Stock Code：6573

HY Electronic (Cayman) Limited 虹揚發展科技股份有限公司

2019 Annual Report

Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw 2019 Annual Report is available at: http://www.hygroup.com.tw

Printed on：June 8, 2020 I. Spokesperson, acting spokesperson, and agent for litigious and non-litigious matters in the territory of the Republic of China Name of spokesperson: Kevin Cheng Occupational title: Director of Administration Division Acting spokesperson: Mei Yang Occupational title: Head of Financial Division Agent for litigious and non-litigious matters in the territory of the Republic of China: Jane KaoOccupational title: President Tel: (886)2-8913-1399 Email: [email protected] II. Addresses and contact numbers of head office, branch and factory (I) Head office: Name: HY Electronic (Cayman) Limited Website: http://www.hygroup.com.tw Address: Offshore Incorporations (Cayman) Limited, P. O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 - 1205 Cayman Island Tel: - (II) Taiwan branch: Name: HY Electronic (Cayman) Limited, Taiwan Branch Address: 4F., No. 207-5, Sec. 3, Beixin Rd., Xindian Dist., New Taipei City Tel: (886)2-8913-1399 (III) Business offices: Subsidiary in Hong Kong: JETPER Technology Limited Address: 20/F., Winbase Centre 2-8 Queen’s Road Central Sheung Wan Hong Kong Tel: (852)2429-2268 Subsidiary in Hong Kong: HY Technology Development (H.K.) Co., Limited Address: 20/F., Winbase Centre 2-8 Queen’s Road Central Sheung Wan Hong Kong Tel: (852)2429-2268 Subsidiary in China: Yang Zhou HY Technology Development Co., Limited Address: NO. 5, Weichai Avenue, Beishan Industrial Park, Huaisi, Hanjiang District,, Yangzhou, Jiangsu, China Tel: (86)514-8559-5999 III. Members of Board of Directors Occupational Name Nationality Educational background & experience title Fang, China Tsinghua University EMBA, Chairman of Yang Zhou HY Chairman Ting-Yu R.O.C. Technology Development Co., Limited Kao, Anglia Ruskin University MBA, President of HY Electronic Director Kuei-Jen R.O.C. (Cayman) Limited Lin, Murdoch University MBA, QA Director of DIODES Inc. Director Chun-Chi R.O.C. Anglia Ruskin University MBA, senior business manager of Yang Fang, Zhou HY Technology Development Co., Limited, executive Director Hsin-Yi R.O.C. secretary of HY Electronic (Cayman) Limited Department of Civil Engineering, National Taiwan University Lo, (NTU), Chairman of Yangzhou Living city center real estate co., Director Chun-Fu R.O.C. LTD. Department of International Business, Feng Chia University (FCU); project associate of Auditing & Investment Division, BES Engineering Corporation; VP Finance of Yangzhou Living City Kuo, Independent Center Real Estate Co., LTD.; financial consultant of Dingyuan Shu-Ching R.O.C. Director Engineering Consultants Co., Ltd., MINGSWARE CORPORATION, CHING TUNG OFFICE EQUIPMENT CO., LTD. and Yan Wen Liu Architects Department of Industrial Engineering and Management, Ming Chi University of Technology; assistant vice president/vice president of E Ink Holdings Inc.; senior specialist of the Independent Power Producers Association of Indonesia (IPP); vice president of Taiwan Tao, Independent Flower Biotechnology Co., Ltd.; assistant vice president of UIS Ta-Chi R.O.C. Director Management Consulting Inc.; senior specialist of affiliates of Formosa Plastics Corporation (FPC); director of FOREWISE CO., LTD.; vice president of YOUNGTEK ELECTRONICS CORPORATION(Yangzhou) Occupational Name Nationality Educational background & experience title Department of International Business, Tamkang University (TKU); senior project manager of Underwriting Division, Concord Securities Co., Ltd.; project manager of Underwriting Division, Yang, Independent Capital Securities Corporation; assistant manager of Auditing Ming-Hsiang R.O.C. Director Division, Deloitte Taiwan; special assistant to president of HANTIC PRECISION TECHNOLOGY, INC.; remuneration committee member of CJW INTERNATIONAL CO., LTD. Department of Business Administration, National Chengchi University (NCCU); president of Arizon RFID Technology (Yangzhou) Co., Ltd.; president of Transcend Optronics (Yangzhou) Co., Ltd.; president of Longteng Computer Technology Co., Ltd.; Independent Hsu, vice president of JEAN Co., Ltd.; president of CHU TUNG CO., R.O.C. Director Yung-Tao LTD.; manager of DELTA ELECTRONICS INC.; manager of Goodyear Taiwan Limited; vice chairman of TOP CREATION MACHINES CO., LTD.(Suzhou); consultant of YOUNGTEK ELECTRONICS CORPORATION; director of Pinzhi Investment Co., Ltd. IV. Name, address, website and contact number of share administration agency Name: Share Administration Department, Concord Securities Co., Ltd. Address: B1F., No. 176, Sec. 1, Keelung Rd., Xinyi Dist., Taipei City Website: http://www.concords.com.tw Tel: (886)2-8787-1888 V. Names of CPAs and the name, address, website and contact number of the accounting firm for the latest financial statements Names of CPAs: Accountant SHAO CHIH-MING and WENG YA-LING Name of accounting firm: Deloitte Taiwan Address: 20F., No. 100, Songren Rd., Xinyi Dist., Taipei City Website: http://www.deloitte.com.tw Tel: (886)2-2745-9988 VI. Name of overseas exchange where securities are listed, and method of inquiry: Nil VII. Company website: http://www.hygroup.com.tw VIII. Domestic designated spokesperson's name, occupational title, contact number and email address Name: Jane Kao Occupational title: President Tel: (886)2-8913-1399 Email: [email protected]

Table of Contents ————————————————————————————————————Page Part One - Letter to Shareholders ...... 1 I. 2019 Business Report ...... 1 II. Business plan of 2020...... 2 III. The future development strategies of the Company are influenced by the external competitive environment, laws and regulations environment and the macro-environment of business operation ...... 3 Part Two - Company Profile ...... 5 I. Date of Incorpration ...... 5 II. Company History ...... 5 Part Three - Corporate Governance Report ...... 7 I. Organization system ...... 7 II. Profiles of the directors, president, vice presidents, assistant vice presidents, and the heads of the departments and branches ...... 9 III. Remunerations to the directors (including Independent directors), president, and vice presidents in the most recent year ...... 22 IV. The pursuit of corporate governance ...... 28 V. Information on auditing fees ...... 58 VI. Information on replacement of CPA ...... 58 VII. If the Chairman, President, manager in charge of finance or accounting who has been employed by the CPA firm commissioned by the Company for the audit or its affiliates, disclose the names, occupational titles, and the duration of employment with the CPA firm or its affiliates ...... 59 VIII. Changes in transfer and pledge of shares by directors, supervisors, managers and shareholders with more than 10% shareholding in the most recent year up till the publication date of this annual report ...... 60 IX. Information on the relations among top 10 shareholders of the Company by quantity of shareholding (i.e. related parties) ...... 61 X. Number of shares of the same investee held by the business under direct or indirect control of the Company, directors, supervisor, managers of the company and to be included in the overall proportion in shareholding ...... 66 Part Four - Captial Overview ...... 67 I. Capital and shares ...... 67 II. Corporate bonds ...... 73 III. Preferred shares ...... 74 IV. Global depository receipts ...... 74 V. Employee stock options (ESO) ...... 74 VI. Restricted ESO ...... 74 VII. New shares issued for merger or acquisition ...... 74 VIII. Progress on planned use of capital ...... 74 Part Five - Operational Highlights ...... 75 I. Business activities ...... 75 II. Market and sales overview ...... 81 III. Employee information in the last two years up till the publication date of this annual report ...... 87 IV. Information on environmental protection expenditures ...... 88 V. Labor-management relationship ...... 88 VI. Major contracts ...... 90 Part Six - Financial Information ...... 93 I. Condensed balance sheets and income statements in the last five years ...... 93 II. Financial analysis in the last five years ...... 95 III. Auditor Committee’s review report included in the financial statements in the most recent year ...... 97 IV. Financial statements in the most recent year ...... 98 V. Individual financial statements of the Company audited by CPA in the most recent year .. 98 VI. Financial troubles (if any) of the Company and affiliates in the most recent year up till the publication date of this annual report, and impacts on the Company's financial status ...... 98 Part Seven - Review of Financial Conditions, Operating Results, and Risk Mannagement ...... 99 I. Financial status ...... 99 II. Business performance...... 99 III. Cash flow ...... 100 IV. The effect of the significant capital expenditure in the most recent year upon the finance and business operation ...... 101 V. Reinvestment policy, causes of profit or loss incurred on investments in the most recent year, and any improvements or investments planned for the next year ...... 101 VI. Evaluation on risk issues ...... 103 VII. Other important issues ...... 108 Part Eight - Special Disclosure ...... 110 I. Information on affiliates ...... 110 II. Private placement of securities in the last year up till the publication date of this annual report ...... 112 III. Holding or disposal of the Company's shares by subsidiaries in the last year, up till the publication date of this annual report ...... 112 IV. Other supplementary information ...... 112 Part Nine - Any occurrence of event defined under Subparagraph 2, Paragraph 2, Article 36 of the "Securities and Exchange Act" in the previous year up till the publication date of this annual report that significantly impacted shareholders’ equity or security prices ...... 120 Appendix: Consolidated Financial Statements and CPA Review Report in the most recent year ... 121

Part One - Letter to Shareholders

Dear Shareholders, Affected by the trade war between US and China, the global economy in 2019 entered a continued deceleration, with the thrust to manufacturing industry weakened. HY Electronic also entered a new milestone in the year 2019 by officially moving to Beishan Industrial Park and stationing at phase 1 plants, re-planning traffic flows and fabrication equipment enhancement, which made the Company commenced year one of optimized integration; since 13, HY Electronic has invested in the wafer fabricator Taiwan GPP Inc. and furthermore developing transient voltage suppressor (TVS) products, meanwhile, as benefitted from the high-voltage chip technology as originally equipped by Taiwan GPP Inc., HY Electronics could exert the synergy of vertical integration, leading the Company to involve in the fields of protection, industrial control and automotive diodes. The reports concerning the business results in 2019 and future business prospects are as follows: I. Business Report of 2019 1. Implementation Effect of Business Plan: The consolidated revenue of HY Electronics in 2019 was NT$ 1,757,464 thousands, declined by 14.82% compared to that of the previous year, and the consolidated operating loss was NT$ -158,588 thousands, which was reduced by 94.18% compared to that of previous year. The main reason for the operating income was the strong competition via price reduction by the Red supply chains, the decline in consumption power resulted from US-China trade war, China's 531 New Policy of Solar Energy Subsidy and the market decline resulted from the indecisive policy of China’s New Energy Automotive Subsidization. The profit items in 2019 are compared to those in 2018 and listed as follows: Unit: NT$ thousands Annual State of Operation Item 2019 2018 Gained/Reduced by Operating income 1,757,464 2,063,177 (14.82%) Gross profit 119,859 265,601 (54.87%) Net operating profit (158,588) (81,671) 94.18% Net profit before tax (124,798) 12,988 (1060.87%) Current net income (131,622) 22,931 (673.99%) Current net income charged to the (106,238) 35,390 (400.19%) parent Comprehensive income charged to the (158,063) 20,925 (855.38%) parent Earnings per share after tax (1.57) 0.54 (390.74%) 2. Implementation status of budget: The Company does not disclose the financial forecast in 2019, therefore, the disclosure on implementation status of budget will not be required. 3. Revenues, expenses and profitability analysis: Unit: NT$ thousands Annual State of Operation Item 2019 2018 Gained/Reduced by Interest Income 3,490 2,149 62.40% Interest Expense 29,240 41,662 (29.82%)

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Item 2019 2018 Analysis of Debt-asset ratio (%) 57.18 55.10 financial Ratio of long-term capital to real structure property, plant and equipment (%) 141 134 Analysis of Current ratio (%) 99 93 solvency Quick ratio (%) 73 66 Return on Asset (3.09) 3.10 Profitability Return on Equity (8.92) 1.57 analysis Profit margin before tax (%) (7.49) 1.11 Earnings per share after tax (NT$) (1.57) 0.54 4. Research and development: The consolidated R&D expense of HY Electronics in 2019 and 2018 are NTD$ 68,532 thousands and NT$ 69,126 thousands respectively, which accounted for 3.90% and 3.35% to the revenue in respective year, which were due to the Company’s continued devotion into R&D activities for continual research and development in new products and establishing automated packaging lines. The R&D orientation for HY Electronics in the current phase are: continued development of green energy-saving new products, optimizing fabrication, expanding automation capacity and ratio; the enhancement of capacity to water fabrication plant of HY electronics will be the focus of development in the future, satisfying customers’ needs via vertical integration to react to uncertainties and rapid changes in the circumstances is anticipated. Currently, the company owns a total of 134 patents co-owned in China and Taiwan including 110 utility models, 18 utility patents and 6 appearance (design) patents. II. Business plan of 2020 1. Business policies: (1) To continue to strengthen the marketing channels globally to concurrently promoting the Company’s own brand and ODM/OEM. (2) To recruit R&D talents to enhance R&D momentum and purchase development equipment to accelerate the development of new products. (3) To optimize the process continuously and introduce the automated production facilities to increase the production and lower the cost significantly. (4) To actively develop the new products and packaging technologies to meet the demand of the market, while contending for cooperation with globally renowned manufacturers. (5) To enhance the application and promotion of energy-saving, automotive and high-voltage low power consumption products. (6) To continue the own development and production of the wafer product to vertically integrate the supply chain to ensure the stable supply of key materials and the absolute advantage on costs. (7) To commence plans for cultivating heirs to mid-level supervisors of the Company and reserved supervisor capability trainings. 2. Major Production and Marketing Strategies: The Company is categorized in semiconductor industry. It adopts both the planned and

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ordered productions as the production and sales policies. Its annual production and sale policies are planned in accordance with the global market's industrial development, supply and demand of the market, the production capacity of the Company and safety stock policy, with occasional adjustments subject to the actual orders. Satisfying the demand of the customers is the ultimate objective of the Company. 3. Operating Objective: The main products of the Company are rectifier diodes. With the industrial competitiveness and economic situation of the market taken into consideration, the sale forecasting in 2020 is as follows: Product category Sale forecasting in 2020 Actual Sale in 2019 Diodes 652,430.54 K 851,575.664 K Bridge rectifier 219,530.39 K 218,093.901 K

136,998.02 K 168,414.005 K Solar diodes Others 662,998.02 K 509,565.572 K III. The future develop strategies of the Company are influenced by the external competitive environment, laws and regulations environment and the macro-environment of business operation 1. Future development strategies of the Company The Company will continue devoting in technology innovation, professional talent cultivation, product value-adding as well as reinforcement of in-group vertical integration of resources. 2. Impacts of external competitive environment. China's Red Supply Chain invaded the market rapidly. With the ultra-low-price competitiveness and subsidy from the Chinese government, it had major impacts on various applied markets. The Company is committed to developing new products, including consumer electronics, electric cars, industrial control, solar power industry to the application of medical equipment, with anticipation to striking a balanced development in applied markets as well as ensuring the profitability. The Company currently is expanding its market share in power supply products. In addition, it also has a significant market share in the highly competitive solar power market and works with the first-class manufacturers in the market to make its effort to the environmental protection and carbon reduction. 3. Impacts of laws and regulations environment To comply with the EU RoHS rules, the currently offered halogen-free products already obtained the recognition by our customers. Additionally, China’s continued implementation of “The thirteenth Five-Year Plan” stressed the implementation point of green manufacturing for preventing water and air pollution, with a heightened concentration to environmental friendliness. Hence, the Company proceeds to devote itself to establishing environmentally friendly equipment and reinforcing the training to employees.

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EU has a higher standard of the power consumption and power conversion efficiency for home appliances in recent years. Intelligent inverter home appliances have a lower power consumption requirement for power devices, rectifiers, and MOSFETs. Green and clean energy become a main focus of the constructions of every country, due to the sudden change in the global environment. The demand for solar energy and renewable energy is highly demanded in both the developed regions, such as North America, Japan, and Europe, and the emerging markets in Southeast Asia and Australia. The Schottky with low power consumption and high junction temperature can be used combinedly with solar modules and power converters. The momentum in technology and the topic of environmental friendliness and energy saving resulted in the emergence of electric car market, in addition, the fossil fuel car ban from 2025 in Europe brings an evolution in industry and a breakthrough in battery technology of electric vehicles. The demand for automotive diodes is expected to rise significantly. The high-voltage trench Schottky is expected to bring a highlight in the market.

EU has estimated to unify the specification of charger port by July 2020, with the rapid prevalence of the 18W fast charging available on Android smartphones, Apple will replace the existing 5W charging port. In addition, with the prevalence of fast charging with Gallium nitride (GaN) technology, a trend of GaN fast charging port will appear in the smartphone market. 4. Impacts of the macro-environment of business operation The growth tendency of global economy was turned from steady to sluggish due to the trade war. As a preliminary trade agreement can be reached by both US and China, resulting in alleviation of tension in trades between the two nations, in addition, a precautionary lowering in interest by the US and financial stimulant policies by each nations will be launched, with the law base period, main forecasting organizations around the globe all considered the performance in economic and trade growth in 2020 to be better than that of 2019. As the Novel Coronavirus (COVID-19, also known as Wuhan Pneumonia) pandemic spreads around the world, in addition to US FED’s emergency cut by 0.5%, the OECD furthermore lowered the projected global economy growth rate in 2020 to 2.4%, causing certain effects to the GDP of various nations.

Chairman: Fang, Ting-Yu Manager: Kao, Kuei-Jen Chief Accountant: Yang, HSin

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Part Two - Company Profile

I. Date of Incorporation: Dec. 11, 2009 II. Company History Year Key Milestones 1992 Yangzhou Hong Yang Electronics Co., Ltd. was incorporated in Yangzhou. 1999 The production of GPP bridge rectifiers was started. Yangzhou Electronics Limited was incorporated in Taipei. 2000 ISO9001: 2000 certification The Bridge Plant was completed and put into operation. 2003 Yang Zhou HY Technology Development Co., Limited was incorporated in Yangzhou. 2004 The diode and chip diffusion plant was completed and put into operation. The solar chip development team was set up to research, develop and manufacture 2005 the first solar diode in China. ISO14001: 2004 certification 2006 Yangzhou Hong Yang Electronics Co., Ltd. was combined with Yang Zhou HY Technology Development Co., Limited. 2008 TS16949 certification and official involvement in the automotive supply chain The automotive rectifier production line was established. JETPER Technology Limited was incorporated as subsidiary in Hong Kong. 2009 HY Electronic (Cayman) Limited was incorporated in the British Cayman Islands to perform equity restructuring. The GPP grain production line was established and the production of 3'' GPP wafers 2010 was started. 2011 6 sigma and 8S standards were implemented, and D2PAK/ABS was developed. MBG/MOSFET/FRED/TO277A products were developed. 2012 Qualification of SONY's Green Partner (GP) Taiwan Branch was relocated to the Taipei SUN-TECH Technology Park. SOD-123FL/BTS products were developed. Introduction of technological talents and obtaining the national high-tech enterprise certificate 2013 Obtaining the famous-brand product certificate of Yangzhou for the first time Obtaining 12 patent certificates in that year The production of IGBT modules and Pressfit automotive rectifiers was started. HY Technology Development (H.K.) Co., Limited was incorporated. The construction and production of the BRIDGE automatic production line were commenced. Development of LED IC Driver The production of 4” GPP grain was started. 2014 The production of Bridge Low VF low energy-consumption rectifier bridge was started. Sample delivery and trial sale of IGBT modules Obtaining 29 patent certificates in that year Taiwan Businessmen Association (TBA) Building started its sale.

- 5 - Year Key Milestones The mass production of IGBT modules and the production of 4” FR wafers were started. 2015 The production of ultra-low energy consumption VF rectifier bridges was started. The production of low-energy consumption VF Schottky diodes was started. Obtaining 32 patent certificates in that year Obtaining the famous-brand product certificate of Yangzhou and the national high-tech enterprise certificate for the second time Obtaining 21 patent certificates and the intellectual property management system 2016 (IPMS) certification in that year Independent R&D of SOLAR Trench Sky Production of solar modules 2017 The stocks were listed on the Taiwan Stock Exchange. Acquisition of 70% shares of Taiwan GPP Inc. 2018 Issued convertible bond On May 12, The second plant of Yang Zhou HY Technology Development Co., 2019 Limited was completed and put into operation. Acquired 20% equity of Taiwan Dean Technology Co., Ltd. Obtained world's first DEKRA certificate of photovoltaic Schottky diode thermal 2020 runaway test conformance in March

- 6 - Part Three - Corporate Governance Report I. Organization System (I) Organization System Chart

(II) Responsibilities of divisions Division Responsibilities Plan overall business activities and policies of the Company; Make Board of operational objectives; and Appoint key managers to execute and Directors promote business activities of the Company. Supervise the business and financial status of the Company, fair Auditor presentation of financial statements, and effective implementation of Committee the internal control system. Develop and regularly review the policy, system, standard and Remuneration structure of performance assessment and remuneration for directors, Committee supervisors and managers; and Regularly assess and determine remunerations to directors, supervisors and managers. Be responsible for auditing activities of the Company and the Auditing Office assessment and execution of internal control; and Recommend improvements and keep following the improvement progress. Develop, plan and supervise the operation management guideline and quality policy and objective of the Company; Chief Executive Develop staged or overall operating strategies and improve operation Office performance; and Plan and execute board meeting resolutions.

- 7 - Division Responsibilities Be responsible for accounting and bookkeeping services, Financial development and implementation of accounting policies and systems, Division corporate financial planning and fund procurement, as well as collection and preparation of budget data and documents. Market survey, development and sale of bridge rectifiers, diodes, Sales Division solar diodes and metal-oxide -semiconductor field effect transistors (MOSFET) Plan and promote marketing programs and strategies, and improve Marketing the corporate and product images and brand awareness; Strategy Provide diversified marketing tools and develop sale and marketing Division strategies to assist business units in sale; and Be responsible for sale and business development of products. Be responsible for such corporate tasks as personnel system, appointment, leave of absence, remuneration and benefits, Administration assessment, training, receipt and issuance, assets management, Division purchase and maintenance, vehicle management, and environmental protection, etc. Plan, establish, develop and manage various information systems and IT Division equipment of the Company.

