 $ $ $ $ $ $ $ $ $ $ 1,705,220 16,966,779 27,044,641 11,289,433 1,310,558 58,316,631 1,769,326 15,100,906 23,268,462 9,759,017 1,136,868 51,034,579 - - - 1,787,027 3,354,838 1,467,955 83,609 6,693,429 (55,743) (109,254) (423,779) - (588,776) 5,030 104,891 104,690 (214,611) - 2,888 183,050 (417,340) (264,979) (2,376) (498,757) 1,772,214 17,020,270 26,201,597 10,642,904 1,003,490 56,640,475 - - - - - - - - - - 10,105,653 18,441,703 7,674,891 802,230 2,524,504 1,778,318 (413,292) (662,693) (990,010) (142,157) (453,255) (321,608) 10,352,434 19,850,259 8,141,591 9,239,452 17,548,800 6,066,960 738,622 2,309,302 1,547,601 (22,941) (95,177) (399,077) 150,520 (1,321,222) 459,407 10,105,653 18,441,703 7,674,891 - - - - - - - - - - 36,222,247 5,105,052 (2,065,995) (917,020) 38,344,284 32,855,212 4,595,525 (517,195) (711,295) 36,222,247 1,705,220 6,614,345 7,194,382 3,147,842 1,310,558 19,972,347 1,769,326 5,861,454 5,719,662 3,692,057 1,136,868 18,179,367 1,772,214 6,914,617 7,759,894 2,968,013 1,003,490 20,418,228 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 55 As of December 31, 2019 and 2018, part of the Group’ s property, plant and equipment were provided as collateral for long-term borrowings. Please refer to note (8). (m) Right-of-use assets The Group leases many assets including land and buildings, machinery and vehicles. Information about leases for which the Group as a lessee is presented below: Land Buildings Machinery Vehicles and Other Cost: Balance on January 1, 2019 $ - - Adjustment on initial application of IFRS 16 891,147 1,934,899 Balance on January 1, 2019 per IFRS 16 891,147 1,934,899 Additions Deductions 245,220 1,142,076 - (226,448) Effect of movements in exchange rates (25,554) (40,536) Balance on December 31, 2019 $ 1,110,813 2,809,991 Depreciation and impairment loss: Balance on January 1, 2019 $ Adjustment on initial application of IFRS 16 Balance on January 1, 2019 per IFRS 16 - - - - - - - 87,482 87,482 9,460 (9,067) (1,214) 86,661 - - - Total - 2,981,097 2,981,097 1,422,883 - 67,569 67,569 26,127 (4,403) (239,918) (581) (67,885) 88,712 4,096,177 - - - - - - Depreciation for the period 32,106 770,753 22,615 43,834 869,308 Deductions - (104,216) - Effect of movements in exchange rates (519) (7,070) (345) (4,403) (6,750) (108,619) (14,684) Balance on December 31, 2019 $ 31,587 659,467 22,270 32,681 746,005 Carrying amount: Balance on December 31, 2019 $ 1,079,226 2,150,524 64,391 56,031 3,350,172 The Group leases land, offices, warehouses and factory facilities under an operating lease for the year ended December 31, 2018, please refer to note (6)(s). (n) Short-term borrowings The details of short-term borrowings were as follows: Unsecured bank loans Unused credit line for short-term borrowings Range of interest rates December 31, 2019 60,951,844 $ December 31, 2018 72,350,197 $ 107,077,000 83,720,000 0.66%~5.05% 0.45%~5.87% For information on the Group’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(ac). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 56 (o) Long-term borrowings The details of long-term borrowings were as follows: Unsecured bank loans December 31, 2019 Currency TWD Annual range of interest rate 0.73%~1.18% Maturity year 2020~2023 Secured bank loans TWD 1.67% 2022 Less: current portion Total Unused credit lines for long-term borrowings Unsecured bank loans December 31, 2018 Currency TWD Annual range of interest rate 0.79%~1.22% Maturity year 2019~2021 Secured bank loans TWD 1.67% 2022 Less: current portion Total Unused credit lines for long-term borrowings Amount 25,650,000 98,438 (18,189,375) 7,559,063 12,047,000 Amount 28,396,250 137,813 (17,535,625) 10,998,438 5,443,000 $ $ $ $ $ $ For information on the Group’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(ac). The Group pledged property, plant and equipment as collateral for its partial long-term borrowings. Please refer to note (8). (p) Unsecured convertible corporate bonds (i) The Company’ s subsidiary, Arcadyan, issued the first domestic unsecured convertible corporate bonds on June 6, 2019. The details was as follows: Total convertible corporate bonds issued Unamortized discounts on corporate bonds payable Balance of corporate bonds payable as of December 31, 2019 Conversion options included in equity component (classified as capital surplus and non-controlling interests) December 31, 2019 1,000,000 (33,508) 966,492 48,667 $ $ $ (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 57 Interest expenses 2019 $ 7,919 The effective interest rate of the first issued convertible corporate bonds was 1.3284%. (ii) The main terms of issuing the above-mentioned convertible corporate bonds was as follows: 1) 2) 3) Coupon rate: 0% Duration: three years (June 6, 2019~June 6, 2022) Repayment Put option and call option are excluded from the issuance of convertible corporate bonds. Except that the bondholders convert the bonds to Arcadyan’ s common shares or the bonds are repurchased and cancelled by Arcadyan from the securities firm’ s business office, the bonds will be repaid in cash at par value when the bonds expired. 4) Terms of conversion a) The bondholder may opt to have its bonds converted into the Arcadyan’s common shares, with the approval of Taiwan Depository & Clearing Corporation through securities firms, at any time between three months after the issuance date (September 7, 2019) and the day before the maturity day (June 6, 2022), except for the following: - The closing period in accordance with the applicable law; - The period starting from the first day of the first fifteen working days prior to the date of record for determination wherein the shareholders are entitled to receive the distributions or rights to subscribe for new shares in a capital increase for cash, and ends on the date of record for the distribution of the rights/benefits; - The period starts from the date of record of the capital decrease and ends on the date prior to the trading of the reissuance shares after the capital decrease. b) Conversion price is determined as NT$98.3 per share upon issuance. Arcadyan paid cash dividends and issued new shares for cash in 2019; therefore, the conversion price has been adjusted to NT$93 per share. (q) Lease liabilities The details of leases liabilities were as follows: Current Non-current December 31, 2019 $ 717,021 $ 1,550,067 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the maturity analysis, please refer to note (6)(ac). The amounts recognized in profit or loss were as follows: Interest on lease liabilities Variable lease payments not included in the measurement of lease liabilities Expenses relating to leases of low-value assets, excluding short-term leases The amounts recognized in the statement of cash flows for the Group was as follows: Total cash outflow for leases (i) Real estate leases 58 2019 48,758 4,579 117,545 $ $ $ 2019 $ 1,003,697 The Group leases land leasehold rights, leases buildings for its office and plant space. The leases of office space typically run for a period of 1 ~19 years, and of land leasehold rights for 50 years. (ii) Other leases The Group leases vehicles and equipment, with lease terms of 1~5 years. The Group also leases some equipments and vehicles with contract terms of 1~3 years. These leases are short-term or leases of low-value items. The Group has elected not to recognize right-of-use assets and lease liabilities for these leases. (r) Provisions Balance on January 1, 2019 Provisions made during the period Provisions used during the period Provisions reversed during the period Balance on December 31, 2019 Balance on January 1, 2018 Provisions made during the period Provisions used during the period Provisions reversed during the period Balance on December 31, 2018 Warranties 426,981 $ $ $ 721,303 (305,236) (12,291) 830,757 387,147 398,735 (313,832) (45,069) $ 426,981 Provisions relate to sales of products are assessed based on historical experience, management's judgment and other known reasons. Such allowances are recognized as a deduction of sales revenue (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 59 in the same period in which sales are made. The aforementioned provisions are expected to settle over the next year. (s) Operating lease (i) The Group as lessee 1) The rental payables of the non-cancellable operating lease are as follows: Less than one year Between one and five years More than five years $ December 31, 2018 569,275 598,996 116,349 $ 1,284,620 The Group leased several office areas under operating leases with the leasing terms from 1 to 19 years and had an option to renew the leases when the leases expired. For the year ended December 31, 2018, expenses recognized in profit or loss under operating leases amounted to $612,239. The lease contract includes those of the land and building, with their residual values being assumed by the landlord. The rental is regularly adjusted based on the current market price. Based on the risks and rewards of leased assets not transferred to the Group, the Group recognized the lease as operating lease. 2) Long-term prepaid rent – land leasehold rights The Group acquired land leasehold rights under operating lease and was expensed equally over 50 years. As of December 31, 2018, land leasehold rights accounted as long- term prepaid rents amounted to $891,147. For the year ended December 31, 2018, expenses recognized in profit or loss under operating lease amounted to $13,302. (t) Employee benefits (i) Defined benefit plans Reconciliation of defined benefit obligations at present value and plan assets at fair value were as follows: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 60 Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities December 31, 2019 (1,486,824) December 31, 2018 (1,447,375) 748,660 737,229 (738,164) (710,146) $ $ The Group makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pensions for employees upon retirement. The plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average salary for the six months prior to retirement. 1) Composition of plan assets The Group allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Labor Pension Fund Supervisory Committee. With regard to the utilization of the funds, minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with interest rates offered by local banks. The balance of the Group’ s labor pension reserve account in the Bank of Taiwan amounted to $746,865 (excluding the ending balance of interest receivable) as of December 31, 2019. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor. 2) Movements in the present value of the defined benefit obligations The movements in the present value of defined benefit obligations for the Group were as follows: Defined benefit obligations on January 1 $ (1,447,375) 2019 Benefit paid by the plan Current service costs and interest Remeasurements of net benefit liabilities 50,196 (24,942) (64,703) 2018 (1,418,645) 33,560 (26,745) (35,545) Defined benefit obligations on December 31 $ (1,486,824) (1,447,375) 3) Movements of the fair value of defined benefit plan assets The movements in the fair value of the defined benefit plan assets for the Group were as follows: 2019 2018 Fair value of plan assets on January 1 $ Expected return on plan assets 737,229 9,432 712,835 9,841 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 61 Remeasurements of net benefit plan assets Contributions paid by the employer Benefits paid by the plan Fair value of plan assets on December 31 $ 23,917 28,278 (50,196) 748,660 19,280 28,833 (33,560) 737,229 4) Expenses recognized in profit or loss The expenses recognized in profit or loss were as follows: 2019 2018 Current service cost Net interest on the net defined benefit liability (asset) Cost of sales Selling expenses Administrative expenses Research and development expenses $ $ $ $ 6,401 9,109 15,510 689 812 3,686 10,323 15,510 7,023 9,881 16,904 817 986 3,880 11,221 16,904 5) Actuarial assumptions The following were the Group’s principal actuarial assumptions at the reporting date: Discount rate December 31, 2019 0.90%~1.00% December 31, 2018 1.30%~1.375% Future salary increasing rate 3.00% 3.00% The expected allocation payment made by the Group to the defined benefit plans for the one year period after the reporting date is $28,677. The weighted-average lifetime of the defined benefit plan is 9.9~14.74 years. 6) Sensitivity analysis If the main actuarial assumptions had changed, the impact on the present value of the defined benefit obligation shall be as follows: Effects to the defined benefit obligation Increased 0.25% Decreased 0.25% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 62 December 31, 2019 Discount rate Future salary increasing rate December 31, 2018 Discount rate Future salary increasing rate (36,821) 37,254 (37,146) 37,746 38,220 (36,089) 38,572 (36,552) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown above. The method used in the sensitivity analysis is consistent with the calculation on the net defined benefit liabilities in the balance sheets. The method and assumption used in the sensitivity analysis is consistent with prior period. (ii) Defined contribution plans The Group allocates 6% of each employee’ s monthly wages to the labor pension personal account at the Bureau of the Labor Insurance in accordance with the provisions of the Labor Pension Act. Under this defined contribution plan, the Group allocates the labor pension at a specific percentage to the Bureau of the Labor Insurance without additional legal or constructive obligations. The Company and all subsidiaries in domestic recognized the pension costs under the defined contribution method amounting to $413,479 and $381,455 for the years ended December 31, 2019 and 2018, respectively. Payment was made to the Bureau of Labor Insurance. Other subsidiaries recognized the pension expenses, basic endowment insurance expenses, and social welfare expenses amounting to $1,294,677 and $1,319,260 for the years ended December 31, 2019 and 2018, respectively. (u) Income taxes (i) Income tax expenses 1) The amount of income tax for the years ended December 31, 2019 and 2018, was as follows: 2019 2018 Current tax expense Recognized during the period $ 2,364,140 10% surtax on unappropriated earnings Tax credit of investment Deferred tax expense 294,326 (438,511) 2,219,955 2,092,686 27,288 (183,384) 1,936,590 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 63 Recognition and reversal of temporary differences Adjustment in tax rate (107,798) - (107,798) 393,967 (130,273) 263,694 Income tax expense $ 2,112,157 2,200,284 2) The amount of income tax recognized in other comprehensive income for the years ended December 31, 2019 and 2018, was as follows: Items that will not be reclassified subsequently to profit or loss: Remeasurement of the defined benefit obligation Unrealized gains (losses) on equity instruments at fair value through other comprehensive income Items that will be reclassified subsequently to profit or loss: Foreign currency translation differences of foreign operations 2019 2018 (8,157) (33,202) 44,004 35,847 (42,630) (75,832) (10,678) 3,293 $ $ $ 3) The income tax expense that was reconciled between the actual income tax expense and profit before tax for the years ended December 31, 2019 and 2018, was as follows: Profit before tax Income tax calculated based on tax rate Adjustment in tax rate Estimated tax effect of tax exemption on investment $ $ 2019 10,007,876 2,743,666 - 2018 11,789,585 3,454,689 (130,273) (984,537) (133,869) (183,384) (11,635) 162,005 27,288 (155,231) (25,237) (438,511) (150,199) (156,657) 294,326 $ 2,112,157 2,200,284 (Continued) income, net Realized investment loss Investment tax credit Changes in temporary differences Adjustment of estimated difference Surtax on unappropriated earnings (ii) Deferred tax assets and liabilities COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 64 Changes in the amount of deferred tax assets and liabilities for 2019 and 2018 were as follows: Refund liabilities Contract liabilities Unrealized exchange losses, net Others Total Deferred tax assets: Balance on January 1, 2019 $ 178,025 164,955 Recognized in profit or loss (57,422) (105,526) Recognized in other comprehensive income Balance on December 31, 2019 Balance on January 1, 2018 $ $ - 120,603 259,546 - 59,429 176,283 163,265 586,948 - 750,213 411,518 517,703 171,280 1,023,948 595,280 18,398 707,381 504,024 18,398 1,637,626 1,351,371 Recognized in profit or loss (81,521) (11,328) (248,253) (16,683) (357,785) Recognized in other comprehensive income - - - Balance on December 31, 2018 $ 178,025 164,955 163,265 30,362 517,703 30,362 1,023,948 Deferred tax liabilities: Balance on January 1, 2019 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2019 Balance on January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2018 (iii) Unrecognized deferred tax assets Unrealized exchange gains, net $ $ $ $ - (497,092) - (497,092) (171,868) 171,868 - - Others Total (478,169) 9,610 (43,567) (512,126) (442,569) (77,777) 42,177 (478,169) (478,169) (487,482) (43,567) (1,009,218) (614,437) 94,091 42,177 (478,169) Deferred tax assets have not been recognized in respect of the following items: Tax effect of deductible temporary differences Tax effect of loss carryforward December 31, 2019 December 31, 2018 $ $ 827,365 716,848 1,121,433 1,249,171 The Group assesses and considers that some of the income tax reduction items may be unrealized, hence they are not recognized as deferred tax assets. In addition, according to Income Tax Act, the loss carryforward are the losses incurred in past 10 years assessed by ROC tax authorities which can be deducted from the net profit of current year before levied. The items are not recognized as deferred income tax assets due to the fact that the Group may not have sufficient taxable income in the future for the losses. As of December 31, 2019, the tax effects on loss carryforward that have not been recognized (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 65 as deferred tax assets were as follows: Year of loss 2010 (Assessed) 2011 (Assessed) 2012 (Assessed) 2013 (Assessed) 2014 (Assessed) 2015 (Assessed) 2016 (Assessed) 2017 (Assessed) 2018 (Assessed/Filed) 2019 (Estimated) Expiry year 2020 Deductible amount 14,492 $ 2021 2022 2023 2024 2025 2026 2027 2028 2029 399,926 689,013 228,258 41,534 636,827 1,443,859 950,585 550,579 652,091 $ 5,607,164 (iv) Unrecognized deferred tax assets and liabilities related to investments in subsidiaries The temporary differences associated with investment in subsidiaries were not recognized as deferred income tax assets and liabilities as the Company has the ability to control the reversal of these temporary differences which are not expected to reverse in the foreseeable future. As of December 31, 2019 and 2018, the aggregate deductible temporary differences relating to investments in subsidiaries not recognized as deferred tax assets amounted to $1,894,891 and $2,162,721, respectively. As of December 31, 2019 and 2018, the aggregate taxable temporary differences relating to investments in subsidiaries not recognized as deferred tax liabilities amounted to $53,923,241 and $54,732,941, respectively. (v) Examination and approval The Company’ s tax returns for the years through 2017 were assessed by the Taipei National Tax Administration. The ROC tax authorities have assessed the income tax returns of Panpal, Gempal, Hong Jin, Palcom, Acbel Telecom, Ripal, Zhipal, Rayonnant Technology, UCGI, Mactech, RBL, CBN, Unicore, Raycore, TTI, GLB and HengHao through 2017, of HongJi through 2018, of Arcadyan through 2017 except for 2016, and of ATK through November, 2019. (v) Capital and other equities As of December 31, 2019 and 2018, the Company’ s authorized common stock consisting of 6,000,000 thousand shares with a par value of 10 New Taiwan dollar per share amounted to $60,000,000 of which 4,407,147 thousand shares, were issued. All issued shares were paid up upon issuance. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 66 (i) Ordinary shares In 2015, the Company issued its employee restricted shares amounting to $493,600, wherein the amount of $120,450 had been cancelled due to failure in meeting the vested requirements in the year ended December 31, 2018. As of December 31, 2018, the registration procedure had been completed. (ii) Capital surplus The balances of capital surplus were as follows: Additional paid-in capital Treasury share transactions December 31, 2019 December 31, 2018 $ 6,302,490 2,481,885 7,183,919 2,421,864 Difference between consideration and carrying amount arising from acquisition or disposal of subsidiaries Recognition of changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted 36,766 59,115 36,766 15,642 for using equity method 279,003 274,243 $ 9,159,259 9,932,434 In accordance with the ROC Company Act, realized capital reserves can only be used to increase the common stock or distributed as cash dividends after offsetting losses. The aforementioned capital reserves include share premiums and donation gains. In accordance with the Securities Offering and Issuance Guidelines, the amount of capital reserves to be reclassified under share capital shall not exceed 10% of the actual share capital amount. The Company’s shareholders’ meeting held on June 21, 2019 and June 22, 2018, approved to distribute the cash dividend of $881,429 (representing 0.2 New Taiwan Dollars per share), by using the additional paid-in-capital. A resolution was approved during the Board of Directors' meeting held on March 30, 2020 to distribute the cash dividend of $$881,429, with a par value of NTD 0.2 per share, by using the additional paid-in capital. The related information can be accessed through the Market Observation Post system website after the Board of Directors' meeting. (iii) Retained earnings Based on the Company’s articles of incorporation amended on June 21, 2019, if there is any profit after closing of books in a given year, the Company shall first defray tax due, cover accumulated losses and set aside ten percent of it as legal reserve and then set aside or reverse a special reserve in accordance with laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the unappropriated retained earnings of previous years. The Board of Directors may set aside a certain amount to cope with the business operation conditions, and shall prepare the proposal for distribution of the balance amount thereof after a resolution has been adopted and then allocated by the Board of Directors. The Company authorizes the Board of Directors to distribute all or part of the (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 67 dividends and bonuses, capital surplus or legal reserve in cash after a resolution has been adopted by a majority vote at a meeting of the Board of Directors attended by two-thirds of the total number of directors; and in addition thereto a report of such distribution shall be submitted to the General shareholders’ meeting. Based on the Company’s articles of incorporation before amended on June 21, 2019, if there is any profit after closing of books in a given year, the Company shall first defray tax due, cover accumulated losses and set aside ten percent of it as legal reserve and then set aside or reverse a special reserve in accordance with laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the unappropriated retained earnings of previous years. The earnings appropriation proposal to distribute dividend and bonus shall be proposed by the Board of Directors and approved by the General Shareholders Meeting. The rest of the unappropriated retained earnings shall be reserved. The lifecycle of the industry of the Company is in the growing stage. To consider the need of the Company for the future capital, capital budget, long-term financial planning, domestic and foreign competition, the need of shareholders for cash flow and other factors, if there is any profit after close of books, the dividend and bonus to be distributed to shareholders shall not be less than thirty percent of profit after tax for such year and the cash dividend allocated by the Company each year shall not be lower than ten percent of the total dividend (including cash and share dividend) for such year. According to the law, when there is a deduction from stockholders' equity (excluding treasury stock and unearned employee benefit) during the year, an amount equal to the deduction item is set aside as a special reserve before the earnings are appropriated. A special reserve is made available for earning distribution only after the deduction of the related shareholders’ equity has been reversed. 1) Legal reverse When a company incurs no loss, it may, in pursuant to a resolution to be adopted by the shareholders’ meeting as required, distribute its legal reserve by issuing new shares and distributing stock dividends or distributing cash to shareholders. Only the portion of the legal reserve which exceeds 25% of the paid-in capital may be distributed. 2) Special reverse In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, a portion of current earnings and previous unappropriated earnings shall be set aside as a special reserve during earnings distribution. The amount to be set aside should equal the total amount of contra accounts that are accounted for as deductions to other equity interests. A portion of previous unappropriated earnings shall be set aside as a special reserve, which should not be distributed, to account for cumulative changes to other equity interests pertaining to prior periods. The special reserve shall be made available for appropriation when the net deductions of other equity interests are reversed in the subsequent periods. 3) Earnings distribution Earnings distribution for 2018 and 2017 was approved by the shareholders during their (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 68 annual meetings held on June 21, 2019 and June 22, 2018, respectively. The relevant information was as follows: 2018 2017 Amount per share Total amount Amount per share Total amount Cash dividends distributed to common shareholders $ 1.0 4,407,147 1.0 4,407,147 Earnings distribution for 2019 was approved by the Board of Directors on March 30, 2020. The relevant information was as follows: 2019 Amount per share Total amount Cash dividends distributed to common shareholders from the unappropriated earnings $ 1.0 4,407,147 The related information of the earnings distribution for the year ended December 31, 2019, can be accessed through the Market Observation Post System website after the related meeting. (iv) Treasury stock The subsidiaries of the Company did not sell the ordinary shares of the Company in the years ended December 31, 2019 and 2018. As of December 31, 2019, Panpal and Gempal, subsidiaries of the Company, held 50,017 thousand shares of ordinary shares of the Company, recorded as the Company’s treasury stock, with a book value of 17.6 New Taiwan dollars per share. The total cost was $881,247. The fair value of the ordinary shares of the Company was 18.85 and 17.45 New Taiwan dollars per share as of December 31, 2019 and 2018, respectively. Pursuant to the Securities and Exchange Act, the number of treasury shares purchased cannot exceed 10% of the number of shares issued. The total purchase cost cannot exceed the sum of retained earnings, paid-in capital in excess of par value and realized capital surplus. The shares purchased for the purpose of transferring to employees shall be transferred within three years from the date of share repurchase. Those not transferred within the said limit shall be deemed as not issued by the Company and it should be cancelled. Furthermore, treasury stock cannot be pledged for debts, and treasury stock does not carry any shareholder rights until it is transferred. (Continued) 69 Total (7,459,388) 3,315,411 197,934 (157,406) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (v) Other equity interests (net-of-taxes) Exchange differences on transaction of foreign operation financial statements Unrealized gain (loss) from financial assets at fair value through other comprehensive income Unearned compensation for restricted employee shares and others Balance on January 1, 2019 $ (1,852,952) (5,606,436) The Company Subsidiaries Associates Balance on December 31, 2019 Balance on January 1, 2018 $ $ The Company Subsidiaries Associates (1,620,812) 4,936,223 (52,530) (268,686) 252,170 111,280 (3,794,980) (306,763) (3,477,376) (5,847,823) 1,853,763 (67,150) (34,596) 401,300 (162,189) (125,317) Balance on December 31, 2018 $ (1,852,952) (5,606,436) - - - - - - (w) Share-based payment (i) The Company – employee restricted shares (1,706) (1,706) (4,103,449) (79,856) (9,405,055) 79,856 1,899,023 334,150 (287,506) (7,459,388) At the meeting held on June 20, 2014, the Company’ s Shareholders’ Meeting adopted a resolution to issue 100,000 thousand new shares of employee restricted shares with no consideration to those full time employees who meet certain requirements. The first issuance of 50,000 thousand shares had been approved by the FSC on October 30, 2014. Moreover, the Company’s Board of Directors resolved to issue 49,980 thousand shares on January 22, 2015, and 49,360 thousand shares had actually been issued, in which the effective date of the share issuance was on February 25, 2015. 40%, 30% and 30% of the aforementioned restricted shares are vested, respectively, when the employees continue to provide service for at least 2 year, 3 years and 4 years from the registration and effective date and in the meantime, meet the performance requirement. After the issuance, the restricted shares are kept by a trust, which is appointed by the Company, before they are vested. These restricted shares shall not be sold, pledged, transferred, gifted or by any other means of disposal to third parties during the custody period. The voting rights of these shares are executed by the custodian, and the custodian shall act based on law and regulations. If the shares remain unvested after the vesting period, the Company will purchase all the unvested shares without consideration and cancel the shares thereafter. Restricted shares could receive cash and stock dividends. The aforementioned cash and stock dividends are not considered as restricted. The information of the Company’s restricted shares (in thousands) is as follows: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Outstanding shares on January 1 Vested during the period Canceled during the period Outstanding shares on December 31 70 2018 23,571 (11,526) (12,045) - For the year ended December 31, 2018, due to the failure in meeting the vested requirements of the employee restricted shares, the Group reversed compensation cost amounted to $156,219 and capital surplus － employee restricted shares amounted to $318,209. Besides, due to meet the vested requirements of the employee restricted shares, the Group recognized capital surplus － additional paid-in capital amounted to $155,601. (ii) Arcadyan – employee restricted shares At the meeting held on June 21, 2018, the Arcadyan’ s Board of Directors decided to issue 4,500,000 shares of employee restricted shares to Arcadyan’ s full-time employees who meet certain requirements. The restricted shares have been registered with, and approved by, the Securities and Futures Bureau of FSC. The Board of Directors decided to issue all the restricted shares on November 6, 2018, which is also the effective date of the share issuance. 3,500,000 shares of the aforementioned restricted shares are issued without consideration. 30%, 30% and 40% of the 3,500,000 restricted shares are vested when the employees continue to provide service for at least 2 year, 3 years and 4 years, respectively, from the registration and the effective date, and at the same time, meet the performance requirement. In addition, when earnings per share in two consecutive and complete fiscal years from the registration and effective date are no less than NT$4, and at the same time, the employees with the restricted shares meet the performance requirement, the other 1,000,000 shares of the restricted shares are vested 100% at the date the shareholders approved the financial statements for the second fiscal year. If the earnings per share in two consecutive and complete fiscal years from the registration and effective date are between NT$3 to NT$4, and at the same time, the employees with the restricted shares meet the performance requirement, the restricted shares are vested 75% at the date the shareholders approved the financial statements for the second fiscal year. If the earnings per share in two consecutive and complete fiscal years from the registration and effective date are less than NT$3, the employees with restricted shares, whether or not they meet the performance requirement, no restricted shares are vested at the date the shareholders approved the financial statements for the second fiscal year. The earnings per share mentioned above are calculated based on the profit approved by the shareholders and the weighted average number of ordinary shares outstanding at the date of the restricted shares have been approved by the authority. After the issuance, the restricted shares are kept by a trust, which is appointed by Arcadyan, before they are vested. These restricted shares shall not be sold, transferred, pledged, gifted, or disposed by any other means, to third parties during the custody period. The voting rights of these shares are executed by the custodian, and the custodian shall act based on the law and regulations. If the shares remain unvested after the vesting period, Arcadyan will redeem all the unvested shares without consideration and cancel the shares thereafter. Restricted shares could be received in cash and stock dividends, or could be used to participate in cash injection. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 71 The aforementioned new shares are not considered as restricted shares. The information of Arcadyan’s restricted shares is as follows: Outstanding shares on January 1 Granted during the period Canceled during the period Outstanding shares on December 31 Unit: in thousands of shares 2019 - 4,500 (84) 4,416 2018 - - 4,500 4,500 As of December 31, 2019 and 2018, the unearned employee benefit was $119,897 and $219,616, respectively. The compensation cost related to the restricted shares amounted to $99,719 and $33,240, respectively, for the years ended December 31, 2019 and 2018. (iii) Arcadyan － cash injection reserved for employees Arcadyan’ s Board of Directors resolved to implement cash injection on April 9, 2019, of which 15,000 thousand shares were reserved for employees. As of December 31, 2019, the relevant information was as follows: Grant date Number of shares granted (in thousands) Recipients Vested condition 2019.10.16 15,000 (Note 1) Vest immediately (Note 1) Arcadyan’s full-time employees who meet certain requirements. The compensation cost, recorded as operating expense and cost of sales related to the cash injection reserved for employees, amounted to $27,000 in 2019. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 72 (iv) TTI – employee stock options The information about share-based payment of TTI in 2019 and 2018 was as follows: Grant date Granted shares (in thousand) Contract period Recipients Employee stock options 2015.10.29 1,000 7 years Employees of TTI Vested condition Please refer to the issuance terms of the stock options as follows The issuance terms of the stock options are as follows: 1) 2) Exercise price: NT$13.5 per share. Exercisable duration: The employees who received stock options that exceed two years and meet the performance requirements can exercise a specific percentage in each period as below. The exercisable duration of the options is seven years. No transfer is allowed except for inheritance. Exercisable 40 ％ 30 ％ Period and performance requirements to exercise options The share purchase right is effectively vested after the satisfaction of 2 conditions: (1) Years of service must exceed 2 years after the issuance of the right. (2) Upon vesting, the average earnings per share of TTI for the past 2 years must exceed NT$3. If the criteria for the said earnings per share are not fulfilled, then the measurement period will be extended to 3 years; under this extension, the average of the earnings per share of any 2 years within the 3 year period must exceed NT$3. The share purchase right is effectively vested after the satisfaction of 2 conditions: (1) Years of service must exceed 3 years after the issuance of the right. (2) Upon vesting, the performance requirements need to be met, otherwise, the earnings per share of TTI for the following year must exceed NT$3. If the criteria for the said earnings per share are not fulfilled, then the measurement period will be extended to another 1 year; the earnings per share must exceed NT$3 during the extension period. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 73 Exercisable 30 ％ Period and performance requirements to exercise options The share purchase right is effectively vested after the satisfaction of 2 conditions: (1) Years of service must exceed 4 years after the issuance of the right. (2) Upon vesting, the performance requirements need to be met, otherwise, the earnings per share of TTI for the following year must exceed NT$3. If the criteria for the said earnings per share are not fulfilled, then the measurement period will be extended to another 1 year; the earnings per share must exceed NT$3 during the extension period. The total measurement periods mentioned above may not exceed 6 years. The earnings per share mentioned above are based on the financial statements that had been audited and certified by a certified public accountant. 3) 4) Exercise method: TTI would issue new shares as the options are exercised. Exercise procedure: In accordance with TTI’ s issuance and exercise rules. After receiving the payment for share options, the entitlement certification of share options exercised is registered as ordinary shares. The information on total options issued was as follows: 2019 2018 Weighted- average exercise price (NT dollars) Shares (in thousands) Weighted- average exercise price (NT dollars) Shares (in thousands) 13.5 13.5 - - 600 (300) 300 - 13.5 13.5 13.5 13.5 1,000 (400) 600 - Outstanding shares on January 1 Canceled during the period Outstanding shares on December 31 Exercisable shares on December 31 The exercise price range of TTI’ s outstanding employee stock options and weighted- average remaining contractual life of the outstanding options are as follows: Exercise price range Weighted average remaining contract period December 31, 2019 December 31, 2018 13.5 2.83 13.5 3.83 The reverse related to the share-based payment amounted to $1,326 and $496 for the (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 74 years ended December 31, 2019 and 2018, respectively. (v) CBN－employee stock options At the meeting held on May 30, 2012, May 26, 2014 and May 17, 2016, CBN’ s Board of Directors resolved to issue 1,000,000, 800,000 and 1,500,000 units of employee stock options, respectively, with an exercisable right of one share of CBN’ s ordinary shares per unit. The information on total options issued was as follows: 1) The first employee stock option plan The employee stock options have been fully exercised in 2017. 2) The second employee stock option plan 2019 2018 Outstanding shares on January 1 Expired during the period Exercised during the period Outstanding shares on December 31 Exercisable shares on December 31 Weighted- average exercise price (NT dollars) 10 Shares 8,910 $ Weighted- average exercise price (NT dollars) 10 Shares 283,767 $ - (8,910) - - - - - (2,565) 10 (272,292) 8,910 8,910 10 10 10 10 As of December 31, 2018, the weighted-average remaining contractual life of the outstanding options was 2.67 years. The employee stock options above have been fully exercised in 2019. 3) The third employee stock option plan 2019 2018 Outstanding shares on January 1 Expired during the period Exercised during the period Outstanding shares on December 31 Exercisable shares on December 31 Weighted- average exercise price (NT dollars) 10 Shares 153,600 $ Weighted- average exercise price (NT dollars) 10 Shares 234,000 $ (7,500) (58,300) 87,800 87,800 10 10 10 10 - (80,400) 153,600 153,600 - 10 10 10 As of December 31, 2019 and 2018, the weighted-average remaining contractual life of the outstanding options was 1.67 and 2.67 years, respectively. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 75 The issuance terms of the share options are as follows. 