- 8 - II. Profiles of the directors, president, vice presidents, assistant vice presidents, and the heads of the departments and branches (I) Director 1. Names, work experience/educational background, percentage and nature of shareholding of directors April 24, 2020 Shareholding Other executive, director Quantity of Shareholding in Holdin Shareholding of spouse and or supervisor who is a Nati shareholding at the name of a g other when elected dependents at spouse or kindred within onali present third party position Tenur present 2nd degree of relationship ty or s of the Occupa Date of e Initial date Propo Propo Propo Propo Major work place Gen Compa tional Name (elected to) of elected rtion rtion rtion rtion experience/educational of der ny and title office to office of of Numbe of of background Relati regis Number of Number of Number of other Occupati share share r of share share Name onshi tratio shares shares shares compan onal title holdi holdi shares holdi holdi p n ies at ng ng ng ng present (%) (%) (%) (%) Director Jane Spous China Tsinghua University Director Kao e EMBA Director Chairm R.O. David Mal Cindy Daug 2017/6/25 3 2009/12/11 ------40,929,533 60.64 The Chairman of Yang Note 1 of an C. Fang e Fang hter Zhou HY Technology Administ Kevin Son-i Development Co., Limited ration Cheng n-law Division Chairman David Spous Director Anglia Rusking University Fang e Director Directo R.O. Fem MBA Cindy Daug Jane Kao 2017/6/25 3 2014/6/25 ------40,929,533 60.64 Note 1 of r C. ale President of HY Electronic Fang hter Administ (Cayman) Limited Kevin Son-i ration Cheng n-law Division Murdoch University MBA Directo R.O. Chung Mal 2017/6/25 3 2014/6/25 500,000 0.76 509,499 0.75 - - - - QA Director of DIODES Note 1 - - - r C. Chi Lin e Inc.

- 9 - Anglia Rusking University MBA Senior business manager Director of Yang Zhou HY of Directo R.O. Cindy Fem Kevin Spous 2017/6/25 3 2014/6/25 90,000 0.14 93,047 0.14 36,683 0.05 1,061,211 1.57 Technology Development Note 1 Administ r C. Fang ale Cheng e Co., Limited ration Executive secretary of HY Division Electronic (Cayman) Limited Department of Civil Engineering, National Directo R.O. Chun Fu Mal Taiwan University (NTU) 2017/6/25 3 2014/6/25 - - - - 196,954 0.29 ------r C. Lo e The Chairman of Yangzhou Living city center real estate co., LTD. Department of International Business, Feng Chia University (FCU) Project associate of Auditing & Investment Division, BES Engineering Corporation VP Finance of Yangzhou Indepen Living City Center Real Shu dent R.O. Fem Estate Co., LTD. Ching 2017/6/25 3 2014/6/25 ------Note 1 - - - Directo C. ale Financial consultant of Kuo r Dingyuan Engineering Consultants Co., Ltd. Financial consultant of MINGSWARE CORPORATION Financial consultant of CHING TUNG OFFICE EQUIPMENT CO., LTD. Financial consultant of Yan Wen Liu Architects

- 10 - Department of Industrial Engineering and Management, Ming Chi University of Technology Assistant vice president/vice president of E Ink Holdings Inc. Senior specialist of the Independent Power Producers Association of Indonesia (IPP) Vice president of Taiwan Indepen Flower Biotechnology dent R.O. Ta Chi Mal 2017/6/25 3 2014/6/25 ------Co., Ltd. Note 1 - - - Directo C. Tao e Assistant vice president of r UIS Management Consulting Inc. Senior specialist of affiliates of Formosa Plastics Corporation (FPC) Director of FOREWISE CO., LTD.; vice president of YOUNGTEK ELECTRONICS CORPORATION(Yangzh ou)

- 11 - Department of International Business, Tamkang University (TKU); Senior project manager of Underwriting Division, Concord Securities Co., Ltd. Project manager of Underwriting Division, Indepen Ming Capital Securities dent R.O. Mal Hsiang 2017/6/25 3 2017/6/25 ------Corporation Note 1 - - - Directo C. e Yang Assistant manager of r Auditing Division, Deloitte Taiwan Special assistant to president of HANTIC PRECISION TECHNOLOGY, INC.; Remuneration committee member of CJW INTERNATIONAL CO., LTD.

- 12 - Department of Business Administration, National Chengchi University (NCCU) President of Arizon RFID Technology (Yangzhou) Co., Ltd. President of Transcend Optronics (Yangzhou) Co., Ltd. President of Longteng Computer Technology Co., Ltd. Indepen Vice president of JEAN dent R.O. Yung Tao Mal Co., Ltd. 2017/6/25 3 2017/6/25 ------Note 1 - - - Directo C. Hsu e President of CHU TUNG r CO., LTD. Manager of DELTA ELECTRONICS INC. Manager of Goodyear Taiwan Limited. Vice chairman of TOP CREATION MACHINES CO., LTD.(Suzhou); Consultant of YOUNGTEK ELECTRONICS CORPORATION; Director of Pinzhi Investment Co., Ltd.

Note 1: Directors holding positions in other companies Occupational title Name Holding positions in other companies at present David Chairman The Chairman of Yang Zhou HY Technology Development Co., Limited, the Director of TOP MISSION LIMITED Fang President of HY ELECTRONIC (CAYMAN) LIMITED, TAIWAN BRANCH; director of HY Technology Development (H.K.) Co., Limited; Director & President Jane Kao director of JETPER Technology Limited; director of SMART INVESTMENT CO., LTD.; director of Yangzhou E-poly Technology Co., Ltd.; director of Multi-Glory Services Inc.; Chairman of Taiwan GPP Inc. Director & President of Chung President of Yang Zhou HY Technology Development Co., Limited Subsidiary Chi Lin

- 13 - Occupational title Name Holding positions in other companies at present Cindy Director Director of Yangzhou Hongyu Electronics Technology Co., Ltd. Fang Shu Independent Director Ching Financial consultant of MINGSWARE CORPORATION, Master Machinery Co., Ltd. and Yan Wen Liu Architects Kuo Ta Chi Vice president of YANGZHOU YOUNGTEK ELECTRONICS LTD.; director of Globalwise Management Consultant Co., Ltd. ; director of Independent Director Tao Aimeng Biotechnology Co., Ltd. Ming Independent Director Hsiang Special Assistant to the President of Hantic Precision Technology, Inc.; Remuneration Committee Member of CJW International Co., Ltd. Yang Yung Tao Deputy Chairman of Top Creation Family (TCF); consultant of YOUNGTEK ELECTRONICS Corporation; director of Pinzhi Investment Co., Independent Director Hsu Ltd.

- 14 - 2. Dominant shareholders of institutional shareholders Dominant shareholders of institutional shareholders (Note 2) Names of Institutional Shareholders (Note 1) Name Shareholding David Fang 27.43% Multi-Glory Services Inc. 54.93% TOP MISSION LIMITED Jumbo Elite Holdings Limited 5.88% REGAL SHEEN INVESTMENTS LIMITED 5.88% Luxury Good Investment Limited 5.88% Multi-Glory Services Inc. Jane 100% Note 1: If directors and supervisors are representatives of corporate shareholders, the name of the corporate shareholders shall be filed in. Note 2: Fill in the names of major shareholders of the corporate shareholder (whose shareholding ratio accounts for top 10) and its shareholding ratio. If it is a legal person, Table 2 below should be filled in. 3. Dominant shareholders of the Institutional Shareholders are institutional shareholders. Dominant shareholders of institutional shareholders (Note 2) Names of Institutional Shareholders (Note 1) Name Shareholding Multi-Glory Services Inc. Jane Kao 100% Jumbo Elite Holdings Limited Cindy Fand 100% Regal Sheen Investments Limited Kevin Fang 100% Luxury Good Investment Limited Jeff Fang 100% Note 1: If the major shareholder in Table 1 above is a legal person, the name of the legal person should be filled in. Note 2: Fill in the names of major shareholders of the legal person (whose shareholding ratio accounts for top 10) and its shareholding ratio.

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4. Professional knowledge and independence of directors Mar. 31, 2020 More than 5 years of work experience and the Num Meeting the standard of independence (Note) following professional qualification ber As a lecturer or Professional or Work of higher position expert through experience publi Condition at a public or national in c private school of examinations with commerce, com s higher education issuance of law, pani in commerce, certificates such finance and es law, finance and as court judge, banking, that Inde banking, public prosecutor, accounting 1 2 3 4 5 6 7 8 9 10 accounting, or lawyer, or pend Name the disciplines accountants or necessary ent and subject other for Dire Note (1) required for specialization company ctors company required for operation also operation company hold operation posit ions David - - ✓ ✓ ✓ - - - ✓ ✓ - ✓ ✓ N/A Fang Jane Kao - - ✓ - - - - - ✓ ✓ - ✓ ✓ N/A Chung N/A - - ✓ - - - ✓ ✓ ✓ ✓ ✓ ✓ ✓ Chi Lin Cindy N/A - - ✓ - - - - - ✓ ✓ - ✓ ✓ Fang Chun Fu N/A - - ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Lo Shu N/A Ching ✓ - ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Kuo Ta Chi N/A - - ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Tao Ming N/A Hsiang - ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Yang Yung Tao N/A - - ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Hsu Notes: If any of the following is applicable to the Directors and Supervisors in the period of 2 years prior to the election to office and within the term of office, please put a “” in the appropriate box below. (1) Not an employee of the Company or its affiliates; (2) Not a Director or Supervisor (except as an Independent Director of the Company or its parent company, subsidiaries in which the Company holds more than 50% voting shares directly or indirectly) of the Company or its affiliates; (3) The person, spouse, dependents or a third party who is a natural person shareholder holding more than 1% of the outstanding shares of the Company or among the top 10 shareholders of the Company; (4) Not the spouse, kindred within 2nd degree of relationship or within 3rd degree of the consanguinity of the persons specified from (1) to (3); (5) Not a Director, Supervisor, or employee of an institutional shareholder in direct holding of more than 5% of the outstanding shares of the Company, or a Director, Supervisor, or employee among the top 5 institutional shareholders of the Company; (6) Not a Director, Supervisor, manager or shareholders holding more than 5% of the shares of particular company or institution with financial or business transactions with the Company; (7) Not a proprietor, partner, director, supervisor, manager and the spouse to the aforementioned persons of a professional firm, sole proprietorship, partnership, company or institution providing business, legal, financial, and accounting service or consultation services to the Company or affiliates; or members of the remuneration committee performing their duties pursuant to Article 7 of the "Regulations Governing the Appointment and Exercise of Powers" by the Remuneration Committee of a Company whose stock is listed on the stock exchange or traded over the counter are excluded; (8) Not a spouse to other Directors or kindred within 2nd degree of relationship; (9) None of the particulars inscribed in Article 30 of the "Company Act" is applicable; and - 16 -

(10) No government, institution or their representatives under Article 27 of the "Company Act" was elected. (11) No such cases stipulated in Article 30 of Company Act. (12) No such cases that government, corporation or its representative is elected according to Article 27 of Company Act.

5. Implementation of diversification of board members On the basis of the Company's medium- and long-term development strategy and the effective use of the function of the board's resolution, the board of directors of the Company has stipulated a board member diversification policy in Corporate Governance Best Practice Principles. The members of the current board of directors incorporate professionals in fields such as industrial technology, business strategy, risk and crisis management, internationalization, finance and accounting. The members all have abundant professional experience; the division of labor is as follows:

2019 Implementation of diversification of board members is as follows: Expertise and Skills Age Law, Employee Name Title Sex Industry or Below Finance or 56-65 66-75 Status Technology 55 Accounting David Fang Chairman Male V V V Jane Kao Director Female V V V Chung-chi Director Male V V V Lin Cindy Fang Director Female V V V Chun-fu Lo Director Male V V Shu-Ching Independent Female V V V Kuo Director Independent Ta-chi Tao Male V V Director Ming-hsiang Independent Male V V V Yang Director Yung-tao Independent Male V V Hsu Director (1) Directors with employee status account for 44.44% ; independent directors 44.44%. Four directors are within the range of 66-75 years old, three within 56-65 years old, and two under 55 years old.

5 月 10 日 5 月 10 日

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(II) Profiles of president, vice presidents, assistant vice presidents, and the heads of the departments and branches April 24,2020 Shareholding by Holdin A spouse or kindred within Shareholding in the Shareholding spouse or g the 2nd tier under the Civil name of a third party dependents position Code to a manager Date of Major work experience/educational Occupati Gen s in Nationality Name (elected Proport Proport Proport background onal title der ion of ion of ion of other to) office Number of Number of Number of (Note 2) Occupati Relatio shareho shareho shareho compan Name shares shares shares onal title nship lding lding lding ies at (%) (%) (%) present Director of Adminis Son-in tration -law Division Kevin Mother Vice Anglia Rusking University MBA Cheng daught Jane Fem Presiden President R.O.C. 2000/8 - - - - 40,929,533 60.64 President of HY Electronic (Cayman) Note 1 Cindy er Kao ale t of Limited Fang Subsidia Jeff Fang Mother ry and Subsidia son ry general manager Presiden t Director Mother Anglia Rusking University MBA Vice of daught Senior business manager of Yang Jane Kao President Adminis er Cindy Fem Zhou HY Technology Development Kevin of R.O.C. 2018.11 93,047 0.14 36,683 0.05 1,061,211 1.57 tration Husba Fang ale Co., Limited Cheng Subsidiar Division nd and Executive secretary of HY Electronic Jeff Fang y Subsidia wife (Cayman) Limited ry Sister general manager President of Chung Mal Murdoch University MBA R.O.C. 2006/5 506,499 0.75 ------Subsidiar Chi Lin e QA Director of DIODES Inc. y

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Department of International Trade, Vice International Business College President Wen Mal Business manager of PANJIT of R.O.C. 2012/3 ------Pin Hsu e SemiConductor Subsidiar Business manager of Taiwan y Semiconductor Vice MBA, Tamkang University President Yung Mal Production Manager of General of R.O.C. 2012/7 92,249 0.14 ------Chih Li e Instrument Corporation Subsidiar Vice President of Gulf Semiconductor y Vice President MBA, Management Science National Miller Mal of R.O.C. 2019/3 - - Chiao Tung University - - - - Lo e Subsidiar Lite on Tech. Hsinchu plant V.P. y Master, Department of Accounting, Fu Jen Catholic University Head of Mei Fem Accounting supervisor of Golden Financial R.O.C. 2013/12 17,992 0.03 - - - - Note 1 - - - Yang ale Bridge Electech Inc. (GBE) Division Accountant of YAGEO CORPORATION Master, Department of Management Sciences, Tamkang University Chief Eric Mal R.O.C. 2014/2 ------Chief auditor of Elecon Corporation - - - - Auditor Teng e Senior specialist of Administration Division, Aurotek Corporation Presiden Deakin University (Australia) Master Mother Director t of International Business and -in-law of Vice Kevin Mal Commerce Jane Kao Husba Administ R.O.C. 2015/3 36,683 0.05 93,047 0.14 1,061,211 1.57 Note 1 Presiden Cheng e Special Assistant to the President of Cindy nd and ration t of Yangzhou Hong Yang Electronics wife Division Subsidia Co., Ltd. ry Tungnan University Department of Presiden President Mother Industrial Engineering Management t Jane Kao of Jeff Mal daught R.O.C. 2017/3 36,000 0.05 231,994 0.34 1,061,211 1.57 Executive Assistant to the General Note 1 Vice Cindy Subsidiar Fang e er Manager's Office of HY Electronic Presiden Fang y Sister Limited t of - 19 -

Subsidia ry Subsidi Fengjia University Department of ary Electronic Engineering Assista Vice president of YEA SHIN Bruce Mal TECHNOLOGY CO.,LTD Product nt R.O.C. 2018/7 10,249 0.02 ------Hsiao e Center Manager of PHOTRON SEMICONDUCTOR CORP. Quality department Subsidi Chung Hua University Department of ary Electrical Engineering Assista Lite-On Semiconductor Corp. Mal Assistant Engineer of Engineering nt R.O.C. CT Lai 2019/7 ------e Department, section manager of Quality Control Department, manager of Manufacturing Department, director of Strategic Purchase Department Note 1: General manager, deputy general manager, associate manager, supervisors of all divisions and branches should be included; any positions equivalent to general manager, deputy general manager or associate manager, regardless of job titles, should be disclosed. Note 2: Experience related to current position, if one has worked in auditing firm or affiliate company during the previous disclosure period, should state the job title and responsibilities. Note 3: If the general manager or equivalent (the top manager) and the chairman is the same person, are spouses or first-degree relatives, relevant information of the reasons, rationality, necessity and corresponding measures (e.g. adding seats of independent directors and manners such as having more than half of the directors who are not employees or managers) should be disclosed. Note 4: President, vice president, assistant manager, Head of Departments and Branches holding positions in other companies, please refer to the following table. Occupational title Name Holding positions in other companies at present President of HY ELECTRONIC (CAYMAN) LIMITED, TAIWAN BRANCH; director of HY Technology Development (H.K.) Co., Limited; President Jane Kao director of JETPER Technology Limited; director of SMART INVESTMENT CO., LTD.; director of Yangzhou E-poly Technology Co., Ltd.; director of Multi-Glory Services Inc.; Chairman of Taiwan GPP Inc. Director of Kevin Administration Director of Taiwan GPP Inc. Cheng Division Vice President of Yung Executive assistant of HY Electronic (Cayman) Limited YANZHOU Subsidiary Chih Li Head of Financial Mei Financial and accounting division supervisor of Taiwan GPP Inc., supervisor of YANZHOU GPP Inc. Division Yang

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Note 3: If the general manager or equivalent (the top manager) and the chairman is the same person, are spouses or first-degree relatives, relevant information of the reasons, rationality, necessity and corresponding measures (e.g. adding seats of independent directors and manners such as having more than half of the directors who are not employees or managers) should be disclosed. Description: The Company has been co-managed by the chairman and general manager since it was founded, and they have been responsible for design, manufacture and sales, therefore the current situation is necessary. Both of them have more than 30 years of experience and expertise in the industry. Currently the Company has four independent directors (out of a total of nine directors), and four directors who are employees or managers (less than half), which complies with the spirit of corporate governance. To sum up, the situation shall be considered reasonable. The Company keeps paying attention to relevant regulations issued by the authority to make adjustments.

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III. Remunerations to the directors, president and vice presidents in the most recent year (I) Remunerations to the directors (including independent directors)

Dec. 31, 2019 ; Unit: NT$1,000 ; % Remuneration to Director The sum of A, Remuneration for performance of works as employees The sum of A, B, C, D, E, F, B, C, and D in and G in Severance Director Fees for proportion to Salaries, bonus, Severance Remuneration payment and performance of after-tax net and special payment and Employee bonus proportion to (A) pension Compensation works subsidy pension (G) after-tax net (C) income (B) (D) (E) (F) income Any Companie remune s included ration Com Com Com Com Com Com Com The in the Com from panie panie panie panie panie panie panie Company panie Occup financial investee s s s s s s s statements s ational Name inclu inclu inclu inclu inclu inclu inclu inclu s other title ded ded ded ded ded ded ded ded than the The in the The in the The in the The in the The in the The in the The in the The in the subsidia Com finan Com finan Com finan Com finan Com finan Com finan Com finan Com finan ries pany cial pany cial pany cial pany cial pany cial pany cial pany cial Am Am Am Am pany cial state state state state state state state oun oun oun oun state (Note ment ment ment ment ment ment ment t in t in t in t in ment 11) s s s s s s s cas stoc cas stoc s (Note (Note (Note (Note (Note (Note (Note h k h k (Note 7) 7) 7) 7) 7) 7) 7) 7)

Da Chairm vid ------2,269 ------2.14 an Fa ng Jan Directo e ------1,999 4,635 ------1.88 -4.36 r Ka o Directo Ch - r un g ------1,345 4,571 128 128 - - - - -1.39 -4.42 Chi Lin Directo Cin r dy ------988 1,584 134 134 - - - - -1.06 -1.62 Fa ng

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Directo Ch r un ------20 20 -0.02 -0.02 ------0.02 -10.12 Fu Lo Sh Indepe u ndent Chi - - - - 322 322 20 20 -0.32 -0.32 ------0.32 -0.32 Directo ng r Ku o Indepe Ta ndent Chi - - - - 322 322 10 10 -0.31 -0.31 ------0.31 -0.31 Directo Ta r o Mi Indepe ng ndent Hsi - - - - 322 322 15 15 -032 -032 ------0.32 -0.32 Directo ang r Ya ng Yu Indepe ng ndent Ta - - - - 322 322 20 20 -0.32 -0.32 ------0.32 -0.32 Directo o r Hs u

1. Please state the policy, system, standards and structure of remuneration of independent directors, and describe their relevance to the amount of remuneration according to responsibilities, risks and time invested: when independent directors execute duties in the Company, regardless of profit or loss, monthly remuneration paid by the Company shall be NT$ 10,000 to 50,000, paid monthly. The Remuneration Committee may make adjustments based on their participation of and contribution to the operation of the Company.

2. Aside from the table disclosed above, remuneration to directors of the Company for providing services to all the companies listed in the financial report in the latest year(e.g., serving as non-employee consultant): none.

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(II) Remunerations to President and Vice Presidents

Dec. 31, 2019 ; Unit: NT$1,000 ; %

Salaries (A) Severance Salaries, bonus, Remuneration to employees (D) The sum of A, B, Number of Number of Any payment and and special C, and D in employee stock restricted ESO pension (B) subsidy (C) proportion to options (ESO) remune after-tax net income (%) ration Companies from Compa Compa Compa included in the Compa Compa Compa The Company investe Occupatio nies nies nies financial nies nies nies Name es nal title include include include statements include include include The The The The The The d in the d in the d in the d in the d in the d in the other Compa Compa Compa Compa Compa Compa financi financi financi financi financi financi ny ny ny ny ny ny than al al al Amo Amo Amo Amo al al al the stateme stateme stateme unt in unt in unt in unt in stateme stateme stateme nts nts nts cash stock cash stock nts nts nts subsidi aries Jane President 1,999 4,635 ------1.88 -4.36 - Kao President of Pat Lin 1,345 4,571 128 128 ------1.39 -4.42 - Subsidiary V.P. of Frank 859 2,283 100 100 ------0.90 -2.24 - Subsidiary Hsu V.P. of Steve 774 2,169 87 87 ------0.81 -2.12 - Subsidiary Lee V.P. of Miller 1,578 2,682 2020 202 ------1.68 -2.71 - Subsidiary Lo V.P. of Cindy 988 1,584 134 134 ------1.06 -1.62 - Subsidiary Fand President Jeff of - 2,211 - 108 ------2.18 - Fang Subsidiary Subsidiary Bruce - 1,762 - 95 ------1.75 - Assistant Hsiao Subsidiary CT Lai - 808 - 95 ------0.80 - Assistant

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(III) The Remuneration of the Top Five Highest-Paid Executives

Salaries (A) Severance Salaries, bonus, Remuneration to employees (D) The sum of A, B, Number of Number of Any payment and and special C, and D in employee stock restricted ESO pension (B) subsidy (C) proportion to options (ESO) remune after-tax net income (%) ration Companies from Compa Compa Compa included in the Compa Compa Compa The Company investe Occupatio nies nies nies financial nies nies nies Name es nal title include include include statements include include include The The The The The The d in the d in the d in the d in the d in the d in the other Compa Compa Compa Compa Compa Compa financi financi financi financi financi financi ny ny ny ny ny ny than al al al Amo Amo Amo Amo al al al the stateme stateme stateme unt in unt in unt in unt in stateme stateme stateme nts nts nts cash stock cash stock nts nts nts subsidi aries Jane President 1,999 4,635 ------1.88 -4.36 - Kao President of Pat Lin 1,345 4,571 128 128 ------1.39 -4.42 - Subsidiary V.P. of Frank 859 2,283 100 100 ------0.90 -2.24 - Subsidiary Hsu V.P. of Miller 1,578 2,682 2020 202 ------1.68 -2.71 - Subsidiary Lo President Jeff of - 2,211 - 108 ------2.18 - Fang Subsidiary

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(IV) Names of the managers receiving employee bonus and the status of payment:

Dec. 31, 2019 ; Unit: NT$1,000 ; % The total amount Amount in Amount in in proportion to Occupational title Name cash Total stock after-tax net (Note 2) income (%) President Jane Kao President of Subsidiary Pat Lin V.P. of Subsidiary Frank Hsu V.P. of Subsidiary Steve Lee V.P. of Subsidiary Miller Lo Head of Financial Mei Yang Division Managers Tax Collection - - - - Eric Teng Supervisor Director of Kevin Cheng Administration Division V.P. of Subsidiary Cindy Fand President of Subsidiary Jeff Fang Subsidiary Assistant Bruce Hsiao Subsidiary Assistant CT Lai

Note 1: Individual names and job titles shall be disclosed, while profit allocation can be disclosed in summary. Note 2: the amount of employee remuneration in the latest year (including stock shares and cash) approved by the

board of directors. If it is unpredictable, the proposed amount of allocation for this year will be calculated on

the basis of the actual allocation amount last year. Net profit after tax refers to the net profit after tax of the latest year; if IFRS has been adopted, net profit after tax refers to net profit after tax in the individual financial

statement of the latest year.。

Note 3: The application scope of manager is based on the provisions of Taiwan-Finance-Securities No. 0920001301

stipulated on March 27, 2003, which is as follows: (1). General manager and equivalent (2). Deputy general manager and equivalent (3).Assistant manager and equivalent

(4).Supervisor of financeial division

(5). Supervisor of accounting division (6). Others who have the rights to manage business and sign for the Company Note 4: If the director, general manager and deputy general manager receive employee remuneration (including stock

shares and cash), apart from the table 1-2, this table shall be filled out.

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(V) Compare and account for the analysis of the ratio of the total remuneration of directors, supervisors, general managers and deputy general managers of the Company and the all the companies listed in consolidated statement to the net profit after tax in the last two years, and explain the relevance among the policy, standards and distribution of remuneration payment, procedures for determining remuneration, management performance, and future risks. 1. Remunerations paid by the Company and all affiliates, where financial statements were consolidated, to Directors, the President and Vice Presidents of the Company in proportion (%) to the after-tax net income over the last 2 years as follows: Unit: NT$1,000 ; % Directors, President and Vice Net Profit Attributable to Owners of Year Presidents the Company Companies included in Companies included in The Company The Company the financial statements the financial statements 2018 6,720 12,747 18.99 36.02 2019 9,567 22,217 -9.01 -20.91 2. Policy, standard, components and the procedure of decision-making of remunerations and the association with operation performance and future risks:

1. The Board of Directors is authorized to determine the level of remunerations to directors, during their tenure of the year when earnings are retained, based on individual participation and contribution to the Company's operations and in consideration of actual operation performance, assessment of future risks and resulting adjustments, after it is resolved at the annual regular shareholders meeting to distribute remunerations to directors and supervisors. 2. Contracted salary standards for the President and Vice Presidents are developed by reference to the general standard in this industry. The remuneration system comprises base pay, meal and executive allowances. Such remuneration varies with individual educational background, work experience, performance, and years of service.

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IV. The Pursuit of Corporate Governance (I) The Information on the function of the Board of Directors In the most recent year (from the year 108 to March 31, 109), the Board of Directors convened in 5 sessions, The attendance of directors and independent directors is shown below: Attendance (or as Attendance (or as Occupational Attendance by Name observer) in person observer) rate (%) Note title proxy (B) [B/A] David Chairman 5 0 100% Fang Director Jane Kao 4 1 80% Director pat Lin 3 2 60% Cindy Director 5 0 100% Fang Chun Fu Director 5 0 100% Lo Ming Independent Hsiang 5 0 100% Director Yang Independent Shu Ching 2 3 40% Director Kuo Independent Ta Chi 4 1 80% Director Tao Independent Yung Tao 5 0 100% Director Hsu Items Required to be Specified: 1 If any of the following is applicable to the operation of the Board of Directors, specify the date, the series of the session, the content of the motions, the opinions of the Independent Directors, and the response of the Company to the opinions of the Independent Directors: (I) Particulars inscribed in Article 14-3 of the "Securities and Exchange Act": Nil (II) Further to the aforementioned particulars, the adverse opinions or qualified opinions of the Independent Directors on the resolutions of the Board of Directors on record or in written declaration: Nil 2 The recusal of the Directors from motions that involved a conflict of interest. Specify the names of the Directors, the content of the motions, and reason for recusal, and the participation in voting: (1) Discussions at Session 11, the 3rd Board Meeting on March 22, 2019 - "Appointment of the legal representative of Taiwan GPP Inc., a subsidiary of the Company" and "Termination of the non-competition restriction imposed on directors and managers"; the stakeholder (Jane Kao, director) was required to disassociate from voting, and the motions were passed after the chairperson received no objection from any attending directors. 3 The assessment of the objectives for the fortifying of the function of the Board of Directors (such as the establishment of the Auditor Committee, and enhancing the transparency of information) and the attainment in current year and in the most recent year: (1) The Company has developed the "Procedure for Board of Directors Meetings" and the

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"Procedure of Election of Directors". The function of the Board of Directors should follow these procedures and current applicable laws and regulations. (2) The Company has elected four independent directors and set up the Auditor Committee and the Remuneration Committee to improve corporate governance efficiency. Besides, relevant information is also disclosed at the Company's website and the website of the Market Observation Post System ("MOPS") to ensure the transparency of the information. (a) The company's board of directors is responsible for instruction of company's strategy, supervision of the management, and operations and arrangements of the corporate governance system, is held accountable for the company and shareholders‘ meeting, and exercise powers according to the regulations and articles of association or the resolutions of shareholders' meeting. (b) The company established the Audit Committee on April 15, 2016 to exercise the powers stipulated by the Securities and Exchange Act, Company Act and other regulations. For the operation of the Audit Committee, please refer to page 30 of this annual report. (c) The company established the Remuneration Committee on April 15, 2016 to regularly assess and determine the remuneration of directors and managers and review performance evaluation of directors and managers and policy, system, standards and structure of remuneration. For the operation of the Remuneration Committee, please refer to page 41 of this annual report. (d) The company re-elected all directors in the shareholders' meeting on June 23, 2017. 5 directors were elected, including 4 independent directors. (e) The company has renewed liability insurance for directors and managers on June 25, 2019 to strengthen the company's risk management and protect shareholders' interests.

(II) Operation of Audit Committee The operation of Audit Committee assists board of directors in supervising the following issues as main purposes: • The proper expression of the company's financial statements. • The appointment or dismissal of auditors and its independence and performance. • Effective implementation of the company's internal control. • The company's compliance of relevant regulations. • Management of the company's existing or potential risks. The issues of auditing mainly include: • Stipulation or amendment of internal control system • Evaluation of effectiveness of the internal control system. • Stipulation or amendment of operating procedures for major financial business activities including acquiring or disposing assets, engaging in derivatives trading, loaning funds to others, endorsing people or providing guarantees • Issues involving directors' interests. • Significant transactions of assets or derivatives. • Significant loan, endorsement or guarantee. • Raising, issuing or private placement of securities with property of equity. • Appointment, dismissal or remuneration of auditors. • Appointment and dismissal of supervisors of divisions of finance, accounting or internal audit. • Annual financial report and second quarter financial report.

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• Operational report and proposal of surplus distribution or loss compensation. • Other major issues regulated by the company or competent authorities.

In the most recent year (from the year 108 to March 31, 109), the audit committee met 5 times (A), and the independent directors attended (listed) as follows: Attendance (or as Attendance (or as Occupational Attendance Name observer) in observer) rate (%) Note title by proxy person (B) [B/A] Ming Independent Hsiang 4 1 80% Director Yang Shu Independent Ching 5 0 100% Director Kuo Independent Ta Chi 2 3 40% Director Tao Independent Yung Tao 5 0 100% Director Hsu Items Required to be Specified: I. If any of the following is applicable to the operation of the Auditor Committee, specify the date, the series of the session, the content of the motions, the resolutions of the Auditor Committee and the response of the Company to the opinions of the Auditor Committee: (I) The items listed in Article 14-5 of Securities and Exchange Act (please refer to pages 52-54 of article (3) of this annual report: Corporate Governance Report- Major Resolutions of Shareholders’ Meeting and Board Meeting): All resolutions were approved by more than one-half of all the members of Audit Committee and sent to then passed by the board of directors. No cases without approval by Audit Committee but only with approval by more than two-thirds of all directors. (II) Further to the aforementioned particulars, other motions not passed by the Auditor Committee but at the consent of more than 2/3 of the Directors: Nil II. The recusal of the Independent Directors from motions that involved a conflict of interest. Specify the names of the Independent Directors, the content of the motions, and reason for recusal, and the participation in voting: no director of the Company shall recuse himself or herself from motions that involved a conflict of interest. III. Communications between independent directors, internal audit supervisors and accountants (which should include major issues, methods and results of communications of the company's financial and operational situation): (I) Communication between independent directors and auditing supervisor: Regular：Quarterly reporting "Internal Audit Report" in the Audit Committee, including the operations of auditing, findings and improvement of abnormal issues of the company and subsidiaries. Irregular：Communication regarding how to enhance the company's audit value and operating

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efficiency and effectiveness through meetings. If there is major violation, Audit Committee members will be notified according to the regulations. The communication channels between the company's internal auditing supervisor and Audit Committee are diverse and smooth. (II)Communication between independent directors and accountants： Regular：The semi-annual report and annual financial report are explained regarding auditing situation by the independent auditors attending Audit Committee. Irregular：In case of significant, special matters or relevant requirements for regulations, they will attend Audit Committee occasionally to explain and communicate. (III)Summary of recent communication between independent directors and internal auditing supervisors and accountants:

Communication Date Participants Keynote Method Auditor, accountant and Audit report for the third quarter of 2019, Audit 2019-11-7 financial supervisor ； audit plan for 2020, and financial report Committee independent Auditor for the third quarter of 2019. Auditor, accountant and Audit report for the second quarter of Audit 2019-8-12 financial supervisor ； 2019 and review of financial report for the Committee independent auditor second quarter of 2019. Auditor, accountant and Audit report for the first quarter of 2019 Audit 2019-5-10 financial supervisor； and financial report for the first quarter of Committee independent auditor 2019. Auditor, accountant and Audit report for the fourth quarter of Audit financial supervisor； 2018, internal control system statement of 2019-3-22 Committee independent auditor 2018, and review of 2018 annual financial report

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(III) The performance of corporate governance and the variation with the "Corporate Governance Best Practice Principles for TWSE or TPEx Listed Companies", and the reasons for the variation State of operation Variation with the “Corporate Governance Best Practice Principles Items for assessment Yes No Summary for TWSE or TPEx Listed Companies” and the reasons for the variation I. Has the Company instituted The Company has instituted the corporate No significant and disclosed the corporate V governance best practice principles in difference governance best practice accordance with the “Corporate principles in accordance with Governance Best Practice Principles for the “Corporate Governance TWSE or TPEx Listed Companies” and Best Practice Principles for disclosed relevant information at the TWSE or TPEx Listed Company's website and the website of the Companies”? MOPS. II. II. Equity structure and shareholders’ equity of the The Company has developed the "Rules No significant Company of Procedure for the General Meeting of difference (I) Has the Company established Shareholders", established the relevant standard operation V spokesperson and acting spokesperson procedures for handling system as stipulated, and appointed suggestions, queries, dedicated staff to handle the relationships disputes, and legal with and among investors, suggestions, proceedings from the disputes, and legal proceedings from the shareholders, and follow shareholders. The contact information and the procedures in action? e-mail addresses are also available at the website for handling such relationships. (II) Has the Company keep the The Company has authorized the share dominant shareholders administration agency to regularly update exercising de facto control the register of shareholders and the over the Company in V register of dominant shareholders, and control and the list of fully kept the dominant shareholders ultimate parties in control exercising de facto control over the of these dominant Company in control and the list of shareholders? ultimate parties in control of these (III) Has the Company installed dominant shareholders. and executed risk control mechanisms and firewall The financial and business operations for the control of risks between the Company and affiliates are between its affiliates? based on the principle of mutual V independence. In this regard, the (IV) Has the Company instituted "Operating Policy for Supervisors of internal code for the Subsidiaries", the "Management prohibition of using Procedure for Financial and Business

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undisclosed information by Operations among Affiliates", the insiders in the trading of "Internal Control System", and the securities? "Internal Audit System" are formulated to V install risk control mechanisms and firewall for the control of risks between affiliates. The Company has instituted the "Procedures for Ethical Management and Code of Business Ethics" for the prohibition of using undisclosed information by insiders in the trading of securities.

III. The Composition and Function of the Board of V Such policy of diversity due to the No significant Directors composition of board members is difference (I) Has the Board mapped out a included in the "Policy of Diversity for policy of diversity due to Composition of Board Members" of the the composition of its Company. Currently, the Company has members with proper nine seats of directors, among whom four pursuit of the policy? are independent directors, amounting to nearly 50%. Furthermore, among these nine directors are three female directors; each director has his or her own professional expertise, such as accounting, industry, finance, marketing, R&D, technology, corporate management, professional skills, and industry experience, thus implementing such policy of diversity due to the composition of board members.

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State of operation Variation with the “Corporate Governance Best Practice Principles for Items for assessment Yes No Summary TWSE or TPEx Listed Companies” and the reasons for the variation (II) Further to the establishment V Further to the establishment of the of the Remuneration Remuneration Committee and Auditor Committee and the Auditor Committee as required by law, has the Committee as required by Company established other functional law, has the Company committees as needed? voluntarily established other functional committees? (III) Has the Company V The Company has established the established regulations performance evaluation system for the governing the evaluation of Board of Directors. The regulations the performance of the governing the evaluation of the Board of Directors and performance of the Board of Directors functional committees and and functional committees were other means for such approved by the Board of Directors on purpose, and has conducted November 10, 2017 to promote the routine performance self-improvement of the board members evaluation annually? and improve the function of the Board of Directors. The internal self-evaluation of overall performance of the Board of Directors covers five aspects below: A. participation in the Company's operations; B. improvement of the quality of decisions made by the Board of Directors; C. the composition and structure of the Board of Directors; D. the election and continuing education of directors; and E. internal control. The measurements of the performance (IV) Has the Company assessed V evaluation of board members cover at the independence of the least four aspects as follows: A. control CPAs retained as external over the Company's objectives and tasks; auditors at regular intervals? B. awareness of directors' responsibilities; C. participation in the Company's operations; D. internal relationship management and communication; E. professional expertise and continuing education of directors; and F. internal control. Such performance evaluation has been performed on a yearly basis since 2017. In 2018, the internal performance evaluation result of the Company's Board of Directors was

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"Excellent", indicating the outstanding effect of fortifying the function of the Board of Directors.

The Auditor Committee and the Board of Directors has assessed the independence, competency and professional qualifications of CPAs on a yearly basis, and reported at the meeting held on March 22, 2019 for deliberation and approval. CPAs have been required to submit the "Assessment Form of Independence and Competency" on a yearly basis since 2017. Meanwhile, it is assessed and affirmed by the Company's Financial Division that our CPAs conform to the assessment criteria for independence and competency and therefore are competent for accountants. The Board of Directors of the Company has also inspected CVs of these CPAs and the independence statement of each CPA (not in violation of Ethics Bulletin No. 10) for the assessment and discussion on their independence, while the Board of Directors was discussing the independence and appointment of CPAs. IV. Have the companies listed in V The Company has designated a member No significant TWSE or TPEx appointed to manage affairs related to corporate difference designated full-time (part-time) governance; the member is a manager body or personnel to handle having more than 3-year experience in matters of corporate affairs related to stocks or corporate governance in public companies and has governance (including but not acquired certificate of conformance of limiting to supplying Directors research and study. Main responsibilities and Supervisors the of the member include providing information they need in required information to directors for performing their duties, executing business, dealing with matters administrative matters of the related to board meetings and Board of Directors and the shareholders 'meetings according to the General Meeting of regulations, handling company Shareholders as required by registration and modification registration, law, company registration and produce minutes of board of directors' registration for changes, and and shareholders' meetings, assisting the board of directors in strengthening job keeping the minutes of functions, and implementing the meetings of the Board of protection of stakeholders' interests and Directors and the General equal treatment to shareholders. Meeting of Shareholders)?

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State of operation Variation with the “Corporate Governance Best Practice Principles Items for assessment for TWSE or Yes No Summary TPEx Listed Companies” and the reasons for the variation V. Has the Company established V The Company has arranged its No significant channels for communications with divisions for communications with the difference the stakeholders (including but not stakeholders and has made limiting to shareholders, employees, unscheduled reporting to the Board of customers, and suppliers), and set up Directors to respect the stakeholders' equity, identify stakeholders, a section for stakeholders at the understand their expectations and official website of the Company needs, and make proper response to with proper response to the concerns their concerns on issues related to of the stakeholders on issues related corporate social responsibility. The to corporate social responsibility? Company's stakeholders include the employees, shareholders, customers, suppliers, social and academic research institutions, and governmental agencies. Meanwhile, the special section of stakeholders and corporate social responsibility has been established at the official website of the Company, so enabling us to understand their concerns and make proper response accordingly; subsequently, we can refer to the feedback from all walks of life for our continuous improvements. VI. Has the Company commissioned a V The Company has commissioned the No significant professional share registration and Share Administration Department of difference investor service institution for Concord Securities Co., Ltd. to providing services to shareholders? providing services to shareholders. VII. Disclosure of information (I) Has the Company established its V The company has established "Investor No significant official website for disclosure of Section" and "Corporate Social difference information on financial Responsibility Section " on Chinese performance and corporate V and English website of the Company; governance? The content includes the company's (II) Is there any other means for financial business, corporate disclosures (like the installation of governance and the implementation of an English website, appointment corporate social responsibility. of designated personnel to collect and disclose related information The accounting division of the on the Company, proper Company is responsible for the

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performance of the spokesman collection and disclosure of company system, and upload the procedure information; the Company has a of investors conference to the spokesperson and a deputy website)? spokesperson, and discloses the Company's financial information on the "Market Observation Post System" on a regular or irregular basis. Meanwhile, the Company's Chinese and English website also have an investor relations section, which fully discloses financial business, investor conference (including information and video recordings), and relevant information of corporate governance for the reference of shareholders and the public.

In 2019, the Company announced and declared the financial report on the day the statement was approved by board of directors.The 2018 annual financial report and the first to third quarter of 2019 financial reports were announced and declared on March 22, May 10, August 12, and November 7, 2019, respectively. The revenue of each month is completed by 10th of the following month on the basis of regulations. VIII. Is there any further information that V Employees' rights: may help to understand the status of We always treat our employees in good No significant corporate governance of the faith, guarantee their lawful rights and difference Company better (including but not benefits by law, and hold labor limited to employees' rights, meetings at regular intervals to coordinate the labor-management employee care, investor relation, relationship. supplier relation, stakeholders' Employee care: rights, the continuing education of Employee care is fulfilled through the the Directors and Supervisors, risk welfare system enriching and management policy and risk maintaining employees' lives, excellent assessment in action, the pursuit of education and training systems and by customer policy, and the protection establishing good relationships with of the Directors and Supervisors employees under the principle of with professional liability mutual trust, such as travel allowances, insurance)? periodic physical examination and parking spaces for employees. Relation with investors: The spokesperson and the acting spokesperson have been appointed to handle suggestions from shareholders.

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State of operation Variation with the “Corporate Governance Best Practice Items for Principles for TWSE or assessment Yes No Summary TPEx Listed Companies” and the reasons for the variation Relation with suppliers: The Company always maintains good relationships with its suppliers. Stakeholders' rights: The stakeholders can communicate with and provide suggestions for the Company to maintain their own lawful rights and benefits. Continuing education of the Directors and Independent Directors: Directors and independent directors of the Company can have further education as stipulated and obtain educational certificates. Risk management policy and risk assessment in action: The Company has formulated internal regulations and rules by law and carried out risks management activities and assessments accordingly, which were resolved at board or shareholders meetings. The pursuit of customer policy: The Company has maintained good relationships with customers to protect their rights and benefits and provide premium services, so creating profits. The professional liability insurance for the protection of the Directors and Independent Directors of the Company: The Company has not yet taken professional liability insurance for the protection of the Directors and Supervisors, and is in the process of evaluation.

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State of operation Variation with the “Corporate Governance Best Practice Items for Principles for TWSE or assessment Yes No Summary TPEx Listed Companies” and the reasons for the variation IX. Response to the corporate governance evaluation result released by the Corporate Governance Center of Taiwan Stock Exchange Corporation in the most recent year, and further effort shall be made on matters for improvement but still unaccomplished. (Please keep this box blank if not listed as company assessed.) The 2019 ranking of the company's corporate governance evaluation is within 51% ~ 65%. In the future, we will keep improving regarding the items in which the company have not scored. Expected improvement items in 2020: Index 1.10：Upload the Chinese / English version (including amendments) of the meeting agenda handbook and supplementary materials 30 days before the shareholders meeting. Index 1.11：Upload English version of annual report 14 days before the shareholders meeting. Index 1.14：The implementation situation of the resolutions in the shareholders meeting will be disclosed in the annual report. Index 2.2 ：The implementation situation of board member diversification policy is disclosed in the annual report and on the company's website. Index 2.15：The communication between independent directors and internal audit supervisors & accountants will be disclosed on the company website. Index 3.5 ：Annual financial report (including financial statements and notes) will be disclosed in English on the company's website or Market Observation Post System. Index 3.15：The company will disclose the amount and nature of non-audit public expenses in the annual report. Index 3.17：Information related to finance, business and corporate governance will be disclosed on the company website. Index 3.20：The company will, at least twice a year (with an interval of more than three months), be invited to or self-manage investor conferences.