1) 2) Exercise price: NT$10 per share. Exercisable duration: a) The first employee stock options plan: The employees who received share options being granted over two years can exercise a specific percentage in each period as below. The exercisable duration of the options is seven years. No transfer is allowed except for inheritance. After the expiration of the exercisable duration, the unexercised options will be canceled by CBN and not be re-issued anymore. Period to exercise options 2 years after options received 3 years after options received 4 years after options received Exercisable percentage (cumulative) 40 ％ 70 ％ 100 ％ b) The second employee stock option plan: The employees who received share options being granted over two years and are still employed by CBN and meet requirements can exercise a specific percentage in each period as stated below. The exercisable duration of the options is seven years. No transfer is allowed except for inheritance. After the expiration of the exercisable duration, the unexercised options will be canceled by CBN and not re- issued anymore. Period to exercise options 2 years after options received 3 years after options received 4 years after options received Exercisable percentage (cumulative) 40 ％ 70 ％ 100 ％ c) The third employee stock option plan: The employees who received share options being granted over five months and are still employed by CBN and meet requirements can exercise a specific percentage in each period as stated below. The exercisable duration of the options is five years. No transfer is allowed except for inheritance. After the expiration of the exercisable duration, the unexercised options will be canceled by CBN and not re- issued anymore. Period to exercise options 5 months after options received Exercisable percentage (cumulative) 100 ％ d) e) Exercise method: CBN would issue new shares as the options are exercised. Exercise procedure: In accordance with CBN’s issuance and exercise rules, after receiving the consideration of share options, the entitlement certification of share (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 76 options exercised is registered as ordinary shares once a quarter. The compensation cost for the years ended December 31, 2019 and 2018 were $(112) and $657, respectively. CBN adopted the Black-Scholes model to estimate the fair value on the grant date, and the assumptions are summarized as follows: A. The first employee stock option plan: Original exercise price (NT dollars) Current price (NT dollars) Expected dividend yield rate Expected volatility Risk-free interest rate Expected life of the option 10 25 0％ 38.25~38.64％ 0.91~1.02％ 4.5~5.5 years Weighted average fair value (NT dollars per share) 16.10~16.49 B. The second employee stock option plan: Original exercise price (NT dollars) Current price (NT dollars) Expected dividend yield rate Expected volatility Risk-free interest rate Expected life of the option 10 37.02 0％ 31.07~32.77％ 1.17~1.33％ 4.5~5.5 years Weighted average fair value (NT dollars per share) 27.62~27.92 C. The third employee stock option plan: Original exercise price (NT dollars) Current price (NT dollars) Expected dividend yield rate Expected volatility Risk-free interest rate Expected life of the option Weighted average fair value (NT dollars per share) 10 24.62 0％ 35.87％ 0.56％ 2.55 years 14.96 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 77 (vi) CBN－Cash injection reserved for employees CBN's Board of Directors resolved to implement cash injection on June 27, 2018, of which 917 thousand shares were reserved for employees. As of December 31, 2019, the relevant information was as follows: Grant date Number of shares granted (in thousands) Recipients Vested condition 2018.11.14 917 (Note 1) Vest immediately (Note 1) Those CBN’s full-time employees who meet certain requirements. The compensation cost recorded as operating expense related to the cash injection reserved for employees amounted to $1,053 in 2018. (x) Earnings per share The Group’s basic and diluted earnings per share are calculated as follows: Basic earnings per share: Profit attributable to ordinary shareholders of the Company Weighted-average number of outstanding ordinary shares (in thousands) 6,955,899 4,357,130 8,913,365 4,356,448 2019 2018 Diluted earnings per share: Profit attributable to ordinary shareholders of the Company (after adjustment of potential diluted ordinary shares) Weighted-average number of outstanding ordinary shares of potential diluted ordinary shares 6,955,899 8,913,365 Weighted-average number of outstanding ordinary shares (in thousands) 4,357,130 4,356,448 Effect of potential diluted common stock Employee compensation (in thousands) Employee restricted shares (in thousands) Weighted-average number of ordinary shares (after adjustment of potential diluted ordinary shares) (in thousands) 49,860 - 59,637 682 4,406,990 4,416,767 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (y) Revenue from contracts with customers (i) Disaggregation of revenue Primary geographical markets: United states China Netherlands United Kingdom India Germany Others Major products: 5C related electronics products Others Primary geographical markets: United states China Netherlands United Kingdom Germany Japan India Others Major products: 5C related electronics products Others 2019 Strategically Integrated Product Segment 2,539,578 456,189 977,438 512,219 3,853,215 9,532,350 15,024,418 32,895,407 32,478,954 416,453 32,895,407 2018 Strategically Integrated Product Segment 1,701,587 437,494 1,242,067 2,181,037 7,269,974 1,703,425 504,966 11,559,255 26,599,805 26,112,499 487,306 26,599,805 IT Product Segment 376,459,888 103,116,226 97,981,478 43,967,861 40,566,291 29,552,389 255,902,806 947,546,939 945,416,514 2,130,425 947,546,939 IT Product Segment 362,250,918 120,591,947 109,628,794 43,595,382 30,999,459 29,805,482 28,181,426 216,053,198 941,106,606 939,105,238 2,001,368 941,106,606 $ $ $ $ $ $ $ $ 78 Total 378,999,466 103,572,415 98,958,916 44,480,080 44,419,506 39,084,739 270,927,224 980,442,346 977,895,468 2,546,878 980,442,346 Total 363,952,505 121,029,441 110,870,861 45,776,419 38,269,433 31,508,907 28,686,392 227,612,453 967,706,411 965,217,737 2,488,674 967,706,411 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 79 (ii) Contract balances Notes and accounts receivable (including related parties) Less: allowance for impairment Total Contract liabilities $ $ $ December 31, 2019 December 31, 2018 January 1, 2018 195,665,380 207,794,674 181,487,633 (3,928,716) 191,736,664 956,455 (4,020,603) 203,774,071 1,476,304 (4,021,894) 177,465,739 1,665,321 For the details on accounts receivable and allowance for impairment, please refer to note (6)(f). The amount of revenue recognized for the years ended December 31, 2019 and 2018 that were included in the balance of contract liability at the beginning of the period was $1,419,929 and $1,633,141, respectively. The major change in the balance of contract assets and contract liabilities is the difference between the time frame in the performance obligation to be satisfied and the payment to be received. (z) Employees’ and directors’ compensations Based on the Company’ s articles of incorporation, if there is any profit in a fiscal year, the Company’s pre-tax profits in such fiscal year, prior to deduction of compensations to employees and directors, shall be distributed to employees as compensations in an amount of not less than two percent (2%) thereof and to directors as compensations in an amount of not more than two percent (2%) of such profits. In the event that the Company has accumulated losses, the Company shall reserve an amount to offset accumulated losses. The compensations to employees as mentioned above may be distributed in the form of stock or cash. Employees entitled to receive the said stock or cash may include the employees of the Company’s subordinate companies pursuant to the Company Act (Employees entitled to receive the said stock or cash may include the employees of the Company’ s subordinate companies who meet certain conditions after the Company’ s articles of incorporation amended on June 21, 2019). The Company accrued and recognized its employee compensation of $731,322 and $930,857, and directors’ compensation of $38,672 and $49,223 for the years ended December 31, 2019 and 2018, respectively. The estimated amounts mentioned above are based on the net profit before tax without the compensations to employees and directors of each respective ending period, multiplied by the percentage of the compensation to employees and directors, which was approved by the management. The estimations are recorded under operating expenses and cost. The differences between the amounts estimated and recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the distribution year. If the Board of Directors approve to distribute employee compensation in the form of stock, the number of the shares of the employee compensation is based on the closing price of the day before the Board of Directors’ meeting, the related information can be accessed through the Market Observation Post System website. There is no differences between the amount approved in the Board of Directors’ meeting and those recognized in the financial statements in 2019 and 2018. There is no differences between the amount estimated and recognized in the financial statements in (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 80 2018. The related information can be accessed through the Market observation Post System website. (aa) Non-operating income and expenses (i) Other income The other income for the years ended December 31, 2019 and 2018, were as follows: Interest income Financial assets at amortized cost Bank deposits Others Dividend revenue Overdue payable reversed as other income Other revenue (ii) Other gains and losses 2019 2018 $ $ 2,992 1,656,317 5,494 127,349 1,478 357,727 2,151,357 9,992 1,448,053 5,613 279,044 41,116 349,046 2,132,864 The other gains and losses for the years ended December 31, 2019 and 2018, were as follows: Gains on disposal of investments Gains (losses) on financial assets and liabilities at fair $ value through profit or loss, net Foreign currency exchange losses, net Gains (losses) on disposal of property, plant, and equipment, net Others $ 2019 2018 66,837 2,513,207 408,943 (682,207) 40,245 49 (166,133) 640,835 (873,855) (23,229) - 2,256,958 (ab) Reclassification of the components of other comprehensive income The details of reclassification of the components of other comprehensive income for the years ended December 31, 2019 and 2018, were as follows: Cash flow hedge: Gains (losses) from current period Less: reclassification of gains and losses included in profit or loss Profit (loss) recognized in other comprehensive income $ $ (26,649) (21,778) (4,871) 3,655 3,655 - 2019 2018 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 81 (ac) Financial instruments (i) Credit risk 1) The carrying amount of financial assets represents the maximum amount exposed to credit risk. The Group’ s customers are mainly from the high-tech industry. The Group does not concentrate on a specific customer and the sales regions are widely spread, thus there should be no concern on the significant concentrations of accounts receivable credit risk. And in order to mitigate accounts receivable credit risk, the Group constantly assesses the financial status of the customers. 2) Receivables and debt securities Information of exposure to credit risk of notes and accounts receivable, please refer to note (6)(f). Other financial assets at amortized cost include other receivables, investments in corporate bonds and time deposits. These financial assets are considered to have low risk, and thus, the impairment provision recognized during the period was limited to 12 months expected losses. (Regarding how the financial instruments are considered to have low credit risk, please refer to note (4)(g)). Due to the counter parties and the performing parties of the Group’s time deposits are financial institutions with investment grade and above, these time deposits are considered to have low credit risk. The movements in the allowance for the year ended December 31, 2019 and 2018 were as follows: Balance on January 1, 2019 Impairment losses reversed Balance on December 31, 2019 Balance on January 1, 2018 Impairment losses reversed The write-off amount which was not be recovered in the period Effect of changes in exchange rates Balance on December 31, 2018 Other receivables 3,577 (2,565) 1,012 82,014 (16,364) (62,071) (2) 3,577 $ $ $ $ (ii) Liquidity risk The following are the contractual maturities of financial liabilities. In addition to excluding estimated interest payments. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 82 December 31, 2019 Non-derivative financial liabilities Secured borrowings Unsecured borrowings Lease liabilities－current and non-current Notes and accounts payable Other payables Bonds payable Derivative financial liabilities Carrying Amount Contractual cash flows Within 1 year 1 ~ 2 years Over 2 years $ 98,438 86,601,844 (98,438) (86,601,844) (39,375) (79,101,844) (39,375) (1,925,000) (19,688) (5,575,000) 2,267,088 144,445,777 15,414,717 966,492 (2,369,246) (144,445,777) (15,414,717) (1,000,000) (754,412) (144,445,777) (15,414,717) - Forward exchange contracts: 5,854 Outflow Inflow Forward exchange contracts used (736,484) 732,377 (736,484) 732,377 for hedging: Outflow Inflow 4,932 (1,423,089) 1,433,921 (249,923,297) (1,423,089) 1,433,921 (239,749,400) $ 249,805,142 December 31, 2018 Non-derivative financial liabilities Secured borrowings Unsecured borrowings Notes and accounts payable Other payables Derivative financial liabilities $ 137,813 100,746,447 154,276,713 14,790,757 (137,813) (100,746,447) (154,276,713) (14,790,757) (39,375) (89,846,447) (154,276,713) (14,790,757) Forward exchange contracts: 26,913 Outflow Inflow (5,016,249) 4,978,708 (269,989,271) (5,016,249) 4,978,708 (258,990,833) $ 269,978,643 (416,167) (1,198,667) - - - - - - - - - (1,000,000) - - - - (2,380,542) (7,793,355) (39,375) (8,600,000) (59,063) (2,300,000) - - - - - - - - (8,639,375) (2,359,063) The Group is not expecting that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. (iii) Currency risk 1) Exposure to foreign currency risk The Group’s significant exposure to foreign currency risk was as follows: Financial assets Monetary items USD to TWD USD to CNY EUR to TWD CNY to USD Non-monetary items THB to TWD December 31, 2019 Exchange rate Foreign currency TWD Foreign currency December 31, 2018 Exchange rate TWD $ 7,070,270 10,525 88,303 2,577,002 29.98 211,966,695 6.9667 315,540 33.59 2,966,098 0.1435 11,086,598 7,189,719 3,986 95,397 1,726,768 30.715 220,832,219 6.8672 122,430 35.2 3,357,974 0.1456 7,722,286 446,859 1.0028 448,110 423,027 0.946 400,184 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 83 Financial liabilities Monetary items USD to TWD USD to CNY USD to BRL EUR to TWD CNY to USD 2) Sensitivity analysis December 31, 2019 Exchange rate Foreign currency TWD Foreign currency December 31, 2018 Exchange rate TWD 6,441,501 5,424 142,432 42,554 3,182,008 29.98 193,116,200 6.9667 162,612 3.8322 4,270,111 33.59 1,429,389 0.1435 13,689,412 7,145,553 5,451 140,772 31,186 2,778,232 30.715 219,475,660 6.8672 167,427 3.872 4,323,812 35.2 1,097,747 0.1456 12,424,542 The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts receivable, other receivables, loans and borrowings, accounts payable, and other payables that are denominated in foreign currency. Assuming all other variable factors remain constant, a strengthening (weakening) 5% of appreciation (depreciation) of the each major foreign currency against Group entities’ functional currency as of December 31, 2019 and 2018, would have increased (decreased) the net profit before tax as follows. The analysis is performed on the same basis for both periods. December 31, 2019 December 31, 2018 USD (against the TWD) Strengthening 5% Weakening 5% USD (against the CNY) Strengthening 5% Weakening 5% USD (against the BRL) Strengthening 5% Weakening 5% EUR (against the TWD) Strengthening 5% Weakening 5% CNY (against the USD) Strengthening 5% Weakening 5% $ 942,525 (942,525) 7,646 (7,646) (213,506) 213,506 76,835 (76,835) (130,141) 130,141 67,828 (67,828) (2,250) 2,250 (216,191) 216,191 113,011 (113,011) (235,113) 235,113 3) Exchange gains and losses of monetary items As the Group deals with diverse foreign currencies, gains or losses on foreign exchange were summarized as a single amount. For the years ended December 31, 2019 and 2018, (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 84 the foreign exchange losses, including both realized and unrealized, amounted to $682,207 and $873,855, respectively. (iv) Interest rate analysis The interest risk exposure from financial assets and liabilities has been disclosed in the note of liquidity risk management. The following sensitivity analysis is based on the risk exposure to interest rate on the derivative and non-derivative financial instruments on the reporting date. Regarding the assets and liabilities with variable interest rates, the analysis is on the basis of the assumption that the amount of assets and liabilities outstanding at the reporting date were outstanding throughout the year. The rate of change is expressed as the interest rate increase or decrease by 0.25%, when reporting to management internally, which also represents the assessment of the Group’s management for the reasonably possible interval of interest rate change. Assuming all other variable factors remaining constant, if the interest rate had increased or decreased by 0.25%, the impact to the net profit before tax would be as follows for the years ended December 31, 2019 and 2018, which would be mainly resulted from the bank savings and borrowings with variable interest rates. Interest increased by 0.25% Interest decreased by 0.25% (v) Fair value information 2019 2018 $ (13,164) 13,164 (10,551) 10,551 1) The categories and fair value of financial instruments The Group’ s financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income were measured at fair value on a recurring basis. The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It shall not include fair value information of the financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value and investments in equity instruments which do not have any quoted price in an active market in which the fair value cannot be reasonably measured. December 31, 2019 Fair Value Book value Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss–current and non-current Derivative financial assets for non-hedging $ Non-derivative financial assets mandatorily measured at fair value through profit or loss Subtotal Financial assets used for hedging 15,921 1,445,817 1,461,738 61 - - - 15,921 - 15,921 1,330,458 115,359 1,445,817 61 - 61 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 85 December 31, 2019 Fair Value Book value Level 1 Level 2 Level 3 Total Financial assets at fair value through other comprehensive income Stocks listed on domestic markets Stocks listed on foreign markets Stocks unlisted on domestic markets Stocks unlisted on foreign markets Accounts receivable Subtotal Financial assets measured at amortized cost Cash and cash equivalents Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Refundable deposits Subtotal Total Financial liabilities at fair value through profit or loss Derivative financial liabilities for non- hedging Financial liabilities used for hedging Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Bonds payable Lease liabilities－current and non-current Long-term borrowings current portion Long-term borrowings Deposits received Subtotal Total 2,055,890 2,055,890 448,110 448,110 - - - - - - - - - - - - - - - - - - - 2,246,932 177,121 28,007,745 32,935,798 66,559,397 163,684,407 44,512 2,006,113 335,897 232,630,326 $ 267,027,923 $ 5,854 4,932 60,951,844 142,940,869 1,504,908 15,414,717 966,492 2,267,088 18,189,375 7,559,063 188,815 249,983,171 $ 249,993,957 - - - - - - 2,055,890 448,110 2,246,932 2,246,932 177,121 177,121 28,007,745 5,854 4,932 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 28,007,745 5,854 4,932 - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 86 Financial assets at fair value through profit or loss–current and non-current Derivative financial assets for non-hedging $ Non-derivative financial assets mandatorily measured at fair value through profit or loss Subtotal Financial assets at fair value through other comprehensive income Stocks listed on domestic markets Stocks listed on foreign markets Stocks unlisted on domestic markets Stocks unlisted on foreign markets Accounts receivable Subtotal Financial assets measured at amortized cost Cash and cash equivalents Corporate bonds－current Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Refundable deposits Subtotal Total 1,990,100 51,363 23,020,497 28,192,792 70,296,545 350,000 180,695,468 58,106 1,665,249 401,753 253,467,121 $ 286,340,437 Financial liabilities at fair value through profit or loss Derivative financial liabilities for non- hedging $ 26,913 Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Long-term borrowings current portion Long-term borrowings Deposits received Subtotal 72,350,197 152,300,093 1,976,620 14,790,757 17,535,625 10,998,438 209,354 270,161,084 December 31, 2018 Fair Value Book value Level 1 Level 2 Level 3 Total 12,213 - 12,213 - 12,213 4,668,311 4,680,524 633,859 3,965,062 69,390 4,668,311 2,730,648 2,730,648 400,184 400,184 - - - - - - - - - - - - - - - - - - - - - - - 2,730,648 400,184 1,990,100 1,990,100 51,363 51,363 23,020,497 - - - - - - 26,913 - - - - - - - - - - - - - - - - - - - - - - 23,020,497 - - - - - - 26,913 - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 87 Total Book value $ 270,187,997 December 31, 2018 Fair Value Level 1 Level 2 Level 3 Total 2) Fair value valuation technique of financial instruments not measured at fair value The Group estimates financial instruments that not measured at fair value by methods and assumption as follows: a) Financial liabilities measured at amortized cost If there is quoted price generated by transactions, the recent transaction price and quoted price data is used as the basis for fair value measurement. However, if no quoted prices are available, the discounted cash flows are used to estimate fair values. 3) Fair value valuation technique of financial instruments measured at fair value a) Non-derivative financial instruments Financial instruments trade in active markets is based on quoted market prices. The quoted price of a financial instrument obtained from main exchanges and on-the- run bonds from Taipei Exchange can be used as a base to determine the fair value of the listed companies’ equity instrument and debt instrument of the quoted price in an active market. If a quoted price of a financial instrument can be obtained in time and often from exchanges, brokers, underwriters, industrial union, pricing institute, or authorities and such price can reflect those actual trading and frequently happen in the market, then the financial instrument is considered to have a quoted price in an active market. If a financial instrument is not in accord with the definition mentioned above, then it is considered to be without a quoted price in an active market. In general, market with low trading volume or high bid-ask spreads is an indication of a non-active market. The fair value of the listed company is determined by reference to the market quotation. The measurements on fair value of the financial instruments without an active market are determined using the valuation technique or the quoted market price of its competitors. Fair value measured using the valuation technique can be extrapolated from similar financial instruments, discounted cash flow method, or other valuation techniques which include the model used in calculating the observable market data at the consolidated balance sheet date. The measurement of fair value of a non-active market financial instruments held by the Group which do not have quoted market prices are based on the comparable market approach, with the use of key assumptions of price-book ratio multiple or earnings multiple of comparable listed companies as its basic measurement. These assumptions have been adjusted for the effect of discount without the marketability (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 88 of the equity securities. b) Derivative financial instruments Measurement of the fair value of derivative instruments is based on the valuation techniques that are generally accepted by the market participants. For instance, discount method or option pricing models. Fair value of forward currency exchange is usually determined by using the forward currency rate. 4) Transfer from one level to another investment The Group he ld an in equity of Crystalvue Medical Corporation (“ Crystalvue” ), with a fair value $18,736 and $11,287, which were classified as fair value through other comprehensive income as of December 31, 2019 and 2018, respectively. The fair value of the investment was categorized as level 3 as of December 31, 2018, because the shares were not listed on the exchange market and there were no recent observable arm’s length transactions in the shares. In December 2019, Crystalvue listed its equity shares in the exchange market, wherein they are actively traded. Currently, the equity shares have a published price quotation in an active market; therefore, the category was transferred from level 3 to level 1 as of December 31, 2019. There was no transfer from one level to another in 2018. 5) Changes in level 3 The change in level 3 at fair value in the years ended December 31, 2019 and 2018, were as follow: Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Total Balance on January 1, 2019 $ 69,390 2,041,463 2,110,853 Total gains and losses recognized: In profit or loss In other comprehensive income Purchased Disposal Proceeds of capital reduction of investment Transferred out from Level 3 Effect of changes in exchange rates Balance on December 31, 2019 Balance on January 1, 2018 $ $ Total gains and losses recognized: In profit or loss In other comprehensive income - - - - - - (9,627) - 55,596 115,359 48,709 210,191 208,665 (791) (10,120) (20,498) (4,857) 2,424,053 2,427,182 (3,064) - (475,442) 107,877 Purchased 23,745 (9,627) 210,191 264,261 (791) (10,120) (20,498) (4,857) 2,539,412 2,475,891 (3,064) (475,442) 131,622 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 89 Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Total Proceeds of capital reduction of investment Disposal - - (15,082) (3,072) (15,082) (3,072) Balance on December 31, 2018 $ 69,390 2,041,463 2,110,853 For the years ended December 31, 2019 and 2018, total gains and losses that were included in “other gains and losses, net” and “other comprehensive income, before tax, equity instruments at fair value through other comprehensive income” were as follows: Total gains and losses recognized: In profit or loss before tax (as “other gains and losses, net”) In other comprehensive income (as “other comprehensive income, before tax, equity instruments at fair value through other comprehensive income”) $ $ 2019 2018 (9,627) (3,064) 210,191 (475,442) 6) The quantified information for significant unobservable inputs (level 3) used in fair value measurement The Group’ s financial instruments that use level 3 input to measure fair values include financial assets at fair value through other comprehensive income－equity instruments, financial assets at fair value through profit or loss－equity securities investment. Most of fair value measurements of the Group which are categorized as equity investment into level 3 have several significant unobservable inputs. Significant unobservable inputs of equity investments without quoted price are independent of each other. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 90 The quantified information for significant unobservable inputs was as follows: Item Financial assets at fair value through other comprehensive income－equity investment without an active market Valuation technique Comparable market approach (Price-Book ratio method and Earnings multiplier method) Financial assets at fair value through other comprehensive income Financial assets at fair value through profit or loss – investment in private equity fund Net asset value method Net asset value method Significant unobservable inputs Price-Book ratio multiples (1.4~5.64 and 1.33~5.86 respectively, on December 31, 2019 and 2018) Multiples of earnings (3.12~16.6 and 2.32~14.97 respectively, on December 31, 2019 and 2018) Lack-of-Marketability discount rate (35%~82% and 40%~82% respectively, on December 31, 2019 and 2018) Net asset value Inter-relationships between significant unobservable inputs and fair value The higher the multiple is, the higher the fair value will be. The higher the multiple is, the higher the fair value will be. The higher the Lack- of-Marketability discount rate is, the lower the fair value will be. Inapplicable Net asset value Inapplicable 7) Sensitivity analysis for fair value of financial instruments using level 3 inputs The Group’ s fair value measurement on financial instruments is reasonable. However, the measurement would be different if different valuation models or valuation parameters are used. For financial instruments using level 3 inputs, if the valuation parameters changed, the impact on other comprehensive income or loss are as follows: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 91 Input Price-Book ratio multiples December 31, 2019 Financial assets at fair value through other comprehensive income December 31, 2018 Financial assets at fair value through other comprehensive income Multiples of earnings Lack-of-Marketability discount rate Price-Book ratio multiples Multiples of earnings Lack-of-Marketability discount rate Move up or down Other comprehensive income Unfavorable change Favorable change 5% 5% 5% 5% 5% 5% $ $ $ $ $ $ 28,209 27,261 21,481 12,886 19,524 12,938 28,137 28,119 28,210 2,093 27,202 2,053 The favorable and unfavorable changes reflect the movement of the fair value, in which the fair value is calculated by using the different unobservable inputs in the valuation technique. The table above shows the effects of one unobservable input, without considering the inter-relationships with another unobservable input for financial instrument, if there are one or more unobservable inputs. 8) Offsetting financial assets and financial liabilities The Group has financial instruments transactions applicable to the International Financial Reporting Standards NO. 32 Sections 42 endorsed by the FSC which requested for offsetting. Financial assets and liabilities relating to those transactions are recognized in the net amount of the balance sheets. The following tables present the aforesaid offsetting financial assets and financial liabilities. Unit: thousands of New Taiwan Dollars / thousands of US Dollars December 31, 2019 Financial assets that are offset which have an exercisable master netting arrangement or similar agreement Gross amounts of recognized financial assets (a) 104,757,401 Gross amounts of financial liabilities offset in the balance sheet (b) 104,757,401 Net amount of financial assets presented in the balance sheet (c)=(a)-(b) - Amounts not offset in the balance sheet (d) Financial instruments - Cash collateral received - Net amount (e)=(c)-(d) - Other current assets $ (USD 3,494,243 ) (USD 3,494,243 ) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 92 December 31, 2019 Financial liabilities that are offset which have an exercisable master netting arrangement or similar agreement Gross amounts of recognized financial liabilities (a) 104,757,401 Gross amounts of financial assets offset in the balance sheet (b) 104,757,401 (USD 3,494,243 ) (USD 3,494,243 ) Net amount of financial liabilities presented in the balance sheet (c)=(a)-(b) - Amounts not offset in the balance sheet (d) Financial instruments - Cash collateral received - Net amount (e)=(c)-(d) - Short-term borrowings $ December 31, 2018 Financial assets that are offset which have an exercisable master netting arrangement or similar agreement Gross amounts of recognized financial assets (a) Gross amounts of financial liabilities offset in the balance sheet (b) Other current assets $ 306,259 306,259 (USD 9,971 ) (USD 9,971 ) Net amount of financial assets presented in the balance sheet (c)=(a)-(b) - Amounts not offset in the balance sheet (d) Financial instruments - Cash collateral received - Net amount (e)=(c)-(d) - December 31, 2018 Financial liabilities that are offset which have an exercisable master netting arrangement or similar agreement Gross amounts of recognized financial liabilities (a) Gross amounts of financial assets offset in the balance sheet (b) Short-term borrowings $ 306,259 306,259 (USD 9,971 ) (USD 9,971 ) Net amount of financial liabilities presented in the balance sheet (c)=(a)-(b) - Amounts not offset in the balance sheet (d) Financial instruments - Cash collateral received - Net amount (e)=(c)-(d) - (ad) Financial risk management (i) Overview The Group is exposed to the following risks arising from financial instruments: 1) Credit risk 2) Liquidity risk 3) Market risk In this note expressed the information on risk exposure and objectives, policies and procedures of risk measurement and management of the Group. For detailed information, please refer to the related notes of each risk. (ii)Structure of risk management The Group’ s finance management department provides business services for the overall internal department. It sets the objectives, policies and processes for managing the risk and the methods used to measure the risk arising from both the domestic and international financial (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 93 market operations. The Group minimizes the risk exposure through derivative financial instruments. The Board of Directors regulated the use of derivative financial instruments in accordance with the Group’ s policy about risks arising from financial instruments such as currency risk, interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investments of excess liquidity. The internal auditors of the Group continue with the review of the amount of the risk exposure in accordance with the Group’ s policies and the risk management policies and procedures. The Group has no transactions in financial instruments (including derivative financial instruments) for the purpose of speculation. (iii) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’ s receivables from customers and investment securities. 1) Accounts receivable and other receivables The Group has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’ s standard payment and delivery terms and conditions are offered. The Group’ s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, and these limits are reviewed periodically. 2) Investments The credit risks exposure in the bank deposits, investments with fixed income and other financial instruments are measured and monitored by the Group’ s finance department. the contractually obligated Since counterparties are banks, financial institutes and corporate organizations with good credits, there are no compliance issues, and therefore, no significant credit risk. transaction counterparties and the Group’ s 3) Guarantees Pursuant to the Group’s policies, it is only permissible to provide financial guarantees to subsidiaries and companies that the Group has business with. As of December 31, 2019 and 2018, the Group did not provide any guarantees to other companies besides its subsidiaries. (iv) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities which be settled by delivering cash or another financial asset. The Group manages and maintains sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Group’ s management supervises the banking facilities and ensures in compliance with the terms of the loan agreements. Please refer to notes (6)(n) and (6)(o) for unused credit lines of short-term and (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 94 long-term borrowings as of December 31, 2019 and 2018. (v) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices which will affect the Group’ s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. 1) Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currencies of the Group. The currencies used in these transactions are primarily denominated in TWD, USD, EUR and CNY. As for other monetary assets and liabilities denominated in other foreign currencies, when short-term imbalance takes place, the Group buys or sells foreign currencies at spot rate to ensure that the net exposure is kept on an acceptable level. 2) Interest rate risk The Group borrows funds on fixed and variable interest rates, which has a risk exposure to changes in fair value and cash flow. Therefore, the Group manages the interest rates risk by maintaining an adequate combination of fixed and variable interest rates. 3) Other price risk The Group is exposed to equity price risk arising from investments in listed equity securities. (ae) Capital management The policy of capital management made by the Board of Directors is to maintain a strong capital base so as to stabilize the confidence of the investors, creditors and the public market and to sustain future development of the business. Capital consists of ordinary shares, capital surplus, retained earnings and non-controlling interests. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders. The Group monitors the capital structure by way of periodical review the debt ratio. As of December 31, 2019 and 2018, the debt ratio was as follows: Total liabilities Total assets Debt ratio December 31, 2019 December 31, 2018 267,889,075 286,632,975 382,648,419 399,794,823 $ $ 70% 72% The Group could purchase its own shares in the public market in accordance with the corresponding rules and regulations. The timing of the purchases depends on market prices. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 95 As of December 31, 2019, there were no changes in the Group’s approach of capital management. (af) Investing and financing activities not affecting current cash flow The Group's investing and financing activities which did not affect the current cash flow in the year ended December 31, 2019 were acquisition of right-of-use assets by leasing, please refer to note (6)(m). There were no investing and financing activities which did not affect the current cash flow in the year ended December 31, 2018. Reconciliation of liabilities arising from financing activities were as follows: Short-term borrowings Proceeds from issuance of convertible bonds Long-term borrowings Lease liabilities January 1, 2019 $ 72,350,197 Cash flow (11,398,353) Other non-cash changes - December 31, 2019 60,951,844 - 1,007,240 (40,748) 966,492 28,534,063 (2,785,625) - 25,748,438 2,089,950 (832,815) 1,009,953 2,267,088 Guarantee deposits and others 238,324 (34,005) 41,719 246,038 Total liabilities from financing activities $ 103,212,534 (14,043,558) 1,010,924 90,179,900 Short-term borrowings Long-term borrowings January 1, 2018 $ 56,515,525 Cash flow 15,834,672 December 31, 2018 72,350,197 27,452,888 1,081,175 28,534,063 Guarantee deposits and others 180,207 58,117 238,324 Total liabilities from financing activities $ 84,148,620 16,973,964 101,122,584 (7) Related-party transactions: (a) Name and relationship with related parties The followings are the entities that have had transactions with the Group during the periods covered in the financial statement. Name of related party Relationship with the Group Compal Precision Module (Jiangsu) Co., Ltd. Changbao Electronic Technology (Chongqing) Co., An associate An associate Ltd. LCFC (Note 1) Avalue Technology Inc. (“Avalue”) Crownpo Technology Inc. (“Crownpo”) Allied Circuit Co., Ltd. (“Allied Circuit”) Kinpo Group Management Consultant Company (“Kinpo Group Management”) An associate An associate An associate An associate An associate (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 96 Name of related party LIZ Electronics (Kunshan) Co., Ltd. Compal Connector Manufacture Ltd. (“CCM”) AcBel Polytech Inc. (“AcBel”) and its subsidiaries Relationship with the Group An associate A joint venture company The same Chairman of the Board with the Company Note 1: In August 2018, the Group has sold all its shares of LCFC and no longer has significant influence over it. Therefore, LCFC is not a related-party of the Group from September 2018. (b) Transactions with key management personnel Key management personnel remunerations comprised: Short-term employee benefits Post-employment benefits Share-based payments 2019 671,762 8,225 30,276 710,263 $ $ 2018 660,609 7,984 (78,216) 590,377 There are no termination benefits and other long-term benefits. Please refer to note (6)(w) for explanations related to share-based payments. (c) Significant related-party transactions (i) Sale of goods to related parties The amounts of significant sales transactions between the Group and related parties were as follows: Associates Other related parties 2019 2018 $ $ 288,629 24 288,653 323,587 4,455 328,042 Sales prices for related parties were similar to those of the third-party customers. The collection period was 60~120 days for related parties. (ii) Purchase of goods from related parties The amounts of significant purchase transactions between the Group and related parties were as follows: Associates Other related parties Joint venture $ 2019 3,678,644 1,663,747 31,150 2018 4,010,999 1,365,892 95,900 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 97 Purchase prices and payment period from related parties were similar to those from third-party suppliers. The payment period was 60~165 days for related parties. $ 5,373,541 5,472,791 (iii) Receivables due from relate parties The receivables arising from the transactions mentioned above and others on behalf of related parties were as follows: Account Notes and accounts receivable Notes and accounts receivable Other receivables Other receivables (iv) Payables to related parties Related party categories December 31, 2019 December 31, 2018 Associates Other related parties Other related parties Joint venture $ $ 44,493 19 62 - 44,574 56,701 1,405 - 120 58,226 The payables arising from the transactions mentioned above and rendering of services from other related parties were as follows: Account Related party categories December 31, 2019 Notes and accounts payable Associates $ Notes and accounts payable Other related parties Notes and accounts payable Other payables Joint venture Associates 764,129 740,742 37 - December 31, 2018 1,245,574 705,761 25,285 1,019 $ 1,504,908 1,977,639 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 98 (8) Pledged assets: The carrying values of pledged assets were as follows: Pledged Assets Other current assets Subject December 31, 2019 December 31, 2018 Bail for court mandatory execution $ 41,090 41,090 Property, plant and Long-term borrowings (including current portion) equipment (note) 249,445 715,913 Other non-current assets Guarantee of post-release duty payment to the customs and guarantee of the customs 500 500 $ 291,035 757,503 Note:Part of long-term borrowings had been settled in 2015, and the assets on property－ land were no longer pledged as collaterals in 2019. (9) Commitments and contingencies: The details of commitments and contingencies were as follows: (a) On May 17, 2017, Qualcomm Inc. filed a lawsuit to the Southern District Court of California, USA against the Group for not paying the royalties of the patent license agreement. The Group has filed counterclaims against Qualcomm Inc. based on the antitrust law in the same court on July 19, 2017. The lawsuits was settled on April 16, 2019. The Group had compromised and both parties had agreed to drop the lawsuits. (b) In August 2019, Inventec Corporation filed a lawsuit to the Taiwan Taipei District Prosecutors Office against the Group concerning its former employees who joined the Group. This is deemed as an act of violation according to the Trade Secret Law and Copyright Law. The Group engaged lawyers to defend its right on this matter. Currently, the case is still in progress; therefore, the Group cannot make any reasonable estimation regarding the possible impact on its business operation. (c) The Group entered into various patent license agreements with third parties, and was required to make royalty payments of a predetermined amount periodically. (d) As of December 31, 2019 and 2018, the Group's signed commitments to purchase property, plant and equipment amounted to $548,202 and $187,872, respectively. (10) Losses due to major disasters: None (11) Subsequent events: None (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 99 (12) Other: The employee benefits, depreciation and amortization expenses by categorized function are summarized as follows: By function By item Employee benefits Operating costs 2019 Operating expenses Total Operating costs Salary Labor and health insurance Pension Others Depreciation Amortization 18,163,713 909,916 1,219,607 2,075,648 5,029,744 77,908 12,202,863 816,727 504,059 623,657 944,616 367,153 30,366,576 1,726,643 1,723,666 2,699,305 5,974,360 445,061 17,181,336 826,628 1,242,331 2,641,948 4,100,520 55,897 2018 Operating expenses 11,515,507 744,593 475,288 578,881 495,005 289,250 Total 28,696,843 1,571,221 1,717,619 3,220,829 4,595,525 345,147 (13) Other disclosures: (a) Information on significant transactions The following were the information on significant transactions required by the “ Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group for the year ended December 31, 2019: (i) Loans to other parties: Please refer to Table 1 (ii) Guarantees and endorsements for other parties: Please refer to Table 2 (iii) Securities held as of December 31, 2019 (excluding investment in subsidiaries, associates and joint ventures): Please refer to Table 3 (iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: Please refer to Table 4 (v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (vi) Disposals of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Please refer to Table 5 (viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Table 6 (ix) Trading in derivative instruments: Please refer to notes (6)(b) and (6)(d) (x) Business relationships and significant intercompany transactions: Please refer to Table 7 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 100 (b) Information on investees: Please refer to Table 8 (c) Information on investment in Mainland China: Please refer to Table 9 (14) Segment information: (a) General information The Group’ s information technology product segment is primarily engaged in the development, manufacture and sale of information technology products and mobile communication products. The strategy integrate product segment is primarily engaged in the research, development, manufacture and sale of networking products. (b) Reportable segments and operating segment information Accounting policies for the operating segments correspond to those stated in note 4. The profit and loss of the operating segment of the Group is measured by earnings before taxes and as the basis for performance measurement. The amount of the Group's reportable segments consistent with the one of the report that the operating decision maker used, and the Group does not allocate assets and liabilities to the reportable segments for the purpose of operating decisions to measure assets and liabilities of segments. The operating segment information was as follows: For the year ended December 31, 2019 Information technology product segment Strategy integrated product segment Adjustment and elimination Total Revenue Revenue from external customers Interest revenue Total revenue Interest expense Depreciation and amortization Investment gain (loss) Other significant non-cash items: $ $ $ 947,546,939 32,895,407 1,593,904 70,899 949,140,843 32,966,306 2,669,003 5,991,303 197,008 56,561 428,118 - - Impairment of assets - Reportable segment profit $ 8,307,224 1,700,652 Reportable segment assets Reportable segment liabilities - - - - - - - - 