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(IV) The composition, duties and operation of Remuneration Committee The board of directors of the company established the remuneration committee and its organizational regulations based on "Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Taiwan Stock Exchange or the Taipei Exchange." In this year, the independent director Mr. Ming-hsiang Yang served as the convener and chairman of the meeting. The regulations stipulated that the responsibilities of the committee are to establish and regularly review the policy, system, standards and structures of performance evaluation and remuneration of directors and managers and to regularly assess and determine remuneration of directors and managers; the committee should uphold vigilance of kind managers, implement its duties faithfully, and submit recommendations to the board of directors for discussion. (1) Profiles of the members of the Remuneration Committee More than 5 years of work experience and the Meeting the standard of independence Conditio Numbe following professional qualification (Note 2) r of As a lecturer or Professional or Work experience n other higher position expert through in commerce, law, public at a public or national finance and compan private school examinations with banking, ies of higher issuance of accounting or where education in certificates such necessary for the Identity commerce, law, as court judge, company membe Note finance and public prosecutor, operation r is also banking, lawyer, (Note 1) 1 2 3 4 5 6 7 8 a accounting, or accountants or membe the disciplines other r of and subject specialization their required for required for remune company company ration operation operation commit tees Name Independe Ming nt Hsiang           N/A Director Yang Independe Shu Ching nt           N/A Kuo Director Independe Ta Chi nt          N/A Tao Director Independe Yung Tao nt          N/A Hsu Director Note 1: Fill in Director, Independent Director, or others for identity. Note 2: If any of the following is applicable to the Directors and Supervisors in the period of 2 years prior to the election to office and within the term of office, put a “” in the appropriate box below. (1) Not an employee of the Company or its affiliates; (2) Not a Director or Supervisor of the affiliates of the Company, except as an Independent Director of the Company or its parent company, subsidiaries which seat was established in accordance of local law or the law of the host country; (3) The person, spouse, dependents or a third party who is a natural person shareholder holding more than 1% of the outstanding shares of the Company or among the top 10 shareholders of the Company; (4) Not the spouse, kindred within 2nd degree of relationship or within 3rd degree of the consanguinity of the persons specified from (1) to (3); (5) Directors, supervisors, or employees of corporate shareholders who do not directly hold more than 5% of the company's total issued shares or hold the top 5 shares, or designate representatives as company's directors or supervisors on the basis of Article 27-1 or 2 of Company Act. (Independent directors who concurrently serve in the company and its parent company, subsidiary or subsidiary belonging to the same parent company according to the Act or local regulations are not subject to the restrictions). - 40 -

(6) Directors, supervisors or employees of other companies who do not individually hold more than half of the shares related to directors' seats or voting rights. (Independent directors who concurrently serve in the company and its parent company, subsidiary or subsidiary belonging to the same parent company according to the Act or local regulations are not subject to the restrictions). (7) Directors, supervisors or employees of other companies or institutions who are not the chairman, general manager or equivalent or his/her spouse. (Independent directors who concurrently serve in the company and its parent company, subsidiary or subsidiary belonging to the same parent company according to the Act or local regulations are not subject to the restrictions). (8) Directors, supervisors, managers or shareholders holding more than 5% of the company's total shares of specific companies or institutions that do not have financial or business dealings with the company. (In the case a specific company or institution holds 20-50% of total issued shares of the company, independent directors who concurrently serve in the company and its parent company, subsidiary or subsidiary belonging to the same parent company according to the Act or local regulations are not subject to the restrictions) (9) Professionals of business, legal, financial, accounting and other relevant services, and owners, partners, directors, supervisors, managers and their spouses of sole proprietorships, partnerships, corporations or institutions who do not provide auditing service for the company or its affiliated companies or do not acquire more than NT$ 500,000 of cumulative remuneration in the last two years. However, members of Remuneration Committee, Audit Committee for Public Tender Offer, or Special Committee for Merger and Acquisition implementing their powers based on the relevant regulations for Securities Exchange Act or Business Mergers And Acquisitions Act are not subject to the restrictions. (10) None of the particulars inscribed in Article 30 of the "Company Act" is applicable;

(2)Information on the operation of the Remuneration Committee 1. The Remuneration Committee of the Company is consisted of 4 members. 2. Tenure of the members for the current term of office: from June 25, 2017 to June 24, 2020; the Remuneration Committee convened 4 sessions(A) in the most recent year (Year 2017) up till the date when the prospectus was published in 2019, including one session in 2017, two sessions in 2018 and one in 2019. The qualification of the members and their attendance are shown below: Occupational Attendance in Attendance Actual attendance Name Note title person (B) by proxy (%) (B/A) Independent Ming Hsiang 4 0 100% Director Yang Independent Shu Ching Kuo 4 0 100% Director Independent Ta Chi Tao 3 1 75% Director Independent Yung Tao Hsu 4 0 100% Director Items Required to be Specified: 1.If the Board rejected or revised the recommendation presented by the Remuneration Committee, specify the date, the series of the session, the content of the motions, the resolutions of the Board of Directors and the response of the Company to the opinions of the Remuneration Committee (like the remuneration package passed by the Board of Directors is at a higher level than the recommendation presented by the Remuneration Committee, specify the difference and the reason): Nil. 2.If particular member holds adverse opinion or qualified opinion on the resolution of the Remuneration Committee on record or in written declaration, specify the date, the series of the session, the content of the motion, the opinions of all members and the responses to the opinions of the members: Nil. Note： (1) Those who have resigned before the end of the year should be indicated in the remarks column with the date of resignation. The actual attendance rate (%) is calculated on the basis of the number of meetings of Remuneration Committee and the actual number of attendance during the tenure. (2) Before the end of the year, if the members of Remuneration Committee are re-elected, new and old members of Remuneration Committee, should be indicated in the remarks column with the note indicating "old" "new" or "continue" and the date of re-election. The actual attendance rate (%) is calculated on the basis of the number of meetings of Remuneration Committee and the actual number of attendance during the tenure.

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(V) The situation of performing social responsibility and the difference with the listed company's code of practice on corporate social responsibility

State of operation Variation with the “Corporate Governance Best Practice Principles Items for assessment Yes No Summary for TWSE or TPEx Listed Companies” and the reasons for the variation 1、Does the company evaluate V The company upholds the business No significant the risks of the issues of philosophy and materiality principle of difference environment, society and "excellent quality, reasonable cost, corporate governance related to outstanding service, fine flexibility, and the company's operations innovation pursuit." While pursuing according to their significance, sustainable operation and profitability, the and stipulate relevant risk company implements corporate social management policies or responsibilities, values the interests of strategies? stakeholders, pay attention to the issues of environment, society and corporate governance, and incorporate them into the company's management guideline and operating activities to fulfill the goal of sustainable operation. 2、Has the company established V The promotion plans of the company's No significant a full-time (part-time) unit to social responsibility is managed by the difference advocate corporate social management office as a part-time unit, responsibility, which is handled regarding donations and environmental by the senior management with protection, etc.. The plans will then be the authorization of the board carried out by the relevant units and the of directors and reports the implementation results will be reported to operating situation to the board the board of directors irregularly. The of directors？ situation of implementation of social responsibility operation was recently reported in the board meeting on March 20, 2020. 3、Environmental Issues (1) Has the company V In the aspect of promoting environmental No significant established an appropriate safety and sanitation, in addition to difference management system of conform to relevant domestic regulations, environment according to its the company is also geared to international industrial property? standards and has obtained certification of V ISO 14001 environmental management No significant system. difference

(2) Does the company dedicate The company is committed to promoting to the improvement of environmental protection, developing a utilization efficiency of various sustainable environment, and promote resources and use renewable V energy-saving measures, such as waste No significant materials with low impact on recycling and paper reduction, to fulfill the difference environmental load? goal of waste reduction and resource recycling.

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V The company has evaluate the potential The company will (3 Does the company evaluate risks and opportunities of climate change gradually make the potential risks and for present and future business, and has improvement in the opportunities of climate change incorporated risk management, actively future; the for present and future business advocated energy conservation and carbon implementation and take corresponding reduction, and installed solar power measures are as measures of climate-related equipments in the factory. follows: issues? 1. Office The total amount of carbon dioxide emitted energy-saving (4) Does the company calculate from office use electricity in Taipei in 2018 measures： the amount of greenhouse gas was approximately 34.21 (tons CO2e). The (1) Adjust the air emissions, water consumption company has not calculated the water conditioner along and total waste in the past two consumption and the total weight of waste with the season and years, and stipulate policies for in the past two years yet. set constant energy conservation and carbon temperature at 26 reduction, greenhouse gas degrees to reduce reduction, water consumption the power load. reduction or other waste The colleagues of treatment? the company should also turn off the computer, air conditioner and lighting power if they are not used. (2) Lighting equipment in offices will be gradually replaced by LED, which not only reduces the heat of light, but achieves the goal of energy conservation. (3) Advocate using stairs instead of elevators to employees. 2. Energy-saving measures of computer room: implement server virtualization to save power and relevant equipments. 3.Water-saving measures: install water-sprinklers on water supply devices.

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4.Others： (1) Keep promoting the e-services system of document management, reduce paper usage, and make more use of recycled paper. (2) Implement recycling management and resource recycling of wastes such as leftover, iron, aluminum, or glass cans, waste paper and plastic bottles, etc.. The treatment and classification will be carried out by professionals. 4、Social Issues (1) Has the company stipulated V The company has stimulated the "Code of No significant relevant management policies Work" on the basis of relevant regulations difference and procedures based on the such as Labor Standards Act, Act of relevant regulations and Gender Equality in Employment, and International Bill of Human V Sexual Harassment Prevention Act. No significant Rights? difference The company has established Code of (2) Does the company stipulate work and relevant regulations for human and implement reasonable resources management, covering measures of employees' welfare employees' basic wages, working hours, (including compensation, leave leaves, pensions, labor and health and other welfares), and insurances, and occupational injury appropriately reflect the compensation, which all conform to the operating performance or relevant regulations for the Labor results on employee's V Standards Act. The company also compensation? established employees' Welfare Committee, No significant which is operated by members elected by difference employees and deals with various welfare matters; the company's remuneration policy is based on personal ability, contribution to the company, and V performance, and the correlation between (3) Does the company provide remuneration and operating performance is No significant employees with a safe and positive. difference healthful work environment, and regularly implement safety V The company provides employees with a and health education for comfortable, safe and healthful working employees? environment, including the implementation No significant

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of necessary access control, labor safety difference education and training, indoor smoking ban, and the establishment of staff rooms; (4) Does the company establish the company pays attention to employee effective training programs of safety and health, advocate employee career ability development for safety and health on a irregular basis, and employees? V implements employee health examination every year. No significant (5) Regarding customer health The company makes an overall evaluation difference and safety, customers' privacy, according to employees' academic and marketing and labeling of work experience, expertise, interests and products and services, does the working performance, and communicates company comply with relevant with employees to make effective training regulations and international programs. standards, and stipulated The company conform to relevant relevant policies and grievance regulations and international standards procedures to protect consumer regarding products and services. For the rights and interests? products, the company offers declaration of conformity according to the customers, including conformity of CE, UL and RoSH environmental regulations, halogen-free requirements and other international (6) Does the company stipulate regulations; with respect to customer supplier management policies privacy, the company complies with that require suppliers to comply non-disclosure agreements and Personal with relevant regulations on Data Protection Act and established environmental protection, customer service units and stakeholder area occupational safety and to protect customer rights and provide sanitation or labor rights? And grievance procedures. their implementation situation? The company has stipulated in the Ethical Corporate Management Best Practice Principles that if a contracted supplier is involved in unethical behaviors, the company may terminate or cancel the contract at any time. 5、Does the company refer to V The company's corporate social No significant internationally-acknowledged responsibility report is based on core items difference reports to compile principles, of GRI Sustainability Reporting Standards guidelines, and other reports published in 2016 by The Global Reporting disclosing non-financial Initiative (GRI) and Global Sustainability information of the company Standard Board (GSSB). such as corporate social The third-party verification is still under responsibility report? Did the continuous assessment. above-mentioned reports obtain the confirmation or assurance of the third-party verification unit? 6、If the company has stipulated its code of corporate social responsibility according to "Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies", please describe the difference between the operations and the code:

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The company conforms to the "Corporate Social Responsibility Best Practice Principles". For the company's operations of corporate social responsibility , please refer to the description of the company's corporate social responsibility report and information on the company's website. Link ： http://www.hygroup.com.tw/tw-ww/csr/report.aspx 7、Other important information that helps understand the operations of corporate social responsibility: Donation Unit Date Amount Remarks National Taiwan Normal University 2019/6/25 NT$100,000

Supplies Harmony Home 2019/5/28 NT$50,000 Donation Supplies Chung Yi Social Welfare Foundation 2019/6/27 NT$50,001 Donation Old clothing Hsinye Spring Association 2019/7/24 donation 19KG Chung Yi Social Welfare Foundation NT$40,900 2019/10/29 subscription letter NT$20,000 Supplies Hai Qing Qing Hong Hui 2019/10/30 Donation NT$20,000 Supplies Harmony Home 2019/12/30 Donation Total NT$280,901

Note 1: If the operation situation is checked with "Yes", please describe the important policies, strategies, measures being taken and their implementation; if it is checked with "No", please explain the reasons and describe the plans of relevant policies, strategies and measures in the future. Note 2: If the company has compiled a corporate social responsibility report, the operation situation may be replaced by the note of reference to the corporate social responsibility report and index page . Note 3: The principle of materiality refers to those who have a significant influence on the company's investors and other stakeholders regarding environmental, social and corporate governance issues.

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(VI) The situation and reasons for the implementation of integrity management and the difference with the listed company's code of integrity management

State of operation (Note 1 ) Variation with the “Corporate Governance Best Practice Principles for Items for assessment Yes No Summary TWSE or TPEx Listed Companies” and the reasons for the variation I. Establishment of the policies and action plans on business ethics (1) Has the company stipulated the V The company has stipulated "Guidelines for the No significant ethical corporate management policy Adoption of Codes of Ethical Conduct" and difference approved by the board of directors, and "Procedures for Ethical Management and stated in the articles and public Guidelines for Conduct" and announced them in documents the policy and manner of the internal cultural management center. All ethical corporate management and the behaviors of employees and the management commitment of active implementation conform to the regulations of relevant system, of the operation policy from the board which has shaped the necessary ethical of directors and senior management ? standards of the company.

(2) Has the company established an risk V The directors and managers of the company No significant evaluation mechanism for unethical regard ethical management as the primary difference behaviors, been regularly analyzing and principle. If any determination or transaction assessing business activities with high involves a conflict of their own interests, the risks of unethical behaviors in its directors and managers should not participate in business scope, and accordingly voting on the basis of interest avoidance stipulating proposals to prevent principle. unethical behaviors, at least covering the prevention measures against items in Article 7-2 of "Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies" ?

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(3) Has the company stated the V The company has stipulated and announced No significant operating procedures, behavior "Guidelines for the Adoption of Codes of difference guidelines, violation disciplines and Ethical Conduct" and "Procedures for Ethical grievance system under the plans of Management and Guidelines for Conduct." preventing unethical behavior, been Regarding the regulations, there are also implementing them and regularly employee rewards and punishment measures, as reviewing and revising the well as employee grievance and external aforementioned plans? reporting management measures, to prevent the occurrence of unethical behaviors. In addition, a report mailbox managed by specific personnel is established in the stakeholder section of the official website to provide internal and external personnel reporting conduit. The company arranges orientation training for new recruits, assigns specific personnel to give an account of employee professional ethics, and specifies in the recruit brochure that employees should strictly comply with the work rules, employee rewards measures and punishments so that the principle of ethical management can be deepened.

Before trading with customers, the company II. Proper ethical corporate V assesses the legality of the counter-parties and No significant management make credit evaluations to avoid dealing with difference (I) Has the Company assessed the parties with unethical behaviors. business partners on the record of business integrity, and stated the clause of ethical corporate management in the contracts with the business partners? According to the company’s “Procedures for (II) Has the Company established a V Ethical Management and Guidelines for No significant designated full-time (part-time) body Conduct，“ the company's audit office is difference directly under the Board for the responsible for promoting the corporate ethical advocacy of ethical corporate management as a part-time unit. The board of management, and reported to the Board directors also assigned the audit office to of Directors on the state of operation at supervise the operation of ethical management regular intervals? as the specific responsibility unit for supervision of ethical management (subordinate to the board of directors), to summarize and review the implementation, interpretation and consulting services of the company's relevant units regarding the ethical management, and to regularly report to the board of directors every year.

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(III) Has the Company made the The company's "Guidelines for the Adoption of No significant policies for the prevention of the V Codes of Ethical Conduct" and "Procedures for difference conflict of interest and provided Ethical Management and Guidelines for appropriate channels for the proper Conduct" clearly stipulate policies to prevent pursuit of the avoidance of the conflict conflicts of interest, provide appropriate conduit of interest? for grievance, and require the company's relevant units to actually implement them. In addition, the company has stipulated "Rules of Procedure for Board of Directors Meetings" according to the regulations to cope with directors' conflicts of interest. When the company's directors or managers encounter their own conflicts of interest in the board meeting, they all abstain from the meeting and did not participate in the discussion and voting.

(IV) Has the Company established V To implement the effective accounting and No significant viable accounting system, internal internal control established by the ethical difference control system with the scheduled audit management, the company has established an conducted by internal auditors for the effective accounting system and internal control proper pursuit of ethical corporate system for business activities with a high risk of management, or has commissioned unethical behavior, and incorporate the risk CPAs for the audit? evaluation for regular review; external accounts or secret accounts are never allowed. The company reviews them at all times to ensure that the design and implementation of the system are kept effective. Internal auditors also regularly inspect the compliance regarding the aforementioned system.

(V) Has the Company organized V The company's ethical management trainings No significant internal and external training on ethical are held annually through E-MAIL on an difference corporate management at regular irregular basis. intervals? III. The functioning of the informant system (I) Has the Company established the V The Company has established the "Procedures No significant system for reporting of unethical for Ethical Management and Ethical Code of difference practices with action plan and reward to Conduct" and registered the email address for the informants, and relevant channels reporting. Thus, internal and external personnel for reporting, and also the appointment can report any conflict of interest and violation of designated personnel for handling of the code of business ethics to the Auditing the report and the person being Office. reported? Besides, the reward and punishment methods for employees are also developed, and the Personnel Evaluation Committee is set up. The management team and division heads of the Company discuss and communicate rewards and punishments for employees to all staff.

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(II) Has the Company established V The standard operation procedure for the No significant standard operation procedure for the investigation on unethical practices being difference investigation on unethical practices reported with proper measures for being reported with proper measures confidentiality is specified in the "Procedures for confidentiality? for Ethical Management and Ethical Code of Conduct" as well as in the corporate management regulations for implementation.

(III) Has the Company taken V The standard operation procedure for the No significant appropriate measures for the protection investigation on unethical practices being difference of the informants from undue treatment reported with proper measures for after reporting? confidentiality is specified in the "Procedures for Ethical Management and Ethical Code of Conduct" as well as in the corporate management regulations for implementation. IV. Intensification of disclosure (I) Has the Company disclosed the V The Company has uploaded the "Procedures for No significant content of its ethical corporate Ethical Management and Ethical Code of difference management best practice principles Conduct" approved by the Board of Directors and the result of implementation at its onto the official website and MOPS to disclose official website and MOPS? the information on ethical corporate management. The Administration Division provides training materials via email at irregular intervals and carries out internal communication. No violation has been identified yet. V. If the Company has established its ethical corporate management best practice principles in accordance with the “Corporate Social Responsibility Best Practice Principles for Companies Listed on TWSE /TPEx”, please elaborate the state of implementation and any variation thereof: The Company has established the "Procedures for Ethical Management and Ethical Code of Conduct" in accordance with the “Corporate Social Responsibility Best Practice Principles for Companies Listed on TWSE /TPEx” issued by TWSE. Relevant divisions have been required to implement these Procedures. Therefore, there is no variation thereof. VI. Any other essential information that may help to understand the performance of ethical corporate management better: 1. The Company always carries out ethical corporate management in compliance with applicable laws and regulations for TWSE or TPEx listed companies. 2. The mechanism of recusal due to conflicts of interest between directors and the Company is established in the "Rules of Procedure for the Board of Directors". Accordingly, if any matter to be discussed at a meeting is in conflict with the interest of such director or the institution that such director should act on behalf of, and such conflict impairs the Company's interest, the director shall not participate in but shall disassociate from discussions and voting, and shall not exercise the voting right on behalf of any other director. (VII) If the company has stipulated the Corporate Governance Best Practice Principles and relevant regulations, the search method should be disclosed: The company has stipulated Corporate Governance Best Practice Principles, Ethical Corporate Management Best Practice Principles, Code of Ethical Conduct of Directors, Corporate Social Responsibility Best Practice Principles, Rules Governing the Scope of Powers of Independent Directors, Procedures for Ethical Management and Guidelines for Conduct, Rules of Procedure for Shareholders Meetings, Regulations Governing Procedure for Board of Directors Meetings, Audit Committee Charter, Rules Governing Directors Election and other relevant regulations, and implement the regulations related to corporate governance in according to the spirit of corporate governance. The company has disclosed the stipulated

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practice principles and relevant rules on the company's website.，Website： http://www.hygroup.com.tw (VIII) Other important information sufficient to improve the understanding of the operation of corporate governance should be disclosed alongside: (1) Comply with the internal control system, keep executing it effectively, implement the self-inspection of internal control , strengthen the audit and submit it to the board of directors so that the directors and supervisors can better understand and attain the purpose of concern and supervision. (2) Implement the system of spokesperson to make information more transparent, fully disclose relevant significant information to make shareholders have rights to attain impartial information. (3) Continue to arrange courses and trainings of directors and supervisors to practice the spirit of corporate governance through the board of directors. (IX) The implementation of internal control system 1. Statement of internal control: please refer to Page 56 of this annual report. 2. Disclose the Auditors’ Report if CPAs were commissioned for the audit of the internal control system: please refer to Page 57 of this annual report. (X) Penalty of the Company and insiders by law in the most recent year to the day this report was printed, the disciplinary action taken by the Company on insiders who violated the internal control system, major defect and responses to the defects: Nil

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(XI) Major resolutions of the General Meeting of Shareholders and the Board of Directors in the most recent year to the day this report was printed 1. Shareholder Meeting Resolutions

Date Shareholder Meeting Resolutions I、Adoptions： 1st case：The company's 2018 Business Report and Consolidated Financial Statement 2nd case：The company's 2018 Earnings Distribution II、Discussions： 1st case：The company's 2018 capitalization of retained earnings and issuance of new shares 2nd case：Revision of the company's Articles of Association（Passed by 2019.06.10 special resolution） 3rd case：Revision of the company's “Procedures for Acquisition and Disposal of Assets” 4th case：Revision of the company's “Operating Procedure for Loaning of Funds” 5th case：Revision of the company's”Operating Procedure for Endorsements / Guarantees” 6th case：Removal of non-competition restriction of the company’s directors 2. Resolution of Board of Directors

Date Resolution of Board of Directors 1. The company's 2018 Consolidated Financial Statement and Business Report 2. 2018 Earnings Distribution 3. The company's 2018 distribution of remuneration of employees and directors 4. The company's issuance of 2018 Internal Control System Statement 5. Revision of the company's”Articles of Association” 6. Revision of the company's “Procedures for the Acquisition and Disposal of Assets” 7. Revision of the company's”Operating Procedure for Loaning of Funds” 3rd Board 8. Revision of the company's”Operating Procedure for Endorsements / 11thmeeting Guarantees” 2019.3.19 9. Revision of the company's” Corporate Governance Best Practice Principles” 10. Revision of the company's “Performance Evaluation Regulations for Board of Directors and Functional Committee” 11. Revision of the company's”Charter of Corporate Social Responsibility Committee” 12. The ompany's plan of 2018 Corporate Social Responsibility Report 13. Stipulation of”Examining Standards and Operating procedure for Acceptation of Shareholder's Proposal in Shareholders' Meeting” 14. Establishment of full-time units and personnel for corporate governance 15. Adjustment of internal structure and positions 16. Recognition of the appointment of deputy general manager of Yangzhou

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Date Resolution of Board of Directors HY Electronic Limited, the company's subsidiary 17. Appointment of the corporate representative of Taiwan GPP Inc., the company's subsidiary 18. The company's plan to lift the non-competition restriction of directors and managers 19. The company's credit line applications to banks 20. Changes in auditors of the company's financial statements 21. Appointment and dismissal of the company's auditors and determination of their remuneration 22. Capitalization of retained earnings and issuance of new shares 23. Relevant issues of date, location, convening reasons of the company's 2019 shareholders' meeting 3rd Board 1. Stipulation of the company's “Articles of Association of Special Committee 12th meeting on Mergers and Acquisitions” 2019.5.10 1. The company's 2019 Q2 consolidated financial statement 2. Stipulation of the company's”Ethical Corporate Management Best Practice Principles” 3. Stipulation of the company's”Standard Operating Procedure for 3rd Board Requirement of Directors ” 1st 4. Stipulation of the company's”Charter of Nominating Committee of interim Directors and Supervisors” meeting 5. Stipulation of the company's”Directions for the Implementation of 2019.8.12 Continuing Education for Directors and Supervisors” 6. Stipulation of the company's”Self-Regulatory Rules on Disclosure of Merger and Acquisition Information” 7. The company's plan to lift the non-competition restriction of directors 1. The company's 2020 financial budget 2. The company's 2020 audit plan 3. The company's 2019 Q3 consolidated financial statement 4. Revision of the company's partial regulations for “Remuneration Committee 3rd Board Charter” 13th meeting 5. Revision of the company's partial regulations for “Audit Committee 2019.11.7 Charter” 6. The company's credit line applications to financial institutions and endorsement / guarantee contracts 7. The company's plan to lift the non-competition restriction of managers 1. The company's 2019 Consolidated Financial Statement 2. The company's 2019 Consolidated Financial Statement 3. The company's 2019 distribution of remuneration of employees and directors rd 4. The company's issuance of 2019 Internal Control System Statement 3 Board 5. Revision of the company's Articles of Association（Passed by special 14th meeting resolution） 2020.3.20 6. Revision of the company's "Rules of Procedure for Shareholders Meetings" 7. Revision of the company's” Corporate Governance Best Practice Principles” 8. Revision of the company's” Corporate Social Responsibility Best Practice Principles” 9. Revision of the company's”Procedures for Ethical Management and

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Date Resolution of Board of Directors Guidelines for Conduct” 10. Stipulation of the company's "Regulations Governing Procedure for Board of Directors Meetings” 11. Stipulation of the company's " Operation Directions for Compliance with the Establishment of Board of Directors and the Board's Exercise of Powers” 12. Stipulation of the company's " Regulations Governing Appointment of Independent Directors and Compliance Matters” 13. Stipulation of the company's "Regulations Governing the Exercise of Powers by Audit Committee" 14. Stipulation of the company's "Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee" 15. Plan of Yangzhou HY Electronic Limited, the company's Chinese subsidiary, to invest in Jiangsu In-drive Automotive Technology Co., Ltd. 16. The company's plan to implement the issuance of new shares for cash within ROC 17. The company's plan of 2019 Corporate Social Responsibility Report 18. The company's plan to lift the non-competition restriction of financial supervisors and accounting supervisors 19. Relevant issues of the date, location, and convening reasons of 2020 shareholders' meeting of the company 20. Relevant issues of the nomination of directors (including independent directors) of 2020 shareholders' meeting of the company (XII) Adverse opinions from the Directors or Supervisors on the resolution of the Board of Directors on record or in written declaration in the most recent year to the day this report was printed, and the summary: Nil (XIII) Resignation or dismissal of the Chairman, President, Chief Accounting Officer, Chief Financial Officer, Chief Internal Auditor, and Chief of R&D in the most recent year to the day this report was printed in detail: Nil (XIV) Directors and managers‘ participation in the courses and trainings related to corporate governance in the latest year and as of the date of publication of the annual report 1. Relevant records of directors' participation in trainings and courses

Title Name Date Host bu Training/Speech Title Hours Securities and Futures Interpretation of Business Performance Director David Fang 2019/6/12 3 Institute Information Securities and Futures Discussion on Employee Remuneration Director David Fang 2019/6/12 3 Institute Strategy and Application Method Securities and Futures Analysis of Early Warning of Business Director Jane Kao 2019/2/21 3 Institute Financial Crisis and its Types Discussion on Business Information Securities and Futures Director Jane Kao 2019/6/18 Security Governance——Centered on 3 Institute Legal Practices Securities and Futures Interpretation of Business Performance Director Pat Lin 2019/6/12 3 Institute Information Securities and Futures Discussion on Employee Remuneration Director Pat Lin 2019/6/12 3 Institute Strategy and Application Method Securities and Futures Analysis of Early Warning of Business Director Cindy Fang 2019/2/21 3 Institute Financial Crisis and its Types Securities and Futures Discussion on Business Information Director Cindy Fang 2019/6/18 3 Institute Security Governance——Centered on - 54 -

Title Name Date Host bu Training/Speech Title Hours Legal Practices

Discussion on Human Resources and Securities and Futures Integration of Mergers and Acquisitions Director Chun-Fu Lo 2019/9/11 3 Institute in the Process of Business Mergers and Acquisitions Taiwan Corporate Legal Risks and Crisis Management of Director Chun-Fu Lo 2019/12/24 Governance 3 Business Management Association Independent Shu-Ching Securities and Futures Analysis of Early Warning of Business 2019/4/18 3 director Kao Institute Financial Crisis and its Types Independent Securities and Futures Analysis of Early Warning of Business Ta-Chi Tao 2019/4/18 3 director Institute Financial Crisis and its Types Independent Ming-Hsiang Securities and Futures Business Strategies and Key Performance 2019/8/14 3 director Yang Institute Indicators Independent Ming-Hsiang Securities and Futures Discussion on Employee Remuneration 2019/8/14 3 director Yang Institute Strategy and Application Method Skills of Financial Information Independent Yung-Tao Securities and Futures 2019/6/25 Interpretation of Directors and 3 director Hsu Institute Supervisors

2. Participation of the company's executives in trainings related to corporate governance is as follows:

Date Course Total Title Name Organizer Course Name from to Hour Hour Practice Workshop for Directors and Supervisors Corporate Mei Securities and (including governance 2019/9/24 2019/9/25 12 12 Yang Futures Institute independent ones) supervisor and Corporate Governance Supervisors -Taipei Discussion of the Legal Risks and Corresponding Accounting Measures of and Mei Securities and 2019/10/1 2019/10/1 Directors and 3 3 financial Yang Futures Institute Supervisors through supervisor the Cases of Major Corporate Malpractices The impact and Accounting Corresponding and Mei Securities and Measures of the 2019/10/1 2019/10/1 3 3 financial Yang Futures Institute Latest Tax Act supervisor Changes for Business Operations

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Statement of Internal Control

HY Electronic (Cayman) Limited Statement of Internal Control System

Date: 2020/3/20 We hereby declare as follows regarding the internal control system governing the Company and subsidiaries based on our self-assessment from January 1 to December 31, 2019: 1. The Company acknowledges and understands that, the establishment, enforcement and maintenance of its internal control system are the responsibilities of the Board of Directors and the managers, and that the Company has already established such system. The purpose is to reasonably ensure the effect and efficiency of operation (including profitability, performance and security of assets), the reliability, timeliness and transparency of financial reporting and the compliance with relevant regulations and legal rules. 2. There is limitation inherent to the internal control system, no matter how perfect the design. As such, effective internal control system may only reasonably ensure the achievement of the aforementioned goals. Furthermore, the operation environment and situation may vary, and hence the effectiveness of the internal control system. The internal control system of the Company features the self-monitoring mechanism. Once identified, any shortcoming will be corrected immediately. 3. The Company judges the effectiveness of the internal control system in design and enforcement in accordance with the “Criteria for the Establishment of Internal Control System of Public Offering Companies” (hereinafter referred to as “the Criteria”). The judgment items of the internal control system adopted in such "Criteria" indicate a management and control process. There are five components of effective internal control as specified in the Criteria with which the procedure for effective internal control are composed by five elements, namely: 1) control environment; 2) risk evaluation; 3) control operation; 4) information and communication; and 5) monitoring. Each of the elements in turn contains certain audit items, and shall be referred to the Criteria for detail. 4. The Company has adopted the aforementioned internal control system for internal audit on the effectiveness of the design and enforcement of the internal control system. 5. Based on the aforesaid evaluation, it is considered that the design and implementation of the Company's internal control system on December 31, 2019 (including monitoring and managing subsidiaries), specifically including understanding about the effect and efficiency of operation, the reliability, timeliness and transparency of financial reporting and the compliance with relevant regulations and legal rules, are effective and it can reasonably ensure the achievement of the aforementioned goals. 6. This statement shall form an integral part of the annual report and the prospectus on the Company and will be announced. If there is any fraud, concealment and unlawful practice discovered in the content of the aforementioned information, the Company shall be liable to legal consequences under Article 20, Article 32, Article 171 and Article 174 of the "Securities and Exchanges Act". 7. This statement has been approved by the Board of Directors on March 20, 2020. This is to certify that the seven attending directors agree upon its content.

HY Electronic (Cayman) Limited Chairman: David Fang President: Jane Kao

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Audit Report for Internal Accounting Control Review Report on the Internal Control System

The statement on the effective design and enforcement of the internal control system of HY Electronic (Cayman) Limited and subsidiaries on December 31, 2019, which was evaluated on March 20, 2020 and considered to be related to the external financial statements and security of assets, is enclosed herein and has been reviewed by us. The maintenance of an effective internal control system and the evaluation of the effectiveness thereof are the responsibilities of the management. We are obliged to give comments on the effectiveness of such system and the "Statement of Internal Control System" of the aforesaid company based on the review result. We have planned and fulfilled such review in accordance with the “Criteria for the Establishment of Internal Control System of Public Offering Companies” and generally accepted auditing standards to justifiably confirm whether the aforesaid internal control system maintains its effectiveness in all material respects. Our review covers the following aspects: i) understanding the internal control system of the Company; ii) assessing the management's evaluation on the effectiveness of the overall internal control system; iii) testing and assessing the effectiveness in the design and enforcement of the internal control system; and iv) handling other review procedures that we consider necessary. We believe that this review can offer the justifiable basis for the comments made herein. There is limitation inherent to internal control system, no matter how perfect the design. HY Electronic (Cayman) Limited may not be able to prevent or detect mistakes or wrongdoings already happened with the aforementioned internal control system. Any change in the environment of the future may downgrade the level of compliance of the internal system. The effectiveness of the internal control system in current period cannot be guaranteed in the future. In our opinions, the design and enforcement of the internal control system of HY Electronic (Cayman) Limited and subsidiaries, in all material aspects, in external financial reporting and asset security was effective as of December 31, 2019, in conformity to the “Criteria for the Establishment of Internal Control System of Public Offering Companies” for the judgment of the effectiveness of internal control system. The design and enforcement of the internal control system, as declared by HY Electronic (Cayman) Limited and subsidiaries in its statement of internal control dated March 20, 2020, in all material aspects, in external financial reporting and asset security, was fairly presented.

Deloitte Touche Tohmatsu Limited CPA WENG YA-LING CPA HUANG HUI-MIN

March 30, 2020

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V. Information on auditing fees

Non-audit fee Name of Name of Audit Examination Remarks CPA firm CPA fee System Business Human period Other Total Design registration Resources Other non-audit WENG public YA-LING expense is Deloitte mainly Touche 108.1.1~ about 8,868 - 131 - 90 221 domestic Tohmatsu 108.12.31 and foreign Limited financial, HUANG tax and HUI-MIN investment consulting services. Note 1：If the company replaces accountants or accounting firms in this year, please list the auditing periods separately, account for the reasons of replacement in the remarks column, and disclose the audit and non-audit public expenses in sequence. Note 2：Please list separately the non-audit public expenses according to the service items. If the "Other" of non-audit public expenses reach 25% of the total amount of non-audit public expenses, the service items shall be listed in the remarks column. (I) If the non-audit public expenses paid to auditors , the firm to which the auditors belongs, and its affiliated companies are more than a quarter of the total amount of audit public expense, the amount of audit and non-audit public expenses and the items of non-audit services should be disclosed: no such situation. (II) If an accounting firm is replaced and the audit public expense in the year of replacement is lower than the audit public expense in the previous year, the reason and the amount of the audit public expenses before and after the replacement should be disclosed: no such situation. (III) If the audit public expense decreased by more than 10% of that of the previous year, the decreased amount, proportion and reason should be disclosed: no such situation. VI. Information on Replacement of CPA: (I) Former CPA: Date of replacement 2019/3/25 SHAO CHIH-MING and WENG YA-LING (accountants) were Reason for replacement and replaced with WENG YA-LING and HUANG HUI-MIN (CPAs) due to note the internal adjustments and arrangements of Deloitte Taiwan. Principals Accountant Appointer Termination or appointment conditions rejection by the appointer or Active termination NA NA accountants Appointment/reappoint NA NA ment rejection Opinions in and reason for audit reports issued other N/A than unqualified opinion in the last two years - Accounting principles or practices Disagreement with the issuer - Disclosure of financial statements Yes (Yes/No) - Audit scope or procedure - Others

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N/ V A Note Other disclosures (Matters to be disclosed as set out in Sub-clause 10.6.1.4 N/A through 10.6.1.7) (II) New CPAs:

Name of CPA firm Deloitte Touche Tohmatsu Limited

Name of CPA WENG YA-LING and HUANG HUI-MIN (CPAs)

Date of appointment 2019/3/25 Consultancy and result before appointment concerning the accounting practices or principles for specific transactions and the NA opinions possibly offered on financial statements New CPA's written opinion on the matters on NA which the former CPA had different opinions (III) Former CPA's reply by letter to the matters as stated in Sub-clause 10.6.1 and 10.5.2.3 of the "Regulations Governing the Preparation of Annual Reports": Nil 1. If the Chairman, President, manager in charge of finance or accounting who has been employed by the CPA firm commissioned by the Company for the audit or its affiliates, disclose the names, occupational titles, and the duration of employment with the CPA firm or its affiliates: Nil 2. Changes in transfer and pledge of shares by directors, supervisors, managers and shareholders with more than 10% shareholding in the most recent year up till the publication date of this annual report: Nil

VII. The company's chairman, general manager, and manager in charge of financial or accounting affairs who have worked in a firm or affiliated company of a visa accountant within the last year should disclose their name, title, and title of the accountant. The period of the firm or its affiliates: Nil

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VIII. Changes in transfer and pledge of shares by directors, supervisors, managers and shareholders with more than 10% shareholding in the most recent year up till the publication date of this annual report: (I) Changes in shareholding Unit: in share 2019 As at April 30, 2020 Occupational Change in quantity Change in Change in Change in Name title of shareholding quantity of quantity of quantity of shares under shareholding shares under pledge pledge Chairman David Fang - - - -

Director Jane Kao - - - -

Director Chung Chi Lin 12,499 - (13,000) -

Director Cindy Fang 2,269 - - -

Director Chun Fu Lo - - - - Independent Shu Ching Kuo Director - - - - Independent Ta Chi Tao - - - - Director Independent Ming Hsiang Yang - - - - Director Independent Yung Tao Hsu - - - - Director VP of Business Wen Pin Hsu - - - -

VP of Production Yung Chih Li 2,249 - - -

VP of Production Miller Lo Head of Financial Mei Yang (40,903) - (3,000) - Division Chief Auditor Eric Teng - - - - Director of Administration Kevin Cheng 894 - - - Division President of Jeff Fang - - 36,000 Subsidiary Subsidiary Bruce Hsiao - - 10,249 - Assistant Subsidiary CT Lai - - - - Assistant Note 1: Shareholders holding more than 10% of the shares should be noted as major shareholders of the Company and should be listed separately. Note 2: the following table should be filled out if the counterpart of equity transfer or equity pledge is a related person. (II) Information on transfer of shares: Nil (III) Information on shares under pledge: Nil

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IX. Information on the relations among top 10 shareholders of the Company by quantity of shareholding (i.e. related parties)

April 24, 2020; Unit: in share If the top 10 shareholders are related parties, or Shareholding by spouse or Shareholding in the spouses, kindred within the Shareholding by the person N dependents name of a third party 2nd tier under the Civil o Name Code, the titles or names t and relations e Shareholding Shareholding Number Shareholding Number Number of shares percentage percentage of percentage Name Relationship of shares (%) (%) shares (%) Multi-Glory Major Services Inc. sharehold (CTBC Bank - ers are as custodian spouses bank) Major Jumbo Elite shareholde Holdings rs are - Limited first-degre e relatives Major REGAL TOP MISSION sharehold 23,108,601 34.24 - - - - SHEEN LIMITED ers are - INVESTMEN first-degre TS LIMITED e relatives Major Luxury Good sharehold Investment ers are - Limited first-degre e relatives Major SMART sharehold INVESTMEN - ers are T CO., LTD. spouses Legal representative: ------David Fang Major TOP shareholde MISSION - rs are Multi-Glory LIMITED Services Inc. spouses 16,649,088 24.67 - - - - (CTBC Bank as Major custodian bank) Jumbo Elite shareholde Holdings - rs are Limited first-degre

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If the top 10 shareholders are related parties, or Shareholding by spouse or Shareholding in the spouses, kindred within the Shareholding by the person N dependents name of a third party 2nd tier under the Civil o Name Code, the titles or names t and relations e Shareholding Shareholding Number Shareholding Number Number of shares percentage percentage of percentage Name Relationship of shares (%) (%) shares (%) e relatives Major REGAL sharehold SHEEN ers are - INVESTMEN first-degre TS LIMITED e relatives Major Luxury Good sharehold Investment ers are - Limited first-degre e relatives The main SMART sharehold INVESTMEN er is the - T CO., LTD. same person Legal representative: ------Jane Kao Investment account of Yangzhou Shenwei Business 1,855,574 2.75 ------Incubation Co., Ltd. (CTBC Bank as custodian bank)

Rong-Hua Hsu 1,388,099 2.06 ------

Major TOP sharehold MISSION - ers are SMART LIMITED spouses INVESTMENT 1,171,844 1.74 - - - - Multi-Glory The main CO., LTD. Services Inc. shareholde - (CTBC Bank r is the as custodian same

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If the top 10 shareholders are related parties, or Shareholding by spouse or Shareholding in the spouses, kindred within the Shareholding by the person N dependents name of a third party 2nd tier under the Civil o Name Code, the titles or names t and relations e Shareholding Shareholding Number Shareholding Number Number of shares percentage percentage of percentage Name Relationship of shares (%) (%) shares (%) bank) person Major Jumbo Elite sharehold Holdings ers are - Limited first-degre e relatives Major REGAL sharehold SHEEN ers are - INVESTMEN first-degre TS LIMITED e relatives Major Luxury Good sharehold Investment ers are - Limited first-degre e relatives Legal representative: ------Jane Kao Major TOP shareholde MISSION rs are - LIMITED first-degre e relatives Multi-Glory Major Services Inc. shareholde (CTBC Bank rs are - as custodian first-degre Jumbo Elite 1,061,211 1.57 - - - - Holdings Limited bank) e relatives Major REGAL shareholde SHEEN rs are - INVESTMEN second-cla TS LIMITED ss relatives Major Luxury Good shareholde Investment rs are Limited second-cla

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If the top 10 shareholders are related parties, or Shareholding by spouse or Shareholding in the spouses, kindred within the Shareholding by the person N dependents name of a third party 2nd tier under the Civil o Name Code, the titles or names t and relations e Shareholding Shareholding Number Shareholding Number Number of shares percentage percentage of percentage Name Relationship of shares (%) (%) shares (%) ss relatives

Major SMART shareholde INVESTMEN rs are - T CO., LTD. first-degre e relatives Legal representative: 93,047 0.14 36,683 0.05 - - - - - Cindy Fang Major TOP shareholde MISSION rs are - LIMITED first-degre e relatives Multi-Glory Major Services Inc. shareholde (CTBC Bank rs are - as custodian first-degre bank) e relatives Major

REGAL SHEEN Jumbo Elite shareholde INVESTMENTS 1,061,211 1.57 - - - - Holdings rs are - LIMITED Limited second-cla ss relatives Major Luxury Good shareholde Investment rs are Limited second-cla ss relatives Major SMART shareholde INVESTMEN rs are - T CO., LTD. first-degre e relatives Legal representative: 220,999 0.33 160,922 0.24 - - - - - Kevin Fang Luxury Good 1,061,211 1.57 TOP Major -

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If the top 10 shareholders are related parties, or Shareholding by spouse or Shareholding in the spouses, kindred within the Shareholding by the person N dependents name of a third party 2nd tier under the Civil o Name Code, the titles or names t and relations e Shareholding Shareholding Number Shareholding Number Number of shares percentage percentage of percentage Name Relationship of shares (%) (%) shares (%) Investment MISSION shareholde Limited LIMITED rs are first-degre e relatives Multi-Glory Major Services Inc. shareholde (CTBC Bank rs are - as custodian first-degre bank) e relatives Major Jumbo Elite shareholde Holdings rs are - Limited second-cla ss relatives Major REGAL shareholde SHEEN rs are - INVESTMEN second-cla TS LIMITED ss relatives Major SMART shareholde INVESTMEN rs are - T CO., LTD. first-degre e relatives Legal representative: 36,000 0.05 231,994 0.34 - - - - - Jeff Fang

CTBC Venture 883,544 1.31 ------Capital Co., Ltd.