980,442,346 1,664,803 982,107,149 2,725,564 6,419,421 197,008 - 10,007,876 382,648,419 267,889,075 $ $ (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 101 For the year ended December 31, 2018 Information technology product segment Strategy integrated product segment Adjustment and elimination Total Revenue Revenue from external $ 941,106,606 26,599,805 customers Interest revenue Total revenue Interest expense $ $ Depreciation and amortization Investment gain (loss) Other significant non-cash items: 1,420,529 43,129 942,527,135 26,642,934 2,599,996 4,692,636 797,368 36,447 248,036 - - Impairment of assets - Reportable segment profit $ 10,714,350 1,075,235 Reportable segment assets Reportable segment liabilities (c) Products information The information of revenue from external customers: - - - - - - - - 967,706,411 1,463,658 969,170,069 2,636,443 4,940,672 797,368 - 11,789,585 399,794,823 286,632,975 $ $ Products and services 5C related electronic products Others (d) Geographic information 2019 977,895,468 2018 965,217,737 2,546,878 2,488,674 980,442,346 967,706,411 $ $ Stated below are the geographic information on the Group’s sales presented by destination of sales and non-current assets presented by location. (i) Revenue from external customers: Country United States China Netherlands Others 2019 378,999,466 $ 2018 363,952,505 103,572,415 121,029,441 98,958,916 110,870,861 398,911,549 371,853,604 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 102 (ii) Non-current assets: Country China Taiwan Others $ 980,442,346 967,706,411 2019 13,525,794 10,389,632 1,578,056 2018 15,023,523 7,345,390 1,050,542 25,493,482 23,419,455 $ $ Non-current assets include plant, property, and equipment, intangible assets, and other assets, excluding deferred tax assets. (e) The details of sales revenue from external customers more than 10% of the amount of consolidated statement of comprehensive income are as follows: D Company F Company A Company E Company 2019 2018 $ 390,210,303 414,474,616 212,262,458 187,925,666 96,591,070 128,790,649 105,890,275 66,783,151 $ 804,954,106 797,974,082 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 103 Table 1 Loans to other parties: (December 31, 2019) Name of lender No. 0 The Name of borrower CVC Company 0 The UCGI Company 0 The HengHao Company 0 The CEB Company 1 CIH CEP 2 CPI CVC 3 CPC CDE 3 CPC CIC Account name Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables 4 CIT 4 CIT CCI Nanjing Other receivables Rayonnant (Taicang) Other receivables 5 PFG CEB Other receivables 6 CPO HengHao Kunshan Other receivables 6 CPO CIT 7 CET BT 8 Panpal HengHao 9 Arcadyan Acradyan Brasil Other receivables Other receivables Other receivables Other receivables 9 Arcadyan Arcadyan UK Other receivables 9 Arcadyan Arcadyan AU Other receivables 9 Arcadyan Arcadyan Vietnam Other receivables 10 Zhi-pal Acradyan Brasil Other receivables 11 Arcadyan Holding CNC Other receivables Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Highest balance of financing to other parties during the period 316,000 Related party Y Ending balance - Actual usage amount during the period - Range of interest rates during the period 3.20% Purposes of fund financing for the borrower Short-term financing Short-term financing 500,000 250,000 220,000 1.20% 405,369 200,000 200,000 1.2%~2.82% Short-term financing 1,580,000 1,499,000 1,499,000 3.50% 110,600 104,930 43,471 3.50% 316,000 - - 3.20% 1,380,900 1,291,500 1,291,500 2.20% 430,500 430,500 - 2.20% 2,212,000 2,098,600 2,098,600 2.76% 69,045 64,575 64,575 4.35% 308,950 - - 2.50% 644,420 602,700 602,700 4.35% 645,750 645,750 - 2.20% 274,800 258,300 64,575 2.20% 600,000 600,000 600,000 1.20% 246,160 60,040 39,026 1.00% 219,730 210,140 126,400 - 284,400 270,180 34,760 33,022 - - - - 1.00% 1.00% 1.00% 1.00% 523,940 510,340 510,340 1.00% Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Transaction for business between two parties Transaction for business between two parties Transaction for business between two parties Short-term financing Short-term financing Transaction amount for business between two parties - - - - - - - - - - - - - - - - Reasons for short- term financing Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating financing Operating demand Operating demand Operating demand Operating demand Operating financing 4,503,000 1,501,000 600,400 - - - - - Operating financing Operating financing Allowance for bad debt - - - - - - - - - - - - - - - - - - - - - (In Thousands of New Taiwan Dollars) Individual funding loan limits 21,194,526 Maximum limit of fund financing 42,389,053 Note (Note 1) 21,194,526 42,389,053 (Note 1) 21,194,526 42,389,053 (Note 1) 21,194,526 42,389,053 (Note 1) 34,545,521 34,545,521 (Note 2) 890,733 890,733 (Note 3) 2,096,417 2,096,417 (Note 4) 2,096,417 2,096,417 (Note 4) 20,539,992 20,539,992 (Note 5) 20,539,992 20,539,992 (Note 5) 435,070 435,070 (Note 6) 2,777,160 2,777,160 (Note 7) 2,777,160 2,777,160 (Note 7) 4,625,117 4,625,117 (Note 8) 5,896,656 5,896,656 (Note 9) 2,180,945 4,361,890 (Note 10) 2,180,945 4,361,890 (Note 10) 1,200,800 4,361,890 (Note 10) 480,320 4,361,890 (Note 10) 41,642 166,568 (Note 11) 2,003,996 2,003,996 (Note 12) Collateral Item Value - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Note 1: According to the Company’ s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of the Company. When a short-term financing facility with the Company is necessary, the total amount for lending to any company shall not exceed 80% of the borrower’s net worth, nor shall it be more than 50% of the Company’s lendable amount limit, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, the total amount lendable to 100% directly or indirectly owned subsidiaries by the Company is unrestricted by Note 2: Note 3: the aforesaid restriction of 80%, but the maximum amount shall not exceed 50% of the Company’s lendable limit, and shall be combined with the company’s amount of loans to others when calculating. According to CIH’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CIH. When a shortterm financing facility with CIH is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CIH’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIH, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CPI’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CPI. When a shortterm financing facility with CPI is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPI’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPI, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 104 Table 1 Loans to other parties: (December 31, 2019) Note 4: Note 5: Note 6: Note 7: Note 8: Note 9: Note 10: Note 11: Note 12: Note 13: According to CPC’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CPC. When a shortterm financing facility with CPC is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower ’s net worth, nor shall it exceed 50% of CPC’s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPC, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CIT ’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CIT. When a shortterm financing facility with CIT is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower ’s net worth, nor shall it exceed 50% of CIT ’ s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIT, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to PFG’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of PFG. When a shortterm financing facility with PFG is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of PFG’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of PFG, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CPO’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CPO. When a shortterm financing facility with CPO is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPO’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPO, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CET’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CET. When a shortterm financing facility with CET is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CET’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CET, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to Panpal’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of Panpal. When a shortterm financing facility with Panpal is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of Panpal’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the total amount lendable to 100% directly or indirectly owned subsidiaries by the Company, or the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions of 80%, but the maximum amount shall not exceed the of Panpal, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. According to Arcadyan’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of Arcadyan. To borrowers having business relationship with Arcadyan, the total amount for lending the borrower shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount for the current year, nor shall it exceed 20% of the net worth of Arcadyan. Also, the amount shall be combined with the Arcadyan ’ s endorsements/guarantees for the borrower when calculating. When a short-term financing facility is necessary, the borrower should be Arcadyan’s investee. The total amount for lending the borrower shall not exceed 80% of the net worth of the borrower, nor shall it exceed 20% of the net worth of Arcadyan, and shall be combined with the Arcadyan’s endorsements/guarantees for the borrower when calculating. The total amount of loans to others shall not exceed 40% of the net worth of Zhi-pal. To borrowers having business relationship with Zhi-pal, the total amount for lending the borrower shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount for the current year, nor shall it exceed 20% of the net worth of Zhi-pal. When a short-term financing facility is necessary, the borrower should be Zhi-pal’s investee, and the total amount for lending the borrower shall not exceed 10% of the net worth of the borrower. According to Arcadyan Holding’s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed the net worth of Arcadyan Holding. When a short-term financing facility is necessary, the borrower should be Arcadyan Holding’s investee. The total amount for lending the borrower shall not exceed the net worth of Arcadyan Holding, and shall be combined with the Arcadyan Holding’s endorsements/ guarantees for the borrower when calculating. The transactions had been eliminated in the consolidated financial statements. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 105 Table 2 Guarantees and endorsements for other parties: (December 31, 2019) Counter-party of guarantee and endorsement Name of No. guarantor 0 The Company CEB Name Relationship with the Company (Note 3) Limitation on amount of guarantees and endorsements for a specific enterprise 26,493,158 Highest balance for guarantees and endorsements during the period 63,200 Balance of guarantees and endorsements as of reporting date 59,960 Property pledged for guarantees and endorsements (Amount) - Actual usage amount during the period 59,960 Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements 0.06% Maximum amount for guarantees and endorsements (Note 1)and(Note 4) 52,986,316 (In Thousands of New Taiwan Dollars) Parent company endorsements /guarantees to third parties on behalf of subsidiary Y Subsidiary endorsements /guarantees to third parties on behalf of parent company - Endorsements / guarantees to third parties on behalf of companies in Mainland China - 0 The Company CEP (Note 2) 26,493,158 260,766 195,702 195,702 1 Arcadyan Arcadyan Brasil (Note 5) 1,453,963 246,160 - - - - 0.18% 52,986,316 - 4,361,890 Y Y - - - - Note 1: According to the Company’ s Procedures for Endorsement and Guarantee, the total amount of endorsements/ guarantees the Company or the Group is permitted to make shall not exceed 50% of the Company’s net worth. Endorsements/ guarantees the Company and the Group are permitted to make for a single company shall not exceed 25% of the Company’s net worth. For entities having business relationship with the Company, the amount of endorsements/ guarantees for a single company shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount of the current year, and shall be combined with the amount lend to others when calculating. The amount of endorsements/ guarantees permitted to make between subsidiaries whose over 90% of its voting shares are owned, directly or indirectly, by the Company shall be no more than 10% of the net worth of the Company. The amount of endorsements/ guarantees permitted to make between directly or indirectly wholly owned subsidiaries is not limited by the aforementioned restriction, only the maximum amount shall be no more than 25% of the net worth of the Company. Note 2: Subsidiary whose over 50% common stock is directly owned. Note 3: Subsidiary whose over 50% common stock is indirectly owned. Note 4: According to Arcadyan's Procedures for Endorsement and Guarantee, the total amount shall not exceed 40% of the net worth for latest financial statements audited or reviewed by Certified Public Accountants, and the amount for a single company shall not exceed 1/3 of the total amount. Note 5: Subsidiary whose 100% common stock is directly owned by Arcadyan. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 106 Table 3 Securities held as of December 31, 2019 (excluding investment in subsidiaries, associates and joint ventures): (December 31, 2019) Name of holder Category and name of security The Company Taiwan Star Relationship with security issuer ‑ Kinpo Electronics, Inc. (“Kinpo”) The same chairman of the Company Cal-Comp Electronics (Thailand) Public Co., Ltd. The same chairman of the Company ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Innolux Corporation (“Innolux”) HWA VI Venture Capital Corp. HWA Chi Venture Capital Corp. mProbe Ltd. Global BioPharma, Inc. Chen Feng Optoelectronics PrimeSensor Technology Inc. Macroblock, Inc. IIH Biomedical Venture Fund UBS Extendible Money Mkt Cert. Others Total Account name Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss and other comprehensive income - - Ending balance The highest holdings in the period Shares/Units (thousands) 98,046 Carrying value 680,442 Holding percentage (%) 3% Fair value 680,442 Shares/Units (thousands) 98,046 Holding percentage (%) 3% Note (In Thousands of shares/ units) 124,044 1,593,962 9% 1,593,962 124,044 9% 239,631 448,110 5% 448,110 239,631 5% - - - - 134,877 1% 290 25,397 10% 25,397 290 10% 842 23,933 11% 23,933 1,053 11% 4,000 40,920 2% 40,920 4,000 3% 2,000 34,260 3% 34,260 2,000 3% 6,685 97,866 11% 97,866 6,685 13% 861 7,266 3% 7,266 1,357 3% - - - 748,656 2% 2,500 24,350 8% 24,350 2,500 8% 149,888 - 149,888 - - 113,984 3,240,378 Panpal Compal Electronics, Inc. The parent company Financial assets at fair value 31,648 596,566 1% 596,566 31,648 1% (Note 1) Kinpo The same chairman of the Company CDIB Partners Investment Holding Corp. ‑ AcBel The same chairman of the Company Chipbond Technology Corp. Taiwan Biotech Co., Ltd. Others Total ‑ ‑ ‑ through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current 23,172 297,766 2% 297,766 23,172 2% 54,000 941,220 5% 941,220 54,000 5% 5,677 137,092 1% 137,092 5,677 1% - - - - 5,251 4,897 134,085 3% 134,085 4,897 1% 3% 103,583 2,210,312 Gempal Compal Electronics, Inc. The parent company Financial assets at fair value 18,369 346,262 - 346,262 18,369 - (Note 1) Lian Hong Art. Co., Ltd. Global BioPharma, Inc. ‑ ‑ through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current 2,140 65,670 8% 65,670 2,140 8% 2,000 34,265 3% 34,265 2,000 3% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 107 Table 3 Securities held as of December 31, 2019 (excluding investment in subsidiaries, associates and joint ventures): (December 31, 2019) Name of holder Category and name of security Gempal Others Relationship with security issuer ‑ Total Hong Ji SUYIN Optronics Co., Ltd. (“SUYIN Optronics”) Hong Jin SUYIN Optronics Arcadyan GeoThings Inc. AirHop Communication Inc. Adant Technologies Inc. IOT EYE, Inc. TIEF FUND L.P. Chimei Motor Electronics Co., LTD Total Mactech Taichung International Golf Country Club HHB HWALLAR OPTRONICS (Fuzhou) CO., LTD. Mithera Beyond Limits, Inc. CPC CET CEC CEQ Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu, Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu, Structured Deposit ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Account name Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Note 1:The transaction had been eliminated in the consolidated financial statements. Note 2:The carrying value is the remaining amount after deducting accumulated impairment. Ending balance The highest holdings in the period Shares/Units (thousands) Carrying value 2,699 Holding percentage (%) Fair value Shares/Units (thousands) Holding percentage (%) Note (In Thousands of shares/ units) 448,896 380 182 1% 182 380 1% 332 160 1% 160 332 1% 200 1,152 349 60 - - - - 9% 5% 5% 14% - - - - 200 9% (Note 2) 1,152 7% (Note 2) 349 5% (Note 2) 60 6% (Note 2) 44,262 7% 44,262 1,650 49,500 9% 49,500 93,762 7,530 - 7,530 - - 7% 1,650 9% - - 19% - 19% (Note 2) 873 134,910 394,013 437,840 219,070 129,647 - - - - - 134,910 873 - 394,013 437,840 219,070 129,647 ‑ - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 108 Table 4 Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: (For the year ended December 31, 2019) Name of counter-party - Relationship with the company - Beginning Balance Purchases Shares/ Units (thousands) 4,593 Amount 284,768 Shares/ Units (thousands) - Amount - Shares/ Units (thousands) 4,593 Price 307,207 Cost 307,207 Gain (loss) on disposal - Shares/ Units (thousands) - Sales Others Ending Balance (In Thousands of New Taiwan Dollars) Name of company The Company Category and name of security Chipbond The Company Innolux Corporation Panpal Chipbond BSH HSI HSI IUE IUE CVC Structured deposits– SPD Bank Yield Plus Structured Deposit Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits– SPD Bank Yield Plus Structured Deposit Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits- Industrial Bank Structured Deposits Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits– SPD Bank Yield Plus Structured Deposit Account name Financial assets at fair value through profit or loss-current Financial assets at fair value through other comprehensive income-non- current Financial assets at fair value through profit or loss-current Investments accounted for using equity method Investments accounted for using equity method Investments accounted for using equity method Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current - - Issued for cash Issued for cash Issued for cash Shanghai Pudong Development Bank Bank of Communications Shanghai Pudong Development Bank Bank of Communications Bank of Communications Industrial Bank Co.,Ltd Bank of Communications Shanghai Pudong Development Bank Bank of China Structured deposits- The RMB "Open on schedule" Financial Product Financial assets at fair value through profit or loss-current Structured deposits– SPD Bank Yield Plus Structured Deposit Financial assets at fair value through profit or loss-current Shanghai Pudong Development Bank Structured deposits- Win-win Interest Rate Structure RMB Structural Deposits Financial assets at fair value through profit or loss-current China CITIC Bank Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits- Agricultural Bank of China "HuiLiFeng" customization RMB structured deposit Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Structured deposits- The RMB "Open on schedule" Financial Product Financial assets at fair value through profit or loss-current Bank of Communications Agricultural Bank of China Bank of China CPC CIT CIT CEC CEQ CEQ CPO CPO CPO CIC CIC CET CET CET - - - - - - - - - - - - - - - - - - - 109,227 1,061,690 5,251 325,560 - - - - 109,227 763,181 763,181 - 5,251 344,843 344,843 - - - 37,000 1,109,260 30,000 455,400 37,000 1,109,260 30,000 480,087 37,000 1,109,260 - - - - - - - - - - - - - - 179,963 - - 576,466 260,029 259,705 448,948 480,285 - 179,699 - 225,651 676,881 451,154 - - - - - - - - - - - - - - 1,203,551 894,833 894,833 1,825,461 501,107 259,502 - - 447,417 1,073,801 447,417 1,118,542 447,417 223,708 - - - - - - - - - - - - - - - - - - - - - - - 989,834 979,843 910,892 894,833 910,892 894,833 2,196,103 2,174,447 633,487 626,384 526,798 519,004 451,877 447,416 482,449 478,736 456,614 447,417 1,265,163 1,252,768 450,405 447,417 1,360,587 1,342,250 1,129,780 1,118,542 667,681 671,125 - - - 9,991 (Note 2) 16,059 (Note 2) 16,059 (Note 2) 21,656 (Note 2) 7,103 (Note 2) 7,794 (Note 2) 4,461 (Note 2) 3,713 (Note 2) 9,197 (Note 2) 12,395 (Note 2) 2,988 (Note 2) 18,337 (Note 2) 11,238 (Note 2) 6,556 (Note 2) - - - - - - - - - - - - - - - - - - - Shares/ Units (thousands) - Amount - - - - - 37,000 1,109,260 Amount 22,439 (Note 1) (298,509) (Note 1) 19,283 (Note 1) - (Note 3) (202,793) (Note 3) 67,000 1,361,867 (203,384) (Note 3) 67,000 1,385,963 333 (Note 1) 16,059 (Note 1) 16,059 (Note 1) 13,246 (Note 1) 1,998 (Note 1) 7,591 (Note 1) 2,929 (Note 1) 2,164 (Note 1) 9,197 (Note 1) 11,663 (Note 1) 2,988 (Note 1) 16,394 (Note 1) 5,482 (Note 1) 2,819 (Note 1) - - - - - - - - - - - - - - 394,013 - - 219,070 129,647 - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 109 Table 4 Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: (For the year ended December 31, 2019) Name of company CET Category and name of security Structured deposits- SPD Bank Yield Plus Structured Deposit Account name Financial assets at fair value through profit or loss-current Name of counter-party Shanghai Pudong Development Bank Relationship with the company - Beginning Balance Purchases Shares/ Units (thousands) - Amount - Shares/ Units (thousands) - Amount 1,297,509 Shares/ Units (thousands) - Sales Others Ending Balance Price 858,447 Cost 850,092 Gain (loss) on disposal 8,355 (Note 2) Shares/ Units (thousands) - Amount (1,222) (Note 1) Shares/ Units (thousands) - Amount 437,840 (In Thousands of New Taiwan Dollars) CET Structured deposits- Win-win Interest Rate Structure RMB Structural Deposits Financial assets at fair value through profit or loss-current China CITIC Bank Arcadyan Arcadyan Holding Issued for cash Investments accounted for using equity method - - - - - 1,297,509 32,780 1,221,252 27,000 823,505 - - 1,307,480 1,297,509 9,971 (Note 2) - - - - - 9,971 (Note 1) - - (87,955) (Note 3) 59,780 1,956,802 Note 1:Others were valuation gains and losses and foreign exchange gains and losses. Note 2:Including gains and losses on disposal and foreign exchange gains and losses. Note 3:Including share of profit (loss) accounted for using equity method and exchange differences on translation of foreign financial statements. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 110 Table 5 Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: (For the year ended December 31, 2019) Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) (In Thousands of New Taiwan Dollars) Purchase/ (Sale) Sale Amount (195,680) Percentage of total purchases/ (sales) - Payment terms 120 days Unit price Similar to non- related parties Payment Terms There is no significant difference Company Name The Company Counter party UCGI CBN CIH and its subsidiaries Nature of relationship Subsidiaries wholly owned by the Company The Company's subsidiaries Subsidiaries wholly owned by the Company Just and its subsidiaries Subsidiaries wholly owned by the Company HSI and its subsidiaries Subsidiaries wholly owned by the Company BCI and its subsidiaries Subsidiaries wholly owned by the Company Etrade and its subsidiaries Subsidiaries wholly owned by the Company Webtek Palcom Forever Subsidiaries wholly owned by the Company Subsidiaries wholly owned by the Company Subsidiaries wholly owned by the Company Just and its subsidiaries Webtek With the same ultimate parent company Sale (962,973) (0.1)% 90 days Purchase 189,074,111 21.6% 120 days Purchase 102,586,790 11.7% 120 days Purchase 4,571,105 0.5% 120 days Purchase 24,316,409 2.8% 120 days Similar to non- related parties Similar to non- related parties Similar to non- related parties Similar to non- related parties Markup based on BCI and its subsidiaries's cost Purchase 19,044,223 2.2% Net 60 days from purchase Markup based on Etrade and its subsidiaries's cost Purchase 34,469,915 3.9% Net 60 days from purchase Markup based on Webtek's cost Sale (105,081) - Net 60 days from delivery Similar to non- related parties Purchase 18,139,071 2.1% Net 60 days from purchase Markup based on Forever's cost Sale (24,375,017) (19.0)% Net 60 days from delivery According to Compal Electronic, Inc. Parent company Sale (102,586,790) (45.0)% 120 days Forever With the same ultimate parent company Sale (6,892,761) (34.0)% Net 60 days from delivery Similar to non- related parties CIH and its subsidiaries Compal Electronic, Inc. Parent company Sale (189,320,860) (77.7)% 120 days Sale (196,173) - 120 days CEB Forever With the same ultimate parent company With the same ultimate parent company Sale (9,187,778) (20.1)% Net 60 days from delivery According to markup pricing CBN BCI and its subsidiaries Compal Electronic, Inc. Compal Electronic, Inc. Parent company Purchase 959,522 52.0% Net 90 days from purchase - Parent company Sale (24,324,646) (84.1)% 120 days CEB With the same ultimate parent company Sale (1,962,595) (7.0)% 120 days Webtek Compal Electronic, Inc. Parent company Sale (34,469,915) (100.0)% Net 60 days from delivery According to markup pricing Etrade and its subsidiaries With the same ultimate parent company Purchase 10,091,875 29.0% Net 60 days from purchase According to markup pricing markup pricing Similar to non- related parties Similar to non- related parties Similar to non- related parties Markup based on BCI and its subsidiaries's cost According to markup pricing There is no significant difference There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding There is no significant difference Adjustments will be made based on demand for funding There is no significant difference Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Percentage of total notes/accounts receivable (payable) - Ending Balance 45,158 Note (Note 2) 330,670 0.2% (Note 2) (51,022,067) (34.2)% (Note 2) (6,799,206) (4.6)% (Note 2) (2,369,841) (1.6)% (Note 2) (7,460,959) (5.0)% (Note 2) (5,904,962) (4.0)% (Note 2) (556,913) (0.4)% (Note 2) 22,720 (778,369) - 6,799,206 - 51,022,056 51,912 - - - - - - (Note 2) (0.5)% (Note 2) (Note 2) 20.0% (Note 2) (Note 2) 37.8% (Note 2) (Note 2) (Note 2) (331,111) (64.0)% (Note 2) 7,460,959 78.4% (Note 2) 772,909 4.7% (Note 2) 556,913 100.0% (Note 2) - - (Note 2) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 111 Table 5 Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: (For the year ended December 31, 2019) Nature of relationship With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company Company Name Webtek Counter party JUST and its subsidiaries CEB BCI and its subsidiaries CIH and its subsidiaries Etrade and its subsidiaries Webtek Compal Electronic, Inc. Forever Compal Electronic, Inc. Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) (In Thousands of New Taiwan Dollars) Purchase/ (Sale) Purchase Amount 24,375,017 Percentage of total purchases/ (sales) Payment terms Unit price 71.0% Net 60 days from purchase According to markup pricing Payment Terms Adjustments will be made based on demand for funding Percentage of total notes/accounts receivable (payable) - Note (Note 2) Ending Balance - Purchase 1,944,054 17.1% 120 days Similar to non- related parties There is no significant difference (765,855) (47.8)% (Note 2) Purchase 202,987 1.8% 120 days Similar to non- related parties There is no significant difference (51,677) (3.2)% (Note 2) Sale (10,091,875) (35.0)% Net 60 days from delivery According to markup pricing Parent company Sale (19,044,223) (65.0)% Net 60 days from delivery According to markup pricing Parent company Sale (18,139,071) (85.0)% Net 60 days from delivery According to markup pricing CIH and its subsidiaries JUST and its subsidiaries With the same ultimate parent company With the same ultimate parent company Purchase 9,187,778 43.0% Net 60 days from purchase Similar to non- related parties Purchase 6,892,761 32.0% Net 60 days from purchase Similar to non- related parties Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding - - (Note 2) 5,904,962 100.0% (Note 2) 778,369 100.0% (Note 2) - - - - (Note 2) (Note 2) Parent company Purchase 195,680 68.2% 120 days Similar to non- related parties There is no significant difference (45,124) (86.5)% (Note 2) Parent company Purchase 105,081 100.0% Net 60 days from purchase Similar to non- related parties There is no significant difference (22,720) - (Note 2) UCGI Palcom Compal Electronic, Inc. Compal Electronic, Inc. HSI and its subsidiaries Compal Electronic, Inc. Arcadyan CNC Acradyan Vietnam Acradyan Germany Acradyan USA Acradyan AU Acradyan Germany Acradyan USA Acradyan AU CNC Acradyan Vietnam Arcadyan THAC Arcadyan Arcadyan Arcadyan Arcadyan THAC TTI CNC TTI THAC Parent company Sale (4,571,105) (100.0)% 120 days Similar to non- related parties Adjustments will be made based on demand for funding - - - According to markup pricing According to markup pricing According to markup pricing - - - - Arcadyan's subsidiary Sale (1,465,691) (5.0)% Net 120 days from delivery Arcadyan's subsidiary Sale (2,992,401) (11.0)% Net 60 days from the end of the month of delivery Arcadyan's subsidiary Sale (2,444,741) (9.0)% Net 45 days from the end of the month of delivery Arcadyan's subsidiary Purchase 11,451,395 31.0% Net 45 days from the end of Arcadyan's subsidiary Purchase 1,026,793 the month of delivery (3.0)% Net 180 days from the end of the month of delivery With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company Sale (11,451,395) (100.0)% Net 45 days from the end of the month of delivery Sale (158,620) (1.0)% Net 90 days from the end of the month of delivery Sale (1,026,793) (100.0)% Net 180 days from the end of the month of delivery Purchase 1,465,691 100.0% Net 120 days from delivery Purchase 2,992,401 100.0% Net 60 days from the end of the month of delivery Purchase 2,444,741 100.0% Net 45 days from the end of the month of delivery Sale (378,225) (100.0)% Net 60 days from the end of the month of delivery According to markup pricing Purchase 158,620 2.0% Net 90 days from the end of the month of delivery Purchase 378,225 8.0% Net 60 days from the end of the month of delivery - - - - - - - - - - - - - - - Note 1: The remaining balance is the net value of commissioned processing and sales of raw material. Note 2: The transactions had been eliminated in the consolidated financial statements. Note 3: The amount of other receivables (other payables) on December 31, 2019 is 362,695 thousand dollars. Note 4: The amount of unearned sales revenue (prepayment for purchases) on December 31,2019 is 103,079 thousand dollars. 2,383,869 100.0% (Note 2) 392,466 6.0% (Note 2) 2,683,393 38.0% (Note 2) 634,154 9.0% (Note 2) (3,117,484) (44.0)% (Note 1、2) (Note 3) 3,117,484 23,396 (Note 3) - - (Note 1、2) 99.0% (Note 1、2) 1.0% (Note 1、2) (Note 2) (392,466) (100.0)% (Note 2) (2,683,393) (100.0)% (Note 2) (634,154) (100.0)% (Note 2) (Note 4) - (Note 1、2) (23,396) (54.0)% (Note 1、2) (Note 4) - (Note 1、2) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 112 Table 6 Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Overdue Ending Balance Turnover rate 330,670 1.80 Amount - Action taken - (In Thousands of New Taiwan Dollars) Amounts received in subsequent period 238,935 (Note 1) Allowance for bad debts - (December 31, 2019) Name of Company The Company Counter-party CBN Just and its subsidiaries CIH and its subsidiaries BCI and its subsidiaries BCI and its subsidiaries Forever Webtek Etrade and its subsidiaries Compal Electronic, Inc. Compal Electronic, Inc. Compal Electronic, Inc. CEB Compal Electronic, Inc. Compal Electronic, Inc. Compal Electronic, Inc. Nature of relationship The Company's subsidiary Parent company 6,799,206 28.09 Parent company 51,022,056 Parent company With the same ultimate parent company Parent company Parent company 7,460,959 772,909 778,369 556,913 Parent company 5,904,962 3.78 5.92 2.94 1.68 9.04 3.42 HSI and its subsidiaries Compal Electronic, Inc. Parent company 2,383,869 3.80 Arcadyan Arcadyan Arcadyan Arcadyan Arcadyan Germany Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan USA Arcadyan AU Arcadyan's subsidiary Arcadyan Vietnam Arcadyan's subsidiary Arcadyan TTI Arcadyan's subsidiary CNC Arcadyan With the same ultimate parent company Note 1:Balance as of March 13, 2020. Note 2:Balance as of February 21, 2020. Note 3:Other receivables due to processing and sales of raw material. Note 4:Other receivables due to processing. 392,466 2,683,393 634,154 362,695 (Note 3) 55,769 (Note 3) 3,117,484 (Note 4) 2.45 2.15 3.59 2.11 18.18 3.51 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,224,612 (Note 1) 48,763,927 (Note 1) 7,282,087 (Note 1) 197,195 (Note 1) - - (Note 1) (Note 1) 5,843,969 (Note 1) - (Note 1) 75,366 (Note 2) 708,279 (Note 2) 509,314 (Note 2) (Note 2) - 18,864 (Note 2) 450,187 (Note 2) - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 113 Table 7 Business relationships and significant intercompany transactions: (For the year ended December 31, 2019) Intercompany transactions (In Thousands of New Taiwan Dollars) No. (Note 1) Company name Counter party 0 The Company CBN Relationship (Note 2) 1 Accounts name Sale Revenue Amount 962,973 0 The Company UCGI 1 1 1 2 2 2 3 3 JUST and its subsidiaries Webtek JUST and its subsidiaries Forever JUST and its subsidiaries The Company CIH and its subsidiaries The Company CIH and its subsidiaries Forever CIH and its subsidiaries CEB BCI and its subsidiaries The Company BCI and its subsidiaries CEB 4 Webteck The Company 5 5 Etrade and its subsidiaries Webtek Etrade and its subsidiaries The Company 6 Forever The Company Accounts Receivable Sale Revenue 330,670 195,680 Accounts Receivable Sale Revenue 45,158 24,375,017 Sale Revenue 6,892,761 Sale Revenue 102,586,790 Accounts Receivable Sale Revenue 6,799,206 189,320,860 Accounts Receivable Sale Revenue 51,022,056 9,187,778 Sale Revenue 196,173 Accounts Receivable Sale Revenue 51,912 24,324,646 Accounts Receivable Sale Revenue 7,460,959 1,962,595 Accounts Receivable Sale Revenue 772,909 34,469,915 Accounts Receivable Sale Revenue 556,913 10,091,875 Sale Revenue 19,044,223 Accounts Receivable Sale Revenue 5,904,962 18,139,071 1 3 3 2 2 3 3 2 3 2 3 2 2 Terms There is no significant difference of price to non-related parties. The credit period is net 90 days. 〃 The price is based on the operating cost. The credit period is net 120 days, and will be adjusted if necessary. 〃 The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. There is no significant difference of price to non-related parties. The credit period is net 60 days from delivery, and will be adjusted if necessary. There is no significant difference of price to non-related parties. The credit period is net 120 days, and will be adjusted if necessary. 〃 There is no significant difference of price to non-related parties. The credit period is net 120 days, and will be adjusted if necessary. 〃 There is no significant difference of price to non-related parties. The credit period is net 60 days from delivery, and will be adjusted if necessary. There is no significant difference of price to non-related parties. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 There is no significant difference of price to non-related parties. The credit period is net 120 days, and will be adjusted if necessary. 〃 There is no significant difference of price to non-related parties. The credit period is net 120 days. 〃 The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. Accounts Receivable 778,369 〃 Percentage of the consolidated net revenue or total assets - - - - 0.1% 0.1% 2.5% 0.7% 10.5% 1.8% 19.3% 13.3% 0.9% 2.5% 1.9% 0.2% 0.2% 3.5% 0.1% 1.0% 1.9% 1.5% 1.9% 0.2% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 114 Table 7 Business relationships and significant intercompany transactions: (For the year ended December 31, 2019) Intercompany transactions (In Thousands of New Taiwan Dollars) No. (Note 1) Company name Counter party 7 HSI The Company Relationship (Note 2) 2 Accounts name Sale Revenue Amount 4,571,105 8 Arcadyan Arcadyan Germany 8 Arcadyan TTI 8 Arcadyan Arcadyan USA 8 Arcadyan Arcadyan AU 8 Arcadyan Arcadyan Vietnam 9 CNC Arcadyan 9 CNC THAC 10 Arcadyan Vietnam Arcadyan 11 THAC TTI 3 3 3 3 3 3 3 3 3 Accounts Receivable Sale Revenue 2,383,869 1,465,691 Accounts Receivable Other Receivable 392,466 55,769 Sale Revenue 2,992,401 Accounts Receivable Sale Revenue 2,683,393 2,444,741 Terms There is no significant difference of price to non-related parties. The credit period is net 120 days, and will be adjusted if necessary. 〃 There is no significant difference of price to non-related parties. The credit period is net 120 days from delivery. 〃 The price is based on the operating cost. The credit period is net 90 days from the end of month of delivery. There is no significant difference of price to non-related parties. The credit period is net 60 days from the end of the month of 〃 There is no significant difference of price to non-related parties. The credit period is net 45 days from delivery. Accounts Receivable Other Receivable 634,154 362,695 〃 The credit period is net 180 days Processing Revenue 11,451,395 Accounts Receivable Processing Revenue 3,117,484 158,620 Accounts Receivable Processing Revenue 23,396 1,026,793 Processing Revenue 378,225 from the end of the month of invoice date and depended on funding demand. The price is based on the operating cost. The credit period is net 45 days from the end of the month of delivery and depended on funding demand. 〃 The price is based on the operating cost. The credit period is net 90 days from the end of month of delivery. 〃 The credit period is net 180 days from the end of the month of invoice date and depended on funding demand. The price is based on the operating cost. The credit period is net 60 days from the end of the month of delivery and depended on funding demand. Contract Liability 103,079 〃 Note 1: The numbers filled in as follows: 1.0 represents the Company. 2. Subsidiaries are sorted in a numerical order starting from 1. Note 2: Transactions labeled as follows: 1. represents transactions between the parent company and its subsidiaries. 2. represents transactions between the subsidiaries and the parent company. 3. represents transactions between subsidiaries. Percentage of the consolidated net revenue or total assets 0.5% 0.6% 0.1% 0.1% - 0.3% 0.7% 0.2% 0.2% 0.1% 1.2% 0.8% 0.1% - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 115 Table 8 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) Investor Company Investee Company The Company Bizcom Main Businesses and Products Milpitas, USA Warranty services and Location December 31, 2019 December 31, 2018 36,369 36,369 Shares 100 Original Investment Amount (In Thousands of New Taiwan Dollars/ shares) Ending Balance Percentage of Ownership 100% The highest holdings in the period Carrying Value 446,195 Shares 100 Percentage of Ownership 100% Net income (losses) of investee Share of profits/losses of investee 16,485 16,485 Note (Note 2) Just CIH Panpal Gempal marketing of LCD TVs and notebook PCs Investment British Virgin Islands British Virgin Islands Investment 1,480,509 1,480,509 48,010 100% 7,954,899 48,010 100% 209,804 209,804 (Note 2) 1,787,680 1,787,680 53,001 100% 34,558,369 53,001 100% 473,752 473,752 (Note 2) Taipei City Investment 5,171,837 5,171,837 500,000 100% 5,304,500 500,000 100% 251,199 213,221 (Note 2) (Note 1) Taipei City Investment 900,036 900,036 90,000 100% 1,603,518 90,000 100% 96,808 74,765 (Note 2) Kinpo Group management consultant company (“Kinpo Group management”) Ripal Unicore Taipei City Consultation, training services, etc. Tainan City Manufacturing of electric appliance and audiovisual electric products Management&Consultant, rental and leasing business and wholesale and retail of medical equipments Taipei City Lead-Honor Optronics. Co., Ltd. (“Lead-Honor”) CEH Shennona Taiwan Taoyuan City Manufacturing of electric appliance and audiovisual electric products Investment British Virgin Islands Taipei City Management&Consultant, rental and leasing business, wholesale and retail sale of precision instruments and International Trade 3,000 3,000 300 38% 4,628 300 38% 237 90 (Note 1) 60,000 60,000 6,000 100% 76,632 6,000 100% 24,978 24,834 (Note 2) 200,000 200,000 20,000 100% 145,664 20,000 100% (18,865) (18,984) (Note 2) 42,000 42,000 2,772 42% - 2,772 42% 34 34 1 100% 3,533,243 1 100% - - - - (Note 2) 6,000 - 600 100% 4,292 600 100% (1,708) (1,708) (Note 2) Allied Circuit Taoyuan City Production and sales of PCB 395,388 395,388 10,158 20% 318,932 10,158 20% 222,022 45,327 Maxima Ventures I, Inc. (“Maxima”) Aco Smartcare Lipo Holding Co., Ltd.