ABDULLA MAWLOOD ASSO 824,225 1.22 ------(CTBC Bank as custodian bank)

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X. Number of shares of the same investee held by the business under direct or indirect control of the Company, directors, supervisors, managers of the Company, and to be included in the overall proportion in shareholding March 31, 2020 ; Thousand Investment of the directors, supervisors, managers and Investment of the Company Comprehensive investment business under direct or Investee (Note) indirect control Shareholding Shareholding Shareholding Amount percentage Amount Amount percentage (%) percentage (%) (%) JETPER Technology US$26,746 100 US$26,746 100 US$26,746 100 Limited HY Technology Development (H.K.) US$1 100 US$1 100 US$1 100 Co., Limited Yang Zhou HY Tech. US$26,746 100 US$26,746 100 US$26,746 100 Development Co., Lte,

Taiwan GPP Inc. NT$354,886 70 NT$354,886 70 NT$354,886 70

Yang Zhou GPP Inc. US$330 100 US$330 100 US$330 100

Note: Investment of the Company accounted for using equity method Note 2: Information recorded in companies' register of shareholder on the date for suspension of share transfer

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Part Four – Capital Overview I. Capital and Shares (I) Source of capital 1. Formation of capital

March 31, 2020; Unit: NT$1,000 / 1,000 shares, unless particularly noted Authorized capital Paid-up capital Note Issue price Paid in Month/year Number of Number of (NT$1) Amount Amount Source of capital properties other Others shares shares than cash Setting capital 2009/12 NT$10 1 10 1 10 N/A N/A level

2010/4 NT$10 43,263 432,633 43,263 432,633 Share exchange N/A N/A

Cash issue - 2010/9 NT$10 43,687 436,879 43,687 436,879 NT$4,246 N/A N/A thousand Cash issue - 2011/3 NT$10 44,147 441,470 44,147 441,470 NT$4,591 N/A N/A thousand Cash issue - 2012/6 NT$10 49,682 496,470 49,682 496,470 NT$55 million N/A N/A (Note 1)

2013/5 NT$10 50,182 496,470 50,182 496,470 (Note 2) N/A N/A

2013/6 NT$10 49,647 496,470 49,647 496,470 (Note 3) N/A Note

Cash issue - 2016/9 NT$10 55,853 558,530 55,853 558,530 N/A N/A NT$62.06 million Cash issue 2017/9 NT$10 100,000 100,000 63,353 633,530 N/A N/A NT$75 million Cash issue 2018/9 NT$10 100,000 100,000 65,853 658,5830 N/A N/A NT$25 million Capital increase out of earnings 2019.7 NT$10 100,000 100,000 67,499 674,993 NT$16,463 N/A N/A thousand Note 1: The cash issue amounted to NT$55 million and the paid-in capital was increased to NT$496,470 thousand. Due to the registration error made by the secretaries limited commissioned in the Cayman Islands, the number of shares were increased by 35,000 shares by mistake. Note 2: Due to the registration error made by the secretaries limited commissioned in the Cayman Islands, the number of shares were increased by 500,000 shares by mistake. Note 3: For adjustment of the aforesaid wrong number of shares, the actual number was decreased by 535,000 shares.

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2. Share category 2020/4/24 Authorized capital (share) Share category Outstanding Note Unissued shares Total shares Common shares 67,499,345 shares 32,500,655 shares 100,000,000 shares Note: Stocks of TPEx Listed Company 3. Information relevant to the aggregate reporting policy: Nil (II) Shareholder structure 2020/4/24

Shareholder Foreign Governmen Financial Other Natural institutions and Total structure t agencies institutions corporations persons foreigners Count Count - - 11 3,036 19 3,066 Shares held - - 2,847,704 18,502,571 46,149,070 67,499,345 Shareholding - - 4.22% 27.41% 68.37% 100% percentage (III) Diversity of ownership 1. Common shares (NT$10 per share) 2020/4/24 Number of Shareholding Shareholding range Shares held shareholders percentage (%) 1 to 999 481 44,432 0.07 1,000 to 5,000 1,881 3,498,425 5.18 5,001 to 10,000 351 2,330,364 3.45 10,001 to 15,000 155 1,774,374 2.63 15,001 to 20,000 34 587,389 0.87 20,001 to 30,000 59 1,411,569 2.09 30,001 to 40,000 32 1,090,941 1.62 40,001 to 50,000 15 655,310 0.97 50,001 to 100,000 26 1,701,651 2.52 100,001 to 200,000 11 1,599,728 2.37 200,001 to 400,000 8 2,334,084 3.46 400,001 to 600,000 3 1,406,470 2.08 600,001 to 800,000 0 0 0.00 800,001 to 1,000,000 2 1,707,769 2.53 1,000,001 and above - Range to be determined as deemed 8 47,356,839 70.16 appropriate Total 3,066 67,499,345 100.00 2. Preferred shares: N/A (IV) List of dominant shareholders

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Names, number and proportion of shareholding of shareholders holding more than 5% or among the top 10 shareholders 2020/4/24 Shareholding Names of dominant shareholders Shares held percentage (%) TOP MISSION LIMITED 23,108,601 34.24 Multi-Glory Services Inc. 16,649,088 24.67 (CTBC Bank as custodian bank) Investment account of Yangzhou Shenwei Business 1,855,574 2.75 Incubation Co., Ltd. (CTBC Bank as custodian bank) Rong-Hua Hsu 1,388,099 2.06

SMART INVESTMENT CO., LIMITED 1,171,844 1.74

Jumbo Elite Holdings Limited 1,061,211 1.57

REGAL SHEEN INVESTMENTS LIMITED 1,061,211 1.57

Luxury Good Investment Limited 1,061,211 1.57

CTBC Venture Capital Co., Ltd. 883,544 1.31 ABDULLA MAWLOOD ASSO 824,225 1.22 (CTBC Bank as custodian bank) (V) Information relating to market price, net worth, earnings, and dividends per share for the last two years Unit: NT$1 Year 2018 2019 Q1 of 2020 Item Max. 71.00 33.70 26.35 Market price Min. 21.25 20.50 12.25 per share Average 45.61 24.46 20.43 Net worth per Before dividend 21.63 18.52 17.62 share After dividend 20.86 (Note 5) - Weighted average outstanding shares 65,675 67,499 - Earnings per (1,000 shares) share Earnings Before retrospective 0.55 (1.57) - per share After retrospective 0.54 (1.57) - Cash dividends 0.25 (Note 4) - Dividends per Stock Earnings allotment 0.24999992 (Note 4) - share dividends Capital reserve allotment - (Note 4) - Cumulative undistributed dividends - - - Analysis of P/E ratio (Note 1) 84.46 15.58 (26.53) investment Price to dividends ratio (Note 2) 182.44 (Note 5) - returns Cash dividend yield (Note 3) 0.55% (Note 5) - Note 1: P/E ratio = average closing price per share for the year / earnings per share

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Note 2: Price to dividends ratio = average closing price per share for the year / cash dividends per share Note 3: Cash dividend yield = cash dividends per share / average closing price per share for the current year Note 4: The net worth per share and EPS shall be filled in the statements for the latest quarter as at the date the Annual Report was printed as audited/reviewed by auditors; other fields shall be filled with the date of the current year as at the date the Annual Report was printed. Note 5: The proposal for the distribution of earnings of the Company in 2018 is to be resolved at the regular shareholders meeting. (VI) Dividend policy and execution 1. Dividend policy Pursuant to Article 14.5 of the "Articles of Incorporation", the Company has developed the dividend policy as follows: The Company's operation remains in the growth stage. The dividends distribution will be decided by the Board of Directors at the shareholders meeting based on the related factors, including without limitation, earnings of each fiscal year, overall development, financial planning, capital demand, industry prospect, and prospects of the Company. For this purpose, the Board of Directors will make a proposal for such distribution. The following should be provided first from the earnings of each fiscal year when the shares are listed in R.O.C. and the Board of Directors proposes the distribution of earnings: (i) Reserves of taxes for the relevant accounting year; (ii) Amounts for covering losses incurred in prior years; (iii) Provision for ten percent (10%) surplus reserves ("Statutory Surplus Reserves"); and (iv) Special surplus reserves required by the securities authorities of the Republic of China in accordance with the "Public Company Rules". The remaining earnings, if any, together with all or part of the undistributed earnings accumulated over prior years, may be distributed as dividends to shareholders according to shareholding ratios of the shareholders pursuant to the "Company Law of Cayman Islands" and the "Public Company Rules" after taking account of financial, business and operating factors, provided that the distributed amount will not be less than ten percent (10%) of the after-tax earnings for the current year. The dividends to shareholders to be distributed shall take the forms of share dividends and cash dividends. However, the proportion of the cash dividends shall not be less than ten percent (10%). 2. Execution The dividend distribution will be discussed at this shareholder meeting: the distribution proposal has been approved by the Board of Directors on March 22, 2019 and will be presented for acknowledgment at the regular shareholders meeting on June 10, 2019, with details as follows:

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Proposal for the Distribution of Earnings in 2019 Unit: NT$1 Item Amount

Opening undistributed earnings 352,174,216 Plus: adjustment items-determine the remeasurement of the 13,413 welfare plan and recognize it in the retained surplus Plus: adjustment items-determine the remeasurement of the 352,187,629 welfare plan and recognize it in the retained surplus Plus: net loss after tax for the current period (106,238,652)

Less: Provide legal surplus reserve (10%) 0

Closing undistributed earnings 245,948,977

3. Explanation for expected major changes in dividend policy: No such situation. (VII) Impacts of proposed stock dividends to be discussed at this shareholder meeting on the Company's business performance and earnings per share (EPS): There is no proposed allocation of bonus shares for the shareholders' meeting, thus it is not applicable. (VIII) Employee bonus and remuneration to directors 1. Percentage or range of employee bonus and remuneration to directors recorded in the "Articles of Incorporation": Pursuant to Article 14.4 of the "Articles of Incorporation", if there are some "surpluses" (i.e. net profit before tax; for the avoidance of doubt, it should refer to the amount before deduction of employee bonus and remuneration to directors), two percent (2%) to fifteen percent (15%) should be appropriated as employee bonus, and no more than three percent (3%) for remuneration to directors (excluding independent directors). However, in case of previous losses, the reimbursement amount shall be retained. The employee bonus mentioned above should be paid in the form of cash or stock. It may be paid to the employees of the Company and affiliates who meet conditions determined by the Board of Directors of the Company. The remuneration to directors should be paid only in cash. The employee and director compensations shall be approved by a resolution adopted by a majority vote of a meeting of the Board of Directors attended by two-thirds or more of all the directors. 2. The basis for estimating the amount of employee bonus and remuneration to directors/supervisors, the basis for calculating the number of shares to be distributed as stock bonuses, and the accounting treatment of discrepancy, if any, between the actual distributed amount and the estimated figure, for the current period: the current employee bonus and remuneration to directors estimated

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have the same amounts as those actually distributed. If there are some surpluses, 5% - 15% should be appropriated as employee bonus, and no more than 3% for remuneration to directors; however, in case of previous losses, the reimbursement amount shall be retained. The employee bonus mentioned above should be paid in the form of cash or stock. It may be paid to the employees of affiliates who meet some conditions. If the actual distributed amounts differ from estimated figures, the differences should be accounted for as the changes in accounting estimates in the following year. 3. Allocation of remuneration passed by the board of directors: on March 20, 2020, the board of directors approved that, on account of losses of the company, the remuneration of directors and employees in 2019 would not be granted according to Articles of Incorporation. 4. Bonus/remuneration distribution and results reported at the shareholder meeting: the proposal for the distribution of employee bonus and remuneration to directors as approved by the Board of Directors will be reported to shareholders at the shareholder meeting on June 22, 2020. 5. The actual distribution of employee bonus and remuneration to directors/supervisors for the previous fiscal year (including the number, amount, and stock price, of the shares distributed), and, if there is any discrepancy between the actual distribution and the recognized employee bonus and director/supervisor compensation, additionally the discrepancy, reasons therefor, and how it is treated: there was no difference between the estimated amounts recognized as employee bonus and remuneration to directors and supervisors of the Company in 2018, and contributions. (IX) Shares repurchased by the Company: Nil

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II. Corporate Bonds: (I) Corporate Bond： 1. Corporate bonds outstanding or under processing Corporate Bond Type First Non-Guarantee Convertible Bond within ROC Issuing(Processing) Date August 17, 2018 Denomination NT$ 100,000 Issuance and transaction Taipei Exchange location Issuing Price Each denomination is NT$ 100,000 issued at 100% par value. Total amount NT$ 500,000,000 Interest Rate The coupon rate is 0% Bond Period 3 year Maturity Date：August 17, 2021 Guarantee Institution N/A Trustee Mega International Commercial Bank Co., Ltd. Consigned Institution Concord securities Co., Ltd. Lee and Li, Attorneys-at-Law Attorney Attorney Grace Wang Deloitte Touche Tohmatsu Limited Auditor AuditorSHAO CHIH-MING and WENG YA-LING Except for the case that the holders of the convertible corporate bonds Paying Method convert the bond into the company‘s ordinary shares according to Article 13 of the measures, or exercise putting rights according Outstanding NT$to Article 500,000,000 22 of the measures and that the company retire the bond in advance according to Article 21 of the measures or buy back the bond from redemption or prepayment brokerageIt is handled office according and write to the it off, regulations the company of bond will redemption repay the bonds rights inin cash clause outrightArticle 22 on of the the ba Issuingsis of the Measures denomination on the maturity date of the Please refer to the regulations of the first domestic issuance and conversion Restriction converted corporate bond. of secured corporate bonds for details Credit Rating Institution Name, Rating Date, Corporate Bond N/A Rating Result The Amount of Converted Ordinary Shares (Exchange or Subscription) , Global Oth No conversion issues as of the date of publication of the annual report Depositary Receipts or Other er Marketable Securities as of Rig the Date of Publication of the hts Annual Report Issuance and conversion Please refer to the bond issuance information in the debt trust section of (exchange or subscription) Market Observation Post System method The company plans to issue the first unsecured convertible corporate bond in ROC with the limit of NT$ 500,000 thousands, and the current Impact of Issuance and converting price is set at NT$ 57.5. Assuming that every creditors of the conversion, exchange or convertible bond convert it at the converting price, the bond will be subscription methods, and converted into 8,696 thousand ordinary shares of the company. The dilution issuance conditions on possible ratio is approximately 11.66% on the basis of the number of 65,853 equity dilution and existing thousand shares of the company issued and currently circulated in the shareholders’ equity market plus the estimated number of convertible shares, which is not significant. Besides, the holders of the convertible bond usually convert the it into ordinary shares gradually, which will not result in an immediate Name of Trusted Institution of dilutionN/A of equity, therefore the issuance of convertible corporate bonds this Exchange target time will not have a significant impact on shareholders ’equity.

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III. Preferred Shares: Nil IV. Global Depository Receipts: Nil V. Employee stock options (ESO): Nil VI. Restricted ESO: Nil VII. Issuance of new shares by mergers and acquisitions or transfers of other companies‘ shares (I) If the company has completed mergers or acquisitions or transfer of new shares of other companies to issue new shares in the latest year and as of the date of publication of the annual report, the following items should be disclosed: 1. Evaluation opinions issued by the sponsored securities underwriters of new shares by mergers and acquisitions or transfer of other companies‘ shares in the latest quarter: None 2. In addition to the companies currently stipulated, the latest quarter’s implementation situation should be disclosed. If the progress or benefits do not attain the expected goal, the impact on shareholders ’equity and the improvement plan should be specified: none (II) In the latest year and as of the date of publication of the annual report, if the issuance of new shares by mergers and acquisitions or transfer of other companies‘ shares is approved by the board of directors, its implementation and basic information of the acquired or transferred company should be disclosed. The impact of the disclosed implementation situation of the issuance of new shares in progress by mergers and acquisitions or transfer of other companies’ shares should disclose the implementation on shareholders’ equity: None VIII. Progress on planned use of capital:Nil

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Part Five - Operation Highlights I. Business Content (I) Business Scope 1. Business Content (1) Major Content of Operating Business The company's group mainly engages in the research & development, manufacture and sales of rectifier diodes, bridge rectifiers, solar diodes and wafers. (2) Current Goods (Services) Items of the Company The business scope can be divided into four major items：Diodes, bridge rectifiers, solar diodes and others A. Diodes：General rectifier diodes, Schottky diodes, fast/super-fast recovery diodes, Switching diode, Zener diodes, transient-voltage-suppression diodes (TVS), automotive diodes, and the latest super-low power consumption Schottky diodes and fast recovery epitaxial diodes (FRED). B. Bridge Rectifiers：SMD bridge rectifiers, general uni-directional lead series bridge rectifiers, general uni-directional frame series bridge rectifiers, high-power desk-type three-phase bridge rectifiers, and high-power frame-type three-phase bridge rectifier. C. Solar Diodes：Bypass diode (installed in solar junction box). D. Others：Semi-finished products, insulated gate bipolar transistors (IGBT), packaging materials, copper materials, die, metal oxide semiconductor field effect transistors (MOSFET). (3) Operating Proportion of Major Products Unit：NT$ 1,000；% Year 2018 2019 Type Amount % Amount % Diode 349,065 16.92 311,178 17.71% Bridge rectifier 641,179 31.08 510,612 29.05% Solar Diode 741,453 35.94 721,272 41.04% Others 331,480 16.07 214,402 12.20% Total 2,063,177 100.00 1,757,464 100.00% (4) New Products under Plan of Development The company develops new products and processes and orients toward the research and development of environmental protection trends in the future such as development of light, thin electronic products and energy conservation and carbon reduction; in the long term the company will keep knowing well the trends of market and industrial development, and invest in the research and development of diodes to accumulate power of research and development of diodes, deepen its own competitiveness, integrate and

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adjust key research and development in the service field, pay close attention to the future development trend of the industry, promptly grasp the development of emerging electronics industry, and take corporate sustainable operation as the goal. Description of the new products under development plan regarding the major sales product-- rectifier diodes 1.SiC Schottky Since SiC Schottky is suitable for high temperature, high voltage and fast switching owing to its property of wide energy level and single carrier conduction, it can effectively save customers' design and cost of heat dissipation. Currently, HY has been carrying out the development and testing of 6A / 8A 650V SiC Schottky through the integration of industry resources with the results being considerable. It is expected that a series of products will be launched one after another in the near future to support the use of primary side switches coordination and secondary side high voltage output requirements. 2. Extra-high pressure HFS, HFR fast recovery series diode The industry requires fast and super-fast recovery for use of safe New Products energy transmission and control. HY will keep integrating the under special die manufacturing technology of the subsidiary Taiwan GPP Inc., and design and develop extra-high voltage HFSs and HFR fast Development Plan recovery series diodes with higher power and quality required by the industry to meet customers' needs. 3. Lightning-resistant Low VF Bridge Rectifier Series In response to product cost competition, the competitiveness of customers is oriented toward simple circuits with some protection designs removed. As a result, the external energy impact resistance of components being used has become internal requirement. In terms of this, HY's current direction of product development is set as products that combine low on-resistance and higher surge voltage resistance. In 2020, HY will also combine TGI's die manufacture and design and develop products with lightning-resistance and low on-resistance at the same time to continue services and meet customers' needs. 2. Industry Overview (1). The global industry of high-power rectifier diodes (High-Power Rectifier or High-Power Diodes) has experienced decades of development. Currently, commercialized high-power silicon rectifier diodes in the market, from the former stage of manufacturing process of silicon wafers to the latter stage of packaging and testing, have been a extremely mature technology. Since European, American and Japanese manufacturers entered the market earlier, they have long dominated the discrete component market with their own leading development technology of component, complete capabilities of manufacturing and quality control, and the good use of advantages of their brand marketing channels; while Taiwanese manufacturers begun with OEMs when they entered

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the market in the early years, and therefore they appear slightly weaker in the aspects of marketing and research and development of new product and new technology. They are still catching up for market share. Facing the low-cost market competition and China ’s subsidy policy for the semiconductor industry in recent years, large manufacturers in Europe, the US, and Japan have readjusted their operating models, gradually released OEM orders for low-level and standard products, and focus their resources on building capabilities of core technology and the development of high-end, high added value products, which led to the trend of consolidation in semiconductor industry. 2019 is the third largest mergers and acquisitions year in the history of semiconductor M&A. Among them, seven cases were valued at more than US$ 1 billion, and the total value of transactions was US$ 25.9 billion, with an increase of 22% compared to that in 2018. Diodes Inc., large international manufacturer of discrete components, will also acquire LITE-ON soon. In the future, subsequent mergers and acquisitions and mergers between chip suppliers will continue. While large international corporations gradually withdraw from part of the product markets, it create the niche of relevant manufacturers in Taiwan. Large corporations which built factories in Mainland China as production bases considering the low labor cost have been hugely impacted because of the China-U.S. trade war, which has caused subtle changes in the domain of the discrete component supply chain. Taiwan-funded factories have moved their production capacity back to Taiwan or other regions to reduce the impact of the Trade War. (2). Connections of Upstream, Midstream and Downstream of the Industry: The rectifier diode industry is mature and has a complete supply chain system. Its connections of upstream, mid-stream and downstream are large and closely related to the global economy; the system of production and sales is complete. The industry of rectifier diode can generally be divided into upstream raw material suppliers, midstream wafer and diode manufacturers, and downstream application industries. Level Product Relevant skills Upstream Die Diffusion, yellow light, etching, metallization, cutting Midstream Diode Packaging Soldering, packaging, electroplating, cutting bent legs, testing, printing, final packaging Downstream Industry Consumer electronics, automobile, communications, Applications industrial control, green energy conservation, medical treatment

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(3) Various Development Trends of Products The development trend of rectifier diodes is designed on the basis of market demand of end applications; the end applications are mainly power supply, consumer electronics, automotive electronics, industrial control electronics and AI. In recent years, the product designs of end manufacturers have been oriented toward lighter, thinner and shorter products. Regarding the packaging appearance of diode components, the manufacturers also require miniaturization, lightness, and thinness, with a clear trend of surface mount packaging, as well as high power, low energy consumption, protection and durability in performance. In the aspect of product development, the development has been oriented from general standard products toward low-energy consumption, high-voltage, high speed and high-power Schottky rectifier diodes with more technologies involved. In terms of production technology, the electric property of the rectifier diodes has been determined since the phase of wafer manufacturing, thus the property of the product are closely related to the wafer manufacturing process. Besides, the quality of the products also depends on the stability of the packaging technology. In recent years, manufacturers in the industry have all incline to the integration with the upstream wafer manufacturing end to ensure stable die supply and reduce raw material costs. Meanwhile, because they have mastered the manufacturing process of wafer, they can design and manufacture dies with different electric properties on the basis of various downstream applications or product requirements. Aside from meeting the needs of end manufacturers, they also make the production schedule more flexible, effectively improving the utilization of the equipment capacity. (4)Competition Situation Currently, major domestic TWSE/GTSM listed companies that produce discrete components include Panjit International Inc., Eris Technology Corporation, Rectron Electronic Enterprises, Inc., Mospec Semiconductor Corp., Taiwan Semiconductor and LITE-ON Semiconductor Corp., etc.. Major overseas companies include Infineon、 STMicroelectronics、ROHM、Vishay、Diodes Inc.、ON SEMICONDUCTOR, etc.. Large international companies in Europe, America, Japan, and other regions have gradually reduced the production of discrete components, or outsourced productions to OEMs and turned to the development of high-end semiconductor products. Because the industry is mature and the differences of products and technologies are insignificant, domestic manufacturers turn their focus on reducing costs, improving quality, shortening delivery time, providing comprehensive services and technical support, and expanding market share as major business strategies.