(“Lipo”) CPE ATK Taipei City boards Investment Hsinchu City Wholesale and retail sale of computer software, software design services, data processing services, wholesale and retail sale of electronic materials, wholesale and retail sale of precision instruments, and biotechnology services Investment Cayman Islands The Netherlands Hsinchu City Design, research & Investment Crownpo Technology Inc. (“Crownpo”) Taipei City development, and selling of DVD, Combo, CD-RW Drives Manufacturing, processing, and selling resistor chips, networking chips, diodes, multilayer ceramic capacitors, semiconductor devices, and selling electronic products 1,260 1,260 126 23% 2,693 126 23% (201) 37 90,000 - 100,000 52% 85,978 100,000 52% (10,302) (4,022) (Note 2) 489,450 489,450 98 49% 508,166 98 49% (255,302) (125,098) 197,463 197,463 6,427 100% 823,429 6,427 100% 16,394 16,394 (Note 2) 202,908 202,908 899 28% 8,545 899 28% (6,575) (1,826) (Note 2) 149,547 149,547 3,739 33% 55,769 3,739 33% (49,191) (16,347) Hong Ji Hong Jin Mactech Auscom Arcadyan FGH Shennona HSI CEP Zhaopal Yongpal Kaipal Hippo Screen Neurotech Co., Ltd. Taipei City Taipei City Taipei City Taipei City Investment Taipei City Taipei City Investment Taichung City Manufacturing of equipment 1,000,000 295,000 219,601 1,000,000 295,000 219,601 100,000 29,500 21,756 100% 100% 53% 1,078,453 342,169 237,496 100,000 29,500 21,756 100% 100% 53% 61,267 29,774 25,927 61,267 29,774 12,703 (Note 2) (Note 2) (Note 2) and lighting, retailing of equipment and international trading R&D of notebook PC related products and components Austin, TX USA Hsinchu City R&D, manufacturing and sales of wireless network, integrated household electronics, and mobile office products 101,747 101,747 3,000 100% 126,700 3,000 100% 3,919 3,919 (Note 2) 1,325,132 1,325,132 41,305 20% 2,260,060 41,305 21% 1,313,498 278,206 (Note 2) British Virgin Islands Delaware, USA British Virgin Islands Poland Investment 2,754,741 2,754,741 89,755 100% 4,462,874 89,755 100% 131,815 131,815 (Note 2) Medical care IOT business 32,665 29,558 2,600 100% 1,372 2,600 100% (7,150) (7,150) (Note 2) Investment 1,346,814 1,346,814 42,700 54% 541,383 42,700 100% (180,050) (180,050) (Note 2) Maintenance and warranty services of notebook PCs Investment Investment Investment Management&Consultant, Rental and Leasing Business, wholesale and retail sale of precision instruments and International Trade 90,156 90,156 136 100% 17,372 136 100% 2,224 2,224 (Note 2) - - - 42,000 1,358,000 1,188,500 510,500 - - - - 4,200 - - - 70% - - - 34,869 - - - 4,200 - - - 1 - - 70% (10,187) 1 - - (7,131) (Note 2) (Note 2) (Note 2) (Note 2) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 116 Table 8 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) Investor Company Investee Company The Company Infinno Technology Corporation (“Infinno”) Location Hsinchu County HengHao Taipei City BCI CBN British Virgin Islands Hsinchu County Rayonnant Taipei City CRH Acendant Private Equity Investment Ltd. (“APE”) Etrade Webtek Forever UCGI Palcom Avalue Technology, Inc. CORE GLB British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Taipei City Taipei City New Taipei City British Virgin Islands New Taipei City Original Investment Amount December 31, 2019 109,837 December 31, 2018 109,837 Shares 5,650 Ending Balance Percentage of Ownership 27% The highest holdings in the period Carrying Value 17,199 Shares 5,650 Percentage of Ownership 27% Net income (losses) of investee (16,010) Share of profits/losses of investee (4,354) Note (In Thousands of New Taiwan Dollars/ shares) 5,529,757 5,329,757 20,015 100% (485,074) 63,815 100% (569,058) (569,058) (Note 2) 2,636,051 2,636,051 90,820 100% 6,181,036 90,820 100% 296,503 296,503 (Note 2) 284,827 284,827 29,060 43% 734,059 29,060 43% 10,514 4,619 (Note 2) 295,000 295,000 29,500 100% 62,310 29,500 100% 24,012 22,907 (Note 2) 377,328 377,328 12,500 100% 131,698 12,500 100% 27,806 27,806 (Note 2) 943,922 943,922 31,253 35% 1,061,446 31,253 35% 205,756 71,442 1,532,029 1,532,029 46,900 65% (606,199) 46,900 65% (354,085) (311,924) (Note 2) 3,340 1,575 3,340 1,575 100 50 100% 527,529 100% 1,453,833 100 50 100% (39,957) (39,957) (Note 2) 100% 1,497 1,497 (Note 2) 100,000 100,000 10,000 100% (459,297) 10,000 100% (83,034) (83,034) (Note 2) 100,000 559,189 100,000 559,189 10,000 15,024 100% 21% 105,623 646,573 10,000 15,240 100% 22% (2,453) 453,494 (2,453) 99,281 (Note 2) Main Businesses and Products Manufacturing of electronic components, wholesale and retail sale of precision instruments and electronic materials Manufacturing of PCs, computer periphery devices, and electronic components Investment R&D and sales of cable modem, digital setup box, and other communication products Manufacturing and sales of PCs, computer periphery devices, and electronic components Investment Investment Investment Investment Investment Manufacturing and retail sale of computers and electronic components Selling of mobile phones Manufacturing, processing, and import and export business of industrial motherboards Investment 4,318,860 4,318,860 147,000 100% 7,668,192 147,000 100% 232,282 232,282 (Note 2) Manufacturing and wholesale of medical equipment 246,860 246,860 15,000 50% 305,987 15,000 50% 90,284 45,053 (Note 2) Panpal Arcadyan Hsinchu City Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing 279,202 180,968 8,192 4% 493,017 8,192 4% 1,313,498 81,883,115 Allied Circuit Taoyuan City Production and selling of PCB 148,263 148,263 2,927 6% 91,903 2,927 6% 222,022 Gempal Others Arcadyan boards Hsinchu City Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing 306,655 203,500 9,279 4% 582,145 583,444 9,279 4% 1,313,498 Allied Circuit Taoyuan City Production and selling of PCB 53,645 53,645 3,220 6% 101,093 3,220 6% 222,022 Hong Ji Others Arcadyan boards Hsinchu City Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing 306,655 203,500 9,279 4% 3,274 583,444 9,279 4% 1,313,498 Allied Circuit Taoyuan City Production and selling of PCB 12,274 12,274 1,041 2% 26,724 1,041 2% 222,022 Hong Jin Arcadyan boards Hsinchu City Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing 131,942 112,569 4,609 2% 274,806 4,609 2% 1,313,498 1,022,912 Investment gain(losses) recognized by Panpal (Note 2) Investment gain(losses) recognized by Panpal Investment gain(losses) recognized by Gempal Investment gain(losses) recognized by Gempal Investment gain(losses) recognized by Hong Ji Investment gain(losses) recognized by Hong Ji Investment gain(losses) recognized by Hong Jin (Note 2) (Note 2) (Note 2) (Note 2) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 117 Table 8 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) (In Thousands of New Taiwan Dollars/ shares) Investor Company Investee Company Just CDH (HK) Location Hong Kong Main Businesses and Products Investment December 31, 2019 1,867,679 December 31, 2018 1,867,679 Shares 62,298 Original Investment Amount Ending Balance Percentage of Ownership 100% The highest holdings in the period Carrying Value 5,559,135 Shares 62,298 Percentage of Ownership 100% Net income (losses) of investee 121,268 CII CPI CII Smart AEI MEL MTL British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment 277,165 277,165 9,245 100% 252,744 9,245 100% 38,910 14,990 14,990 500 100% 887,886 500 100% 12,474 30 30 1 100% 385 1 100% (6) U.S.A Sales and maintenance of LCD TVs 29,980 29,980 1,000 100% 48,020 1,000 100% (256) U.S.A Investment 246,855 246,855 U.S.A Investment 30 30 - - - 100% 204,349 100% 30 - - 100% (49,788) 100% - - - 32,903 1 (12,236) MEL and MTL CMX Mexico Manufacturing, sales and maintenance of LCD TVs - 241,339 CIH CIH (HK) Hong Kong Investment 2,242,579 2,242,579 74,803 100% 32,770,648 74,803 100% 597,121 Jenpal PFG FWT CCM HSI IUE British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment 220,353 220,353 7,350 100% 105,192 7,350 100% 2,742 30 30 1 100% 435,070 1 100% 24,092 446,702 446,702 14,900 100% 447,152 14,900 100% 152 152,898 152,898 5,100 51% 26,994 5,100 51% (57,524) 2,008,660 899,400 67,000 100% 1,361,867 67,000 100% (197,879) Goal British Virgin Islands Investment 380,746 380,746 12,700 100% 316,738 12,700 100% 17,829 IUE CVC Vietnam Goal CDM Vietnam R&D, manufacturing, sales, and maintenance of notebook PCs, computer monitors, LCD TVs and electronic components Construction of and investment in infrastructure in Ba-Thien industrial district of Vietnam 2,008,660 899,400 67,000 100% 1,385,963 67,000 100% (197,879) 380,746 380,746 12,700 100% 373,914 12,700 100% 17,829 BCI CMI British Virgin Islands Investment 2,422,984 2,422,984 80,820 100% 3,855,996 80,820 100% 164,336 PRI British Virgin Islands Investment 299,800 299,800 10,000 100% 2,325,040 10,000 100% 132,167 CORE BSH British Virgin Islands Investment 4,407,060 4,407,060 147,000 100% 7,668,193 147,000 100% 232,282 BSH Mithera Cayman Islands Investment 149,900 HSI British Virgin Islands Investment 1,109,260 - - - 99% 146,594 - 99% (3,444) 37,000 46% 1,109,260 37,000 46% (180,050) Share of profits/losses of investee Investment gain(losses) recognized by Just Investment gain(losses) recognized by Just Investment gain(losses) recognized by Just Investment gain(losses) recognized by CII Investment gain(losses) recognized by CII Investment gain(losses) recognized by CII Investment gain(losses) recognized by CII Investment gain(losses) recognized by MEL and MTL Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by HSI Investment gain(losses) recognized by HSI Investment gain(losses) recognized by IUE Investment gain(losses) recognized by Goal Investment gain(losses) recognized by BCI Investment gain(losses) recognized by BCI Investment gain(losses) recognized by CORE Investment gain(losses) recognized by BSH Investment gain(losses) recognized by BSH Note (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 118 Table 8 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) (In Thousands of New Taiwan Dollars/ shares) Investor Company Forever GIA Investee Company Main Businesses and Products Selling of mobile phones December 31, 2019 - December 31, 2018 - Shares - Location British Virgin Islands Original Investment Amount Ending Balance Percentage of Ownership 100% Carrying Value - The highest holdings in the period Percentage of Ownership 100% Net income (losses) of investee - Shares - Webtek Etrade British Virgin Islands Investment 749,500 749,500 25,000 35% (205,213) 25,000 35% (354,085) Unicore Raycore Taipei City Animal medication retail and wholesale 25,500 25,500 1,275 51% 17,675 1,275 51% (9,082) Arcadyan Arcadyan Holding British Virgin Islands Investment 2,064,032 1,240,526 59,780 100% 1,956,802 59,780 100% (24,302) Arcadyan USA U.S.A Sales of wireless network products 23,055 23,055 1 100% (250,530) 1 100% 14,289 Arcadyan Germany Germany Technology support and sales of wireless network products 1,125 1,125 0.5 100% 68,318 0.5 100% 7,022 Arcadyan Korea Korea Sales of wireless network products 2,879 2,879 20 100% 7,047 20 100% (310) Zhi-Pal Taipei City Investment 48,000 48,000 34,980 100% 416,421 34,980 100% 2,169 TTI Taipei City R&D and sales of household digital products 308,726 308,726 25,028 61% 627,585 25,028 61% 105,625 AcBel Telecom Taipei City Investment 23,000 23,000 4,494 51% 36,163 4,494 51% 4,784 Arcadyan UK UK Technical support of wireless network products 1,988 1,988 50 100% 3,170 50 100% 452 Arcadyan AU Australia Sales of wireless network products 1,161 1,161 50 100% 27,970 50 100% 29,187 CBN Hsinchu County Sales of communication and electronic components 11,925 11,925 533 1% 13,581 533 1% 10,514 Arcadyan Golden Smart Home Technology Corp. Taipei City Selling of hardware and software integration of high- tech systems 15,692 15,692 1,229 11% - 1,229 11% (36,152) Arcadyan and Zhi-pal Arcadyan Brasil Brazil Sales of wireless network products 81,593 81,593 968 100% (7,767) 968 100% (22,421) Arcadyan Holding Sinoprime British Virgin Islands Investment 271,681 271,681 9,050 100% 188,856 9,050 100% (86,152) Arch Holding British Virgin Islands Investment 330,550 330,550 35 100% 871,120 35 100% 57,002 TTI Quest Samoa Investment 36,024 36,024 1,200 100% 77,839 1,200 100% 10,673 TTJC Japan Sales of household digital electronic products 4,130 1,341 0.3 100% 2,015 0 100% (1,550) Quest Exquisite Samoa Investment 35,123 35,123 1,170 100% 80,994 1,170 100% 10,665 AcBel Telecom Leading Images British Virgin Islands Investment 1,501 1,501 50 100% 13,985 50 100% 4,623 Sinoprime Arcadyan Vietnam Vietnam Manufacturing of wireless network products 270,180 - - 100% 184,443 - 100% (88,285) Share of profits/losses of investee Investment gain(losses) recognized by Forever Investment gain(losses) recognized by Webtek Investment gain(losses) recognized by Unicore Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Holding Investment gain(losses) recognized by Arcadyan Holding Investment gain(losses) recognized by TTI Investment gain(losses) recognized by TTI Investment gain(losses) recognized by Quest Investment gain(losses) recognized by AcBel Telecom Investment gain(losses) recognized by Sinoprime Note (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Continued) Note (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2) (Note 2、3) (Note 2) Investment gain(losses) recognized by Zhi-Pal Investment gain(losses) recognized by Rayonnant Investment gain(losses) recognized by Rayonnant Investment gain(losses) recognized by CRH Investment gain(losses) recognized by APH Investment gain(losses) recognized by APH Investment gain(losses) recognized by HHT Investment gain(losses) recognized by HHA Investment gain(losses) recognized by HHB Investment gain(losses) recognized by CBN Investment gain(losses) recognized by CBN COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 119 Table 8 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) (In Thousands of New Taiwan Dollars/ shares) Investor Company Leading Images Investee Company Astoria GmbH Location Germany Main Businesses and Products Sales of wireless network products Zhi-Pal CBN Rayonnant APH Hsinchu County Produces and sales of communication and electronic components British Virgin Islands Investment Original Investment Amount December 31, 2019 December 31, 2018 841 841 Shares 25 Ending Balance Percentage of Ownership 100% The highest holdings in the period Carrying Value 13,599 Shares 25 Percentage of Ownership 100% Net income (losses) of investee Share of profits/losses of investee 4,637 Investment gain(losses) recognized by Leading Images 36,272 36,272 13,140 20% 334,669 13,140 20% 10,514 257,454 257,454 8,651 41% 85,269 8,651 41% 47,050 Forming Co., Ltd. Taoyuan City R&D and manufacturing of 27,300 27,300 1,820 21% - 1,820 21% - CRH APH APH PEL electronic materials British Virgin Islands Investment British Virgin Islands Investment 374,750 374,750 12,500 59% 131,698 12,500 59% 47,050 94,467 94,467 3,151 100% 36,058 3,151 100% (16,756) Rayonnant(HK) Hong Kong Investment 539,640 539,640 18,000 100% 172,950 18,000 100% 63,805 HHT HHA HHA HHB British Virgin Islands Investment British Virgin Islands Investment 1,429,235 1,429,235 46,882 100% (27,044) 46,882 100% (281,360) 1,405,523 1,405,523 46,882 100% (9,895) 46,882 100% (281,375) HHB HengHao Trading Co., Ltd. British Virgin Islands Marketing and international trade 300 300 10 100% 479 10 100% 90 CBN Speedlink British Virgin Islands Import and export business - 1,514 - - - CBNB Belgium CBNN The Netherlands The import and export business of broad band network products and related components, as well as technical support and advisory services The import and export business of broad band network products and related components, as well as technical support and advisory services 6,842 6,842 20 100% 6,338 7,016 - 20 100% 6,724 - - - - - - 86 (279) (Note 2) - Investment gain(losses) recognized by CBN FGH Wah Yuen Technology Holding Ltd. and its subsidiaries Mauritius Investment 2,690,870 2,690,870 95,862 37% 4,531,552 95,862 37% 361,173 GLB Rapha New Taipei City Mactech Taiwan Intelligent Robotics Company, LTD. Taipei City City Detectors and test strip 6,500 6,500 1,275 100% 298 1,275 100% (162) Manufacturing of equipment 43,200 - 2,160 20% 39,468 2,160 20% (19,504) (Note 2) Investment gain(losses) recognized by FGH Investment gain(losses) recognized by GLB Investment gain(losses) recognized by Mactech Note 1: The carrying value had been deducted $559, 812 and $321, 435 of the Company’s stock held by Panpal and Gempal, respectively. Note 2: The transactions had been eliminated in the consolidated financial statements. Note 3: CBN had received the capital returned from Speedlink in November 2019, however, the liquidation procedures of Speedlink has not been completed as of December 31, 2019. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 120 Table 9 Information on investment in Mainland China: (December 31, 2019) (i) The names of investees in Mainland China, the main businesses and products, and other information: Name of investee CPC CDT CET CSD Zheng Ying Electronics (Chongqing) Co., Ltd. BT CGS LIZ Electronics (Kunshan) Co., Ltd. LIZ Electronics (Nantong) Co., Ltd. CIC CPO CIT Main businesses and products Manufacturing and sales of monitors Manufacturing and sales of notebook PCs, mobile phones, and Digital products Manufacturing of notebook PCs Manufacturing of notebook PCs Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self -produced products Maintenance and warranty service of notebook PCs Production and processing chipresistors, ceramic capacitors, diodes, and other latest electronic components and related precision electronic equipment; selling self-produced products Research & development, and manufacturing chip components( chip resistors, ceramic chip diode； selling self- produced products and providing after-sales service. Performing wholesale and trading business of electronic components, semiconductors, special materials for electronic components, and spare parts Research, manufacture and sales of communication devices, mobile phones, electronic computer, smart watch, and provide related technology service Manufacturing of notebook PCs Manufacturing and sales of LCD TVs Manufacturing of notebook PCs Accumulated outflow of investment from Taiwan as of January 1, 2019 1,109,260 Total amount of paid-in capital 1,109,260 Method of investment (Note 1) 599,600 (Note 2) 599,600 359,760 (Note 2) 359,760 258,200 (Note 2) (Note 3) 67,890 (Note 2) (Note 3) 29,980 (Note 2) 29,980 8,607 (Note 2) (Note 3) Investment flows Outflow Inflow - - - - - - - - - - - - - - (In Thousands of New Taiwan Dollars/ shares) Accumulated outflow of investment from Taiwan as of December 31, 1,109,260 Net income (losses) of the investee Percentage of ownership Investment income (losses) (Note 4) 108,135 100% 108,135 Book value 2,104,710 Accumulated remittance of earnings in current period - 599,600 (82,463) 100% (82,463) 111,528 359,760 (86,495) 100% (86,495) 4,633,042 - - 50,016 100% 50,016 (194,926) (5,369) 51% (2,738) (41,719) 29,980 (49,888) 100% (49,888) (241,226) - 9,113 100% 9,113 (27,249) - - - - - - 959,360 (Note 1) 399,633 - - 399,633 (265,239) 43% (114,530) 372,172 - 599,600 (Note 1) 44,071 - - 44,071 (134,637) 48% (64,155) 362,578 - 359,760 (Note 2) 359,760 362,758 (Note 1) 362,758 719,520 (Note 2) 719,520 - - - - - - 359,760 238,365 100% 238,365 7,523,588 362,758 89,531 100% 89,531 2,777,145 719,520 601,984 100% 601,984 20,539,996 - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 121 Table 9 Information on investment in Mainland China: (December 31, 2019) (i) The names of investees in Mainland China, the main businesses and products, and other information: Investment flows Outflow Inflow Accumulated outflow of investment from Taiwan as of January 1, 2019 41,972 Total amount of paid-in capital 41,972 Method of investment (Note 2) 59,960 (Note 2) 59,960 299,800 (Note 2) 152,898 467,688 (Note 2) 467,688 449,700 (Note 2) (Note 3) 2,422,984 (Note 1) 2,422,984 2,398,400 (Note 2) (Note 3) - - - - - - - 23,984 (Note 2) (Note 3) - 299,800 (Note 1) 299,800 - Name of investee CST CIN Sheng Bao Precision Electronics (Taicang) Co., Ltd. CIJ CDE CIS CEC CMC CEQ Main businesses and products International trade and distribution of computers and electronic components Software and hardware R&D of computers, mobile phones and electronic components Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self- produced products Investment and consulting services Manufacturing and sales of LCD TVs Outward investment and consulting services R&D and manufacturing of notebook PCs, tablet PCs, digital products, network switches, wireless AP, and automobile electronic products Corporate management consulting, financial and tax consulting, investment consulting, and investment management consulting services R&D, manufacturing and sales of notebook PCs and related components. Also provides related maintenance and warranty services Compal Precision Module (Jiangsu) Co., Ltd. Manufacturing and selling of magnesium alloy injection molding 12,291,800 (Note 2) 2,477,157 Changbao Electronic Technology (Chongqing) Co., Ltd. Rayonnant (Taicang) CCI Nanjing CDCN CWCN Production and marketing of magnesium alloy molding Manufacturing and sales of aluminum alloy and magnesium alloy products Manufacturing and processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs 1,798,800 (Note 2) 343,451 539,640 (Note 2) 374,750 659,560 (Note 1) 659,560 173,884 (Note 1) 173,884 1,469,020 (Note 1) 569,620 - - - - - - - - - - - - - - - - - - - - - (In Thousands of New Taiwan Dollars/ shares) Accumulated outflow of investment from Taiwan as of December 31, 41,972 Net income (losses) of the investee Percentage of ownership Investment income (losses) (Note 4) (834) 100% (834) Book value 47,429 Accumulated remittance of earnings in current period - 59,960 (2) - (2) - 152,898 (52,865) 51% (26,961) 31,056 467,688 (99,921) 100% (99,921) 832,860 - (104,887) 100% (104,887) 799,252 2,422,984 164,336 100% 164,336 3,855,996 - - 164,343 100% 164,343 3,825,842 20 100% 20 23,833 299,800 132,167 100% 132,167 2,325,040 2,477,157 669,692 37% 245,241 5,703,239 343,451 (273,107) 37% (100,012) 884,827 374,750 6,381 100% 6,381 173,536 659,560 45,661 100% 45,661 (966,915) 173,884 1,484 100% 1,484 83,584 569,620 (167,898) 100% (167,898) 261,396 - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 122 Table 9 Information on investment in Mainland China: (December 31, 2019) (i) The names of investees in Mainland China, the main businesses and products, and other information: Name of investee Hanhelt Arcadyan SVA Arcadyan CNC THAC HengHao HengHao Optoelectronic Technology (Kunshan) Co., Ltd. (“HengHao Kunshan”) Main businesses and products R&D and manufacturing of electronic communication equipment R&D and sales of wireless network products Manufacturing and wireless network products Manufacturing of household electronics products Production of touch panels and related components Accumulated outflow of investment from Taiwan as of January 1, 2019 Investment flows Outflow Inflow 59,960 - Total amount of paid-in capital 59,960 Method of investment (Note 1) 393,262 (Note 1) 373,749 (Note 1) 100,567 (Note 1、 10) 552,969 (Note 7) 330,550 (Note 8) 34,523 1,199,200 (Note 1) 1,193,294 - - - - (In Thousands of New Taiwan Dollars/ shares) Net income (losses) of the investee Percentage of ownership Investment income (losses) (Note 4) (31) 100% (31) Book value 2,998 Accumulated remittance of earnings in current period - Accumulated outflow of investment from Taiwan as of December 31, 59,960 - 552,969 5,750 100% 5,750 127,495 330,550 57,002 100% 57,002 871,090 34,523 10,665 100% 10,665 80,484 1,193,294 (282,492) 100% (282,492) (159,874) 194,841 1,027 100% 1,027 132,650 - - - - - - - - - - - Lucom Display Technology (Kunshan) Limited(“Lucom”) Manufacturing of notebook PCs and related modules 449,700 (Note 2) 194,841 - (Note 12) (ii) Limitation on investment in Mainland China: Names of Company The Company Arcadyan HengHao Accumulated Investment in Mainland China as of December 31, 2019 16,325,219 (US$544,537) (Note 5) 918,042 1,405,223 (US$30,581) (US$46,872) Investment Amounts Authorized by Investment Commission of Ministry of Economic Affairs 22,523,344 (US$751,279) Limitation on investment in Mainland China by Investment Commission of Ministry of Economic Affairs (Note 6) (In Thousands of USD) 918,042 (US$30,581) 1,405,223 (US$46,872) 6,542,836 (Note 13) Note 1: Note 2: Note 3: Note 4: Note 5: Indirectly investment in Mainland China through companies registered in the third region. Indirectly investment in Mainland China through an existing company registered in the third region. Investees held by Kunshan Botai Electronics Co., Ltd. (“BT”), Compal Investment (Jiansu) Co., Ltd. (“CIJ”), Compal Electronic (Sichuan) Co., Ltd. (“CIS”), and Compal Electronics (China) Co., Ltd. (“CPC”) through their own funds. The investment income (loss) was determined based on the financial report audited by the CPAs. Including the investment amount of sold or dissolved companies, including Beijing Compower Xuntong Electronic Technology Co., Ltd., VAP Optoelectronics (NanJing) Corp., Flextronics Technology (Shanghai) Ltd., Lucom, LCFC (HeFei) Electronics Technology Co., Ltd. and the increased investment amount form merging with Compal Communication Co., Ltd. Note 6: Note 7: Note 8: Note 9: Note 10: Note 11: Note 12: As the Company has obtained the certificate of being qualified for operating headquarters, issued by Industrial Development Bureau, MOEA, the upper limit on investment in mainland China is not applicable. Arcadyan paid US$18,420 thousands and acquired 100% shares of SVA Arcadyan from Accton Asia through Arcadyan Holding in 2010. Arcadyan paid US$8,561 thousands and acquired 100% shares of CNC from Just through Arcadyan Holding in 2007. SVA Arcadyan decreased its capital amounting to US$15,000 thousands to offset accumulated losses in March 2009. Arcadyan’s subsidiary, TTI, obtained the control over THAC with US$1,150 thousands on February 28, 2013 (the date of stock transferring). The amounts in New Taiwan Dollars were translated at the exchange rates at the balance sheet date or the average exchange rate. The Company had an accumulated investment amounting to US$7,350 thousands in the previous years. In the first half of 2014, HengHao paid the Company and LG US$3,184 thousands and US$3,315 thousands, respectively, for organization restructure, to obtain 100% ownership of Lucom. Note 13: The net equity of HengHao is negative at December 31, 2019. (iii) Significant transactions: For the year ended December 31, 2019, the significant inter-company transactions with the subsidiary in Mainland China, which were eliminated in the preparation of consolidated financial statements, are disclosed in “Information on significant transactions” and “Business relationships and significant intercompany transactions”. Attachment II 1 Stock Code:2324 COMPAL ELECTRONICS, INC. Parent Company Only Financial Statements With Independent Auditors’ Report For the Years Ended December 31, 2019 and 2018 Address: Telephone: No.581 & 581-1, Ruiguang Rd., Neihu District, Taipei, Taiwan (02)8797-8588 Table of contents 2 Contents Page 1. Cover Page 2. Table of Contents 3. Independent Auditors’ Report 4. Balance Sheets 5. Statements of Comprehensive Income 6. Statements of Changes in Equity 7. Statements of Cash Flows 8. Notes to the Parent-Company-Only Financial Statements (1) Company history (2) Approval date and procedures of the financial statements (3) New standards, amendments and interpretations adopted (4) Summary of significant accounting policies (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty (6) Explanation of significant accounts (7) Related-party transactions (8) Pledged assets (9) Commitments and contingencies (10) Losses due to major disasters (11) Subsequent events (12) Other (13) Other disclosures 1 2 3 4 5 6 7 8 8 8～11 11～31 31～32 32～66 66～73 73 73 73 73 73～74 (a) Information on significant transactions (b) Information on investees (c) Information on investment in Mainland China (14) Segment information 9. List of major accounting items 74～75, 86~95 75, 96~101 75, 102~104 75 76～85 3 Independent Auditor’s Report To COMPAL ELECTRONICS, INC.: Opinion We have audited the financial statements of COMPAL ELECTRONICS, INC. (the “ Company” ), which comprise the balance sheets as of December 31, 2019 and 2018, the statement of comprehensive income, changes in equity and cash flows for the years ended December 31, 2019 and 2018, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended December 31, 2019 and 2018, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Basis for Opinion We conducted our audit of the financial statements as of and for the year ended December 31, 2019 in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants, Rule No. 1090360805 issued by the Financial Supervisory Commission, and the auditing standards generally accepted in the Republic of China. Furthermore, we conducted our audit of the financial statements as of and for the year ended December 31, 2018 in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants, and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of Financial Statements section of our report. We are independent of the Company in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1. Account receivable valuation Please refer to Note (4)(f) for the accounting policy of accounts receivable. Information of account receivable valuation are shown in Note (6)(e) of the financial statements. 3-1 Description of key audit matters: The Company devotes to develop new product lines and customers in emerging countries, and the credit risks of these customers are higher than other world leading enterprises. Therefore, valuation of accounts receivable has been identified as a key audit matter. Our key audit procedures performed in respect of the above area included the following: In order to evaluate the reasonableness of the Company's estimations for bad debts, our key audit procedures included reviewing if the measurement of impairment loss of accounts receivable is accordance with accounting policy, examining the historical recovery records, analyzing the aging of accounts receivable, and the current credit status of customers, as well as inspecting the amount collected in the subsequent period. 2. Inventory valuation Please refer to Note (4)(g) and Note (5) for the accounting policy of inventory valuation, as well as the estimation and assumption uncertainty of the valuation of inventory, respectively. Information of estimation of the valuation of inventory are disclosed in Note (6)(g) of the financial statements. Description of key audit matters: The inventory is measured at the lower of cost or net realizable value. The short life cycle of electronic products may cause significant changes in customers’ demand and sales of related products. Consequently, the book value of inventory may be lower than the net realizable value of inventory. Therefore, the valuation of inventory is one of the key audit matters. Our key audit procedures performed in respect of the above area included the following: In order to verify the rationality of assessment of inventory valuation estimated by the Company, our key audit procedures included reviewing the consistency of prior year and accounting policy, inspecting the Company's inventory aging reports, analyzing the change of inventory aging, as well as verifying the inventory aging reports and the calculation of lower of cost or net realizable value. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the 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 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 members of the Audit Committee) are responsible for overseeing the Company’s financial reporting process. 3-2 Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’ s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the 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 the one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the investment in other entities accounted for using the equity method to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Szu-Chuan Chien and Yiu-Kwan Au. 3-3 KPMG Taipei, Taiwan (Republic of China) March 30, 2020 The accompanying parent company only financial statements are intended only to present the financial position, financial performance and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such parent company only financial statements are those generally accepted and applied in the Republic of China. Notes to Readers Assets Current assets: December 31, 2019 Amount % December 31, 2018 Amount % Cash and cash equivalents (note (6)(a)) $ 13,459,969 4.0 20,446,378 1100 1110 1136 1170 1180 1200 1310 1470 1550 1510 1517 1600 1755 1780 1840 1990 Current financial assets at fair value through profit or loss (note (6)(b)) Current financial assets at amortized cost (note (6)(d)) Notes and accounts receivable, net (note (6)(e)) Notes and accounts receivable due from related parties, net (notes (6)(e) and 7) Other receivables, net (notes (6)(f) and 7) Inventories (note (6)(g)) Other current assets Non-current assets: Investments accounted for using equity method (note (6)(h)) Non-current financial assets at fair value through profit or loss (note (6)(b)) Non-current financial assets at fair value through other comprehensive income (note (6)(c)) Property, plant and equipment (note (6)(j)) Right-of-use assets (note (6)(k)) Intangible assets Deferred tax assets (note (6)(q)) Other non-current assets COMPAL ELECTRONICS, INC. Balance Sheets December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars) 5.7 0.1 0.1 149,888 - - - 284,768 350,000 176,967,731 52.4 189,496,594 53.3 1,052,131 3,110,607 0.3 0.9 1,318,230 1,418,750 0.4 0.4 50,048,069 14.9 51,517,159 14.5 734,434 0.2 541,027 0.1 245,522,829 72.7 265,372,906 74.6 83,430,169 24.7 83,299,238 23.5 71,097 - 23,745 - 3,019,393 2,620,638 1,387,615 438,334 1,166,808 0.9 0.8 0.4 0.1 0.4 3,731,918 2,128,181 - 378,745 760,580 1.0 0.6 - 0.1 0.2 126,605 - 117,500 - Liabilities and Equity Current liabilities: Short-term borrowings (note (6)(l)) Current contract liabilities (note (6)(u)) Notes and accounts payable Notes and accounts payable to related parties (note 7) Other payables (note 7) Current tax liabilities Current lease liabilities (note (6)(n)) Other current liabilities Current refund liabilities Long-term borrowings, current portion (note (6)(m)) Non-Current liabilities: Long-term borrowings(note (6)(m)) Deferred tax liabilities (note (6)(q)) Non-current lease liabilities (note (6)(n)) Non-current net defined benefit liability (note (6)(p)) Non-current liabilities, others (note (6)(h)) 2100 2130 2170 2180 2200 2230 2280 2300 2365 2322 2540 2570 2580 2640 2670 4 December 31, 2019 Amount % December 31, 2018 Amount % $ 39,363,800 11.7 51,305,682 14.4 877,822 74,138,921 74,925,238 9,390,399 2,107,283 387,499 348,480 1,182,501 18,150,000 0.3 21.9 22.2 2.8 0.6 0.1 0.1 0.4 5.3 1,405,452 77,050,816 78,376,843 8,392,511 1,787,434 - 587,308 1,480,446 17,496,250 0.4 21.7 22.0 2.4 0.5 - 0.2 0.4 4.9 220,871,943 65.4 237,882,742 66.9 7,500,000 893,232 1,010,933 643,253 891,494 10,938,912 2.2 0.3 0.3 0.2 0.2 3.2 10,900,000 386,555 - 621,581 298,289 12,206,425 3.0 0.1 - 0.2 0.1 3.4 Total assets $ 337,783,488 100.0 355,812,813 100.0 Total liabilities and equity Equity (notes (6)(r) and (6)(s)): 3110 3200 3300 3400 3500 Ordinary share Capital surplus Retained earnings Other equity interest Treasury shares Total equity 44,071,466 13.1 44,071,466 12.4 9,159,259 2.7 9,932,434 2.8 57,726,604 17.1 60,060,381 16.9 (4,103,449) (1.2) (7,459,388) (2.1) (881,247) (0.3) (881,247) (0.3) 105,972,633 31.4 105,723,646 29.7 $ 337,783,488 100.0 355,812,813 100.0 92,260,659 27.3 90,439,907 25.4 Total liabilities 231,810,855 68.6 250,089,167 70.3 See accompanying notes to financial statements. COMPAL ELECTRONICS, INC. Statements of Comprehensive Income For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Share) 5 2019 2018 Amount % Amount % 4000 5000 5910 6100 6200 6300 7020 7050 7190 7370 7900 7950 8300 8310 8311 8316 8330 8349 8360 8361 8380 8399 8300 8500 9750 9850 Net sales revenue (notes (6)(u) and 7) Cost of sales (notes (6)(g), (6)(p), 7 and 12) Gross profit Less: Unrealized profit (loss) from sales Gross profit Operating expenses: (notes (6)(o), (6)(p) and 12) Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: Other gains and losses, net (note (6)(w)) Finance costs Other income (notes (6)(o) and (6)(w)) Share of profit of associates and joint ventures accounted for using equity method(note (6)(h)) Total non-operating income and expenses Profit from continuing operations before tax Less: Income tax expenses (note (6)(q)) Profit Other comprehensive income: Components of other comprehensive income (loss) that will not be reclassified to profit or loss Gains (losses) on remeasurements of defined benefit plans Unrealized gains (losses) from investments in equity instruments measured at fair value through other comprehensive income Share of other comprehensive income of subsidiaries, associates and joint ventures accounted for using equity method, components of other comprehensive income that will not be reclassified to profit or loss Income tax related to components of other comprehensive income that will not be reclassified to profit or loss Components of other comprehensive income that will not be reclassified to profit or loss Components of other comprehensive income (loss) that will be reclassified to profit or loss $916,280,028 100.0 911,050,122 100.0 97.6 2.4 - 2.4 97.3 889,171,625 21,878,497 (2,344) 21,880,841 891,431,772 24,848,256 (893) 24,849,149 2.7 - 2.7 3,532,483 2,318,452 10,461,262 16,312,197 8,536,952 (420,923) (1,969,101) 653,839 1,022,912 (713,273) 7,823,679 867,780 6,955,899 0.4 0.3 1.1 1.8 0.9 - (0.2) 0.1 0.1 - 0.9 0.1 0.8 3,157,897 2,389,356 9,396,882 14,944,135 6,936,706 (126,030) (1,938,044) 887,354 4,198,330 3,021,610 9,958,316 1,044,951 8,913,365 0.3 0.3 1.0 1.6 0.8 - (0.2) 0.1 0.4 0.3 1.1 0.1 1.0 (32,645) 120,897 359,147 3,056 444,343 - - - - - (20,189) - (1,096,846) (0.1) (212,493) (69,926) - - (1,259,602) (0.1) Exchange differences on translation of foreign financial statements (1,620,812) (0.2) 1,853,763 0.1 Share of other comprehensive income of subsidiaries, associates and joint ventures accounted for using equity method, components of other comprehensive income that will be reclassified to profit or loss Income tax related to components of other comprehensive income that will be reclassified to profit or loss (322,922) - - - (229,339) - - - Components of other comprehensive income that will be reclassified to profit or loss (1,943,734) (0.2) 1,624,424 0.1 Other comprehensive income Total comprehensive income Earnings per share (note 6(t)) Basic earnings per share Diluted earnings per share (1,499,391) (0.2) 364,822 - 5,456,508 0.6 9,278,187 1.0 1.60 1.58 2.05 2.02 $ $ $ See accompanying notes to financial statements. COMPAL ELECTRONICS, INC. Statements of Changes in Equity For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars) 6 Retained earnings Special reserve 4,339,549 - - - - 4,491,599 - - - - - - - 8,831,148 - - - - (1,363,317) - - - - - - 7,467,831 Unappropriated retained earnings 34,458,787 8,913,365 14,094 8,927,459 (574,953) (4,491,599) (4,407,147) - (521,643) Total retained earnings 57,051,197 8,913,365 14,094 8,927,459 - - (4,407,147) - (521,643) (1,156) 36,141 (1,156) 36,141 - - (1,024,470) 32,401,419 6,955,899 (30,420) 6,925,479 (891,336) 1,363,317 (4,407,147) (1,024,470) 60,060,381 6,955,899 (30,420) 6,925,479 - - (4,407,147) - - (27,199) (27,199) - (4,824,910) 30,539,623 (4,824,910) 57,726,604 - - - Total other equity interest Unrealized gains (losses) on financial assets measured at fair value through other comprehensive income Unearned employee benefit and others Exchange differences on translation of foreign financial statements (3,477,376) (5,847,823) - 1,624,424 1,624,424 - (1,273,696) (1,273,696) (79,856) - - - Total other equity interest (9,405,055) - 350,728 350,728 - - - - 489,483 1,130 79,856 - 79,856 1,024,470 (7,459,388) - (1,706) (1,706) (1,468,971) (1,468,971) - - - - - - - (1,706) 4,824,910 (4,103,449) Treasury shares Total equity (881,247) 101,895,584 8,913,365 364,822 9,278,187 - - - - - - - - - - - - - - (4,407,147) (881,429) (64,866) (485) (156,219) 60,021 - (881,247) 105,723,646 6,955,899 (1,499,391) 5,456,508 - - - - - - - - - - - - - (4,407,147) (881,429) 43,473 (22,439) 60,021 - (881,247) 105,972,633 - - - - - - - - - (1,852,952) - (1,942,028) (1,942,028) - - - - - - - - (3,794,980) - - - - 489,483 1,130 - - 1,024,470 (5,606,436) - 474,763 474,763 - - - - - - - 4,824,910 (306,763) - - - - - - - - - - - - - - - - - - Balance at January 1, 2018 Profit for the year ended December 31, 2018 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Ordinary shares $ 44,191,916 - - - Capital surplus 10,938,773 - - - - - - - - - - - - (881,429) (32,706) (459) (151,766) Legal reserve 18,252,861 - - - 574,953 - - - - - - - Share-based payments transaction Adjustments of capital surplus for company's cash dividends received by (120,450) subsidiaries - 60,021 Disposal of investments in equity instruments measured at fair value through other comprehensive income Balance at December 31, 2018 Profit for the year ended December 31, 2019 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Adjustments of capital surplus for company's cash dividends received by subsidiaries Disposal of investments in equity instruments measured at fair value through - 44,071,466 - - - - - - - - - - - 9,932,434 - - - - - - (881,429) 43,473 4,760 60,021 - 18,827,814 - - - 891,336 - - - - - - other comprehensive income Balance at December 31, 2019 - $ 44,071,466 - 9,159,259 - 19,719,150 See accompanying notes to financial statements. COMPAL ELECTRONICS, INC. Statements of Cash Flows For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation and amortization Increase in expected credit loss Net gain on financial assets or liabilities at fair value through profit or loss Finance cost Interest income Dividend income Compensation cost of share-based payments Share of profit of subsidiaries, associates and joint ventures accounted for using equity method Loss on disposal of investments Others Total adjustments to reconcile profit (loss) Changes in operating assets and liabilities: Changes in operating assets: Decrease (increase) in financial assets at fair value through profit or loss Decrease (increase) in notes and accounts receivable Decrease (increase) in other receivables Decrease (increase) in inventories Decrease (increase) in other current assets Total changes in operating assets Changes in operating liabilities: Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Increase (decrease) in refund liabilities Increase (decrease) in contract liabilities Increase (decrease) in other current liabilities Others Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash inflow (outflow) generated from operations Interest received Dividends received Interest paid Income taxes paid Net cash flows from (used in) operating activities Cash flows from (used in) investing activities: Redemption from financial assets at amortized cost Acquisition of financial assets at fair value through profit or loss and through other comprehensive income Proceeds from disposal of financial assets at fair value through profit or loss and through other comprehensive income Acquisition of investments accounted for using equity method Proceeds from disposal of investments accounted for using equity method Proceeds from capital reduction of investments Acquisition of property, plant and equipment Increase in other receivables due from related parties Acquisition of intangible assets Others Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Payment of lease liabilities Cash dividends paid Others Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period See accompanying notes to financial statements. 7 2019 2018 $ 7,823,679 9,958,316 1,017,058 1,537 (14,195) 1,969,101 (184,607) (71,778) - (1,022,912) (8,990) (48) 1,685,166 (149,888) 12,793,425 (316,517) 1,469,090 (193,407) 13,602,703 (6,363,500) 1,176,316 (297,945) (527,630) (238,828) (11,365) (6,262,952) 7,339,751 9,024,917 16,848,596 231,795 536,175 (2,147,529) (450,537) 15,018,500 350,000 (74,992) 1,152,409 (341,107) 18,034 22,426 (761,929) (1,587,080) (384,816) (6,244) (1,613,299) (11,941,882) 66,503,625 (69,249,875) (414,856) (5,288,576) (46) (20,391,610) (6,986,409) 20,446,378 13,459,969 $ 456,117 1,065 (95,526) 1,938,044 (332,905) (212,129) (156,219) (4,198,330) - - (2,599,883) - (23,179,534) (629,912) (8,531,796) 63,537 (32,277,705) 11,759,347 1,172,349 40,154 (212,174) (77,610) (12,315) 12,669,751 (19,607,954) (22,207,837) (12,249,521) 314,650 592,252 (1,769,911) (684,300) (13,796,830) - 350,000 (131,622) 865,964 (29,558) 8,054 (203,186) (321,840) (521,722) (10,572) 5,518 9,919,682 34,258,000 (32,994,950) - (5,288,576) - 5,894,156 (7,897,156) 28,343,534 20,446,378 COMPAL ELECTRONICS, INC. Notes to the Parent-Company-Only Financial Statements For the years ended December 31, 2019 and 2018 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified) 8 (1) Company history Compal Electronics, Inc. (the “Company”) was incorporated in June 1984 as a company limited by shares and registered under the Ministry of Economic Affairs, R.O.C. The address of the Company's registered office is No.581 and No.581-1 Ruiguang Rd., Neihu Dist., Taipei City, Taiwan. In accordance with Article 19 of the Business Mergers and Acquisitions Act, the Company merged its subsidiary, Compal Communications, Inc. (“ CCI” ) (the “ Merger” ), pursuant to the resolutions of the Board of Directors in November, 2013. The Company was the surviving company and CCI was the dissolved company. The effective date of the Merger was February 27, 2014. The Company is primarily involved in the manufacture and sale of notebook personal computers (“ notebook PCs” ), monitors, LCD TVs, mobile phones and various components and peripherals. (2) Approval date and procedures of the financial statements: The accompanying parent-company-only financial statements were authorized for issuance by the Board of Directors and issued on March 30, 2020. (3) New standards, amendments and interpretations adopted: (a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted. The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019. New, Revised or Amended Standards and Interpretations IFRS 16 “Leases” IFRIC 23 “Uncertainty over Income Tax Treatments” Effective date per IASB January 1, 2019 January 1, 2019 Amendments to IFRS 9 “Prepayment features with negative compensation” January 1, 2019 Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” January 1, 2019 Amendments to IAS 28 “Long-term interests in associates and joint ventures” January 1, 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019 Except for the following items, the Company believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of significant changes are as follows: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 9 (i) IFRS 16“Leases” IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The Company applied IFRS 16 using the modified retrospective approach, there was no effect on retained earnings on January 1, 2019. The details of the changes in accounting policies are disclosed below, 1) Definition of a lease Previously, the Company determined at contract inception whether an arrangement is or contains a lease under IFRIC 4. Under IFRS 16, the Company assesses whether a contract is or contains a lease based on the definition of a lease, as explained in note (4)(k). On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Company applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019. 