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In recent years, the mature manufacturing process technology of diode manufacturers in mainland China along with the subsidy policy of China's 13th Five-Year Plan has severely crowded out the supply chain of Taiwanese factories. HY Electronics will focus more on forward-looking market changes in the future, recruit international talent teams, actively integrate relevant resources of the group, strive for sustained and stable growth, and develop the automotive / industrial control electronic market to make segmentation from mainland China's low price and quality suppliers. 3. Overview of Skills and R&D (1) Invested R & D expenses in the latest year and as of the date of publication of the annual report Unit：NT$ 1,000；% Item/Year 2019 2020 Q1 R&D Expenses 68,532 14,634 Proportion of Revenue 3.90% 4.78% (2) Successfully developed technology or product s of the date of publication of the annual report 1. Power series products of 45-200V Low VF Trench Schottky 45V-200V Low VF Trench Schottky utilizes the Trench structure to balance the forward voltage drop and electricity leakage of Schottky products, contributing to lower conduction power consumption under the same leakage condition, which is suitable for power conversion output with the need of energy conservation. Currently, the products covers the range of 1A-80A / 45V-200V SMD, axis, and power packaging, and is widely used in the secondary side output of various types of 5W-300W power supply products of existing customers. 2. Solar series products of 50V Trench Schottky Green solar power conversion By-pass diode requires special performances such as high junction temperature (200C), lightning resistance (25KeV), and low conduction power consumption; customers normally use 30-45V low voltage Schottky correspondingly. However, because of the problem of electricity leakage control of Schottky products, there is a long-term risk of change in application quality. HY developed 15-30A solar series By-pass diode using the physical property that Trench Schottky structure disperses surface electric fields of Schottky easily. With higher protection voltage and lower on-resistance, it improves customers' use efficiency, meets relevant quality requirements, and continuously converts sunlight, which is hard to collect, into green energy that people need. Recently, it has successively passed the customer certification of IEC62979 standard, which is exclusive to solar By-Pass Diode , and keeps playing an important role in green energy conversion.

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3. ABS, D3K high junction temperature bridge rectifier (J-Bridge) series In response to the development trend of lightness and thinness of power conversion, the high energy density brings up the junction temperature of the bridge rectifier, resulting in a certain loss of product quality. HY combined wafer designs of the subsidiary TGI and adopted the blade-scraping GPP die, which has the property of high junction temperature stability, to design and launch the high junction temperature (Tj 175 ° C) rectifier series (J-Bridge) recently. It has the characteristics of higher temperature resistance and durability than general bridge products, and thus is suitable for various types of power products with requirements of high temperature. 4. Fast recovery bridge rectifier (F-Bridge) series HY Electronics integrated the special die manufacturing technology of the subsidiary Taiwan GPP Inc., developed a series of fast recovery bridge rectifier products unique in the industry through the integration of packaging technology with the group's cross-platform cooperation. It can assist in adjusting the reverse recovery time (TRR) of traditional bridge rectifier, and thus is suitable for applications of high voltage and fast switching circuit. 5. 2-10A 600V DMOS series MOS has the characteristics of fast switching, and is generally used in the primary side of switching power products and is responsible for the power conversion control of energy flow. Because of its design of low application current and property of low cost, DMOS is generally adopted for 100W switching power design. Recently, HY has combined relevant resources in the industry to design and develop 2-10A DMOS series products, providing customers with more complete solutions for switching power. 6. HFE、HFS High-voltage super-fast recovery diode series The conversion of boost output power above 48V requires energy-saving super-fast recovery diodes as the application of output rectification, and is widely used in LED lighting power series. HY integrated the special die manufacturing technology of its subsidiary Taiwan GPP Inc. and developed a series of energy-saving fast and super-fast rectifier diodes to support needs for boost power through the integration of packaging technology within the group's cross-platform cooperation. In addition, the high-voltage super-fast recovery diode can also be coupled with MOS switch flywheel, providing customers with a more complete solution 7. ESD Array TVS With the increase in data transmission speed and the need for ESD security protection, HY officially stepped into electronic circuit security protection and developed 3.3V / 5V ESD Array TVS product series. Through the extra-low junction capacitance design, it improves the response speed of TVS action protection and provides customers with more choices of designs regarding information and data transmission security. 8. 20A 45V TO-252 HTM2045D - 80 -

Combined with HY's new patent M584545 for the diode structure, recently HY has successfully developed a new product of extra-low impedance Typ. VF @ 10A = 0.46V Schottky for 20A application on TO-252 small packaging. Certified and adopted by the customers, it becomes one of the lowest on-resistance TO-252 products in the market. In the future, HY will apply the same patent concept to product development, guiding customers with cheaper and more energy-saving product choice. 9. SOD/SMB packaging In response to the development trend of lightness and thinness of power conversion, the SOD / SMA / B / C types of surface mount packaging gradually replaces the traditional shaft diode, becoming the customer's choice of packaging type. HY combines industry resources to obtain packaging energy aside from its own SMA packaging production line. The addition of SOD / SMB packaging has also changed the range of diode application current of HY surface mount series diodes from the original 1-3A (SMA) to 0.2A-6A (SOD / SMB), and thus the product can serve a wider range of customers and meet their needs. 10. New patent M584545 for diode structure Recently, HY obtained a new patent M584545 for the diode structure. The application of diode die combination can save inventory and enrich product diversity. (3) Long- and Short-term Business Development Strategies and Plans Short-term Business Plans Apart from maintaining good business cooperation with existing customers, actively expand new customers and products. Besides the company's own R&D and innovations, extensively utilize external resources to meet the product needs of customers in the end consumer market. Long-term Business Plans In order to adapt to the high global development of electric vehicles, Internet of things, robots, 5G and AI in the future, and the huge business opportunities brought by the development, the company continue to recruit professional R & D talents and sales teams. The long-term strategy will accelerate the efficiency to complete the integration of resources within the group and strategic cooperation with suppliers in order to meet the needs of end customers. Moreover, the company will expand fields of product application in high-end and high-margin products such as automotive, industrial control, electric vehicles, medical treatment, green energy conservation and charging devices. The company will also endeavor to become a strategic partner of tier 1 international corporations in Europe, the US, Japan, and China, so that the company's operating conditions can keep growing in a diversified and stable manner. II. Market and Sales Overview (I) Market analysis

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1. Regions for sale/provision of key goods/services Unit: NT$1,000 2018 2019 Sales territory Amount Percentage (%) Amount Percentage (%) China 1,310,799 63.53% 1,185,189 67.44% Asia (except China) 661,788 32.08% 505,345 28.75% Europe 79,872 3.87% 55,981 3.19% Others 10,718 0.52% 10,949 0.62% Total 2,063,177 100.00% 1,757,464 100.00% 2. Market Share According to World Semiconductor Trade Statistics (WSTS)，the total sales of global semiconductors in 2019 were US$ 23,960 million dollars (approximately NT$ 722,633.6 million converted at the exchange rate of 30.16), and the diode sales of the company in 2019 were NT$ 1,757,464 thousand, which accounted for 0.24% of the proportion of total global sales of split-type. 3. Future Supply & Demand and Growth of the Market At the end of 2019, as the two negotiating parties in the China-US trade war reached an agreement again, the trade conflict has slowed down. WSTS believes that the demand will stabilize in 2020, which will lead the global semiconductor market to grow upwards, and predicts that there will be 5.4% of annual growth in 2020. In 2020, automobile industry will become the major driving force in the semiconductor market, and the traditional 3C electronic product market has entered a mature period. Gartner According to Gartner data, the uniqueness and variability of traditional 3C electronic products are weakening. The average annual growth of 3C electronic products will be only 0.4 to 5.1% in the future, making the products no longer the leader regarding the growth in electronic products. From 2018 to 2023, the compound annual growth rate is predicted at only 0 ~ 2.2%. In the future, electronic products with high growth momentum are automotive electronic products and industrial electronic products, with 6.0 to 7.9% of average annual growth, which will lead the overall electronic products to have a compound annual growth rate of 4.1% from 2018 to 2023.

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Besides，according to the statistics announced by IDC, 2019 Q4 Global PC shipments reached 71.8 million units, highest in the last four years; global PC shipments also increased by 2.7%, which is the first full-year growth since 2011. This also marks that the global PC market has recovered。The Windows 7 system, of which support was discontinued in early January, will also become a catalyst for the wave of laptop replacement in 2020, which is expected to bring a silver lining to the industry. In 2019, the global semiconductor industry has declined under the influence of China-US trade war. Looking forward to 2020, in spite of the uncertainties in the market, the demand for the three arrows-- 5G, AI, and automotive will drive the semiconductor industry away from the bottom. IC designers will introduce a new generation of silicon intellectual property, strengthen customization capabilities of ASIC and chips, and accelerate the application of 7nm and 5nm EUVs. With regard to manufacture, the adoption rate of the 7nm node has increased. The time schedule of 5nm mass production and 3nm research and development is clearer, and the proportion of advanced manufacturing will further increase. Besides, materials of compound semiconductor such as SiC, GaN, and GaAs have the properties of high voltage resistance, low impedance, and fast switching speed. Thus they are suitable for power semiconductors, RF switch components, etc., and are highly valued in applications such as 5G and electric vehicles. Finally, because the linewidth of chip has been reduced and computing performance improved , the advanced packaging technologies are gradually oriented toward SiP (System in Package); compared to SoC (System on a Chip), the composition structure of SiP is more flexible and cost-effective, and is more suitable for the needs of AI, 5G and automotive chip development. Moreover, the development of solar power technology is constantly progressing; the modules before 2018 are all arranged in standard 60 or 72 pieces, and the cells are also presented in full size. The layout change of cells and the diversified development of micro-technology of module end in 2019, including half-piece, patch, laminated (shingled), multi-grid, double glass, double-sided (battery) modules and the use of other technologies, made the output power of the final module product increase by one or two bins compared to that in 2018. However, the core competitiveness of module products depends on the cost of electricity per kWh. To reduce the cost of electricity per kWh, it is necessary to improve battery efficiency and module power to create greater power generation and ensure long-term reliability of the product. In the future, the say of market product pricing will no longer be controlled by the manufacturing end, but will be based on market demand and buyer acceptance.The choice of end products will give priority to the price-performance ratio of power generation.

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4. Competitive Niche Advantages over the competitors mainly come from the following: a. Diversified flexible management of self-branding and OEM b. Continuous investment in research and development talents and introduction of high-end automated process equipments c. Plentiful product lines can meet the one-stop purchases of end customers d. Vertical integration of the group‘s resources can accurately control wafer delivery and quality e. Control and tracking of feedback through strict quality control system f. Continuous development of new products to meet customers‘ needs Advantages & Disadvantages and Corresponding Measures of Development Prospects A. Advantages (A) High correlation with the overall economic environment Rectifier diodes are the key components necessary for all electronic products. As the economy grows or the national income increases, the consumption of products of telecommunications and consumer electronics will increase, indirectly contributing to the demand for active and passive components. In addition, they are widely used in various electronic product circuits, which are mainly applied in communication, information, consumer electronics, automobiles, aerospace industry and medical industry. (B) Merges of large European and American factories and gradual withdrawal from the diode manufacturing market As the products have entered a mature period, large diode manufacturers in Europe, the US, and Japan have begun carrying out corporate mergers and acquisitions owing to their less competitive costs. For instance, Diodes Inc. will soon acquire. Hence, they gradually adjust their production and sales combinations, focus resources on the field of IC research and development, gradually withdraw from diode manufacturing, or gradually outsource production of standardized and process-mature diodes. As they gradually withdraw from the diode manufacturing market and the product quality of Taiwanese manufacturers is improved in recent years, many large manufacturers in the US and Japan have shifted their OEM orders to Taiwan, thus making the operations of Taiwanese rectifier diode manufacturers promising in the future . B. Disadvantages and Corresponding Measures (A) Fierce competition in the market leads to cutting-price competition a. Strengthen automated production and actively expand the market to compete for orders, to attain economies of scale in production; gain purchase bargaining and more preferential payment terms through the increase in scale.。

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b. Develop new products with high added value, increase the proportion of production of new products, and keep enhancing management to maintain and improve quality stability. c. Vertically integrate the group‘s wafer fab resources (B) Various subsidy policies of green energy in different countries Corresponding Measures： a. Actively develop new foreign customers other than China to diversify operating risks b. Keep cooperating with large international manufacturers to provide high-efficiency module products c. c. Expand the market of energy-saving products other than solar power (C) The trend of China's labor shortage Corresponding Measures： a. Keep introducing the automation of production equipment and integration of manufacturing processes to reduce manpower reliance, and strengthen employees' work trainings to enhance work efficiency and reduce the impact of labor costs on operations. b. As labor costs rise, timely reflect the costs on products‘ selling prices to ease the impact on the company's gross margin. c. Actively look for strategic outsourcing suppliers to fill the gap in production capacity. (II) Key applications and production processes of major products 1. Key applications of major products Major product Key applications It is typically designed for rectification and has a broad range of applications in PC, communication industry, consumer Rectifier diode electronics, industrial electronics, automotive electronics, aerospace industry, and medical devices, etc. It is generally combined with junction box and applied in solar Bypass diode module to prevent it from the hot spot effect due to shading and to improve its efficiency. 2. Production processes of major products A. Production process of wafers: Wafer feed → cleaning → diffusion → oxidation → photoetching → trench etching → glass covering → metalization → cutting → grain test → appearance inspection → QC inspection → packaging → warehousing B. Encapsulation and testing process: Material feed → soldering → cleaning → plastic packaging → electroplating → disassembly and forming → testing → appearance inspection → QC inspection → packaging → warehousing

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(III) Supply of major materials Major material Major source Supply Original chip China/Taiwan Good Metallic materials China/Taiwan Good Solder China/USA Good Molding compound China/Taiwan/Japan Good (IV) The names of the customers who have accounted for more than 10% of the total purchases (sales), the amount and proportion of their purchases (sales) in any of the last two years, and the reasons for the increases or decreases 1. Information of Major Suppliers in the Last Two Years Unit: NT$1,000 2018 2019 Q1 of 2020 Percentag Percentag Percentag e in the e in the e in the It N N N Relatio net annual Relation net annual Relation net annual e a a a n with Amount percentag with the Amount percentag with the Amount percentag m m m m the e of issuer e of issuer e of e e e issuer purchase purchase purchase (%) (%) (%) 1 B 195,180 15.29 N/A - 206,336 18.21 - - 46,915 21.70 - 2 A 1,081,213 84.71 N/A - 926,496 81.79 - - 169,261 78.30 - Total 1,276,393 100.00 1,132,832 100.00 216,176 100.00 Note 1: List the names of suppliers who have purchased more than 10% of the total purchases in the last two years and the amount and proportion of their purchases. However, if the suppliers cannot be disclosed because of the stipulation of contract or the transaction parties are individuals or not related people, they can be marked in codes. Note 2 : As of the date of publication of the annual report, if companies that have been listed or whose stocks have been traded at offices of securities firms have financial information that has been audited or reviewed by auditors in the most recent period, the information should be disclosed. 2. Reasons for increases or decreases： There is no significant difference in major purchase suppliers in 2018 and 2019. 3. Information of major sales customers in the last two years: The company does not have customer that accounts for more than 10% of sales in the last two years.

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4. Reasons for increases or decreases： There is no significant difference in major sales customers in 2019 and 2020. (V) Production volume and value in the previous two years Unit: NT$1,000; KPCS Year 2018 2019 Production Production Output Production Output value Yield Yield Commodity capacity value capacity value Diodes 374,490 196,607 138,341 326,016 218,637 153,731 Bridge rectifier 549,583 214,832 683,072 523,140 191,151 455,077 Solar diodes 295,189 167,874 797,350 294,117 188,275 764,572 Others 669,054 539,766 235,229 639,140 194,306 151,780 Total 1,888,316 1,119,079 1,853,992 1,782,413 792,369 1,525,160 Note 1: The production capacity refers to the quantity that the company can produce using the existing production equipments under normal operation considering necessary downtime, non-working days and other factors. Note 2: If the production of each product is replaceable, the production capacity may be calculated in aggregation with remarks. Note 3: Capacity and output refer to those of self-production. The decrease in production value in 2019 is mainly because of the China-US trade war and the new solar energy policy of mainland China, which indirectly affected the amount of orders placed by customers. (VI) Sales volume and amount in the previous two years Unit: NT$1,000; KPCS Year 2018 Year 2019 Sales volume and amount Sales volume Sales amount Sales volume Sales amount Diodes 1,040,870 $349,065 851,576 311,178 Bridge rectifier 281,344 641,178 218,094 510,612 Solar diodes 156,670 741,453 168,414 721,272 Others 1,320,840 331,481 509,566 214,402 Total 2,799,724 $2,063,177 1,747,650 1,757,464 The sales decrease in 2019 is mainly because of the company's response to the slightly reduced demand in the customer market, and the sales value decreased by 14.82% compared to that of previous period. III. Employee information in the last two years up till the publication date of this annual report Unit: person; year; age As at March 31, Year 2018 2018 2020 Manager 49 49 47 General staff 303 254 287 Number of employees Technical management personnel 63 66 66 Production staff 292 294 225 Total 707 663 625 Average age 40.3 40.3 40.4 Average years of service 9.8 9.9 10.3 Doctoral Degree 0 0 0 Proportion by Master's Degree 19 18 17 educational levels Bachelor Degree 270 278 268 Percentage Senior high school 149 106 87 Below senior high school 269 261 253

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IV. Information of Environmental Protection Expenditure In the latest year and as of the date of publication of the annual report, the total amount of losses (including compensation) and penalties due to environmental pollution and explanation of the corresponding measures (including improvement measures) and possible expenses in the future. (including possible loss, penalty and compensation without taking corresponding measures. If the amount cannot be reasonably estimated, the fact that it cannot be reasonably estimated should be described.) (1) Total amount of losses (including compensation) and penalties due to environmental pollution: none. (2) Corresponding measures and possible expenses: none. V. Labor-management Relationship (I) Employee welfare measures, courses, trainings, retirement systems and their implementation situation, as well as agreements between employer and employee and status of employee rights protection measures. 1. Employee welfare measures The Group covers insurance for employees as required by local governments. Besides, well-performed employees are granted opportunities for periodic promotion and salary adjustment every year. Year-end, performance, talent retention bonuses and production incentive bonuses are also available for employees based on the Company's operational results and individual performance. Employees are entitled to statutory holidays, marriage, maternity and annual leaves, etc. Other benefits include subsidies for employees for weddings and funerals, proposal improvement reward, annual free-of-charge health examination, as well as unscheduled tourism, dinning and recreational events for physical and mental relaxation of employees. 2. Continuous education and training New employees shall receive the orientation training to help them understand the Company's history, objective and mission, become familiar with the working environment and relevant rules and regulations. Moreover, in order to continuously improve employees' performance and professional competency, each division will annual training plans based on the Company's development objective and perform internal and external training programs accordingly. In this way, inheritance of knowledge and experience can be ensured, and employees may be always informed of the latest information. 3. Retirement system and implementation The principal place of business is in China. Employees participate in the endowment insurance program according to the local labor laws and regulations. The Company also makes monthly contributions as locally stipulated to guarantee employees' benefits. 4. Employment contracts and protections of the rights and interests of employees

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Employment contracts of the Company are all governed by applicable laws and regulations. Besides, the Company always attaches much importance to employees' benefits. Active communication with employees and human-based management are carried out inside to fortify the labor-management relationship and enhance the centripetal force of employees. Apart from the complaint channels and response teams, employees can provide feedback via email or suggestion box. At present, the labor-management relationship in the Company is good, and relevant measures are taken effectively. (II) Describe the Company's losses arising from employment disputes in the last two years up till the publication date of the Annual Report. Disclose the amount of current and future estimated contingent charges and countermeasures. If reasonable estimation is impossible, elaborate such fact

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VI. Major Contracts Supply/sales contracts, technologies cooperation contracts, construction contracts, long-term loan agreements, and all other important contracts which are likely to impact the investors' rights, whether they are currently effective or have expired in the most recent fiscal year as of the publication date of the annual report (I) Credit and guarantee contracts Commencement date and Contract No. Borrower Lender Subject Restrictive clause deadline of a amount contract Security for an obligation, 2012/8/29 NT$170 1 HY Cayman Mega Bank transfer of mortgage of land NA ~2042/8/21 million and building, contract change HY Taiwan 2012/8/29 NT$95.64 Medium and long-term loan 2 Mega Bank NA Branch ~2042/8/27 million contracts (housing mortgage) The amount of working funds HY Cayman US$3.5 is US$ 3 million, and the loans Working capital loan & 2020/1/1 million 3 Mega Bank for materials purchases cannot and purpose not HY Taiwan ~2020/12/31 (Common be used from the total amount flowing to China Branch line) of US$ 3.5 million Working capital loan HY Taiwan 2020/3/1 NT$30 4 Mega Bank and purpose not Branch ~2020/12/31 million Loans for working capital flowing to China 2020/2/1 US2 5 HY Cayman CTBC Bank NA ~2021/1/31 million Loans for working capital Agricultural Bank of China 2019/8/26 Limited, RMB$60 6 YangZhou HY ~2022/8/25 Loan contract NA Yangzhou million Term: 3 years Hanjiang Branch Office Mainland subsidiaries must obtain the written consent of the loaning bank before major issues such as merger, division, China Merchants 2017/10/16 reorganization, equity RMB$33 7 YangZhou HY Bank, Yangzhou ~2020/10/15 Credit extension agreement transfer, joint venture million Branch Office Term: 3 years (cooperation), property rights transfer, shareholding system reform, foreign investment, and essential increase in debt financing. Bank of China, 2019/8/28 RMB$20 Provision of the maximum 8 YangZhou HY Wenchang ~2024/8/27 NA million pledge guarantee Branch Term: 5 years Bank of 2019/10/9 Communications RMB$10 Provision of the maximum 9 YangZhou HY ~2020/9/27 NA , Yangzhou million pledge guarantee Term: 1 years Branch Office 2019/4/12 CTBC Bank RMB$12 10 YangZhou HY ~2021/1/31 Credit extension agreement NA Shanghai million Term: 1 years 11 Taiwan GPP Inc. Hua Nan 2020/3/6 NT$24 Debt guarantee land and NA