2) As a lessee As a lessee, the Company previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Company. Under IFRS 16, the Company recognizes right-of-use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet. ● Leases classified as operating leases under IAS 17 At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Company’ s incremental borrowing rate as at January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments – the Company applied this approach to all leases. In addition, the Company used the following practical expedients when applying IFRS 16 to leases. － Applied a single discount rate to a portfolio of leases with similar characteristics. － Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than 12 months of lease term. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 10 － Excluded initial direct costs from measuring the right-of-use asset at the date of initial application. － Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. ● Leases previously classified as finance leases For leases that were classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and the lease liability at January 1, 2019 are determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date. 3) As a lessor The Company is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor. The Company accounted for its leases in accordance with IFRS 16 from the date of initial application. 4) Impacts on financial statements On transition to IFRS 16, the Company recognized additional $821,816 thousands of right-of-use assets and lease liabilities. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied is 1.2%. The explanation of differences between operating lease commitments disclosed at the end of the annual reporting period immediately preceding the date of initial application, and lease liabilities recognized in the statement of financial position at the date of initial application disclosed as follows: Operating lease commitment at December 31, 2018 as disclosed in the Company’s financial statements Discounted using the incremental borrowing rate at January 1, 2019 Finance lease liabilities recognized as at December 31, 2018 Lease liabilities recognized at January 1, 2019 January 1, 2019 $ $ $ 837,450 821,816 - 821,816 (b) The impact of IFRS endorsed by FSC but not yet effective The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2020 in accordance with Rule No. 1080323028 issued by the FSC on July 29, 2019: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 11 New, Revised or Amended Standards and Interpretations Amendments to IFRS 3 “Definition of a Business” Effective date per IASB January 1, 2020 Amendments to IFRS 9, IAS39 and IFRS7 “Interest Rate Benchmark Reform” January 1, 2020 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 The Company assesses that the adoption of the above mentioned standards would not have any material impact on its financial statements. (c) The impact of IFRS issued by IASB but not yet endorsed by the FSC As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (“IASB”), but have yet to be endorsed by the FSC: New, Revised or Amended Standards and Interpretations Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Effective date per IASB Effective date to be determined by IASB January 1, 2021 Amendments to IAS 1 “Classification of Liabilities as Current or Non-current” January 1, 2022 The Company is evaluating the impact of its initial adoption of the above-mentioned standards or interpretations on its financial position and financial performance. The results thereof will be disclosed when the Company completes its evaluation. (4) Summary of significant accounting policies: The significant accounting policies presented in the parent-company-only financial statements are summarized as follows. The following accounting policies were applied consistently throughout the periods presented in the parent-company-only financial statements. (a) Statement of compliance These parent-company-only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. (b) Basis of preparation (i) Basis of measurement Except for the following significant accounts in the statement of financial position, the parent- company-only financial statements have been prepared on the historical cost basis: 1) 2) Financial instruments measured at fair value through profit or loss are measured at fair value; Financial instruments measured at fair value through other comprehensive income are measured at fair value; (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 12 3) The defined benefit liability (or asset) is recognized as plan assets less the present value of the defined benefit obligation and the effect of the asset ceiling mentioned in note (4)(q). (ii) Functional and presentation currency The functional currency of the Company is determined based on the primary economic environment in which the Company operates. The parent-company-only financial statements are presented in New Taiwan Dollar, which is the Company’ s functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. (c) Foreign currency (i) Foreign currency transaction Transactions in foreign currencies are translated to the respective functional currencies of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortized cost in the functional currency at the beginning of the year adjusted for the effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for the following differences which are recognized in other comprehensive income arising on the retranslation: 1) 2) fair value through other comprehensive income financial assets financial assets; a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or 3) qualifying cash flow hedges to the extent the hedge is effective (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Company’s functional currency at exchange rates of the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Company’ s functional currency at average rate. Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation differences in equity. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 13 When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Company disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non- controlling interest. When the Company disposes of only part of investment in an associate of joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. (d) Classification of current and non-current assets and liabilities An asset is classified as current under one of the following criteria, and all other assets are classified as non-current. (i) It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; (ii) It holds the asset primarily for the purpose of trading; (iii) It expects to realize the asset within twelve months after the reporting period; or (iv) The asset is cash and cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. A liability is classified as current under one of the following criteria, and all other liabilities are classified as non-current. (i) It expects to settle the liability in its normal operating cycle; (ii) It holds the liability primarily for the purpose of trading; (iii) The liability is due to be settled within twelve months after the reporting period; or (iv) The Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not impact its classification. (e) Cash and cash equivalents Cash comprise cash on hand and demand deposits. Cash equivalents are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 14 The time deposits which meet the above definition and are held for the purpose of meeting short- term cash commitments rather than for investment or other purposes are reclassified as cash equivalents. (f) Financial instruments (i) Financial assets Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (“ FVOCI” ) and fair value through profit or loss (“FVTPL”). The Company shall reclassify all affected financial assets only when it changes its business model for managing its financial assets. 1) Financial assets measured at amortized cost A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and •its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 2) Fair value through other comprehensive income (“FVOCI”) A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and •its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Some accounts receivables are held within a business model whose objective is achieved by both collecting contractual cash flows and selling by the Company, therefore, those receivables are measured at FVOCI and presented as accounts receivable. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 15 On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’ s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis. A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. Dividend income derived from equity investments is recognized on the date that the Company’s right to receive payment is established, which in the case of quoted securities is normally the date the shareholders' meeting approved the earning distribution. 3) Fair value through profit or loss (“FVTPL”) All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 4) Impairment of financial assets The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, financial assets measured at amortized costs, notes and accounts receivable, other receivable, guarantee deposit and other financial assets), debt investments measured at FVOCI, and accounts receivable measured at FVOCI. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 16 The Company measures loss allowances at an amount equal to lifetime expected credit loss (“ECL”), except for the following which are measured as 12-month ECL: •debt securities that are determined to have low credit risk at the reporting date; and • other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Company’ s historical experience and informed credit assessment as well as forward- looking information. The Company considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of “ investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher per Taiwan Ratings”. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when the financial asset is more than 90 days past due or the borrower is unlikely to pay its credit obligations to the Company in full. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 17 At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘ credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. An evidence that a financial asset is credit-impaired includes the following observable data: •significant financial difficulty of the borrower or issuer; •a breach of contract such as a default or being more than 90 days past due; •the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider; •it is probable that the borrower will enter bankruptcy or other financial reorganization; or •the disappearance of an active market for a security because of financial difficulties. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Company recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss. The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’ s procedures for recovery of amounts due. 5) Derecognition of financial assets Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a debt instrument in its entirety, the Company recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income”, in profit or loss, and presented it in the line item of non-operating income. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 18 On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss, and presented in the line item of non-operating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. (ii) Financial liabilities and equity instruments 1) Classification of debt or equity Debt or equity instruments issued by the Company are classified as financial liabilities or equity in accordance with the substance of the contractual agreement. Equity instruments refer to surplus equities of the assets after the deduction of all the debts for any contracts. Equity instruments issued are recognized as the amount of consideration received, less, the direct cost of issuing. Interest and loss or gain related to financial liabilities are recognized as profit or loss and are reported under non-operating income and expenses. Financial liabilities are reclassified as equity when converted, and conversions do not generate profit or loss. 2) Financial liabilities at fair value through profit or loss A financial liability is classified in this category if acquired principally for the purpose of selling in the short term. This type of financial liability is measured at fair value at the time of initial recognition, and attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein, which take into account any interest expense, are recognized in profit or loss, and are included in non-operating income or expenses. 3) Other financial liabilities Financial liabilities not classified as held-for-trading or designated as at fair value through profit or loss, which comprise loans and borrowings, and trade and other payable, are measured at fair value, plus, any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method other than significant interest on short-term loans and payables. Interest expense not capitalized as capital cost is recognized in profit or loss, and is included in non-operating income or expenses. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 19 4) Derecognition of financial liabilities The Company derecognizes a financial liability when its contractual obligation has been discharged, cancelled or expired. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, and is included in non- operating income or expenses. 5) Offsetting of financial assets and liabilities The Company presents financial assets and liabilities on a net basis when the Company has the legally enforceable right to offset and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously. (iii) Derivative financial instruments The Company holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Derivatives are initially measured at fair value. Any attributable transaction costs thereof are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss and are included in the line item of non-operating income. When a derivative is designated as, and effective for, a hedging instrument, its timing of recognition in profit or loss is determined based on the nature of the hedging relationship. When the fair value of a derivative instrument is positive, it is classified as a financial asset, whereas when the fair value is negative, it is classified as a financial liability. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the non-financial asset’ s host contract are not closely related to the embedded derivatives and the host contract is not measured at FVTPL. (g) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average-cost principle and includes expenditure incurred in acquiring the inventories, production or transition costs, and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less, the estimated costs of completion and selling expenses. (h) Investment in associates Associates are those entities in which the Company has significant influence, but not control or join control, over their financial and operating policies. Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill arising from the acquisition, less, any accumulated impairment losses. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 20 The parent-company-only financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees after adjustments to align the accounting policies with those of the Company from the date that significant influence commences until the date that significant influence ceases. When changes in an associate’s equity are not recognized in 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 recognizes the changes in ownership interests of its associate in capital surplus in proportion to its ownership. Unrealized profits resulting from the transactions between the Company and an associate are eliminated to the extent of the Company’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired. When the Company’ s share of losses exceeds its interest in associates, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. The Company shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture. The Company shall measure the retained interest at fair value. The difference between the fair value of retained interest and proceeds from disposal, and the carrying amount of the investment at the date the equity method was discontinued is recognized in profit or loss. The Company shall account for all the amounts previously recognized in other comprehensive income in relation to that investment on the same basis as would have been required if the associates had directly disposed of the related assets or liabilities. If a gain or loss previously recognized in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity shall reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. If an entity’s ownership interest in an associate or a joint venture is reduced while the entity continues to apply the equity method, the entity shall reclassify the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest to profit or loss. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Company shall continue to apply the equity method without remeasuring the retained interest. When the Company subscribes to additional shares in an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’ s proportionate interest in the net assets of the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus, however, when the balance of the capital surplus arising from the investment was insufficient, the difference charged or credited to retained earnings. If the Company’s ownership interest is reduced due to the additional subscription to the shares of associate by other investors, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as would be required if the associate had directly disposed of the related assets or liabilities. (i) Investment in subsidiaries (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 21 When preparing the parent-company-only financial statements, investment in subsidiaries which are controlled by the Company is accounted for using the equity method. Under the equity method, the amounts of net income, other comprehensive income and equity attributable to shareholders of the Company in the parent-company-only financial statement are equal to those in the consolidated financial statements. Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (j) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating. 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 shall be depreciated separately, unless the useful life and the depreciation method of a significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and it shall be recognized as other gains and losses. (ii) Subsequent cost Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance are expensed as incurred. (iii) Depreciation The depreciable amount of an asset is determined after deducting its residual amount, and it shall be allocated on a systematic basis over its useful life. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge for each period shall be recognized in profit or loss. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonably certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 22 Land has an unlimited useful life and therefore is not depreciated. The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: 1) 2) 3) 4) Buildings: 35~50 years Building improvement: 8~15 years Research equipment: 3 years Other equipment: 0.5~5 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change is accounted for as a change in an accounting estimate. (k) Leases Applicable after January 1, 2019 (i) Identifying a lease At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether: 1) 2) 3) the contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; and the Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and the Company has the right to direct the use of the asset when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Company has the right to direct the use of an asset if either: － the Company has the right to operate the asset and the providers do not have the right to vary; or － the Company designed the asset in a way that predetermines how and for what purpose it will be used. At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of land and buildings in which it is a lessee, the Company has elected not to separate non-lease components and account for the lease and non- (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 23 lease components as a single lease component. (ii) As a lessee The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be reliably determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: － fixed payments, including in-substance fixed payments; － variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; － amounts expected to be payable under a residual value guarantee; and － payments for purchase or termination options that are reasonably certain to be exercised. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when: － there is a change in future lease payments arising from the change in an index or rate; or － there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee; or － there is a change in the lease term resulting from a change of its assessment on whether it will exercise an option to purchase the underlying assets, or － there is a change of its assessment on whether it will exercise an extension or termination option; or － there is any lease modifications When the lease liability is remeasured, other than lease modifications, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or in profit and loss if the carrying amount of the right-of-use asset has been reduced to zero. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 24 When the lease liability is remeasured to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease, the Company accounts for the remeasurement of the lease liability by decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, and recognize in profit or loss any gain or loss relating to the partial or full termination of the lease. The Company presents right-of-use assets that do not meet the definition of investment and lease liabilities as a separate line item respectively in the statement of financial position. The Company has elected not to recognize right-of-use assets and lease liabilities for short- term leases of machinery and office equipment that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. (iii) As a lessor When the Company acts as a lessor, it determines at lease commencement whether each lease is a finance lease or an operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then the lease is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset. Applicable before January 1, 2019 (i) As lessor Lease income from operating lease is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straight-line basis so that the lease income received is reduced accordingly. (ii) As lessee Operating leases are not recognized in the Company’s balance sheets. Payments made under operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. (l) Intangible assets (i) Goodwill 1) Initial recognition Goodwill arising from acquisition of subsidiaries is included in intangible assets. The (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 25 measurement of initial recognition of goodwill, please refer to note (4)(t). 2) Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. Goodwill related to an investment accounted for using equity method is included in the carrying amount of the investment, and not allocated to any asset, including goodwill, forms part of the carrying amount of the investment accounted for using the equity method. (ii) Research & Development During the research phase, activities are carried out to obtain and understand new scientific or technical knowledge. Expenditures during this phase are recognized in profit or loss as incurred. Expenditures arising from the development phase shall be recognized as an intangible asset if all the conditions described below can be demonstrated; otherwise, they will be recognized in profit or loss as incurred. 1) 2) 3) 4) 5) 6) The technical feasibility of completing the intangible asset so that it will be available for use or sale. Its intention to complete the intangible asset and use or sell it. Its ability to use or sell the intangible asset. How the intangible asset will generate probable future economic benefits. The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. Its ability to measure reliably the expenditure attributable to the intangible asset during its development. Capitalized expenditure arising from the development phase is measured at cost less accumulated amortization and accumulated impairment losses. (iii) Other intangible assets Other intangible assets that are acquired by the Company are measured at cost, less accumulated amortization and any accumulated impairment losses. (iv) Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred. (v) Amortization (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 26 The amortizable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill and intangible assets with all indefinite useful life, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows: 1) 2) Patents: the shorter of contract period and estimated useful lives Computer software: 1~3 years The residual value, the amortization period, and the amortization method for an intangible asset with a finite useful life shall be reviewed at least annually at each fiscal year-end. Any change shall be accounted for as changes in accounting estimates. (m) Impairment of non-derivative financial assets Non-derivative financial assets except for inventories, deferred tax assets, and assets arising from employee benefits are assessed at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Company shall estimate the recoverable amount of the asset. If it is not possible to determine the recoverable amount (fair value less cost to sell and value in use) for the individual asset, then the Company will have to determine the recoverable amount for the asset's cash-generating unit. The Company assesses goodwill and intangible assets, which have indefinite useful lives and are not available for use, on an annual basis and recognizes an impairment loss on excess of carrying value over the recoverable amount. The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value, less costs to sell and its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss shall be recognized immediately in profit or loss. For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’ s cash-generating units, or groups of cash- generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or group of units. If the carrying amount of the cash-generating units exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss and the impairment loss shall be allocated to reduce the carrying amount of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited. The Company assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount. That increase is a reversal of an impairment loss. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 27 (n) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probably that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. (o) Treasury stock Repurchased shares are recognized under treasury shares (a contra-equity account) based on its repurchase price (including all directly accountable costs), and net of tax. Gains on disposal of treasury shares should be recognized under Capital Reserve – Treasury Shares Transactions; losses on disposal of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. The carrying amount of treasury shares should be calculated using the weighted average different types of repurchase. During the cancellation of treasury shares, Capital Reserve – Share Premiums and Share Capital should be debited proportionately. Gains on cancellation of treasury shares should be recognized under existing capital reserves arising from similar types of treasury shares; losses on cancellation of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. (p) Recognition of revenue (i) Revenue from contracts with customers Revenue is measured based on the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Company’ s main types of revenue are explained below. 1) Sale of goods The Company manufactures and sells electronic products to electronic products brand vendor. The Company recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’ s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that all criteria for acceptance have been satisfied. The Company assesses sales discounts based on historical experience, management's judgment and other known reasons. Such allowances are recognized as a deduction of (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 28 sales revenue in the same period in which sales are made. The aforementioned provisions are expected to settle over the next year. A refund liability is recognized for expected discounts payable to customers in relation to sales made until the end of the reporting period. No element of financing is deemed present as the sales of electronic products are made with a credit term which is consistent with the market practice. A receivable is recognized when the goods are delivered as this is the point in time that the Company has a right to an amount of consideration that is unconditional. 2) Financing components The Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the time value of money. (q) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities. If the benefits of a plan are improved, the pension cost incurred from the portion of the increased benefit relating to past service by employees, is recognized immediately in profit or loss. Re-measurement of net defined benefit liability (asset) (including actuarial gains, losses and the return on plan asset and changes in the effect of the asset ceiling, excluding any amounts included in net interest) is recognized in other comprehensive income (loss). The effect of re- (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 29 measurement of the defined benefit plan is charged to retained earnings. The Company recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets and change in the present value of defined benefit obligation. (iii) Short term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (r) Share-based payment The grant-date fair value of share-based payment awards granted to employee is recognized as employee expenses, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of award that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share- based payment is measured to reflect such conditions, and there is no true-up for differences between expected and actual outcomes. (s) Income taxes Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years. Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes shall not be recognized for the following exceptions: (i) Assets and liabilities that are initially recognized but are not related to the business combination and have no effect on net income or taxable gains (losses) during the transaction. (ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse. (iii) Initial recognition of goodwill. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 30 Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities may be offset against each other if the following criteria are met: (i) The entity has the legal right to settle tax assets and liabilities on a net basis; and (ii) the taxing of deferred tax assets and liabilities fulfill one of the below scenarios: 1) 2) levied by the same taxing authority; or levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched. A deferred tax asset should be recognized for the carry-forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and they shall be adjusted based on the probability that future taxable profit that will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. The surtax on unappropriated earnings is recoded as current tax expense in the following year after the resolution to appropriate retained earnings is approved in a stockholders’ meeting. (t) Business combination Goodwill is measured as an aggregation of the consideration transferred (which generally is measured at fair value at the acquisition date) and as an amount of any non-controlling interest in the acquiree, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed (generally at fair value). If the residual balance is negative, the Company shall re-assess whether it has correctly identified all of the assets acquired and liabilities assumed, and recognize a gain on the bargain purchase thereafter. All the transaction costs incurred for the business combination are recognized immediately as the Company’s expenses when incurred, except for the issuance of debt or equity instruments. If the business combination is achieved in stages, the Company shall measure any non-controlling equity interest in the acquire, either at fair value or at the non-controlling interest’ s proportionate share of the acquiree’s identifiable net assets. Other non-controlling interest is measured (1) at fair value at the acquisition date or (2) by using other valuation techniques acceptable under the IFRS as endorsed by the FSC. In a business combination achieved in stages, the Company shall re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss. In prior reporting periods, the Company may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 31 that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the Company had disposed directly of the previously held equity interest. If the disposal of the equity interest required a reclassification to profit or loss, such an amount shall be reclassified to profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Company shall retrospectively adjust the provisional amounts recognized at the acquisition date, or recognize additional assets or liabilities to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date. (u) Earnings per share The Company discloses the basic and diluted earnings per share attributable to ordinary equity holders of the Company. The calculation of basic earnings per share is based on the profit attributable to the ordinary shareholder of the Company divided by weighted average number of ordinary shares outstanding. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders of the Company divided by weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise restricted employee stock and employee compensation not yet approved by the Board of Directors. (v) Operating segments The operating segment information is disclosed within the consolidated financial statements but not disclosed in the parent-company-only financial statements. (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty: The preparation of the financial statements in conformity with the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates. The management continues to monitor the accounting estimates and assumptions. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the next period. There are no critical judgments in applying the accounting policies that have significant effect on the amounts recognized in the financial statements. In addition, information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is as follows: (a) Recognition and measurement of refund liabilities Because of the sales returns and allowances, the Company records refund liabilities (sales returns and allowances provisions) for estimated returns and other allowances in the same period the related revenue is recorded. The estimate is made based on historical experience, market and economic conditions, and any other known factors using the expected value or the most likely amount, and it (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 32 could be different from actual sales returns and allowances, therefore, the management periodically reviews the adequacy of the estimation used. (b) Valuation of inventories As inventories are stated at the lower of cost or net realizable value, the net realizable value of the inventory is mainly determined based on assumptions as to future demand within a specific time horizon. Due to the rapid industrial changes, there may be significant differences in the net realizable value of inventories. Refer to note (6)(g) for further description of the valuation of inventories. (6) Explanation of significant accounts: (a) Cash and cash equivalents Cash on hand Checking accounts and demand deposits Time deposits Bonds purchased under resale agreements December 31, 2019 December 31, 2018 $ 1,527 1,596 3,523,187 3,972,558 9,885,255 15,609,214 50,000 863,010 $ 13,459,969 20,446,378 Please refer to note (6)(x) for the disclosure of the exchange rate risk, the interest rate risk and the fair value sensitivity analysis of the financial assets and liabilities of the Company. (b) Financial assets and liabilities at fair value through profit or loss Mandatorily measured at fair value through profit or loss: Non-derivative financial assets Structured deposits Stock listed in domestic markets Stock unlisted in domestic markets Fund in domestic or foreign market Total Current Non-current December 31, 2019 December 31, 2018 $ 149,888 - - 24,350 46,747 220,985 149,888 71,097 220,985 $ $ $ 284,768 - 23,745 308,513 284,768 23,745 308,513 The market risk related to the financial instruments please refer to note (6)(x). As of December 31, 2019 and 2018, the Company did not provide any aforementioned financial (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 33 assets as collaterals for its loans. (c) Financial assets at fair value through other comprehensive income Equity investments at fair value through other comprehensive income: Stock listed in domestic markets Stock listed in foreign markets Stock unlisted in domestic markets Stock unlisted in foreign markets Total December 31, 2019 December 31, 2018 $ 1,614,565 2,383,976 448,110 914,507 42,211 400,184 896,395 51,363 $ 3,019,393 3,731,918 The purpose that the Company invests in the abovementioned equity securities is for long-term strategies, but rather for trading purpose. Therefore, these equity securities are designated as at FVOCI. For the year ended December 31, 2019, the Company had sold all of its shares in PrimeSensor Technology Inc., Macroblock Inc., and Innolux Corporation (“ Innolux” ), which were measured at fair value through other comprehensive income. The fair value of the shares was $845,202 when disposed and the cumulative losses amounted to $4,824,910, which had been transferred to retained earnings from other comprehensive income. For the year ended December 31, 2018, the Company has sold parts of its shares held in Innolux Corporation measured at fair value through other comprehensive income. The fair value of the shares was $291,435 when disposed, and the cumulative losses amounted to $1,024,470, which had been transferred to retained earnings from other comprehensive income. If there is an increase (decrease) in the market price by 5% on the reporting date of the equity securities hold by the Company, the increase (decrease) in other comprehensive income (pre-tax) for the years ended December 31, 2019 and 2018, will be $150,970 and $186,596, respectively. These analyses are performed on the same basis for the period and assume that all other variables remain the same. The Company’s information of market risk please refer to note (6)(x). As of December 31, 2019 and 2018, the Company did not provide any financial assets at fair value through other comprehensive income as collaterals for its loans. (d) Current financial assets measured at amortized costs Common bonds – Taiwan Star Telecom Corporation Limited (“Taiwan Star”) December 31, 2019 December 31, 2018 $ - 350,000 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 34 The Company has assessed that these financial assets are held to maturity to collect contractual cash flows, which consist solely of payments of principal and interest on the principal amount outstanding. Therefore, these investments were classified as financial assets measured at amortized cost. As of December 31, 2018, the Company did not provide the aforementioned financial assets as collaterals for its loans. (e) Notes and accounts receivable Notes receivable from operating activities December 31, 2019 December 31, 2018 $ 1,104 1,218 Accounts receivable – measured as amortized cost 154,482,480 171,635,955 Accounts receivable – fair value through other comprehensive income Less: allowance for uncollectible accounts Notes and accounts receivable Notes and accounts receivable – related parties 27,170,468 22,896,211 181,654,052 194,533,384 (3,634,190) (3,718,560) $ 178,019,862 190,814,824 $ 176,967,731 189,496,594 $ 1,052,131 1,318,230 The Company has assessed a portion of its trade receivables that was held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; therefore, such trade receivables were measured at fair value through other comprehensive income. The Company applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information. The loss allowance provision of the Company were determined as follows: December 31, 2019 Carrying amount of notes and accounts receivable $ $ 173,733,360 4,296,955 3,623,737 181,654,052 Weighted- average ECL rate 0% 0.243% 100% Credit rating Level A Level B Level C Lifetime ECLs - 10,453 3,623,737 3,634,190 Credit- impaired No No Yes December 31, 2018 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 35 Carrying amount of notes and accounts receivable $ $ 187,485,567 3,424,080 3,623,737 194,533,384 Weighted- average ECL rate 0% 2.769% 100% Credit rating Level A Level B Level C Lifetime ECLs - 94,823 3,623,737 3,718,560 Credit- impaired No No Yes The aging analysis of notes and accounts receivable, were determined as follows: Overdue 1 to 180 days December 31, 2019 December 31, 2018 $ 497,543 1,770,814 The movement in the allowance for notes and accounts receivable were as follow: Balance at January 1 Impairment losses recognized Amounts written off Balance at December 31 2019 2018 3,718,560 3,717,495 1,537 (85,907) 1,065 - 3,634,190 3,718,560 $ $ Allowance for uncollectible account is the balance of accounts receivables which are uncollectable. Except for evaluating the situation of the customers’ payment records and widely analyzing the credit rating of customers, the Company also takes all the necessary procedures for collection. The Company believes that there is no doubt for the recovery of the due but unimpaired account receivable, therefore, no allowance recognized. The Company entered into accounts receivable factoring agreements with banks. As of December 31, 2019 and 2018, except for the amount used under the actual sales amount in thousand accordance with certain agreements, the factoring amount granted by the banks was USD 1,000,000 thousands and USD 950,000 thousands, respectively. Based on the agreements, the Company is not responsible for guaranteeing the ability of the accounts receivable obligor to make payment when it is affected by credit risk. Thus, this is a non-recourse accounts receivable factoring. The Company derecognized the above account receivables because it has transferred substantially all of the risks and rewards of their ownership and it does not have any continuing involvement in them. After the transfer of the accounts receivable, the Company can request partial advanced amount, while the interest calculated at an agreed rate is paid to the bank in the period during the time of receiving advance and the accounts receivable is collected. The remaining amounts with no advance are received when the accounts receivable are settled by the customers. As of December 31, 2019 and 2018, account receivable factored were recovered and derecognized since the conditions of derecognition were met. The Company, customers, and banks signed the three-party contracts in which the banks purchase (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 36 accounts receivable from the Company. The total amount of the accounts receivable should not exceed the facility limit provided by the banks to the Company’s customers. Based on the contracts, the banks have no right to request the Company to repurchase the accounts receivable. Thus, this is a non-recourse accounts receivable transfer. As of December 31, 2019 and 2018, accounts receivable factored were recovered and derecognized since the conditions of derecognition were met. The details of the factored accounts receivable at the reporting date were as follows: December 31, 2019 Purchaser Accounts transferred Amount advanced Paid Unpaid Amount recognized in other receivables Amount Collateral derecognized Interest rate Financial Institution $ 25,672,764 - 25,672,764 - - 25,672,764 2.21%~2.80% December 31, 2018 Purchaser Accounts transferred Amount advanced Paid Unpaid Amount recognized in other receivables Amount Collateral derecognized Interest rate Financial Institution $ 32,098,074 - 32,098,074 - - 32,098,074 3.02%~3.52% As of December 31, 2019 and 2018, the Company did not provide any aforementioned notes and accounts receivable as collaterals. (f) Other receivables Other receivables - loans to subsidiaries Other receivables - related parties Others December 31, 2019 December 31, 2018 $ 1,719,000 149,120 1,242,487 301,137 144,455 973,158 $ 3,110,607 1,418,750 As of December 31, 2019 and 2018, none of other receivables were past due. (g) Inventories Finished goods Work in progress Raw materials December 31, 2019 13,454,860 $ December 31, 2018 18,779,873 152,421 44,008 36,440,788 32,693,278 $ 50,048,069 51,517,159 (i) During the years ended December 31, 2019 and 2018, inventory cost recognized as cost of (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 37 sales amounted to $891,431,772 and $889,171,625, respectively. (ii) The Company reversed its allowance for inventory valuation loss amounting to $66,336 due to the sale and disposal of its obsolete inventories in the year ended December 31, 2019. The write-down of inventories to net realizable value amounted to $171,790, in the year ended December 31, 2018. (iii) As of December 31, 2019 and 2018, the Company did not provide any inventories as collaterals for its loans. (h) Investments accounted for using equity method A summary of the Company’s financial information for equity-accounted investees at the reporting date is as follows: Subsidiaries Associates Plus: Other receivables–related parties Credit balance of investment in equity method (other non- current liability) Less: unrealized profits or losses December 31, 2019 79,267,709 $ December 31, 2018 79,891,379 2,615,406 2,619,501 81,883,115 82,510,880 659,296 494,744 891,274 (3,516) 298,023 (4,409) $ 83,430,169 83,299,238 (i) Subsidiaries Please refer to the consolidated financial statement for the year ended December 31, 2019. (ii) Associates 1) The fair value of the shares of listed company based on the closing price was as follow: Allied Circuit Co., Ltd. (“Allied Circuit”) Avalue Technology Inc. (“Avalue”) December 31, 2019 December 31, 2018 $ $ 1,076,719 1,147,839 2,224,558 621,653 586,743 1,208,396 2) The Company’s share of the net gain (loss) of associates was as follows: The Company’s share of the gain of associates 2019 $ 70,378 2018 483,812 3) The Company’ s financial information for investments accounted for using the equity method that are individually immaterial was as follows: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 38 December 31, 2019 December 31, 2018 Carrying amount of individually immaterial associates $ 2,615,406 2,619,501 The Company’s share of the net income (loss) of associates: Profit from continuing operations Other comprehensive income (loss) Total comprehensive income (loss) 2019 2018 $ $ 70,378 (158,336) (87,958) 483,812 (97,800) 386,012 4) In October 2019, the Company had sold part of its shares held in Avalue Technology Inc. (“ Avalue” ), with a consideration (net of costs of disposal) amounting to $18,034. The transaction has been completed and the price has been fully recovered, wherein the Company recognized a gain of $8,990, which was accounted for as other gain and loss. (iii) As of December 31, 2019 and 2018, the Company did not provide any investments accounted for using equity method as collaterals for its loans. (i) Changes in subsidiaries’ equity (i) Changes in ownership interests while retaining control (increase in ownership interest) The Company’ s subsidiary, Arcadyan Technology Corp. (“ Arcadyan” ), purchased shares of other subsidiaries from non-controlling interest amounting to $634, in 2018. The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of the subsidiaries: Acquisition of non-controlling interest (carrying amount) Consideration paid for the non-controlling interest Difference Capital surplus – changes in ownership interests in subsidiaries 2018 631 (634) (3) (3) $ $ $ (ii) Changes in subsidiaries’ equity did not result in the Company’s loss of control 1) Subsidiaries’ employee stock options exercised Compal Broadband Network Inc. (“ CBN” ) issued 69 thousand and 351 thousand new shares because of its employees’ exercised stock options in 2019 and 2018, respectively, resulting in a decrease in the ownership of the Company and its subsidiaries in CBN by 0.07% and 0.41%, respectively. 2) Issuance of new shares for cash of subsidiaries The Company and its subsidiaries purchased newly issued shares of Arcadyan amounting (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 39 to $323,917 at a percentage different from its existing ownership percentage in the fourth quarter of 2019, resulting in a decrease in the ownership of the Company and its subsidiaries in Arcadyan by 0.37%. The Company and its subsidiaries did not purchase newly issued shares of CBN in the fourth quarter of 2018, resulting in a decrease in the ownership of the Company and its subsidiaries in CBN by 7.27%. 3) Issuance and cancellation of subsidiaries’ restricted shares Arcadyan canceled 84 thousand restricted shares and issued 4,500 thousand restricted new shares in the years ended December 31, 2019 and 2018, respectively, resulting in an increase of 0.01% and a decrease of 0.84% interest, respectively, of the ownership of the Company and its subsidiaries in Arcadyan. 4) The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of subsidiaries: Capital surplus – changes in ownership interest in subsidiaries Retained earnings 2019 2018 $ $ 43,473 - 43,473 (32,703) (32,160) (64,863) (j) Property, plant and equipment The cost, depreciation, and impairment of the property, plant and equipment of the Company for the years ended December 31, 2019 and 2018, were as follows: Buildings and building improvement Other equipment Land Under construction and prepayment for purchase of equipment Total Cost: Balance on January 1, 2019 $ 1,047,797 2,194,761 2,112,018 36,487 5,391,063 Additions Disposals and derecognitions Reclassifications Balance on December 31, 2019 Balance on January 1, 2018 Additions Disposals and derecognitions Reclassifications - - - 138,731 343,873 279,325 761,929 (6,637) (137,960) - (144,597) 63,420 64,147 (127,567) - $ $ 1,047,797 2,390,275 2,382,078 188,245 6,008,395 1,047,797 2,173,951 2,002,114 27,007 5,250,869 - - - 18,716 124,095 60,375 203,186 (476) (62,516) - (62,992) 2,570 48,325 (50,895) - Balance on December 31, 2018 $ 1,047,797 2,194,761 2,112,018 36,487 5,391,063 Depreciation and impairments loss: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 40 Balance on January 1, 2019 Depreciation for the period Disposals and derecognitions Balance on December 31, 2019 Balance on January 1, 2018 Depreciation for the period Disposals and derecognitions Balance on December 31, 2018 Carrying amounts: Balance on December 31, 2019 Balance on January 1, 2018 Balance on December 31, 2018 Buildings and building improvement 1,368,955 Other equipment 1,893,927 Land - Under construction and prepayment for purchase of equipment - - - - - - - - 80,891 185,219 (6,112) (135,123) 1,443,734 1,944,023 1,312,069 1,846,528 57,362 108,965 (476) (61,566) 1,368,955 1,893,927 - - - - - - - Total 3,262,882 266,110 (141,235) 3,387,757 3,158,597 166,327 (62,042) 3,262,882 1,047,797 946,541 438,055 188,245 2,620,638 1,047,797 861,882 155,586 27,007 2,092,272 1,047,797 825,806 218,091 36,487 2,128,181 $ $ $ $ $ $ $ As of December 31, 2019 and 2018, the Company did not provide property, plant and equipment as collateral for its borrowing. (k) Right-of-use assets The Company leases many assets including buildings and vehicles. Information about leases for which the Company as a lessee is presented below: Cost: Balance on January 1, 2019 Adjustment on initial application of IFRS 16 Balance on January 1, 2019 per IFRS 16 Additions Deductions Balance on December 31, 2019 Depreciation: Balance on January 1, 2019 Adjustment on initial application of IFRS 16 Balance on January 1, 2019 per IFRS 16 Depreciation for the period Deductions Balance on December 31, 2019 Carrying amount: Balance on January 1, 2019 Balance on December 31, 2019 $ $ $ $ $ $ Buildings Vehicles Total - 781,756 781,756 979,422 (73,832) 1,687,346 - - - 407,103 (73,832) 333,271 - 40,060 40,060 12,098 (2,038) 50,120 - - - 18,618 (2,038) 16,580 - 821,816 821,816 991,520 (75,870) 1,737,466 - - - 425,721 (75,870) 349,851 781,756 1,354,075 40,060 33,540 821,816 1,387,615 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 41 The Company leases land, offices, warehouses and factory facilities under an operating lease for the year ended December 31, 2018, please refer to note (6)(o). (l) Short-term borrowings The details of short-term borrowings were as following: Unsecured bank loans Unused credit line for short-term borrowings Range of interest rates December 31, 2019 39,363,800 December 31, 2018 51,305,682 57,478,000 40,694,000 0.66%~2.49% 0.72%~3.56% $ $ For information on the Company’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(x). (m) Long-term borrowings The details of long-term borrowings were as follows: Unsecured bank loans Less: current portion Total Unused credit line for long-term borrowings Unsecured bank loans Less: current portion Total Unused credit line for long-term borrowings December 31, 2019 Currency TWD Annual range of interest rates 0.73%~1.18% Maturity year 2020~2023 December 31, 2018 Currency TWD Annual range of interest rates 0.79%~1.22% Maturity year 2019~2021 Amount 25,650,000 (18,150,000) 7,500,000 11,807,000 Amount 28,396,250 (17,496,250) 10,900,000 5,414,750 $ $ $ $ $ $ For information on the Company’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(x). (n) Lease liabilities Current December 31, 2019 $ 387,499 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 42 Non-current $ 1,010,933 For the maturity analysis, please refer to note (6)(x). The amounts recognized in profit or loss was as follows: Interest on lease liabilities Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets 2019 13,549 3,325 $ $ The amounts recognized in the statement of cash flows for the Company was as follows: Total cash outflow for leases (i) Building leases 2019 $ 431,730 The Company leases buildings for its office and factory space, typically run for a period of 1~8 years. (ii) Other leases The Company leases vehicles with lease terms of 1~5 years. The Company also leases some equipments and vehicles with contract terms of 1~3 years. These leases are short-term or leases of low-value items. The Company has elected not to recognize right-of-use assets and lease liabilities for these leases. (o) Operating lease – Company as lessee The rental payables of the non-cancellable operating lease was as follows: Less than one year Between one and five years December 31, 2018 $ $ 264,145 257,020 521,165 The Company leased several office areas under operating leases with the leasing terms from 1 to 5 years and had an option to renew the leases when the leases expired. For the year ended December 31, 2018, expenses recognized in profit or loss under operating leases amounted to $297,582. The lease contract includes those of the land and building, with their residual values being assumed by the landlord. The rental is regularly adjusted based on the current market price. Based on the risks and rewards of leased assets not transferred to the Company, the Company recognized the lease as operating lease. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 43 (p) Employee benefits (i) Defined benefit plans Reconciliation of defined benefit obligations at present value and plan assets at fair value were as follows: Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities December 31, 2019 (1,270,206) December 31, 2018 (1,246,221) 626,953 624,640 (643,253) (621,581) $ $ The Company makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pensions for employees upon retirement. The plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average salary for the six months prior to retirement. 1) Composition of plan assets The Company allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Labor Pension Fund Supervisory Committee. With regard to the utilization of the funds, minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with interest rates offered by local banks. The balance of the Company’ s labor pension reserve account in the Bank of Taiwan amounted to $620,933 (excluding the ending balance of interest receivable) as of December 31, 2019. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor. 2) Movements in the present value of the defined benefit obligations The movements in the present value of defined benefit obligations for the Company were as follows: Defined benefit obligations on January 1 $ (1,246,221) 2019 Current service costs and interest Remeasurements of net benefit liabilities Benefit paid by the plan (21,108) (53,073) 50,196 2018 (1,220,613) (22,168) (37,000) 33,560 Defined benefit obligations on December 31 $ (1,270,206) (1,246,221) 3) Movements of the fair value of defined benefit plan assets (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 44 The movements in the fair value of the defined benefit plan assets for the Company were as follows: 2019 2018 Fair value of plan assets on January 1 $ Expected return on plan assets Remeasurements of net benefit plan assets Contributions paid by the employer Benefits paid by the plan Fair value of plan assets on December 31 $ 624,640 7,875 20,428 24,206 (50,196) 626,953 608,482 8,141 16,811 24,766 (33,560) 624,640 4) Expenses recognized in profit or loss The expenses recognized in profit or loss for the Company were as follows: 2019 2018 Current service cost Net interest on the net defined benefit liability (asset) Cost of sales Selling expenses Administrative expenses Research and development expenses $ $ $ $ 5,314 7,919 13,233 517 631 3,239 8,846 13,233 5,635 8,392 14,027 436 745 3,395 9,451 14,027 5) Actuarial assumptions The following were the Company’s principal actuarial assumptions at the reporting date: Discount rate Future salary increase rate December 31, 2019 0.90% December 31, 2018 1.30% 3.00% 3.00% The expected allocation payment made by the Company to the defined benefit plans for the one year period after the reporting date is $24,554. The weighted-average lifetime of the defined benefit plan is 9.9 years. 6) Sensitivity analysis If the main actuarial assumptions had changed, the impact on the present value of the (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 45 defined benefit obligation shall be as follows: December 31, 2019 Discount rate Future salary increasing rate December 31, 2018 Discount rate Future salary increasing rate Effects to the defined benefit obligation Increased 0.25% Decreased 0.25% (30,821) 31,239 (31,218) 31,779 31,967 (30,287) 32,390 (30,797) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown above. The method used in the sensitivity analysis is consistent with the calculation on the net defined benefit liabilities in the balance sheets. The method and assumption used in the sensitivity analysis is consistent with prior period. (ii) Defined contribution plans The Company allocates 6% of each employee’s monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under these defined contribution plans, the Company allocates the labor pension at a specific percentage to the Bureau of the Labor Insurance without additional legal or constructive obligations. The Company recognized the pension costs under the defined contribution method amounting to $335,403 and $306,912 for the years ended December 31, 2019 and 2018, respectively. Payment was made to the Bureau of Labor Insurance. (q) Income taxes (i) Income tax expenses 1) The amount of income tax for the years ended December 31, 2019 and 2018, was as follows: Current tax expense Recognized during the period Undistributed earnings additional tax Tax credit of investment 2019 2018 $ 934,581 274,317 1,010,943 - (438,511) (183,384) (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 46 Deferred tax expense Recognition and reversal of temporary differences Adjustment in tax rate Income tax expense $ 770,387 827,559 97,393 - 97,393 867,780 292,600 (75,208) 217,392 1,044,951 2) The amount of income tax recognized in other comprehensive income for the years ended December 31, 2019 and 2018, was as follows: Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligation Unrealized gains (losses) on equity instruments at fair value through other comprehensive income 2019 2018 $ $ (6,529) (32,146) 9,585 3,056 (37,780) (69,926) 3) The income tax expense that was reconciled between the actual income tax expense and profit before tax for the years ended December 31, 2019 and 2018, was as follows: Profit before tax Income tax calculated based on tax rate Undistributed earnings additional tax Adjustment in tax rate Estimated tax effect of tax exemption on investment income, net Realized investment loss Investment tax credit Changes in temporary differences Adjustment of estimated difference and other $ $ 2019 7,823,679 1,564,736 274,317 - (55,294) (25,237) (438,511) (211,637) (240,594) 2018 9,958,316 1,991,663 - (75,208) (877,600) (133,869) (183,384) (56,660) 380,009 Income tax expense $ 867,780 1,044,951 (ii) Deferred tax assets and liabilities Changes in the amount of deferred tax assets and liabilities for 2019 and 2018 were as follows: Exchange differences on translation Refund liabilities Contract liabilities Unrealized exchange losses, net Others Total Deferred tax assets: Balance on January 1, 2019 $ 9,823 178,025 164,955 Recognized in profit or loss - (57,422) (105,526) 106,526 563,739 301,251 (1,092) 760,580 399,699 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 47 Recognized in other comprehensive income Balance on December 31, 2019 $ Balance on January 1, 2018 $ Recognized in profit or loss Recognized in other comprehensive income 9,823 9,823 - - - - 120,603 259,546 - 59,429 176,283 - 670,265 365,646 (81,521) (11,328) (259,120) - - - Balance on December 31, 2018 $ 9,823 178,025 164,955 106,526 6,529 306,688 253,814 15,291 32,146 301,251 6,529 1,166,808 1,065,112 (336,678) 32,146 760,580 Unrealized exchange gains, net Others Total Deferred tax liabilities: Balance on January 1, 2019 $ - (386,555) Recognized in profit or loss (497,092) - Recognized in other comprehensive income Balance on December 31, 2019 Balance on January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2018 $ $ $ - (497,092) (171,868) 171,868 (9,585) (396,140) (371,753) (52,582) - - 37,780 37,780 (386,555) (386,555) (386,555) (497,092) (9,585) (893,232) (543,621) 119,286 (iii) Unrecognized deferred tax assets Deferred tax assets have not been recognized in respect of the following items: Tax effect of deductible temporary differences December 31, 2019 December 31, 2018 $ 398,919 362,131 The Company assesses and considers that some of the income tax reduction items may be unrealized, hence they are not recognized as deferred tax assets. (iv) Unrecognized deferred tax assets and liabilities related to investments in subsidiaries The temporary differences associated with investment in subsidiaries were not recognized as deferred income tax assets and liabilities as the Company has the ability to control the reversal of these temporary differences which are not expected to reverse in the foreseeable future. As of December 31, 2019 and 2018, the aggregate deductible temporary differences relating to investments in subsidiaries not recognized as deferred tax assets amounted to $1,894,891 and $2,162,721, respectively. As of December 31, 2019 and 2018, the aggregate taxable temporary differences relating to investments in subsidiaries not recognized as deferred tax liabilities amounted to $53,620,982 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 48 and $54,430,545, respectively. (v) Examination and approval The Company’ s tax returns for the year through 2017 were assessed by the Taipei National Tax Administration. (r) Capital and other equities As of December 31, 2019 and 2018, the Company’ s authorized common stock consisting of 6,000,000 thousand shares with a par value of 10 New Taiwan dollar per share amounted to $60,000,000 of which 4,407,147 thousand shares were issued. All issued shares were paid up upon issuance. (i) Ordinary shares In 2015, the Company issued its employee restricted shares amounting to $493,600, wherein the amount of $120,450 had been cancelled due to failure in meeting the vested requirements in the year ended December 31, 2018. As of December 31, 2018, the registration procedure had been completed. (ii) Capital surplus The balances of capital surplus were as follows: Additional paid-in capital Treasury share transactions December 31, 2019 December 31, 2018 $ 6,302,490 2,481,885 7,183,919 2,421,864 Difference between consideration and carrying amount arising from acquisition or disposal of subsidiaries Recognition of changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted 36,766 59,115 36,766 15,642 for using equity method 279,003 274,243 $ 9,159,259 9,932,434 In accordance with the ROC Company Act, realized capital reserves can only be used to increase the common stock or distributed as cash dividends after offsetting losses. The aforementioned capital reserves include share premiums and donation gains. In accordance with the Securities Offering and Issuance Guidelines, the amount of capital reserves to be reclassified under share capital shall not exceed 10% of the actual share capital amount. The Company’s shareholders’ meeting held on June 21, 2019 and June 22, 2018, approved to distribute the cash dividend of $881,429 (representing 0.2 New Taiwan dollars per share), by using the additional paid-in capital. A resolution was approved during the Board of Directors’ meeting held on March 30, 2020 to distribute the cash dividend of $881,429, with representing 0.2 New Taiwan dollars per share, (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 49 by using the additional paid-in capital. The related information can be accessed through the Market Observation Post system website after the Board of Directors’ meeting. (iii) Retained earnings Based on the Company’s articles of incorporation amended on June 21, 2019, if there is any profit after closing of books in a given year, the Company shall first defray tax due, cover accumulated losses and set aside ten percent of it as legal reserve and then set aside or reverse a special reserve in accordance with laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the unappropriated retained earnings of previous years. The Board of Directors may set aside a certain amount to cope with the business operation conditions, and shall prepare the proposal for distribution of the balance amount thereof after a resolution has been adopted and then allocated by the Board of Directors. The Company authorizes the Board of Directors to distribute all or part of the dividends and bonuses, capital surplus or legal reserve in cash after a resolution has been adopted by a majority vote at a meeting of the Board of Directors attended by two-thirds of the total number of directors; and in addition thereto a report of such distribution shall be submitted to the General shareholders’ meeting. Based on the Company’s articles of incorporation before amended on June 21, 2019, if there is any profit after closing of books in a given year, the Company shall first defray tax due, cover accumulated losses and set aside ten percent of it as legal reserve and then set aside or reverse a special reserve in accordance with laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the unappropriated retained earnings of previous years. The earnings appropriation proposal to distribute dividend and bonus shall be proposed by the Board of Directors and approved by the General Shareholders Meeting. The rest of the unappropriated retained earnings shall be reserved. The lifecycle of the industry of the Company is in the growing stage. To consider the need of the Company for the future capital, capital budget, long-term financial planning, domestic and foreign competition, the need of shareholders for cash flow and other factors, if there is any profit after close of books, the dividend and bonus to be distributed to shareholdres shall not be less than thirty percent of profit after tax for such year and the cash dividend allocated by the Company each year shall not be lower than ten percent of the total dividend (including cash and share dividend) for such year. According to the law, when there is a deduction from stockholders' equity (excluding treasury stock and unearned employee benefit) during the year, an amount equal to the deduction item is set aside as a special reserve before the earnings are appropriated. A special reserve is made available for earning distribution only after the deduction of the related shareholders’ equity has been reversed. 1) Legal reverse When a company incurs no loss, it may, in pursuant to a resolution to be adopted by the shareholders’ meeting as required, distribute its legal reserve by issuing new shares and distributing stock dividends or distributing cash to shareholders. Only the portion of the legal reserve which exceeds 25% of the paid-in capital may be distributed. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 50 2) Special reverse In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, a portion of current earnings and previous unappropriated earnings shall be set aside as a special reserve during earnings distribution. The amount to be set aside should equal the total amount of contra accounts that are accounted for as deductions to other equity interests. A portion of previous unappropriated earnings shall be set aside as a special reserve, which should not be distributed, to account for cumulative changes to other equity interests pertaining to prior periods. The special reserve shall be made available for appropriation when the net deductions of other equity interests are reversed in the subsequent periods. 3) Earnings distribution Earnings distribution for 2018 and 2017 was approved by the shareholders during their annual meeting held on June 21, 2019 and June 22, 2018, respectively. The relevant information was as follows: 2018 2017 Amount per share Total amount Amount per share Total amount Cash dividends distributed to common shareholders $ 1.0 4,407,147 1.0 4,407,147 Earnings distribution for 2019 was approved by the Board of Directors on March 30, 2020. The relevant information was as follows: 2019 Amount per share Total amount Cash dividends distributed to common shareholders from the unappropriated earnings $ 1.0 4,407,147 The related information of the earnings distribution for the year ended December 31, 2019, can be accessed through the Market Observation Post System website after the related meeting. (iv) Treasury stock The subsidiaries of the Company did not sell the ordinary shares of the Company in the years ended December 31, 2019 and 2018. As of December 31, 2019, Panpal and Gempal, subsidiaries of the Company, held 50,017 thousand shares of ordinary shares of the Company, recorded as the Company’s treasury stock, with a book value of 17.6 New Taiwan dollars per share. The total cost was $881,247. The fair value of the ordinary shares of the Company was 18.85 and 17.45 New Taiwan dollars per share as of December 31, 2019 and 2018, respectively. Pursuant to the Securities and Exchange Act, the number of treasury shares purchased cannot exceed 10% of the number of shares issued. The total purchase cost cannot exceed the sum of retained earnings, paid-in capital in excess of par value and realized capital surplus. The shares (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 51 purchased for the purpose of transferring to employees shall be transferred within three years from the date of share repurchase. Those not transferred within the said limit shall be deemed as not issued by the Company and it should be cancelled. Furthermore, treasury stock cannot be pledged for debts, and treasury stock does not carry any shareholder rights until it is transferred. (v) Other equity interests (net-of-taxes) Exchange differences on transaction of foreign operation financial statements Unrealized gain (loss) from financial assets at fair value through other comprehensive income Unearned compensation for restricted employee shares and others Balance on January 1, 2019 $ (1,852,952) (5,606,436) The Company Subsidiaries Associates (1,620,812) 4,936,223 (52,530) (268,686) 252,170 111,280 Balance on December 31, 2019 $ (3,794,980) (306,763) Balance on January 1, 2018 (3,477,376) (5,847,823) The Company Subsidiaries Associates 1,853,763 (34,596) (67,150) 401,300 (162,189) (125,317) Balance on December 31, 2018 $ (1,852,952) (5,606,436) - - - - - - (s) Share-based payment Total (7,459,388) 3,315,411 (1,706) 197,934 (157,406) (1,706) (4,103,449) (79,856) (9,405,055) 79,856 1,899,023 334,150 (287,506) (7,459,388) At the meeting held on June 20, 2014, the Company’s Shareholders’ Meeting adopted a resolution to issue 100,000 thousand new shares of employee restricted stock with no consideration to those full time employees who meet certain requirements. The first issuance of 50,000 thousand shares had been approved by the FSC on October 30, 2014. Moreover, the Company’ s Board of Directors resolved to issue 49,980 thousand shares on January 22, 2015, and 49,360 thousand shares had actually been issued, in which the effective date of the share issuance was on February 25, 2015. 40%, 30% and 30% of the aforementioned restricted shares are vested, respectively, when the employees continue to provide service for at least 2 years, 3 years and 4 years from the registration and effective date and in the meantime, meet the performance requirement. After the issuance, the restricted shares are kept by a trust, which is appointed by the Company, before they are vested. These restricted shares shall not be sold, pledged, transferred, gifted or by any other means of disposal to third parties during the custody period. The voting rights of these shares are executed by the custodian, and the custodian shall act based on law and regulations. If the shares remain unvested after the vesting period, the Company will purchase all the unvested shares without consideration and cancel the shares thereafter. Restricted shares could receive cash and stock dividends. The aforementioned cash and stock dividends are not considered as restricted. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements The information of the Company’s restricted shares (in thousands) is as follows: Outstanding shares on January 1 Vested during the period Canceled during the period Outstanding shares on December 31 52 2018 23,571 (11,526) (12,045) - For the year ended December 31, 2018, due to the failure in meeting the vested requirements of the employee restricted shares, the Company reversed compensation cost amounted to $156,219 and capital surplus － employee restricted shares amounted to $318,209. Besides, due to meet the vested requirements of the employee restricted shares, the Company recognized capital surplus–additional paid-in capital amounted to $155,601. (t) Earnings per share The Company’s basic and diluted earnings per share are calculated as follows: 2019 2018 Basic earnings per share: Profit attributable to ordinary shareholders of the Company $ 6,955,899 8,913,365 Weighted-average number of outstanding ordinary shares (in thousands) Diluted earnings per share: 4,357,130 4,356,448 Profit attributable to ordinary shareholders of the Company (after adjustment of potential diluted ordinary shares) $ 6,955,899 8,913,365 Weighted-average number of outstanding ordinary shares of potential diluted ordinary shares Weighted-average number of outstanding ordinary shares (in thousands) Effect of potential diluted common stock Employee compensation (in thousands) Employee restricted shares (in thousands) 4,357,130 4,356,448 49,860 - 59,637 682 Weighted-average number of ordinary shares (after adjustment of potential diluted ordinary shares) (in thousands) 4,406,990 4,416,767 (u) Revenue from contracts with customers (i) Disaggregation of revenue Primary geographical markets: United states 2019 IT Product Segment $ 376,228,186 2018 IT Product Segment 361,991,920 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 53 Netherlands China United Kingdom Others Major products： 5C related electronic products Others (ii) Contract balance 98,084,239 109,185,154 90,543,393 110,187,798 43,940,021 43,573,507 307,484,189 286,111,743 $ 916,280,028 911,050,122 $ 915,421,296 910,647,211 858,732 402,911 $ 916,280,028 911,050,122 Notes and accounts receivable (including related parties) Less: allowance for impairment Total Contract liabilities December 31, 2019 $ 181,654,052 December 31, 2018 194,553,384 January 1, 2018 171,353,850 (3,634,190) $ 178,019,862 877,822 $ 3,718,560 190,834,824 1,405,452 (3,717,495) 167,636,355 1,617,626 For the details on accounts receivable and allowance for impairment, please refer to note (6)(e). The amount of revenue recognized for the years ended December 31, 2019 and 2018 that was included in the contract liability balance at the beginning of the period were $1,405,452 and $1,585,446, respectively. The major change in the balance of contract assets and contract liabilities is the difference between the time frame in the performance obligation to be satisfied and the payment to be received. (v) Employees’ and directors’ compensations Based on the Company’ s articles of incorporation, if there is any profit in a fiscal year, the Company’s pre-tax profits in such fiscal year, prior to deduction of compensations to employees and directors, shall be distributed to employees as compensations in an amount of not less than two percent (2%) thereof and to directors as compensations in an amount of not more than two percent (2%) of such profits. In the event that the Company has accumulated losses, the Company shall reserve an amount to offset accumulated losses. The compensations to employees as mentioned above may be distributed in the form of stock or cash. Employees entitled to receive the said stock or cash may include the employees of the Company’s subordinate companies pursuant to the Company Act (Employees entitled to receive the said stock or cash may include the employees of the Company’ s subordinate companies who meet certain conditions after the Company’ s articles of incorporation amended on June 21, 2019). (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 54 The Company accrued and recognized its employee compensation of $731,322 and $930,857, respectively, and directors’ compensation of $38,672 and $49,223 for the years ended December 31, 2019 and 2018, respectively. The estimated amounts mentioned above are based on the net profit before tax without the compensations to employees and directors of each respective ending period, multiplied by the percentage of the compensation to employees and directors, which was approved by the management. The estimations are recorded under operating expenses and cost. The differences between the amounts estimated and recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the distribution year. If the Board of Directors approve to distribute employee compensation in the form of stock, the number of the shares of the employee compensation is based on the closing price of the day before the Board of Directors’ meeting, the related information can be accessed through the Market Observation Post System website. There is no differences between the amount approved in the Board of Directors’ meeting and those recognized in the financial statements in 2019 and 2018. There is no differences between the amount estimated and recognized in the financial statements in 2018. The related information can be accessed through the Market observation Post System website. (w) Non-operating income and expenses (i) Other income The other income for the years ended December 31, 2019 and 2018, were as follows: Interest income Financial assets at amortized cost Bank deposits Others Dividend revenue Overdue payable reversed as other income Sale of expensed assets Other revenue 2019 2018 $ $ 2,992 141,195 40,420 71,778 - 275,412 122,042 653,839 9,992 316,199 6,714 212,129 37,657 162,265 142,398 887,354 (ii) Other gains and losses The other gains and losses for the years ended December 31, 2019 and 2018, were as follows: Losses on disposal of investments Gains (losses) on financial assets and liabilities at fair value through profit or loss, net Foreign currency exchange gains (losses), net Others $ $ 2019 8,990 2018 - 55,140 (484,552) (501) (420,923) 97,682 (221,786) (1,926) (126,030) (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 55 (x) Financial instruments (i) Credit risk 1) The carrying amount of financial assets represents the maximum amount exposed to credit risk. The Company’ s customers are mainly from the high-tech industry. The Company does not concentrate on a specific customer and the sales regions are widely spread, thus there should be no concern on the significant concentrations of accounts receivable credit risk. And in order to mitigate accounts receivable credit risk, the Company constantly assesses the financial status of the customers. 2) Receivables and debt securities Information of exposure to credit risk of notes and accounts receivable, please refer to note (6)(e). Other financial assets at amortized cost includes other receivables, investments in corporate bonds and time deposits. These financial assets are considered to have low risk, and thus, the impairment provision recognized during the period was limited to 12 months expected losses (Regarding how the financial instruments are considered to have low credit risk, please refer to note (4)(f)). Due to the counter parties and the performing parties of the Company’ s time deposits are financial institutions with investment grade and above, these time deposits are considered to have low credit risk. (ii) Liquidity risk The following are the contractual maturities of financial liabilities. In addition to lease liabilities, excluding estimated interest payments. Carrying Amount Contractual cash flows Within 1 year 1 ~ 2 years Over 2 years December 31, 2019 Non-derivative financial liabilities Unsecured borrowings Notes and accounts payable Other payables Lease liabilities-current and non-current December 31, 2018 Non-derivative financial liabilities Unsecured borrowings Notes and accounts payable Other payables $ 65,013,800 149,064,159 5,814,027 (65,013,800) (149,064,159) (5,814,027) (57,513,800) (149,064,159) (5,814,027) (1,925,000) (5,575,000) - - - - 1,398,432 $ 221,290,418 (1,444,217) (221,336,203) (402,010) (212,793,996) (306,979) (2,231,979) (735,228) (6,310,228) $ 79,701,932 155,427,659 5,044,541 $ 240,174,132 (79,701,932) (155,427,659) (5,044,541) (240,174,132) (68,801,932) (155,427,659) (5,044,541) (229,274,132) (8,600,000) (2,300,000) - - - - (8,600,000) (2,300,000) (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 56 The Company is not expecting that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. (iii) Currency risk 1) Exposure to foreign currency risk The Company’s significant exposure to foreign currency risk was as follows: December 31, 2019 Exchange rate Foreign currency TWD December 31, 2018 Exchange rate Foreign currency TWD $ 6,580,212 29.98 197,274,756 6,889,285 30.715 211,604,389 446,859 1.0028 448,110 423,027 0.946 400,184 6,021,076 29.98 180,511,858 6,819,596 30.715 209,463,891 Financial assets Monetary items USD to TWD Non-monetary items THB to TWD Financial liabilities Monetary items USD to TWD 2) Sensitivity analysis The Company’ s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts receivable, other receivables, loans and borrowings, accounts payable, and other payables that are denominated in foreign currency. Assuming all other variable factors remain constant, a strengthening (weakening) 5% of appreciation (depreciation) of the each major foreign currency against the Company’ s functional currency as of December 31, 2019 and 2018, would have increased (decreased) the net profit before tax as follows. The analysis is performed on the same basis for both periods. USD (against the TWD) Strengthening 5% Weakening 5% 3) Exchange gains and losses of monetary items December 31, 2019 December 31, 2018 $ 838,145 107,025 (838,145) (107,025) As the Company deals with diverse foreign currencies, gains or losses on foreign exchange were summarized as a single amount. For the years ended December 31, 2019 and 2018, the foreign exchange losses, including both realized and unrealized, amounted to $484,552 and $221,786, respectively. (iv) Interest rate analysis The interest risk exposure from financial assets and liabilities has been disclosed in the note of (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 57 liquidity risk management. The following sensitivity analysis is based on the risk exposure to interest rate on the derivative and non-derivative financial instruments on the reporting date. Regarding the assets and liabilities with variable interest rates, the analysis is on the basis of the assumption that the amount of assets and liabilities outstanding at the reporting date were outstanding throughout the year. The rate of change is expressed as the interest rate increase or decrease by 0.25%, when reporting to management internally, which also represents the assessment of the Company’s management for the reasonably possible interval of interest rate change. Assuming all other variable factors remaining constant, if the interest rate had increased or decreased by 0.25%, the impact to the net profit before tax would be as follows for the years ended December 31, 2019 and 2018, which would be mainly resulted from the bank savings and borrowings with variable interest rates. Interest increased by 0.25% Interest decreased by 0.25% (v) Fair value information 2019 2018 $ (30,454) (30,511) 30,454 30,511 1) The categories and fair value of financial instruments The Company’s financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income were measured at fair value on a recurring basis. The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It shall not include fair value information of the financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value and investments in equity instruments which do not have any quoted price in an active market in which the fair value cannot be reasonably measured. December 31, 2019 Fair Value Book value Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss–current and non-current Non-derivative financial assets mandatorily measured at fair value through profit or loss Financial assets at fair value through other comprehensive income $ 220,985 - 149,888 71,097 220,985 Stocks listed on domestic markets 1,614,565 1,614,565 Stocks listed on foreign markets Stocks unlisted on domestic markets Stocks unlisted on foreign markets Accounts receivable Subtotal 448,110 914,507 42,211 27,170,468 30,189,861 448,110 - - - - - - - - - 914,507 42,211 1,614,565 448,110 914,507 42,211 27,170,468 - 27,170,468 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements Financial assets measured at amortized cost Cash and cash equivalents Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Guarantee deposits Subtotal Total Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Lease liabilities–current and non-current Long-term borrowings current portion Long-term borrowings Deposits received Total 13,459,969 149,797,263 1,052,131 3,110,607 126,605 167,546,575 $ 197,957,421 $ 39,363,800 74,138,921 74,925,238 5,814,027 1,398,432 18,150,000 7,500,000 220 $ 221,290,638 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 58 - - - - - - - - - - - - - December 31, 2018 Fair Value Book value Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss–current and non-current Non-derivative financial assets mandatorily measured at fair value through profit or loss Financial assets at fair value through other comprehensive income $ 308,513 284,768 Stocks listed on domestic markets 2,383,976 2,383,976 Stocks listed on foreign markets Stocks unlisted on domestic markets Stocks unlisted on foreign markets Accounts receivable Subtotal Financial assets measured at amortized cost Cash and cash equivalents Corporate bonds－current Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables 400,184 896,395 51,363 22,896,211 26,628,129 20,446,378 350,000 166,600,383 1,318,230 1,418,750 400,184 - - - - - - - - - - - - - 22,896,211 - - - - - 23,745 308,513 - - 896,395 51,363 - - - - - - 2,383,976 400,184 896,395 51,363 22,896,211 - - - - - (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 59 Guarantee deposits Subtotal Total Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Long-term borrowings current portion Long-term borrowings Deposits received Total Book value 117,500 190,251,241 $ 217,187,883 $ 51,305,682 77,050,816 78,376,843 5,044,541 17,496,250 10,900,000 266 $ 240,174,398 December 31, 2018 Level 1 - Fair Value Level 2 - Level 3 - Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2) Fair value valuation technique of financial instruments not measured at fair value The Company estimates financial instruments that not measured at fair value by methods and assumption as follows: a) Financial assets measured at amortized cost and financial liabilities measured at amortized cost If there is quoted price generated by transactions, the recent transaction price and quoted price data is used as the basis for fair value measurement. However, if no quoted prices are available, the discounted cash flows are used to estimate fair values. 3) Fair value valuation technique of financial instruments measured at fair value a) Non-derivative financial instruments Financial instruments trade in active markets is based on quoted market prices. The quoted price of a financial instrument obtained from main exchanges and on-the- run bonds from Taipei Exchange can be used as a base to determine the fair value of the listed companies’ equity instrument and debt instrument of the quoted price in an active market. If a quoted price of a financial instrument can be obtained in time and often from exchanges, brokers, underwriters, industrial union, pricing institute, or authorities and such price can reflect those actual trading and frequently happen in the market, then the financial instrument is considered to have a quoted price in an active market. If a financial instrument is not in accord with the definition mentioned above, then it is considered to be without a quoted price in an active market. In general, market with low trading volume or high bid-ask spreads is an indication of a non-active market. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 60 The fair value of the listed company is determined by reference to the market quotation. The measurements on fair value of the financial instruments without an active market are determined using the valuation technique or the quoted market price of its competitors. Fair value measured using the valuation technique can be extrapolated from similar financial instruments, discounted cash flow method, or other valuation techniques which include the model used in calculating the observable market data at the balance sheet date. The measurement of fair value of a non-active market financial instruments held by the Company which do not have quoted market prices are based on the comparable market approach, with the use of key assumptions of price-book ratio multiple or earnings multiple of comparable listed companies as its basic measurement. These assumptions have been adjusted for the effect of discount without the marketability of the equity securities. b) Derivative financial instruments Measurement of the fair value of derivative instruments is based on the valuation techniques that are generally accepted by the market participants. For instance, discount method or option pricing models. Fair value of forward currency exchange is usually determined by using the forward currency rate. 4) Transfer from one level to another The Company held an investment in equity of Crystalvue Medical Corporation (“Crystalvue”), with a fair value of $18,736 and $11,287, which were classified as fair value through other comprehensive income as of December 31, 2019 and 2018, respectively. The investment was categorized as level 3 as of December 31, 2018, because the shares were not listed on the exchange market and was measured by significant unobservable inputs. In December 2019, Crystalvue’s shares were listed in the exchange market, wherein they are actively traded. Currently, the equity shares have a quoted market price in an active market; therefore, the category was transferred from level 3 to level 1 as of December 31, 2019. There was no transfer from one level to another in 2018. 5) Changes in level 3 The change in level 3 at fair value in the years ended December 31, 2019 and 2018, were as follow: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 61 Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Total Balance on January 1, 2019 $ 23,745 947,758 971,503 Total gains and losses recognized: In profit or loss In other comprehensive income Purchased Disposal Proceeds of capital reduction of investment Transferred out form level 3 Balance on December 31, 2019 Balance on January 1, 2018 Total gains and losses recognized: In other comprehensive income Purchased Proceeds of capital reduction of investment Balance on December 31, 2018 $ $ $ (8,244) - - - - - - - - - 55,596 71,097 23,745 23,745 18,468 19,396 (791) (7,615) (20,498) 956,718 1,335,885 - (487,950) 107,877 (8,054) 2,291,697 (8,244) 18,468 74,992 (791) (7,615) (20,498) 1,027,815 1,335,885 - (487,950) 131,622 (8,054) 2,315,442 For the years ended December 31, 2019 and 2018, total gains and losses that were included in “other comprehensive income, before tax, of equity instruments at fair value through other comprehensive income” were as follows: Total gains and losses recognized: In profit or loss before tax (as “other gains and losses, net”) In other comprehensive income (as “other comprehensive income, before tax, equity instruments at fair value through other comprehensive income”) $ $ 2019 2018 (8,244) - 17,677 (487,950) 6) The quantified information for significant unobservable inputs (level 3) used in fair value measurement The Company’ s financial instruments that use level 3 input to measure fair values include financial assets at fair value through other comprehensive income – equity instruments, financial assets at fair value through profit or loss – equity securities investment and available-for-sale financial assets – equity investment. Most of fair value measurements of the Company which are categorized as equity investment into level 3 have several significant unobservable inputs. Significant unobservable inputs of equity investments without quoted price are independent of each other. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 62 The quantified information for significant unobservable inputs was as follows: Item Financial assets at fair value through other comprehensive income － equity investment without an active market Valuation technique Comparable market approach (Price-Book ratio multiples method and Multiples of earnings method) Significant unobservable inputs Price-Book ratio multiples (1.4~5.64, 1.33~5.86, respectively, on December 31, 2019 and 2018) Multiples of earnings (3.12~11.24, 2.32~2.95, respectively, on December 31, 2019 and 2018) Lack-of-Marketability discount rate (35%~85%, and 40%~82%, respectively, on December 31, 2019 and 2018) Inter-relationships between significant unobservable inputs and fair value The higher the multiple is, the higher the fair value will be. The higher the multiple is, the higher the fair value will be. The higher the Lack- of-Marketability discount rate is, the lower the fair value will be. Inapplicable Financial assets at fair value through other comprehensive income Financial assets at fair value through profit or loss－investment in private placement Net asset value method Net asset value Net asset value method Net asset value Inapplicable 7) Sensitivity analysis for fair value of financial instruments using level 3 inputs The Company’s fair value measurement on financial instruments is reasonable. However, the measurement would be different if different valuation models or valuation parameters are used. For financial instruments using level 3 inputs, if the valuation parameters changed, the impact on other comprehensive income or loss are as follows: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 63 Input Price-Book ratio multiples December 31, 2019 Financial assets at fair value through other comprehensive income December 31, 2018 Financial assets at fair value through other comprehensive income Multiples of earnings Lack-of-Marketability discount rate Price-Book ratio multiples Multiples of earnings Lack-of-Marketability discount rate Move up or down Other comprehensive income Unfavorable change Favorable change 5% 5% 5% 5% 5% 5% $ $ $ $ $ $ 25,552 24,531 14,707 6,589 12,746 6,548 24,924 24,935 18,629 4,913 17,648 4,925 The favorable and unfavorable changes reflect the movement of the fair value, in which the fair value is calculated by using the different unobservable inputs in the valuation technique. The table above shows the effects of one unobservable input, without considering the inter-relationships with another unobservable input for financial instrument, if there are one or more unobservable inputs. (y) Financial risk management (i) Overview The Company is exposed to the following risks arising from financial instruments: 1) Credit risk 2) Liquidity risk 3) Market risk In this note expressed the information on risk exposure and objectives, policies and procedures of risk measurement and management of the Company. For detailed information, please refer to the related notes of each risk. (ii)Structure of risk management The Company’ s finance management department provides business services for the overall internal department. It sets the objectives, policies and processes for managing the risk and the methods used to measure the risk arising from both the domestic and international financial market operations. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 64 The Company minimizes the risk exposure through derivative financial instruments. The Board of Directors regulated the use of derivative financial instruments in accordance with the Company’s policy about risks arising from financial instruments such as currency risk, interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investments of excess liquidity. The internal auditors of the Company continue with the review of the amount of the risk exposure in accordance with the Company’s policies and the risk management policies and procedures. The Company has no transactions in financial instruments (including derivative financial instruments) for the purpose of speculation. (iii) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. 1) Accounts receivable and other receivables The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’ s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, and these limits are reviewed periodically. 2) Investments The credit risks exposure in the bank deposits, investments with fixed income and other financial instruments are measured and monitored by the Company’s finance department. Since the Company’ s transaction counterparties and the contractually obligated counterparties are banks, financial institutes and corporate organizations with good credits, there are no compliance issues, and therefore, no significant credit risk. 3) Guarantees Pursuant to the Company’s policies, it is only permissible to provide financial guarantees to subsidiaries and companies that the Company has business with. As of December 31, 2019 and 2018, the guarantees provide to the subsidiaries amounted to $255,662 and $325,179, respectively. (iv) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities which be settled by delivering cash or another financial asset. The Company manages and maintains sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Company’ s management supervises the banking facilities and ensures in compliance with the terms of the loan agreements. Please refer to notes (6)(l) and (6)(m) for unused credit lines of short-term and long-term borrowings as of December 31, 2019 and 2018. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 65 (v) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices which will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. 1) Currency risk The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Company, primarily USD. As for other monetary assets and liabilities denominated in other foreign currencies, when short-term imbalance takes place, the Company buys or sells foreign currencies at spot rate to ensure that the net exposure is kept on an acceptable level. 2) Interest rate risk The Company borrows funds on fixed and variable interest rates, which has a risk exposure to changes in fair value and cash flow. Therefore, the Company manages the interest rates risk by maintaining an adequate combination of fixed and variable interest rates. 3) Other price risk The Company is exposed to equity price risk arising from investments in listed equity securities. (z) Capital management The policy of capital management made by the Board of Directors is to maintain a strong capital base so as to stabilize the confidence of the investors, creditors and the public market and to sustain future development of the business. Capital consists of ordinary shares, capital surplus and retained earnings. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders. The Company monitors the capital structure by way of periodical review the debt ratio. As of December 31, 2019 and 2018, the debt ratio was as follows: Total liabilities Total assets Debt ratio December 31, 2019 $ 231,810,855 December 31, 2018 250,089,167 $ 337,783,488 355,812,813 69% 70% The Company could purchase its own shares in the public market in accordance with the corresponding rules and regulations. The timing of the purchases depends on market prices. As of December 31, 2019, there were no changes in the Company’ s approach of capital (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 66 management. (aa) Investing and financing activities not affecting current cash flow The Company’s investing and financing activities which did not affect the current cash flow in the year ended December 31, 2019 were acquisition of right-of-use assets by leasing, please refer to note (6)(k). There were no investing and financing activities which did not affect the current cash flow in the year ended December 31, 2018. Reconciliation of liabilities arising from financial activities were as follows: Short-term borrowings Long-term borrowings Lease liabilities Guarantee deposits Total liabilities from financing activities Long-term borrowings Short-term borrowings Guarantee deposits Total liabilities from financing activities January 1, 2019 51,305,682 28,396,250 821,816 266 80,524,014 $ $ January 1, 2018 41,386,000 27,133,200 266 68,519,466 $ $ Cash flow (11,941,882) (2,746,250) (414,856) (46) (15,103,034) Cash flow 9,919,682 1,263,050 - 11,182,732 Non-cash changes - - 991,472 - 991,472 Non-cash changes - - - - December 31, 2019 39,363,800 25,650,000 1,398,432 220 66,412,452 December 31, 2018 51,305,682 28,396,250 266 79,702,198 (7) Related-party transactions: (a) Name and relationship with related parties The following are the subsidiaries and entities that have transactions with related party during the periods covered in the parent-company-only financial statements. Name of related party Panpal Technology Corp. (“Panpal”) Gempal Technology Corp. (“Gempal”) Hong Ji Capital Co., Ltd. (“Hong Ji”) Hong Jin Investment Co., Ltd. (“Hong Jin”) Zhaopal Investment Co., Ltd. (“Zhaopal”) Yongpal Investment Co., Ltd. (“Yongpal”) Kaipal Investment Co., Ltd. (“Kaipal”) Country of incorporation The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 67 Name of related party Accesstek, Inc. (“ATK”) Arcadyan Country of incorporation The Company’s subsidiary The Company’s subsidiary Rayonnant Technology Co., Ltd. (“Rayonnant Technology”) The Company’s subsidiary HengHao Technology Co., Ltd. (“HengHao”) Ripal Optortronics Co., Ltd. (“Ripal”) Auscom Engineering Inc. (“Auscom”) Just International Ltd. (“Just”) Compal International Holding Co., Ltd. (“CIH”) Compal Electronics (Holding) Ltd. (“CEH”) Bizcom Electronics, Inc. (“Bizcom”) Flight Global Holding Inc. (“FGH”) High Shine Industrial Corp. (“HSI”) Compal Europe (Poland) Sp. z o.o. (“CEP”) Big Chance International Co., Ltd. (“BCI”) Compal Rayonnant Holdings Limited (“CRH”) Core Profit Holdings Limited (“CORE”) Compalead Electronics B.V. (“CPE”) The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary Compalead Eletronica do Brasil Industria e Comercio Ltda. (“CEB”) The Company’s subsidiary Compal Display Holding (HK) Limited (“CDH (HK)”) Compal Electronics International Ltd. (“CII”) Compal International Ltd. (“CPI”) Compal Electronics (China) Co., Ltd. (“CPC”) Compal Optoelectronics (Kunshan) Co., Ltd. (“CPO”) Compal System Trading (Kunshan) Co., Ltd. (“CST”) Smart International Trading Ltd. (“Smart”) Amexcom Electronics Inc. (“AEI”) Mexcom Electronics, LLC (“MEL”) Mexcom Technologies, LLC (“MTL”) CENA Electromex, S.A. de C.V. (“CMX”) (Note) Compal International Holding (HK) Limited (“CIH (HK)”) Jenpal International Ltd. (“Jenpal”) Prospect Fortune Group Ltd. (“PFG”) The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 68 Compal Electronics Technology (Kunshan) Co., Ltd. (“CET”) Name of related party Compal Information (Kunshan) Co., Ltd. (“CIC”) Compal Information Technology (Kunshan) Co., Ltd. (“CIT”) Kunshan Botai Electronics Co., Ltd. (“BT”) Country of incorporation The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary Compal Information Research and Development (Nanjing) Co., Ltd. (“CIN”) The Company’s subsidiary Compal Digital Technology (Kunshan) Co., Ltd. (“CDT”) Compower Global Service Co., Ltd. (“CGS”) Compal Investment (Jiansu) Co., Ltd. (“CIJ”) Compal Display Electronics (Kunshan) Co., Ltd. (“CDE”) Etrade Management Co., Ltd. (“Etrade”) Webtek Technology Co., Ltd. (“Webtek”) Forever Young Technology Inc. (“Forever”) Unicom Global, Inc. (“UCGI”) Palcom International Corporation (“Palcom”) Compal Communication (Nanjing) Co., ltd. (“CCI Nanjing”) Compal Digital Communication (Nanjing) Co., Ltd. (“CDCN”) The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary Compal Wireless Communication (Nanjing) Co., Ltd. (“CWCN”) The Company’s subsidiary Hanhelt Communication (Nanjing) Co., Ltd. (“Hanhelt”) Giant Rank Trading Ltd. (“GIA”) OptoRite Inc. MSI-ATK Otpics Holding Corporation (“MSI-ATK”) Maitek (BVI) Corporation (“Maitek”) Arcadyan Technology N.A. Corp. (“Arcadyan USA”) Arcadyan Germany Technology GmbH (“Arcadyan Germany”) Arcadyan Technology Corporation Korea (“Arcadyan Korea”) Arcadyan Holding (BVI) Corp. (“Arcadyan Holding”) Arcadyan do Brasil Ltda. (“Arcadyan Brasil”) Arcadyan Technology Limited (“Arcadyan UK”) Arcadyan Technology Australia Pty Ltd. (“Arcadyan AU”) Zhi-pal Technology Inc. (“Zhi-pal”) Tatung Technology Inc. (“TTI”) AcBel Telecom Inc. (“AcBel Telecom”) The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 69 CBN Name of related party Speedlink Tradings Limited (“Speedlink”) Compal Broadband Networks Belgium BVBA (“CBNB”) Compal Broadband Networks Netherlands B.V. (“CBNN”) Sinoprime Global Inc. (“Sinoprime”) Country of incorporation The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary Arcadyan Technology (Vietnam) Co., Ltd. (“Arcadyan Vietnam”) The Company’s subsidiary Arcadyan Technology (Shanghai) corp. (“SVA Arcadyan”) Arch Holding (BVI) Corp. (“Arch Holding”) Compal Networking (Kunshan) Co., Ltd. (“CNC”) Leading Images Ltd. (“Leading Images”) Astoria Networks GmbH (“Astoria GmbH”) Quest International Group Co., Ltd. (“Quest”) Exquisite Electronic Co., Ltd. (“Exquisite”) Tatung Home Appliances (Wujiang) Co., Ltd. (“THAC”) Tatung Technology of Japan Co., Ltd. Intelligent Universal Enterprise Ltd. (“IUE”) Goal Reach Enterprises Ltd. (“Goal”) Compal (Vietnam) Co., Ltd. (“CVC”) The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary Compal Development &Management (Vietnam) Co., Ltd. (“CDM”) The Company’s subsidiary Allied Power Holding Corp. (“APH”) Primetek Enterprises Limited (“PEL”) The Company’s subsidiary The Company’s subsidiary Rayonnant Technology (HK) Co., Ltd. (“Rayonnant Technology (HK)”) The Company’s subsidiary Royonnant Technology (Taicang) Co., Ltd. (“Rayonnant Technology The Company’s subsidiary (Taicang)”) HengHao Holdings A Co., Ltd. (“HHA”) HengHao Holdings B Co., Ltd. (“HHB”) HengHao Trading Co., Ltd. HengHao Optoelectronics Technology (Kunshan) Co., Ltd. LUCOM Display Technology (Kunshan) Limited (“Lucom”) Center Mind International Co., Ltd. (“CMI”) Prisco International Co., Ltd. (“PRI”) Compal Electronic (Sichuan) Co., Ltd. (“CIS”) Compal Electronic (Chongqing) Co., Ltd. (“CEQ”) The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 70 Compal Electronic (Chengdu) Co., Ltd. (“CEC”) Name of related party Compal Management (Chengdu) Co., Ltd. (“CMC”) Compal Smart Device (Chongqing) Co., Ltd. (“CSD”) Billion Sea Holdings Limited (“BSH”) Mithera Capital Io LP (“Mithera”) Fortune Way Technology Corp. (“FWT”) General Life Biotechnology Co., Ltd. (“GLB”) Mactech Co., Ltd. (“Mactech”) Rapha Bio Ltd. (“Rapha”) Compal Electronics India Private Limited (“CEIN”) Shennona Corporation (“Shennona”) Unicore BioMedical Co., Ltd. (“Unicore”) Raycore Biotech Co., Ltd. (“Raycore”) Hippo Screen Neurotech Co., Ltd. (“Hippo Screen”) Shennona Co., Ltd. (“Shennona TW”) Aco Smartcare Co., Ltd. (“Aco Smartcare”) AcBel Polytech Inc. (AcBel) and its subsidiaries (“AcBel”) Avalue Crownpo Technology Inc (“Crownpo”) Kinpo Group Management Consultant Company (“Kinpo Group Management”) Allied Circuit LIZ Electronics (Kunshan) Co., Ltd. (“LIZ”) Compal Connector Manufacture Ltd. (“CCM”) Country of incorporation The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The Company’s subsidiary The same Chairman of the Board with the Company An associate An associate An associate An associate An associate A joint venture company Note: Since the disposal of CMX in August 2019, CMX is no longer a subsidiary of the Company. (b) Transactions with key management personnel Key management personnel remunerations comprised: Short-term employee benefits Post-employment benefits Share-based payments 2019 482,308 6,130 - 488,438 $ $ 2018 487,007 5,913 (91,809) 401,111 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 71 There are no termination benefits and other long-term benefits. Please refer to note (6)(s) for explanations related to share-based payments. (c) Significant related-party transactions (i) Sale of goods to related parties The amounts of significant sales transactions between the Company and related parties were as follows: Subsidiaries Associates 2019 1,432,433 179 2018 2,649,187 246 1,432,612 2,649,433 $ $ Sales prices for related parties were similar to those of the third-party customers. The collection period was 45~180 days for related parties. (ii) Purchase of goods from related parties The amounts of significant purchase transactions between the Company and related parties were as follows: Subsidiaries CSD Others Associates Other related parties Joint venture 2019 2018 $ 96,242,404 296,062,338 392,304,742 410 65,573 467 $ 392,371,192 - 287,509,094 287,509,094 40 9,194 370 287,518,698 Purchase prices and payment period from related parties were similar to those from third-party suppliers. The payment period was 60~120 days for related parties. (iii) Product warranty service expenses The product warranty service expenses paid to subsidiaries for the years ended December 31, 2019 and 2018, amounted to $292,959 and $278,993, respectively. As of December 31, 2019 and 2018, the unpaid warranty service expenses were record as other payables. (iv) Technical service expense The Company engaged its subsidiaries to research and develop of notebooks, and the related technical service expenses for the years ended December 31, 2019 and 2018, amounted to $170,657 and $154,412, respectively. As of December 31, 2019 and 2018, the unpaid technical service expenses were recorded as other payables. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 72 (v) Receivable due from relate parties The receivables arising from the transactions mentioned above, the sale of machinery and equipment to related parties, and the purchasing of machinery, equipment and others on behalf of the related parties as of December 31, 2019 and 2018, were as follows: Account Notes and accounts receivable Other receivables Other receivables Other receivables Other receivables Less: Credit balance of investments accounted for using equity method Related party categories December 31, 2019 December 31, 2018 $ Subsidiaries Subsidiaries - UCGI Subsidiaries - Others Other related parties Joint venture 1,052,131 581,199 27,155 62 - 1,660,547 1,318,230 502,320 18,278 - 120 1,838,948 (459,296) 1,201,251 $ (376,263) 1,462,685 As of December 31, 2019 and 2018, the Company’s investment accounted for using the equity method in subsidiaries was a credit balance, recorded as a deduction from other receivable (other receivables) – related party. Please refer to note (6)(h). (vi) Payable to related parties The payables to related parties as of December 31, 2019 and 2018, were as follows: Account Notes and accounts payable Related party categories Subsidiaries - CIT December 31, 2019 31,847,665 $ December 31, 2018 161,883 Notes and accounts payable Subsidiaries - Others 43,055,746 78,205,643 Notes and accounts payable Associates Notes and accounts payable Other related parties Notes and accounts payable Other payables Other payables Other payables Joint venture Subsidiaries Associates Other related parties 259 21,568 - 11 9,146 160 339,318 199,328 - - 745 274 $ 75,264,556 78,577,190 (vii) Loan to related parties The interest rate of unsecured loans to subsidiaries was 1.20%~3.50%, and the Company had assessed that no bad debt expenses should be recognized. As of December 31, 2019 and 2018, the loans due to related parties were recorded as other receivables. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 73 Account Other receivables Other receivables Other receivables Less: Credit balance of investments accounted for using the equity method Related party categories December 31, 2019 Subsidiaries - CEB $ 1,499,000 December 31, 2018 - Subsidiaries - HengHao Subsidiaries - UCGI 200,000 220,000 199,618 220,000 (200,000) (118,481) $ 1,719,000 301,137 As of December 31, 2019 and 2018, the Company’s investment accounted for using the equity method in some subsidiaries was a credit balance, recorded as a deduction from other receivables – related parties (classified as other receivables). Please refer to note (6)(h). (viii) Guarantees As of December 31, 2019 and 2018, the guarantees provided to subsidiaries were $255,662 and $325,179, respectively. (8) Pledged assets: None. (9) Commitments and contingencies: The details of commitments and contingencies were as follows: (a) On May 17, 2017, Qualcomm Inc. filed a lawsuit to the Southern District Court of California, USA against the Group for not paying the royalties of the patent license agreement. The Group has filed counterclaims against Qualcomm Inc. based on the antitrust law in the same court on July 19, 2017. The lawsuits was settled on April 16, 2019. The Company had compromised and both parties had agreed to drop the lawsuits. (b) In August 2019, Inventec Corporation filed a lawsuit to the Taiwan Taipei District Prosecutors Office against the Company concerning its former employees who joined the Company. This is deemed as an act of violation according to the Trade Secret Law and Copyright Law. The Company engaged lawyers to defend its right on this matter. Currently, the case is still in progress; therefore, the Company cannot make any reasonable estimation regarding the possible impact on its business operation. (c) The Company entered into various patent license agreements with third parties, and was required to make royalty payments of a predetermined amount periodically. (10) Losses due to major disasters: None (11) Subsequent events: None (12) Other: The employee benefits, depreciation and amortization expenses by categorized function are summarized as (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 74 follows: By function By item Employee benefits Salary Labor and health insurance Pension Remuneration of directors Others Depreciation Amortization Operating costs 2019 Operating expenses 677,649 51,188 17,972 - 136,787 93,277 5,980 8,450,610 571,822 330,664 48,630 402,952 598,554 319,247 Operating costs 2018 Operating expenses 322,825 27,602 12,469 - 48,089 15,342 40,050 8,227,841 517,757 308,470 59,182 385,959 150,985 249,740 Total 9,128,259 623,010 348,636 48,630 539,739 691,831 325,227 Total 8,550,666 545,359 320,939 59,182 434,048 166,327 289,790 For the years ended December 31, 2019 and 2018, the information on the number of employees and employee benefit expense of the Company is as follows: Number of employees (Average salaries) Number of directors (non-employees) Average benefit expense of employees Average salary expense of employees 2019 2018 7,682 11 1,387 1,190 $ $ 6,903 11 1,429 1,241 Percentage of change in average salary expense of employees (4.11) % (13) Other disclosures: (a) Information on significant transactions The following were the information on significant transactions required by the “ Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Company for the year ended December 31, 2019: (i) Loans to other parties: Please refer to Table 1 (ii) Guarantees and endorsements for other parties: Please refer to Table 2 (iii) Securities held as of December 31, 2019 (excluding investment in subsidiaries, associates and joint ventures): Please refer to Table 3 (iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: Please refer to Table 4 (v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (vi) Disposals of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 75 (vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Please refer to Table 5 (viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Table 6 (ix) Trading in derivative instruments: None. (b) Information on investees: Please refer to Table 7 (c) Information on investment in Mainland China: Please refer to Table 8 (14) Segment information: Please refer to the consolidated financial report of 2019. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 76 Table 1 Loans to other parties: (December 31, 2019) Name of lender No. 0 The Name of borrower CVC Company 0 The UCGI Company 0 The HengHao Company 0 The CEB Company 1 CIH CEP 2 CPI CVC 3 CPC CDE 3 CPC CIC Account name Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables Other receivables 4 CIT 4 CIT CCI Nanjing Other receivables Rayonnant (Taicang) Other receivables 5 PFG CEB Other receivables 6 CPO HengHao Kunshan Other receivables 6 CPO CIT 7 CET BT 8 Panpal HengHao 9 Arcadyan Acradyan Brasil Other receivables Other receivables Other receivables Other receivables 9 Arcadyan Arcadyan UK Other receivables 9 Arcadyan Arcadyan AU Other receivables 9 Arcadyan Arcadyan Vietnam Other receivables 10 Zhi-pal Acradyan Brasil Other receivables 11 Arcadyan Holding CNC Other receivables Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Highest balance of financing to other parties during the period 316,000 Related party Y Ending balance - Actual usage amount during the period - Range of interest rates during the period 3.20% Purposes of fund financing for the borrower Short-term financing Short-term financing 500,000 250,000 220,000 1.20% 405,369 200,000 200,000 1.2%~2.82% Short-term financing 1,580,000 1,499,000 1,499,000 3.50% 110,600 104,930 43,471 3.50% 316,000 - - 3.20% 1,380,900 1,291,500 1,291,500 2.20% 430,500 430,500 - 2.20% 2,212,000 2,098,600 2,098,600 2.76% 69,045 64,575 64,575 4.35% 308,950 - - 2.50% 644,420 602,700 602,700 4.35% 645,750 645,750 - 2.20% 274,800 258,300 64,575 2.20% 600,000 600,000 600,000 1.20% 246,160 60,040 39,026 1.00% 219,730 210,140 126,400 - 284,400 270,180 34,760 33,022 - - - - 1.00% 1.00% 1.00% 1.00% 523,940 510,340 510,340 1.00% Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Short-term financing Transaction for business between two parties Transaction for business between two parties Transaction for business between two parties Short-term financing Short-term financing Transaction amount for business between two parties - - - - - - - - - - - - - - - - Reasons for short- term financing Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating demand Operating financing Operating demand Operating demand Operating demand Operating demand Operating financing 4,503,000 1,501,000 600,400 - - - - - Operating financing Operating financing Allowance for bad debt - - - - - - - - - - - - - - - - - - - - - (In Thousands of New Taiwan Dollars) Individual funding loan limits 21,194,526 Maximum limit of fund financing 42,389,053 Note (Note 1) 21,194,526 42,389,053 (Note 1) 21,194,526 42,389,053 (Note 1) 21,194,526 42,389,053 (Note 1) 34,545,521 34,545,521 (Note 2) 890,733 890,733 (Note 3) 2,096,417 2,096,417 (Note 4) 2,096,417 2,096,417 (Note 4) 20,539,992 20,539,992 (Note 5) 20,539,992 20,539,992 (Note 5) 435,070 435,070 (Note 6) 2,777,160 2,777,160 (Note 7) 2,777,160 2,777,160 (Note 7) 4,625,117 4,625,117 (Note 8) 5,896,656 5,896,656 (Note 9) 2,180,945 4,361,890 (Note 10) 2,180,945 4,361,890 (Note 10) 1,200,800 4,361,890 (Note 10) 480,320 4,361,890 (Note 10) 41,642 166,568 (Note 11) 2,003,996 2,003,996 (Note 12) Collateral Item Value - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Note 1: According to the Company’ s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of the Company. When a short-term financing facility with the Company is necessary, the total amount for lending to any company shall not exceed 80% of the borrower’s net worth, nor shall it be more than 50% of the Company’s lendable amount limit, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, the total amount lendable to 100% directly or indirectly owned subsidiaries by the Company is unrestricted by Note 2: Note 3: the aforesaid restriction of 80%, but the maximum amount shall not exceed 50% of the Company’s lendable limit, and shall be combined with the company’s amount of loans to others when calculating. According to CIH’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CIH. When a shortterm financing facility with CIH is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CIH’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIH, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CPI’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CPI. When a shortterm financing facility with CPI is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPI’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPI, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 77 Table 1 Loans to other parties: (December 31, 2019) Note 4: Note 5: Note 6: Note 7: Note 8: Note 9: Note 10: Note 11: Note 12: According to CPC’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CPC. When a shortterm financing facility with CPC is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower ’s net worth, nor shall it exceed 50% of CPC’ s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPC, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CIT ’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CIT. When a shortterm financing facility with CIT is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower ’s net worth, nor shall it exceed 50% of CIT ’ s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIT, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to PFG’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of PFG. When a shortterm financing facility with PFG is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of PFG’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of PFG, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CPO’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CPO. When a shortterm financing facility with CPO is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPO’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPO, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to CET’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CET. When a shortterm financing facility with CET is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CET’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CET, and shall be combined with the company’ s endorsements/guarantees for the borrower when calculating. According to Panpal’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of Panpal. When a shortterm financing facility with Panpal is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of Panpal’s total amount of lendable capital, and shall be combined with the company ’ s endorsements/guarantees for calculation. In addition, when lending to the total amount lendable to 100% directly or indirectly owned subsidiaries by the Company, or the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions of 80%, but the maximum amount shall not exceed the of Panpal, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. According to Arcadyan’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of Arcadyan. To borrowers having business relationship with Arcadyan, the total amount for lending the borrower shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount for the current year, nor shall it exceed 20% of the net worth of Arcadyan. Also, the amount shall be combined with the Arcadyan ’ s endorsements/guarantees for the borrower when calculating. When a short-term financing facility is necessary, the borrower should be Arcadyan’s investee. The total amount for lending the borrower shall not exceed 80% of the net worth of the borrower, nor shall it exceed 20% of the net worth of Arcadyan, and shall be combined with the Arcadyan’s endorsements/guarantees for the borrower when calculating. The total amount of loans to others shall not exceed 40% of the net worth of Zhi-pal. To borrowers having business relationship with Zhi-pal, the total amount for lending the borrower shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount for the current year, nor shall it exceed 20% of the net worth of Zhi-pal. When a short-term financing facility is necessary, the borrower should be Zhi-pal’s investee, and the total amount for lending the borrower shall not exceed 10% of the net worth of the borrower. According to Arcadyan Holding’s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed the net worth of Arcadyan Holding. When a short-term financing facility is necessary, the borrower should be Arcadyan Holding’s investee. The total amount for lending the borrower shall not exceed the net worth of Arcadyan Holding, and shall be combined with the Arcadyan Holding’s endorsements/ guarantees for the borrower when calculating. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 78 Table 2 Guarantees and endorsements for other parties: (December 31, 2019) Counter-party of guarantee and endorsement Name of guarantor No. 0 The Company CEB Name Relationship with the Company (Note 3) Limitation on amount of guarantees and endorsements for a specific enterprise 26,493,158 Highest balance for guarantees and endorsements during the period 63,200 Balance of guarantees and endorsements as of reporting date 59,960 Property pledged for guarantees and endorsements (Amount) - Actual usage amount during the period 59,960 Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements 0.06% Maximum amount for guarantees and endorsements (Note 1)and(Note 4) 52,986,316 (In Thousands of New Taiwan Dollars) Parent company endorsements /guarantees to third parties on behalf of subsidiary Y Subsidiary endorsements /guarantees to third parties on behalf of parent company - Endorsements / guarantees to third parties on behalf of companies in Mainland China - 0 The Company CEP (Note 2) 26,493,158 260,766 195,702 195,702 1 Arcadyan Arcadyan Brasil (Note 5) 1,453,963 246,160 - - - - 0.18% 52,986,316 - 4,361,890 Y Y - - - - Note 1: According to the Company’ s Procedures for Endorsement and Guarantee, the total amount of endorsements/ guarantees the Company or the Group is permitted to make shall not exceed 50% of the Company’s net worth. Endorsements/ guarantees the Company and the Group are permitted to make for a single company shall not exceed 25% of the Company’s net worth. For entities having business relationship with the Company, the amount of endorsements/ guarantees for a single company shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount of the current year, and shall be combined with the amount lend to others when calculating. The amount of endorsements/ guarantees permitted to make between subsidiaries whose over 90% of its voting shares are owned, directly or indirectly, by the Company shall be no more than 10% of the net worth of the Company. The amount of endorsements/ guarantees permitted to make between directly or indirectly wholly owned subsidiaries is not limited by the aforementioned restriction, only the maximum amount shall be no more than 25% of the net worth of the Company. Note 2: Subsidiary whose over 50% common stock is directly owned. Note 3: Subsidiary whose over 50% common stock is indirectly owned. Note 4: According to Arcadyan's Procedures for Endorsement and Guarantee, the total amount shall not exceed 40% of the net worth for latest financial statements audited or reviewed by Certified Public Accountants, and the amount for a single company shall not exceed 1/3 of the total amount. Note 5: Subsidiary whose 100% common stock is directly owned by Arcadyan. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 79 Table 3 Securities held as of December 31, 2019 (excluding investment in subsidiaries, associates and joint ventures): (December 31, 2019) Name of holder Category and name of security The Company Taiwan Star Relationship with security issuer ‑ Kinpo Electronics, Inc. (“Kinpo”) The same chairman of the Company Cal-Comp Electronics (Thailand) Public Co., Ltd. The same chairman of the Company ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ HWA VI Venture Capital Corp. HWA Chi Venture Capital Corp. mProbe Ltd. Global BioPharma, Inc. Chen Feng Optoelectronics PrimeSensor Technology Inc. IIH Biomedical Venture Fund UBS Extendible Money Mkt Cert. Others Total Account name Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss and other comprehensive income Panpal Compal Electronics, Inc. The parent company Financial assets at fair value through other comprehensive income-non-current Kinpo The same chairman of the Company CDIB Partners Investment Holding Corp. ‑ AcBel The same chairman of the Company Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current ‑ ‑ Taiwan Biotech Co., Ltd. Others Total Gempal Compal Electronics, Inc. Lian Hong Art. Co., Ltd. (In Thousands of shares/ units) Ending balance Shares/Units (thousands) 98,046 Carrying value 680,442 Holding percentage (%) 3% Fair value Note 680,442 124,044 1,593,962 9% 1,593,962 239,631 448,110 5% 448,110 290 25,397 10% 25,397 842 23,933 11% 23,933 4,000 40,920 2% 40,920 2,000 34,260 3% 34,260 6,685 97,866 11% 97,866 861 7,266 3% 7,266 2,500 24,350 8% 24,350 - 149,888 - 149,888 113,984 ___________ 3,240,378 31,648 596,566 1% 596,566 23,172 297,766 2% 297,766 54,000 941,220 5% 941,220 5,677 137,092 1% 137,092 4,897 134,085 3% 134,085 103,583 ___________ 2,210,312 The parent company Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current ‑ 18,369 346,262 - 346,262 2,140 65,670 8% 65,670 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 80 Table 3 Securities held as of December 31, 2019 (excluding investment in subsidiaries, associates and joint ventures): (December 31, 2019) Name of holder Category and name of security Gempal Global BioPharma, Inc. Relationship with security issuer ‑ Others Total Hong Ji SUYIN Optronics Co., Ltd. (“SUYIN Optronics”) Hong Jin SUYIN Optronics Arcadyan GeoThings Inc. AirHop Communication Inc. Adant Technologies Inc. IOT EYE, Inc. TIEF FUND L.P. Chimei Motor Electronics Co., LTD Total Mactech Taichung International Golf Country Club HHB HWALLAR OPTRONICS (Fuzhou) CO., LTD. Mithera Beyond Limits, Inc. CPC CET CEC CEQ Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu, Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu, Structured Deposit ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ (In Thousands of shares/ units) Ending balance Shares/Units (thousands) 2,000 Carrying value 34,265 Holding percentage (%) 3% Fair value Note 34,265 2,699 ___________ 448,896 380 182 1% 332 160 1% 182 160 200 1,152 349 60 - - - - 9% 5% 5% 14% - - - - (Note 1) (Note 1) (Note 1) (Note 1) 44,262 7% 44,262 1,650 49,500 9% 49,500 ___________ 93,762 7,530 - 7,530 - 19% - (Note 1) 873 134,910 394,013 437,840 219,070 129,647 - - - - - 134,910 394,013 437,840 219,070 129,647 - - - - - - Account name Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non- current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Note 1:The carrying value is the remaining amount after deducting accumulated impairment. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 81 Table 4 Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: (For the year ended December 31, 2019) Beginning Balance Purchases Sales Others Ending Balance (In Thousands of New Taiwan Dollars) Name of counter-party - Relationship with the company - Shares/ Units (thousands) 4,593 Amount 284,768 Shares/ Units (thousands) - Amount - Shares/ Units (thousands) 4,593 Price 307,207 Cost 307,207 Gain (loss) on disposal - Shares/ Units (thousands) - Name of company The Company Category and name of security Chipbond The Company Innolux Corporation Panpal Chipbond BSH HSI HSI IUE IUE CVC Account name Financial assets at fair value through profit or loss-current Financial assets at fair value through other comprehensive income-non- current Financial assets at fair value through profit or loss-current Investments accounted for using equity method Investments accounted for using equity method Investments accounted for using equity method - - Issued for cash Issued for cash Issued for cash CPC CIT CIT CEC CEQ CEQ CPO CPO CPO CIC CIC CET CET Structured deposits– SPD Bank Yield Plus Structured Deposit Financial assets at fair value through profit or loss-current Shanghai Pudong Development Bank Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits– SPD Bank Yield Plus Structured Deposit Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits- Industrial Bank Structured Deposits Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits– SPD Bank Yield Plus Structured Deposit Bank of Communications Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Shanghai Pudong Development Bank Bank of Communications Bank of Communications Industrial Bank Co.,Ltd Bank of Communications Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Shanghai Pudong Development Bank Structured deposits- The RMB "Open on schedule" Financial Product Financial assets at fair value through profit or loss-current Bank of China Structured deposits– SPD Bank Yield Plus Structured Deposit Financial assets at fair value through profit or loss-current Shanghai Pudong Development Bank Structured deposits- Win-win Interest Rate Structure RMB Structural Deposits Financial assets at fair value through profit or loss-current China CITIC Bank Structured deposits- Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits- Agricultural Bank of China "HuiLiFeng" customization RMB structured deposit Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Bank of Communications Agricultural Bank of China - - - - - - - - - - - - - - - - - - 109,227 1,061,690 5,251 325,560 - - - - 109,227 763,181 763,181 - 5,251 344,843 344,843 - - - 37,000 1,109,260 30,000 455,400 37,000 1,109,260 30,000 480,087 37,000 1,109,260 - - - - - - - - - - - - - 179,963 - - 576,466 260,029 259,705 448,948 480,285 - 179,699 - 225,651 676,881 - - - - - - - - - - - - - 1,203,551 894,833 894,833 1,825,461 501,107 259,502 - - 447,417 1,073,801 447,417 1,118,542 447,417 - - - - - - - - - - - - - - - - - - - - - - 989,834 979,843 910,892 894,833 910,892 894,833 2,196,103 2,174,447 633,487 626,384 526,798 519,004 451,877 447,416 482,449 478,736 456,614 447,417 1,265,163 1,252,768 450,405 447,417 1,360,587 1,342,250 1,129,780 1,118,542 - - - 9,991 (Note 2) 16,059 (Note 2) 16,059 (Note 2) 21,656 (Note 2) 7,103 (Note 2) 7,794 (Note 2) 4,461 (Note 2) 3,713 (Note 2) 9,197 (Note 2) 12,395 (Note 2) 2,988 (Note 2) 18,337 (Note 2) 11,238 (Note 2) - - - - - - - - - - - - - - - - - - Shares/ Units (thousands) - Amount - - - - - 37,000 1,109,260 Amount 22,439 (Note 1) (298,509) (Note 1) 19,283 (Note 1) - (Note 3) (202,793) (Note 3) 67,000 1,361,867 (203,384) (Note 3) 67,000 1,385,963 333 (Note 1) 16,059 (Note 1) 16,059 (Note 1) 13,246 (Note 1) 1,998 (Note 1) 7,591 (Note 1) 2,929 (Note 1) 2,164 (Note 1) 9,197 (Note 1) 11,663 (Note 1) 2,988 (Note 1) 16,394 (Note 1) 5,482 (Note 1) - - - - - - - - - - - - - 394,013 - - 219,070 129,647 - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 82 Table 4 Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: (For the year ended December 31, 2019) Name of company CET Category and name of security Structured deposits- The RMB "Open on schedule" Financial Product Account name Financial assets at fair value through profit or loss-current Name of counter-party Bank of China Relationship with the company - Beginning Balance Purchases Sales Others Ending Balance Shares/ Units (thousands) - Amount 451,154 Shares/ Units (thousands) - Amount 223,708 Shares/ Units (thousands) - Price 667,681 Cost 671,125 Gain (loss) on disposal 6,556 (Note 2) Shares/ Units (thousands) - Amount 2,819 (Note 1) Shares/ Units (thousands) - Amount - (In Thousands of New Taiwan Dollars) CET CET Structured deposits- SPD Bank Yield Plus Structured Deposit Financial assets at fair value through profit or loss-current Shanghai Pudong Development Bank Structured deposits- Win-win Interest Rate Structure RMB Structural Deposits Financial assets at fair value through profit or loss-current China CITIC Bank Arcadyan Arcadyan Holding Issued for cash Investments accounted for using equity method - - - - - - - - - 1,297,509 1,297,509 32,780 1,221,252 27,000 823,505 - - - 858,447 850,092 1,307,480 1,297,509 8,355 (Note 2) 9,971 (Note 2) - - - - - - (1,222) (Note 1) 9,971 (Note 1) - - 437,840 - (87,955) (Note 3) 59,780 1,956,802 Note 1:Others were valuation gains and losses and foreign exchange gains and losses. Note 2:Including gains and losses on disposal and foreign exchange gains and losses. Note 3:Including share of profit (loss) accounted for using equity method and exchange differences on translation of foreign financial statements. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 83 Table 5 Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: (For the year ended December 31, 2019) Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) (In Thousands of New Taiwan Dollars) Purchase/ (Sale) Sale Amount (195,680) Percentage of total purchases/ (sales) - Payment terms 120 days Unit price Similar to non- related parties Payment Terms There is no significant difference Sale (962,973) (0.1)% 90 days Purchase 189,074,111 21.6% 120 days Purchase 102,586,790 11.7% 120 days Purchase 4,571,105 0.5% 120 days Sale Purchase - 24,316,409 0.0% 2.8% 120天 120 days Similar to non- related parties Similar to non- related parties Similar to non- related parties Similar to non- related parties 〃 Markup based on BCI and its subsidiaries's cost Purchase 19,044,223 2.2% Net 60 days from purchase Markup based on Etrade and its subsidiaries's cost Purchase 34,469,915 3.9% Net 60 days from purchase Markup based on Webtek's cost There is no significant difference There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary 〃 There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary Sale (105,081) - Net 60 days from delivery Similar to non- related parties There is no significant difference Company Name The Company Counter party UCGI CBN CIH and its subsidiaries Nature of relationship Subsidiaries wholly owned by the Company The Company's subsidiaries Subsidiaries wholly owned by the Company Just and its subsidiaries Subsidiaries wholly owned by the Company HSI and its subsidiaries Subsidiaries wholly owned by the Company 聯恆 BCI and its subsidiaries 本公司百分之百持 Subsidiaries wholly owned by the Company Etrade and its subsidiaries Subsidiaries wholly owned by the Company Webtek Palcom Forever Subsidiaries wholly owned by the Company Subsidiaries wholly owned by the Company Subsidiaries wholly owned by the Company Just and its subsidiaries Webtek With the same ultimate parent company Purchase 18,139,071 2.1% Net 60 days from purchase Markup based on Forever's cost Sale (24,375,017) (19.0)% Net 60 days from delivery According to markup Parent company Sale (102,586,790) (45.0)% 120 days pricing Similar to non- related parties With the same ultimate parent company Parent company With the same ultimate parent company With the same ultimate parent company Sale (6,892,761) (34.0)% Net 60 days from delivery Similar to non- related parties Sale (189,320,860) (77.7)% 120 days Sale (196,173) - 120 days Similar to non- related parties Similar to non- related parties Sale (9,187,778) (20.1)% Net 60 days from delivery According to markup pricing Parent company Purchase 959,522 52.0% Net 90 days from purchase - Parent company Sale (24,324,646) (84.1)% 120 days There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding There is no significant difference Compal Electronic, Inc. Forever CIH and its subsidiaries Compal Electronic, Inc. CEB Forever CBN BCI and its subsidiaries Compal Electronic, Inc. Compal Electronic, Inc. CEB With the same ultimate parent company Sale (1,962,595) (7.0)% 120 days Markup based on BCI and its subsidiaries's cost According to markup pricing Adjustments will be made based on demand for funding There is no significant difference Percentage of total notes/accounts receivable (payable) - Ending Balance 45,158 Note 330,670 0.2% (51,022,067) (34.2)% (6,799,206) (4.6)% (2,369,841) (1.6)% - (7,460,959) (5.0)% 0.0% (Note 2) (5,904,962) (4.0)% (556,913) (0.4)% 22,720 (778,369) - 6,799,206 - 51,022,056 51,912 - (0.5)% 20.0% 37.8% - - - - - (331,111) (64.0)% 7,460,959 78.4% 772,909 4.7% (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 84 Table 5 Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: (For the year ended December 31, 2019) Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) (In Thousands of New Taiwan Dollars) Company Name Webtek Counter party Compal Electronic, Inc. Nature of relationship Parent company Purchase/ (Sale) Sale Amount (34,469,915) Percentage of total purchases/ (sales) (100.0)% Net 60 days from delivery According to markup Payment terms Unit price pricing Purchase 10,091,875 29.0% Net 60 days from purchase According to markup pricing Purchase 24,375,017 71.0% Net 60 days from purchase According to markup pricing Percentage of total notes/accounts receivable (payable) Note Ending Balance 556,913 100.0% - - - - Payment Terms Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Purchase 1,944,054 17.1% 120 days Similar to non- related parties There is no significant difference (765,855) (47.8)% Purchase 202,987 1.8% 120 days Similar to non- related parties There is no significant difference (51,677) (3.2)% Sale (10,091,875) (35.0)% Net 60 days from delivery According to markup pricing Parent company Sale (19,044,223) (65.0)% Net 60 days from delivery According to markup pricing Parent company Sale (18,139,071) (85.0)% Net 60 days from delivery According to markup pricing CIH and its subsidiaries JUST and its subsidiaries With the same ultimate parent company With the same ultimate parent company Purchase 9,187,778 43.0% Net 60 days from purchase Similar to non- related parties Purchase 6,892,761 32.0% Net 60 days from purchase Similar to non- related parties Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding Adjustments will be made based on demand for funding - - 5,904,962 100.0% 778,369 100.0% - - - - Parent company Purchase 195,680 68.2% 120 days Similar to non- related parties There is no significant difference (45,124) (86.5)% Parent company Purchase 105,081 100.0% Net 60 days from purchase Similar to non- related parties There is no significant difference (22,720) - Parent company Sale (4,571,105) (100.0)% 120 days Similar to non- related parties Adjustments will be made based on demand for funding Arcadyan's subsidiary Sale (1,465,691) (5.0)% Net 120 days from delivery Arcadyan's subsidiary Sale (2,992,401) (11.0)% Net 60 days from the end of the month of delivery Arcadyan's subsidiary Sale (2,444,741) (9.0)% Net 45 days from the end of the month of delivery Arcadyan's subsidiary Purchase 11,451,395 31.0% Net 45 days from the end of the month of delivery Arcadyan's subsidiary Purchase 1,026,793 (3.0)% Net 180 days from the end of Sale (11,451,395) (100.0)% Net 45 days from the end of the month of delivery the month of delivery Sale (158,620) (1.0)% Net 90 days from the end of the month of delivery Sale (1,026,793) (100.0)% Net 180 days from the end of the month of delivery Purchase 1,465,691 100.0% Net 120 days from delivery Purchase 2,992,401 100.0% Net 60 days from the end of the month of delivery Purchase 2,444,741 100.0% Net 45 days from the end of the month of delivery - - - According to markup pricing According to markup pricing According to markup pricing - - - - Sale (378,225) (100.0)% Net 60 days from the end of the month of delivery According to markup pricing Purchase 158,620 2.0% Net 90 days from the end of the month of delivery Purchase 378,225 8.0% Net 60 days from the end of the month of delivery - - - - - - - - - - - - - - - Note 1: The remaining balance is the net value of commissioned processing and sales of raw material. Note 2: The amount of other receivables (other payables) on December 31, 2019 is 362,695 thousand dollars. Note 3: The amount of unearned sales revenue (prepayment for purchases) on December 31,2019 is 103,079 thousand dollars. 2,383,869 100.0% 392,466 6.0% 2,683,393 38.0% 634,154 9.0% (3,117,484) (44.0)% (Note 1) (Note 2) 3,117,484 23,396 (Note 2) (Note 1) 99.0% (Note 1) 1.0% (Note 1) - - (392,466) (100.0)% (2,683,393) (100.0)% (634,154) (100.0)% (Note 3) - (Note 1) (23,396) (54.0)% (Note 1) (Note 3) - (Note 1) (Continued) With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company Etrade and its subsidiaries JUST and its subsidiaries BCI and its subsidiaries CIH and its subsidiaries CEB Etrade and its subsidiaries Webtek Compal Electronic, Inc. Forever Compal Electronic, Inc. UCGI Palcom Compal Electronic, Inc. Compal Electronic, Inc. HSI and its subsidiaries Compal Electronic, Inc. Arcadyan CNC Acradyan Vietnam Acradyan Germany Acradyan USA Acradyan AU Acradyan Germany Acradyan USA Acradyan AU CNC Acradyan Vietnam Arcadyan THAC Arcadyan Arcadyan Arcadyan Arcadyan THAC TTI CNC TTI THAC With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company With the same ultimate parent company COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 85 Table 6 Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Overdue Ending Balance Turnover rate 330,670 1.80 Amount - Action taken - (In Thousands of New Taiwan Dollars) Amounts received in subsequent period 238,935 (Note 1) Allowance for bad debts - (December 31, 2019) Name of Company The Company Counter-party CBN Just and its subsidiaries CIH and its subsidiaries BCI and its subsidiaries BCI and its subsidiaries Forever Webtek Etrade and its subsidiaries Compal Electronic, Inc. Compal Electronic, Inc. Compal Electronic, Inc. CEB Compal Electronic, Inc. Compal Electronic, Inc. Compal Electronic, Inc. Nature of relationship The Company's subsidiary Parent company 6,799,206 28.09 Parent company 51,022,056 Parent company With the same ultimate parent company Parent company Parent company 7,460,959 772,909 778,369 556,913 Parent company 5,904,962 3.78 5.92 2.94 1.68 9.04 3.42 HSI and its subsidiaries Compal Electronic, Inc. Parent company 2,383,869 3.80 Arcadyan Arcadyan Arcadyan Arcadyan Arcadyan Germany Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan USA Arcadyan AU Arcadyan's subsidiary Arcadyan Vietnam Arcadyan's subsidiary Arcadyan TTI Arcadyan's subsidiary CNC Arcadyan With the same ultimate parent company Note 1:Balance as of March 13, 2020. Note 2:Balance as of February 21, 2020. Note 3:Other receivables due to processing and sales of raw material. Note 4:Other receivables due to processing. 392,466 2,683,393 634,154 362,695 (Note 3) 55,769 (Note 3) 3,117,484 (Note 4) 2.45 2.15 3.59 2.11 18.18 3.51 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,224,612 (Note 1) 48,763,927 (Note 1) 7,282,087 (Note 1) 197,195 (Note 1) - - (Note 1) (Note 1) 5,843,969 (Note 1) - (Note 1) 75,366 (Note 2) 708,279 (Note 2) 509,314 (Note 2) (Note 2) - 18,864 (Note 2) 450,187 (Note 2) - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 86 Table 7 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) (In Thousands of New Taiwan Dollars/ shares) Investor Company Investee Company The Company Bizcom Main Businesses and Products Milpitas, USA Warranty services and Location December 31, 2019 December 31, 2018 36,369 36,369 Shares 100 Percentage of Ownership 100% Carrying Value 446,195 Net income (losses) of investee Share of profits/losses of investee 16,485 16,485 Note Original Investment Amount Ending Balance Just CIH Panpal Gempal Kinpo Group management consultant company (“Kinpo Group management”) Ripal Unicore marketing of LCD TVs and notebook PCs British Virgin Islands Investment British Virgin Islands Investment Taipei City City Taipei City City Taipei City Tainan City Taipei City Investment Investment Consultation, training services, etc. Manufacturing of electric appliance and audiovisual electric products Management&Consultant, rental and leasing business and wholesale and retail of medical equipments 1,480,509 1,480,509 48,010 100% 7,954,899 209,804 209,804 1,787,680 1,787,680 53,001 100% 34,558,369 473,752 473,752 5,171,837 5,171,837 500,000 100% 5,304,500 251,199 213,221 900,036 900,036 90,000 100% 1,603,518 96,808 74,765 3,000 3,000 300 38% 4,628 237 90 (Note 1) (Note 1) 60,000 60,000 6,000 100% 76,632 24,978 24,834 200,000 200,000 20,000 100% 145,664 (18,865) (18,984) Lead-Honor Optronics. Co., Ltd. (“Lead-Honor”) Taoyuan City Manufacturing of electric appliance and audiovisual electric products 42,000 42,000 2,772 42% - Investment 34 34 1 100% 3,533,243 - - - - CEH Shennona Taiwan British Virgin Islands Taipei City Management&Consultant, rental and leasing business, wholesale and retail sale of precision instruments and International Trade 6,000 - 600 100% 4,292 (1,708) (1,708) Allied Circuit Taoyuan City Production and sales of PCB 395,388 395,388 10,158 20% 318,932 222,022 45,327 Maxima Ventures I, Inc. (“Maxima”) Aco Smartcare Lipo Holding Co., Ltd.(“Lipo”) CPE ATK boards Taipei City Investment 1,260 1,260 126 23% 2,693 (201) 37 Hsinchu City Wholesale and retail sale of computer software, software design services, data processing services, wholesale and retail sale of electronic materials, wholesale and retail sale of precision instruments, and biotechnology services Cayman Islands The Netherlands Investment Investment 90,000 - 100,000 52% 85,978 (10,302) (4,022) 489,450 489,450 98 49% 508,166 (255,302) (125,098) 197,463 197,463 6,427 100% 823,429 16,394 16,394 Hsinchu City Design, research & 202,908 202,908 899 28% 8,545 (6,575) (1,826) Crownpo Technology Inc. (“Crownpo”) Taipei City development, and selling of DVD, Combo, CD-RW Drives Manufacturing, processing, and selling resistor chips, networking chips, diodes, multilayer ceramic capacitors, semiconductor devices, and selling electronic products 149,547 149,547 3,739 33% 55,769 (49,191) (16,347) Hong Ji Hong Jin Mactech Auscom Arcadyan FGH Shennona HSI CEP Investment Taipei City Taipei City Investment Taichung City Manufacturing of equipment 1,000,000 295,000 219,601 1,000,000 295,000 219,601 100,000 29,500 21,756 100% 100% 53% 1,078,453 342,169 237,496 61,267 29,774 25,927 61,267 29,774 12,703 and lighting, retailing of equipment and international trading Austin, TX USA R&D of notebook PC related products and components Hsinchu City R&D, manufacturing and sales of wireless network, integrated household electronics, and mobile office products Investment British Virgin Islands 101,747 101,747 3,000 100% 126,700 3,919 3,919 1,325,132 1,325,132 41,305 20% 2,260,060 1,313,498 278,206 2,754,741 2,754,741 89,755 100% 4,462,874 131,815 131,815 Delaware, USA British Virgin Islands Poland Medical care IOT business 32,665 29,558 2,600 100% 1,372 (7,150) (7,150) Investment 1,346,814 1,346,814 42,700 54% 541,383 (180,050) (180,050) Maintenance and warranty services of notebook PCs 90,156 90,156 136 100% 17,372 2,224 2,224 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 87 Table 7 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) Investor Company Investee Company Location Main Businesses and Products Taipei City The Company Zhaopal Taipei City Yongpal Kaipal Taipei City Hippo Screen Neurotech Co., Ltd. Taipei City Infinno Technology Corporation (“Infinno”) Hsinchu County HengHao Taipei City BCI CBN British Virgin Islands Hsinchu County Rayonnant Taipei City CRH Acendant Private Equity Investment Ltd. (“APE”) Etrade Webtek Forever UCGI Palcom Avalue Technology, Inc. British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Taipei City Taipei City New Taipei City (In Thousands of New Taiwan Dollars/ shares) Original Investment Amount Ending Balance December 31, 2019 - - - 42,000 December 31, 2018 1,358,000 1,188,500 510,500 - Percentage of Ownership - - - 70% Shares - - - 4,200 Carrying Value - - - 34,869 Net income (losses) of investee Share of profits/losses of investee Note 1 - - (10,187) 1 - - (7,131) 109,837 109,837 5,650 27% 17,199 (16,010) (4,354) 5,529,757 5,329,757 20,015 100% (485,074) (569,058) (569,058) Investment Investment Investment Management&Consultant, Rental and Leasing Business, wholesale and retail sale of precision instruments and International Trade Manufacturing of electronic components, wholesale and retail sale of precision instruments and electronic materials Manufacturing of PCs, computer periphery devices, and electronic components Investment 2,636,051 2,636,051 90,820 100% 6,181,036 296,503 296,503 R&D and sales of cable modem, digital setup box, and other communication products Manufacturing and sales of PCs, computer periphery devices, and electronic components Investment Investment Investment Investment Investment Manufacturing and retail sale of computers and electronic components Selling of mobile phones Manufacturing, processing, and import and export business of industrial motherboards 284,827 284,827 29,060 43% 734,059 10,514 4,619 295,000 295,000 29,500 100% 62,310 24,012 22,907 377,328 377,328 12,500 100% 131,698 27,806 27,806 943,922 943,922 31,253 35% 1,061,446 205,756 71,442 1,532,029 1,532,029 46,900 65% (606,199) (354,085) (311,924) 3,340 1,575 3,340 100 100% 527,529 (39,957) (39,957) 1,575 50 100% 1,453,833 1,497 1,497 100,000 100,000 10,000 100% (459,297) (83,034) (83,034) 100,000 559,189 100,000 559,189 10,000 15,024 100% 21% 105,623 646,573 (2,453) 453,494 (2,453) 99,281 CORE GLB British Virgin Islands Investment New Taipei City Manufacturing and wholesale of medical equipment 4,318,860 4,318,860 147,000 100% 7,668,192 232,282 232,282 246,860 246,860 15,000 50% 305,987 90,284 45,053 81,883,115 1,022,912 Panpal Arcadyan Hsinchu City Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing 279,202 180,968 8,192 4% 493,017 1,313,498 Allied Circuit Taoyuan City Production and selling of PCB 148,263 148,263 2,927 6% 91,903 222,022 Gempal Others Arcadyan Hsinchu City boards Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing 306,655 203,500 9,279 4% 582,145 583,444 1,313,498 Allied Circuit Taoyuan City Production and selling of PCB 53,645 53,645 3,220 6% 101,093 222,022 boards Others 3,274 Investment gain(losses) recognized by Panpal Investment gain(losses) recognized by Panpal Investment gain(losses) recognized by Gempal Investment gain(losses) recognized by Gempal (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 88 Table 7 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) Investor Company Investee Company Hong Ji Arcadyan Location Hsinchu City Main Businesses and Products Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing (In Thousands of New Taiwan Dollars/ shares) Original Investment Amount Ending Balance December 31, 2019 306,655 December 31, 2018 203,500 Shares 9,279 Percentage of Ownership 4% Carrying Value 583,444 Net income (losses) of investee 1,313,498 Share of profits/losses of investee Investment gain(losses) recognized by Hong Ji Note Allied Circuit Taoyuan City Production and selling of PCB 12,274 12,274 1,041 2% 26,724 222,022 Hong Jin Arcadyan Hsinchu City boards Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing 131,942 112,569 4,609 2% 274,806 1,313,498 Just CDH (HK) Hong Kong Investment 1,867,679 1,867,679 62,298 100% 5,559,135 121,268 CII CPI CII Smart AEI MEL MTL CMX MEL and MTL British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment 277,165 277,165 9,245 100% 252,744 38,910 14,990 14,990 500 100% 887,886 12,474 30 30 1 100% 385 (6) U.S.A Sales and maintenance of LCD TVs 29,980 29,980 1,000 100% 48,020 (256) U.S.A Investment 246,855 246,855 U.S.A Investment 30 30 Mexico Manufacturing, sales and maintenance of LCD TVs - 241,339 - - - 100% 204,349 (49,788) 100% 30 - - - (12,236) CIH CIH (HK) Hong Kong Investment 2,242,579 2,242,579 74,803 100% 32,770,648 597,121 Jenpal PFG FWT CCM HSI IUE Goal British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment British Virgin Islands Investment 220,353 220,353 7,350 100% 105,192 2,742 30 30 1 100% 435,070 24,092 446,702 446,702 14,900 100% 447,152 152 152,898 152,898 5,100 51% 26,994 (57,524) 2,008,660 899,400 67,000 100% 1,361,867 (197,879) 380,746 380,746 12,700 100% 316,738 17,829 Investment gain(losses) recognized by Hong Ji Investment gain(losses) recognized by Hong Jin Investment gain(losses) recognized by Just Investment gain(losses) recognized by Just Investment gain(losses) recognized by Just Investment gain(losses) recognized by CII Investment gain(losses) recognized by CII Investment gain(losses) recognized by CII Investment gain(losses) recognized by CII Investment gain(losses) recognized by MEL and MTL Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by CIH Investment gain(losses) recognized by HSI Investment gain(losses) recognized by HSI (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 89 Table 7 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) Investor Company IUE CVC Investee Company Location Vietnam Goal CDM Vietnam Main Businesses and Products R&D, manufacturing, sales, and maintenance of notebook PCs, computer monitors, LCD TVs and electronic components Construction of and investment in infrastructure in Ba-Thien industrial district of Vietnam (In Thousands of New Taiwan Dollars/ shares) Original Investment Amount Ending Balance December 31, 2019 2,008,660 December 31, 2018 899,400 Shares 67,000 Percentage of Ownership 100% Carrying Value 1,385,963 Net income (losses) of investee (197,879) Share of profits/losses of investee Investment gain(losses) recognized by IUE Note 380,746 380,746 12,700 100% 373,914 17,829 BCI CMI British Virgin Islands Investment 2,422,984 2,422,984 80,820 100% 3,855,996 164,336 PRI British Virgin Islands Investment 299,800 299,800 10,000 100% 2,325,040 132,167 CORE BSH British Virgin Islands Investment 4,407,060 4,407,060 147,000 100% 7,668,193 232,282 BSH Mithera Cayman Islands Investment 149,900 HSI British Virgin Islands Investment 1,109,260 Forever GIA British Virgin Islands Selling of mobile phones - - - - - 99% 146,594 (3,444) 37,000 46% 1,109,260 (180,050) - 100% - - Webtek Etrade British Virgin Islands Investment 749,500 749,500 25,000 35% (205,213) (354,085) Unicore Raycore Taipei City Animal medication retail and wholesale 25,500 25,500 1,275 51% 17,675 (9,082) Arcadyan Arcadyan Holding British Virgin Islands Investment 2,064,032 1,240,526 59,780 100% 1,956,802 (24,302) Arcadyan USA U.S.A Sales of wireless network products 23,055 23,055 1 100% (250,530) 14,289 Arcadyan Germany Germany Technology support and sales of wireless network products 1,125 1,125 0.5 100% 68,318 7,022 Arcadyan Korea Korea Sales of wireless network products 2,879 2,879 20 100% 7,047 (310) Zhi-Pal Taipei City Investment 48,000 48,000 34,980 100% 416,421 2,169 TTI Taipei City R&D and sales of household digital products 308,726 308,726 25,028 61% 627,585 105,625 AcBel Telecom Taipei City Investment 23,000 23,000 4,494 51% 36,163 4,784 Arcadyan UK UK Technical support of wireless network products 1,988 1,988 50 100% 3,170 452 Arcadyan AU Australia Sales of wireless network products 1,161 1,161 50 100% 27,970 29,187 Investment gain(losses) recognized by Goal Investment gain(losses) recognized by BCI Investment gain(losses) recognized by BCI Investment gain(losses) recognized by CORE Investment gain(losses) recognized by BSH Investment gain(losses) recognized by BSH Investment gain(losses) recognized by Forever Investment gain(losses) recognized by Webtek Investment gain(losses) recognized by Unicore Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 90 Table 7 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) Investor Company Arcadyan CBN Investee Company Location Hsinchu County Main Businesses and Products Sales of communication and electronic components Original Investment Amount Ending Balance December 31, 2019 December 31, 2018 11,925 11,925 Shares 533 Percentage of Ownership 1% (In Thousands of New Taiwan Dollars/ shares) Carrying Value Net income (losses) of investee Share of profits/losses of investee Note 13,581 10,514 Golden Smart Home Technology Corp. Taipei City Selling of hardware and software integration of high- tech systems 15,692 15,692 1,229 11% - (36,152) Arcadyan and Zhi-pal Arcadyan Brasil Brazil Sales of wireless network products 81,593 81,593 968 100% (7,767) (22,421) Arcadyan Holding Sinoprime British Virgin Islands Investment 271,681 271,681 9,050 100% 188,856 (86,152) Arch Holding British Virgin Islands Investment 330,550 330,550 35 100% 871,120 57,002 TTI Quest Samoa Investment 36,024 36,024 1,200 100% 77,839 10,673 TTJC Japan Sales of household digital electronic products 4,130 1,341 0.3 100% 2,015 (1,550) Quest Exquisite Samoa Investment 35,123 35,123 1,170 100% 80,994 10,665 AcBel Telecom Leading Images British Virgin Islands Investment 1,501 1,501 50 100% 13,985 4,623 Sinoprime Arcadyan Vietnam Vietnam Manufacturing of wireless network products 270,180 - - 100% 184,443 (88,285) Leading Images Astoria GmbH Germany Sales of wireless network products 841 841 25 100% 13,599 4,637 Zhi-Pal CBN Rayonnant APH Hsinchu County Produces and sales of communication and electronic components British Virgin Islands Investment 36,272 36,272 13,140 20% 334,669 10,514 257,454 257,454 8,651 41% 85,269 47,050 Forming Co., Ltd. Taoyuan City R&D and manufacturing of 27,300 27,300 1,820 21% - - CRH APH APH PEL electronic materials British Virgin Islands Investment British Virgin Islands Investment 374,750 374,750 12,500 59% 131,698 47,050 94,467 94,467 3,151 100% 36,058 (16,756) Rayonnant(HK) Hong Kong Investment 539,640 539,640 18,000 100% 172,950 63,805 HHT HHA HHA HHB British Virgin Islands Investment British Virgin Islands Investment 1,429,235 1,429,235 46,882 100% (27,044) (281,360) 1,405,523 1,405,523 46,882 100% (9,895) (281,375) Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Investment gain(losses) recognized by Arcadyan Holding Investment gain(losses) recognized by Arcadyan Holding Investment gain(losses) recognized by TTI Investment gain(losses) recognized by TTI Investment gain(losses) recognized by Quest Investment gain(losses) recognized by AcBel Telecom Investment gain(losses) recognized by Sinoprime Investment gain(losses) recognized by Leading Images Investment gain(losses) recognized by Zhi-Pal Investment gain(losses) recognized by Rayonnant Investment gain(losses) recognized by Rayonnant Investment gain(losses) recognized by CRH Investment gain(losses) recognized by APH Investment gain(losses) recognized by APH Investment gain(losses) recognized by HHT Investment gain(losses) recognized by HHA (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 91 Table 7 The following is the information on investees for the year ended December 31, 2019 (excluding information on investees in Mainland China): (December 31, 2019) Investor Company Investee Company HHB HengHao Trading Co., Ltd. Location British Virgin Islands Main Businesses and Products Marketing and international trade Original Investment Amount Ending Balance December 31, 2019 December 31, 2018 300 300 Shares 10 Percentage of Ownership 100% (In Thousands of New Taiwan Dollars/ shares) Carrying Value Net income (losses) of investee Share of profits/losses of investee Note 479 90 CBN Speedlink British Virgin Islands Import and export business - 1,514 - - - 86 CBNB Belgium CBNN The Netherlands The import and export business of broad band network products and related components, as well as technical support and advisory services The import and export business of broad band network products and related components, as well as technical support and advisory services 6,842 6,842 20 100% 6,338 (279) 7,016 - 20 100% 6,724 - FGH Wah Yuen Technology Holding Ltd. and its subsidiaries Mauritius Investment 2,690,870 2,690,870 95,862 37% 4,531,552 361,173 GLB Rapha New Taipei City Detectors and test strip 6,500 6,500 1,275 100% 298 (162) Mactech Taiwan Intelligent Robotics Company, LTD. Taipei City City Manufacturing of equipment 43,200 - 2,160 20% 39,468 (19,504) Note 1: The carrying value had been deducted $559,812 and $321,435 of the Company’s stock held by Panpal and Gempal, respectively. Note 2: CBN had received the capital returned from Speedlink in November 2019, however, the liquidation procedures of Speedlink has not been completed as of December 31, 2019. (Note 2) Investment gain(losses) recognized by HHB Investment gain(losses) recognized by CBN Investment gain(losses) recognized by CBN Investment gain(losses) recognized by CBN Investment gain(losses) recognized by FGH Investment gain(losses) recognized by GLB Investment gain(losses) recognized by Mactech (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 92 Table 8 Information on investment in Mainland China: (December 31, 2019) (i) The names of investees in Mainland China, the main businesses and products, and other information: Accumulated outflow of investment from Taiwan as of January 1, 2019 1,109,260 Total amount of paid-in capital 1,109,260 Method of investment (Note 1) 599,600 (Note 2) 599,600 359,760 (Note 2) 359,760 258,200 (Note 2) (Note 3) 67,890 (Note 2) (Note 3) 29,980 (Note 2) 29,980 8,607 (Note 2) (Note 3) Investment flows Outflow Inflow - - - - - - - - - - - - - - (In Thousands of New Taiwan Dollars/ shares) Accumulated outflow of investment from Taiwan as of December 31, 1,109,260 Net income (losses) of the investee Percentage of ownership Investment income (losses) (Note 4) 108,135 100% 108,135 Book value 2,104,710 Accumulated remittance of earnings in current period - 599,600 (82,463) 100% (82,463) 111,528 359,760 (86,495) 100% (86,495) 4,633,042 - - 50,016 100% 50,016 (194,926) (5,369) 51% (2,738) (41,719) 29,980 (49,888) 100% (49,888) (241,226) - 9,113 100% 9,113 (27,249) - - - - - - 959,360 (Note 1) 399,633 - - 399,633 (265,239) 43% (114,530) 372,172 - 599,600 (Note 1) 44,071 - - 44,071 (134,637) 48% (64,155) 362,578 - Name of investee CPC CDT CET CSD Zheng Ying Electronics (Chongqing) Co., Ltd. BT CGS LIZ Electronics (Kunshan) Co., Ltd. LIZ Electronics (Nantong) Co., Ltd. Main businesses and products Manufacturing and sales of monitors Manufacturing and sales of notebook PCs, mobile phones, and Digital products Manufacturing of notebook PCs Manufacturing of notebook PCs Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self -produced products Maintenance and warranty service of notebook PCs Production and processing chipresistors, ceramic capacitors, diodes, and other latest electronic components and related precision electronic equipment; selling self-produced products Research & development, and manufacturing chip components( chip resistors, ceramic chip diode； selling self- produced products and providing after-sales service. Performing wholesale and trading business of electronic components, semiconductors, special materials for electronic components, and spare parts Research, manufacture and sales of communication devices, mobile phones, electronic computer, smart watch, and provide related technology service CIC CPO CIT Manufacturing of notebook PCs Manufacturing and sales of LCD TVs Manufacturing of notebook PCs 359,760 (Note 2) 359,760 362,758 (Note 1) 362,758 719,520 (Note 2) 719,520 - - - - - - 359,760 238,365 100% 238,365 7,523,588 362,758 89,531 100% 89,531 2,777,145 719,520 601,984 100% 601,984 20,539,996 - - - (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 93 Table 8 Information on investment in Mainland China: (December 31, 2019) (i) The names of investees in Mainland China, the main businesses and products, and other information: Investment flows Outflow Inflow Accumulated outflow of investment from Taiwan as of January 1, 2019 41,972 Total amount of paid-in capital 41,972 Method of investment (Note 2) 59,960 (Note 2) 59,960 299,800 (Note 2) 152,898 467,688 (Note 2) 467,688 449,700 (Note 2) (Note 3) 2,422,984 (Note 1) 2,422,984 2,398,400 (Note 2) (Note 3) - - - - - - - 23,984 (Note 2) (Note 3) - 299,800 (Note 1) 299,800 - Name of investee CST CIN Sheng Bao Precision Electronics (Taicang) Co., Ltd. CIJ CDE CIS CEC CMC CEQ Main businesses and products International trade and distribution of computers and electronic components Software and hardware R&D of computers, mobile phones and electronic components Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self- produced products Investment and consulting services Manufacturing and sales of LCD TVs Outward investment and consulting services R&D and manufacturing of notebook PCs, tablet PCs, digital products, network switches, wireless AP, and automobile electronic products Corporate management consulting, financial and tax consulting, investment consulting, and investment management consulting services R&D, manufacturing and sales of notebook PCs and related components. Also provides related maintenance and warranty services Compal Precision Module (Jiangsu) Co., Ltd. Manufacturing and selling of magnesium alloy injection molding 12,291,800 (Note 2) 2,477,157 Changbao Electronic Technology (Chongqing) Co., Ltd. Rayonnant (Taicang) CCI Nanjing CDCN CWCN Production and marketing of magnesium alloy molding Manufacturing and sales of aluminum alloy and magnesium alloy products Manufacturing and processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs 1,798,800 (Note 2) 343,451 539,640 (Note 2) 374,750 659,560 (Note 1) 659,560 173,884 (Note 1) 173,884 1,469,020 (Note 1) 569,620 - - - - - - (In Thousands of New Taiwan Dollars/ shares) Accumulated outflow of investment from Taiwan as of December 31, 41,972 Net income (losses) of the investee Percentage of ownership Investment income (losses) (Note 4) (834) 100% (834) Book value 47,429 Accumulated remittance of earnings in current period - 59,960 (2) - (2) - 152,898 (52,865) 51% (26,961) 31,056 467,688 (99,921) 100% (99,921) 832,860 - (104,887) 100% (104,887) 799,252 2,422,984 164,336 100% 164,336 3,855,996 - - 164,343 100% 164,343 3,825,842 20 100% 20 23,833 299,800 132,167 100% 132,167 2,325,040 2,477,157 669,692 37% 245,241 5,703,239 343,451 (273,107) 37% (100,012) 884,827 374,750 6,381 100% 6,381 173,536 659,560 45,661 100% 45,661 (966,915) 173,884 1,484 100% 1,484 83,584 569,620 (167,898) 100% (167,898) 261,396 - - - - - - - - - - - - - - (Continued) - - - - - - - - - - - - - - - COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 94 Table 8 Information on investment in Mainland China: (December 31, 2019) (i) The names of investees in Mainland China, the main businesses and products, and other information: Name of investee Hanhelt Arcadyan SVA Arcadyan CNC THAC HengHao HengHao Optoelectronic Technology (Kunshan) Co., Ltd. (“HengHao Kunshan”) Main businesses and products R&D and manufacturing of electronic communication equipment R&D and sales of wireless network products Manufacturing and wireless network products Manufacturing of household electronics products Production of touch panels and related components Accumulated outflow of investment from Taiwan as of January 1, 2019 Investment flows Outflow Inflow 59,960 - Total amount of paid-in capital 59,960 Method of investment (Note 1) 393,262 (Note 1) 373,749 (Note 1) 100,567 (Note 1、 10) 552,969 (Note 7) 330,550 (Note 8) 34,523 1,199,200 (Note 1) 1,193,294 - - - - (In Thousands of New Taiwan Dollars/ shares) Net income (losses) of the investee Percentage of ownership Investment income (losses) (Note 4) (31) 100% (31) Book value 2,998 Accumulated remittance of earnings in current period - Accumulated outflow of investment from Taiwan as of December 31, 59,960 - 552,969 5,750 100% 5,750 127,495 330,550 57,002 100% 57,002 871,090 34,523 10,665 100% 10,665 80,484 1,193,294 (282,492) 100% (282,492) (159,874) 194,841 1,027 100% 1,027 132,650 - - - - - - - - - - - Lucom Display Technology (Kunshan) Limited(“Lucom”) Manufacturing of notebook PCs and related modules 449,700 (Note 2) 194,841 - (Note 12) (ii) Limitation on investment in Mainland China: Names of Company The Company Arcadyan HengHao Accumulated Investment in Mainland China as of December 31, 2019 Investment Amounts Authorized by Investment Commission of Ministry of Economic Affairs 16,325,219 (US$544,537) 22,523,344 (US$751,279) (In Thousands of USD) Limitation on investment in Mainland China by Investment Commission of Ministry of Economic Affairs (Note 6) (Note 5) 918,042 1,405,223 (US$30,581) (US$46,872) 918,042 (US$30,581) 1,405,223 (US$46,872) 6,542,836 (Note 13) Note 1: Note 2: Note 3: Note 4: Note 5: Indirectly investment in Mainland China through companies registered in the third region. Indirectly investment in Mainland China through an existing company registered in the third region. Investees held by Kunshan Botai Electronics Co., Ltd. (“BT”), Compal Investment (Jiansu) Co., Ltd. (“CIJ”), Compal Electronic (Sichuan) Co., Ltd. (“CIS”), and Compal Electronics (China) Co., Ltd. (“CPC”) through their own funds. The investment income (loss) was determined based on the financial report audited by the CPAs. Including the investment amount of sold or dissolved companies, including Beijing Compower Xuntong Electronic Technology Co., Ltd., VAP Optoelectronics (NanJing) Corp., Flextronics Technology (Shanghai) Ltd., Lucom, LCFC (HeFei) Electronics Technology Co., Ltd. and the increased investment amount form merging with Compal Communication Co., Ltd. Note 6: As the Company has obtained the certificate of being qualified for operating headquarters, issued by Industrial Development Bureau, MOEA, the upper limit on investment in mainland China is not applicable. Note 7: Note 8: Note 9: Note 10: Note 11: Note 12: Arcadyan paid US$18,420 thousands and acquired 100% shares of SVA Arcadyan from Accton Asia through Arcadyan Holding in 2010. Arcadyan paid US$8,561 thousands and acquired 100% shares of CNC from Just through Arcadyan Holding in 2007. SVA Arcadyan decreased its capital amounting to US$15,000 thousands to offset accumulated losses in March 2009. Arcadyan’s subsidiary, TTI, obtained the control over THAC with US$1,150 thousands on February 28, 2013 (the date of stock transferring). The amounts in New Taiwan Dollars were translated at the exchange rates at the balance sheet date or the average exchange rate. The Company had an accumulated investment amounting to US$7,350 thousands in the previous years. In the first half of 2014, HengHao paid the Company and LG US$3,184 thousands and US$3,315 thousands, respectively, for organization restructure, to obtain 100% ownership of Lucom. Note 13: The net equity of HengHao is negative at December 31, 2019. (iii) Significant transactions: For the year ended December 31, 2019, the significant inter-company transactions with the subsidiary in Mainland China, which were eliminated in the preparation of consolidated financial statements, are disclosed in “Information on significant transactions”.
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