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Commercial ~2050/3/4 million building mortgage contract of Bank, Ltd. the short-term secured loan of 3rd and 4th floors of Baoxing Factory Contract of changes in debt 2011/7/25 NT$190 guarantee land and building 12 Taiwan GPP Inc. HUA NAN Bank NA ~2049-7/11 million mortgage of Yongfeng Factory, No. 7, Gongye 1st Rd. 2011/7/28 NT$106 Real estate long-term secured 13 Taiwan GPP Inc. HUA NAN Bank NA ~2026/7/28 million loan Short-term secured loan (NT$ 20 million of Yongfeng Factory, No. 7, Gongye 1st Rd. and NT$ 20 million of 3rd and 2019/6/5 NT$15.4 4th floors of Baoxing Factory), 14 Taiwan GPP Inc. HUA NAN Bank NA ~2020/6/5 million short-term secured loan (time deposit pledge) - NT$ 100 million, long-term domestic letter of credit - NT$ 14 million 2019/6/5 US$0.3 15 Taiwan GPP Inc. HUA NAN Bank Export bill NA ~2020/6/5 million 2019/9/5 Long-term loan (Yongfeng 16 Taiwan GPP Inc. HUA NAN Bank NT$6 million NA ~2029/9/5 Factory) Taishin 2019/2/27 NT$100 USD 2 million time deposit 17 Taiwan GPP Inc. International NA ~2020/1/31 million pledge Bank 2020/2/10 NT$25 USD 1 million time deposit 18 Taiwan GPP Inc. SUNNY BANK. NA ~2020/5/10 million pledge (II) Other contracts Commencement Restrict Type Party Counterparty date and deadline Contract amount Subject ive of a contract clause RMB 10 per square meter per month. The monthly rent of the first phase of the project is RMB 177,922.2 Lease No. 5, Tanchai (pre-tax). The construction Avenue, Beishan progress of this part of the Automobile Industrial project is within a Park, Hanjiang District, reasonable scope, and the Leaseho Yang Yangzhou 2018/1/1 Yangzhou City as the rent should be paid NA ~2037/12/31 operating production base ld Zhou HY Hong Yu normally；the monthly rent of Yangzhou HY, for the second phase of the subsidiary of the Company, project is RMB 231,168.8 with a total leased area of (pre-tax). Owing to the 45,000 square meters. delay of the completion date of part of the project, the rent will not be paid until January 2021. Donatio Yang Yangzhou n Zhou HY Taiwanese Donate and transfer the ownership of 1,500 square (expens Entrepreneu 2011/8/17 meters of office space to Yangzhou Taiwan Business NA e) r Association. Association Leasehol Taiwan 尚員有限公 2019/3/10~ Rent out 3F of the vacant Monthly rent NT$ 43,988 NA d GPP Inc. 司 2022/4/30 factory on Baoxing Rd.,

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New Taipei City 3F, No. 60, Ln 198, Leasehol Taiwan 2019/6/15~ 劉宸宇 Monthly rent NT$ 7,500 Nanfeng Rd., Pingzhen NA d GPP Inc. 2020/6/14 Dist, Taoyuan City (front) Rent out 4F of the vacant Leasehol Taiwan 馨逸企業股 2018/8/5 Monthly rent NT$ 4,200 factory on Baoxing Rd., NA d GPP Inc. 份有限公司 ~2021/8/4 New Taipei City 2 Office- monthly rent NT$ Office- 25.36m office at 15,000 (pre-tax) ； parking 4F., No. 207-5, Sec. 3, Beixin Rd., Xindian Dist., Leasehol Taiwan HY Taiwan 2020/1/1~ space- monthly rent NT$ New Taipei City； parking NA d GPP Inc. Branch 2020/12/31 3,675 (post-tax) ， parking space- B4., No. 207, Sec. Management Fee- NT$ 300 3, Beixin Rd., Xindian per month Dist., New Taipei City

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Part Six - Financial Information I. Condensed balance sheets and income statements in the last five years (I) Condensed balance sheets Unit: NT$1,000 Year The financial data for the last five years (Note 1) Financial data of 2020 as of Mar. Item 2015 2016 2017 2018 2019 31 Current assets 1,191,647 1,261,746 1,700,876 1,773,103 1,589,130 1,479,310 Property, plant and 409,883 465,335 629,977 1,372,006 1,143,107 1,141,018 equipment Right-of-use asset - - - - 149,813 148,078 Intangible Assets 5,411 4,746 3,423 6,630 8,091 9,199 Other assets 410,948 419,711 388,561 356,578 322,193 340,023 Total assets 2,017,889 2,151,538 2,722,837 3,508,317 3,212,334 3,117,628 Before 1,182,067 1,138,574 1,353,773 1,112,208 1,605,141 1,592,081 Current dividend liabilities After 1,182,067 1,194,427 1,417,126 1,128,671 Note - dividend Non-current liabilities 75,478 24,322 22,053 870,725 231,666 219,395 Before 1,257,545 1,162,896 1,375,826 1,932,933 1,836,807 1,811,476 Total dividend liabilities After 1,257,545 1,218,749 1,439,179 1,949,396 Note - dividend Capital stock 496,470 558,530 633,530 658,530 674,993 674,993 Capital reserve - 65,948 248,420 343,464 343,464 343,464 Before 220,727 382,892 504,806 477,224 338,073 285,919 Retained dividend earnings After 220,727 327,039 441,453 444,298 Note - dividend Other equity 43,147 (18,728) (39,745) (54,591) (106,429) (114,878) Before Total 760,344 988,642 1,347,011 1,575,384 1,375,527 1,306,152 dividend shareholder After s’ equity 760,344 932,789 1,283,658 1,558,921 Note - dividend Note1 : Source: The consolidated financial statements audited and certified by the Certified Public Accountants, all compiled exactly in accordance with the International Financial Reporting Standards (IFRS). The 2019 earnings distribution case has not been resolved by the shareholders' meeting.

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(II) Condensed Income Statement Unit: NT$1,000 Year The financial data for the last five years (Note 1) Financial data of 2015 2016 2017 2018 2019 2020 as of Item Mar. 31 Operating income 1,779,678 1,945,042 2,091,462 2,063,177 1,757,464 306,337 Gross profit 392,915 487,583 472,928 265,601 119,859 8,282 Operating profit 150,853 211,503 201,161 (81,671) (158,588) (58,508) Non-operating income (12,968) (22,787) 10,812 94,659 33,790 (3,025) and expenses Pre-tax profit 137,885 188,716 211,973 12,988 (124,798) (61,533) Current net profit of the 102,075 162,165 177,767 22,931 (131,622) (60,790) continuing business unit Current net income 102,075 162,165 177,767 22,931 (131,622) (60,790) Other comprehensive profit and/or loss this term (11,438) (61,875) (21,017) (14,213) (51,772) (8,585) (net after tax) Total comprehensive 90,637 100,290 156,750 8,718 (183,394) (69,375) profit and/or loss this term Net profit attributable to the parent company 102,075 162,165 177,767 35,390 (106,238) (52,154) proprietor Net profit attributable to - - - (12,459) (25,384) (8,636) non-controlled equity Comprehensive profit and/or loss attributable to 90,637 100,290 156,750 20,925 (158,063) (60,603) the parent company proprietor Comprehensive profit and/or loss attributable to - - - (12,207) (25,331) (8,772) non-controlled equity Fundamental earnings per 2.06 3.17 3.07 0.55 (1.57) (0.77) share (EPS) (NT$) Note: 1. Source: The consolidated financial statements audited and certified by the Certified Public Accountants, all compiled exactly in accordance with the International Financial Reporting Standards (IFRS). (III) Names and audit opinions of the certifying Certified Public Accountants over the past five years Year Name of CPA firm Name of CPA Audit opinions SHAO CHIH-MING, CHEN Unqualified 2015 Deloitte Touche Tohmatsu Limited JIE-ZHONG opinion SHAO CHIH-MING, CHEN Unqualified 2016 Deloitte Touche Tohmatsu Limited JIE-ZHONG opinion SHAO CHIH-MING, WENG Unqualified 2017 Deloitte Touche Tohmatsu Limited YA-LING opinion SHAO CHIH-MING, WENG Unqualified 2018 Deloitte Touche Tohmatsu Limited YA-LING opinion WENG YA-LING Unqualified 2019 Deloitte Touche Tohmatsu Limited HUANG Hi-MIN opinion

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II. Financial analyses in the past five years (I) Consolidated financial analyses Year Financial analyses over the past five Current years (Note) year as of Mar. 31, Items of analyses 2015 2016 2017 2018 2019 2020

Financial Ratio of liabilities to assets (%) 62.32 54.05 50.53 55.10 57.18 58.10 structure Ratio of long-term funds to fixed assets (%) 203.92 217.68 217.32 174.64 140.60 133.70

Current ratio (%) 100.81 110.82 125.64 159.42 99 92.92

Solvency Quick ratio (%) 78.17 89.02 98.72 119.49 73.36 65.69

Interest coverage ratio 8.49 11.50 10.68 1.31 (3.27) (7.57)

Account receivables turnover rate (times) 2.34 2.37 2.32 2.46 2.48 1.80

Average number of days for cash received 156 154 157 148.37 147.17 202.77

Inventory turnover rate (times) 4.66 5.26 5.32 4.73 4.07 3.01

Management Average day(s) of sales 78 69 69 77 89.68 121.26 capability Payable turnover ratio (times) 2.69 2.91 2.77 3.20 3.30 2.15

Turnover ratio of real property, plants & 4.35 4.44 3.82 1.52 1.40 1.07 equipment (times)

Overall asset turnover ratio (times) 0.92 0.93 0.86 0.58 052 0.39

Return on assets (%) 6.00 8.52 8.05 3.10 (3.09) (1.69)

Return on shareholders’ equity (%) 14.28 18.54 15.22 1.52 (8.92) (4.53)

Percentage of profit and/or loss before tax to Profitability 27.77 33.79 33.46 1.97 (18.49) (9.12) paid-in capital (%)

Net profit and/or loss ratio (%) 5.74 8.34 8.50 1.11 (7.49) (19.84)

Earnings (loss) per share (EPS) (NT$) 2.06 3.17 3.07 0.55 (1.57) (0.77)

Ratio of cash flow (%) 9.20 17.54 10.25 7.17 4.26 1.38

Cash flow Cash flow appropriateness ratio (%) 165.13 161.96 100.58 49.09 48.96 31.45

Cash reinvestment ratio (%) 8.62 13.72 5.48 0.62 2.91 1.01

Leverage Operating leverage degree 1.42 1.27 1.32 (0.88) 0.169 0.45 degree Financial leverage degree 1.14 1.09 1.12 0.66 0.84 0.89

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Please explain the reasons for the changes in the financial ratios in the last two years. (analyses can be exempted if the increase or decrease is less than 20% _ 1. Interest coverage ratio: As a result of decrease in net profit before tax and the increase in interest charges on bank financing. 2. Turnover ratio of real property, plants and equipment: As a result of an increase in merger obtained from the subsidiary. 3. Total asset turnover ratio: As a result of decrease in net sales and the increase in capital equipment. 4. Return on assets: Resulting from lower interest after tax. 5. Return on shareholders’ equity: Net profit after tax was lower than last year's decrease and a slight increase in cash increase resulting a decrease in shareholders' equity. 6. Percentage of profit and/or loss before tax to the paid-in capital: As a result of an increase in operating cost and an increase in interest expense. 7. Net profit and/or loss ratio: As a result of decrease in the profit and/or loss after tax. 8. Earnings (loss) per share: As a result of an increase in operating cost, leading to a decrease in net profit when compared with the preceding term. 9. Cash flow ratio: As a result of a decrease on net operating cash inflow with an increase in the current liabilities at the same time. 10. Cash flow appropriateness ratio: As a result of the decrease in net operating inflows and the increase in inventories. 11. Cash reinvestment ratio: As a result of decrease in net cash inflow from operations. 12. Operating leverage degree: The increase in operating costs resulted in negative operating leverage. 13. Financial leverage degree: As a result of decrease in the operating profit. The calculation formula for the comprehensive analysis of financial information is as enumerated below: 1. Financial structure (1) Debt-to-asset ratio = total liabilities / total assets (2) Ratio of long-term funds to fixed assets = (Net shareholders’ equity + Long-term liabilities)/Net fixed assets 2. Solvency ratio (1) Liquidity ratio = current assets / current liabilities (2) Quick ratio = (current assets – inventory – prepaid expenses) / current liabilities (3) Times interest earned = income before income tax and interest expenses / current interest expenses 3. Operating capacity (1) Receivables (including accounts receivable and notes receivable arising from business operations) turnover rate = net sales amount / average receivables (including accounts receivable and notes receivable arising from business operations) for each period (2) Average collection days for receivables = 365 / turnover of receivables (3) Inventory turnover = cost of goods sold / average inventory (4) Payables (including accounts payable and notes payable arising from business operations) turnover rate = cost of goods sold / average payables (including accounts payable and notes payable arising from business operations) for each period. (5) Average days of sale = 365 / inventory turnover. (6) Fixed assets turnover rate = Net sales amount/Net fixed assets. (7) Total assets turnover = net sales amount/ average total assets. 4. Profitability (1) Return on assets = [net income + interest expenses (1- tax rate)] / average total assets (2) Return on shareholders' equity = net income / average total equity. (3) EBIT margin = net income / net sales amount (4) Earnings per share (EPS) = (profit and loss attributable to owners of the parent – dividends on preferred shares) / weighted average number of issued shares 5. Cash flow (1) Cash flow ratio = net cash flow from operating activities / current liabilities (2) Net cash flow adequacy ratio = net cash flow from operating activities for the most recent five years / (capital expenditures + inventory increase + cash dividend for the most recent five years). (3) Cash re-investment ratio = (net cash flow from operating activities – cash dividend) / (gross fixed assets + long-term investment + other assets + working capital). 6. Leveraging (1) Operating leverage = (net operating revenue – variable operating costs and expenses) / operating income (2) Financial leverage = operating income / (operating income / interest expenses).

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III. Auditor Committee's Review Report Included in the Financail Statement in the Most Recent Year

Auditor Committee’s Review Report

The Board of Directors has produced the consolidated financial report and the earning distribution proposal of 2019. The consolidated financial report has been audited and a review report has been issued by the accountants WENG YA-LING and HUANG HUI-MIN of Deloitte Touche Tohmatsu Limited, which assigned by the Board of Directors.

The said consolidated financial report and the earning distribution proposal are audited by the Auditor Committee, and it is complied with relevant regulations. Therefore, a report is produced in accordance with the Article 14 of Securities and Exchange Act and Article 219 of Company Act. For your honor's approval

For Regular Shareholders Meeting in 2020 HY Electronic (Cayman) Limited

Auditor Committee of the HY Electronic (Cayman) Limited Auditor Committee convener: YANG,MING-HSIANG 2020/3/31

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IV. For Financial Statements of the most recent year, please refer to Notes (P.122-191). V. Individual financial statements of the Company audited by CPA in the most recent year: Not applicable. VI. Financial Troubles (if any) of the Company and Affiliates in the Most Recent Year up till the Publication Date of this Annual Report, and Impacts on the Company's Financial Status: Not applicable.

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Part Seven - Review of Financial Status, Business Performance and Risk Issues I. Financial Status Unit: NT$1,000 Year Variation 2019 2018 Item Amount % Current assets 1,589,130 1,773,103 (183,973) (10.38) Fixed assets 1,143,107 1,372,006 (228,899) (16.68) right-of-use asset 149,813 - 149,813 - Intangible Assets 8,091 6,630 1,461 22.04 Other assets 322,193 356,578 (34,385) (9.64) Total assets 3,212,334 3,508,317 (295,983) (8.44) Current liabilities 1,605,141 1,112,208 492,933 44.32 Long-term liabilities 231,666 820,725 (589,059) (71.77) Total liabilities 1,836,807 1,932,933 (96,126) (4.97) Capital stock 674,993 658,530 16,463 2.50 Capital reserve 343,464 343,464 - - Retained earnings 338,073 477,224 (139,151) (29.16) Other items in shareholders’ equity (106,429) (54,591) 51,838 (94.96) Total shareholders’ equity 1,375,527 1,575,384 (199,857) (12.69) Analytical explanation on change in increase/decrease in the ratios: ( A change in increase/decrease in excess of 20%) 1. Intangible assets : Mainly due to the increase in computer software. 2. Current liabilities : On the day when the issuance of corporate bonds expires 2 years ago (that is, on August 17, 2020), bondholders may require the company to redeem the bond denomination plus interest compensation in advance, so it is reclassified to current liabilities. 3. Non- Current liabilities : On the day when the issuance of corporate bonds expires 2 years ago (that is, on August 17, 2020), bondholders may require the company to redeem the bond denomination plus interest compensation in advance, so it is reclassified to current liabilities. 4. Retained earnings : The main department is not as expected due to the impact of the environment. 5. Other items in shareholders’ equity : The conversion amount converted from the financial statements of foreign operating agencies is affected by changes in exchange rates. II. Business Performance (I) Comparative analysis of business performance Unit: NT$1,000 Year Amount increase 2019 2018 Variation % Item (decrease) Operating Revenue 1,757,464 2,063,177 (305,713) (14.82) Operating Cost 1,637,605 1,797,576 (159,971) (8.90) Gross Profit 119,859 265,601 (145,742) (54.87) Operating Expense 278,447 347,272 (68,825) (19.82) Operating Net Income(Loss) (158,588) (81,671) (76,917) 94.18 Non-operating Income and Expense 33,790 94,659 (60,869) (64.30) Pre-tax Net Income (Loss) (124,798) 12,988 (137,786) (1.060.87) Income Tax Income (Expense) (6,824) 9,943 (16,767) (168.63) Net Income (Loss) of the Year (131,622) 22,931 (154,553) (673.99) Description of major change items: (the amount changes by more than 10%, and the amount reaches 1% of the total assets of the year) (1)Gross profit：Mainly because the demand has slowed down and the total production output has thus decreased indirectly owing to the price increase of raw materials, the market environment, and the China-US trade war, resulting in the increase in production cost per unit and decrease in gross profit. (2) Net operating income (loss)：Mainly because the operating result is not as expected owing to the

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impact of the economic environment. (3) Non-operating Income and Expense：Mainly because of the low-cost purchase benefits resulting from the acquisition of the subsidiary in 2018. (4) Pre-tax net income from continuing operation: Mainly because the operating result is not as expected owing to the impact of the economic environment. (5) Income tax income (expense): Mainly because of the changes in deferred income tax assets. (6) Post-tax net income from continuing operation: Mainly because the operating result is not as expected owing to the impact of the economic environment. Source: Consolidated financial report verified by auditors (II) Estimated sales volume and its basis The company mainly sets the target of annual shipment on the basis of the estimated customers demand and the consideration of capacity plan and past operating performance. The estimated sales volume is expected to grow as customer demand increases. For relevant market research analysis and the the industry's current status and development, please refer to the account of operating overview. (III) Possible impact on the company's future financial business and corresponding plans The company will pay attention to changes in market demand at any time, expand market share, develop new customers, increase profits, and maintain a stable and sound financial condition. III. Cash flow (I) Analyses on changes in cash flows in the most recent year Unit: NT$1,000 Year Amount increase Ratio of increase 2018 2019 Item (decrease) (decrease) % Operating activities 79,693 68,359 (11,334) (14.22) Investment activities (518,571) (35,658) 482,913 (93.12) Financial activities 430,041 (8,675) (438,716) (102.02) Analysis of changes in cash flow of this year (1)Cash flow from operating activities : Mainly because of the decrease in collection of accounts receivable. (2)Cash flow from investment activities : Mainly because of the decrease in expenses of property, plant and equipment and the cash outflow from the acquisition of the subsidiary in 2018. (3)Cash flow from financing activities : Mainly because of the issuance of corporate bonds in 2018. (II) Analyses on cash liquidity in one year ahcad Unit: NT$1,000 Balance in Anticipated to come Anticipated Financing of projected cash Anticipated cash deficits cash in the from net cash flow in outflow of the surplus (shortage) initiation of operating activities of in cash entire year Investment the term the entire year +- Financing plans plans 336,074 (138,975) (517,588) (320,489) - 558,000 1. Analysis of cash flow changes in the following year: (1) Net cash outflows from operating activities are mainly because of the differences between normal operation condition and collection and payment policies. (2) The amount of cash outflows from investment activities is mainly because of the expected increase in equipment purchase. (3) The net cash outflow from financing activities is mainly because of the repayment of the first domestic unsecured convertible corporate bonds. 2. Make-up measures for expected cash shortfall: The company plans to undertake domestic cash capital increase to issue new shares and get financed by financial institutions.

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IV. The effect of the significant capital expenditure in the most recent year upon the finance and business operation: The benefits in expansion of the new plant. (I) Benefits from the expanded new plant: Unit: NT$1,000; KPCS Item 2020 2021 2022 2023 2024 Increase in (48,639) 21,996 22,876 23,791 24,743 outputs Increase in (75,693) 35,111 34,995 40,067 40,989 sales volumes Increase in 52,724 90,509 95,035 159,659 215,539 sales amounts Gross margin 17.22% 19.89% 21.10% 21.12% 22.49% Increase in gross sales 191,864 66,416 42,973 34,074 78,128 profits Operating 175,628 201,174 211,232 228,131 209,120 expense Increase in operating 212,059 39,668 42,973 29,074 78,128 margin

Item 2020 2021 2022 2023 2024 Output volume 549,904 571,900 594,776 618,567 643,310 Sales volume 1,671,956 1,707,067 1,742,062 1,782,130 1,823,119 Operating 1,810,188 1,900,697 1,995,732 2,155,391 2,370,930 income Gross profit 311,723 378,139 421,112 455,186 533,314 Net operating 53,471 93,139 136,112 165,186 243,314 profit Remark: 1. The output volume is evaluated at 4% growth rate per annum. 2. The sales volume is evaluated at approximately 2%-2.3% growth rate per annum. 3. The operating revenues were estimated at approximately 6%-9% annual growth r ate based on the operating revenues in the Q1 of 2019, as annualized therefrom. 4. After the new factory is relocated, the moving line of the plant would be significantly smoother, and more space can be used. It would significantly reduce the moving time between production lines and store more raw materials and products, finished products, and provide customers with the maximum possible benefits through the supply and availability toward customers. V. Reinvestment Policy, Causes of Profit or Loss Incurred on Investments in the Most Recent Year, and Any Improvements or Investments Planned for the Next Year (I) The company's reinvestment policy The company's current reinvestment policy undertake long-term investments according to the investment targets related to the company's business and does not engage in investment in other industries. Aside from the regulations of investment cycle of the internal control system, the company's management of reinvestment business is based

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on "Transaction Operating Procedure for Related People, Specific Companies and Group Companies " and "Administrative Rules for Supervision of Subsidiaries" , which were approved by the board of directors. (II) The main reasons for the profit or loss of recent investment: Unit: NT$1,000, unless otherwise stated as thousands of US$ The recognized investment Investme Note Amount of profit and/or Prime reasons Plans of Reinvestment nt plan the initial loss of the leading to the corrective policy for the Item investment investee(s) in the profit and/or loss action next year most recent year (2019) JETPER US$26,746 Share holding (4,972) Holding Company NA N/A Mainly because of the adjustment of Sales of taking-order unit Sales rectifiers, diodes HY (H.K.) US$1 (17,831) resulting from the strategy N/A and other China-US trade adjustment semiconductors war and company policy. Mainly because China's Sales manufacturing strategy Sales of industry is adjustment, Yang Zhou rectifiers, diodes influenced by the cost US$26,746 (3,616) N/A HY and other China-US trade reduction semiconductors war and China's and policy of solar expense power subsidy saving reduction. Sales of semiconductor In very sound Taiwan 354,886 rectifiers, (58,376) business N/A N/A GPP Inc. semiconductors performance and components Production and sales of Yang Zhou Note rectifiers and Note Note N/A N/A GPP Inc. other semiconductors It is expected that after It has not yet the test and Sales of officially operated results of Taiwan rectifiers, diodes and is still under sample 42,909 (5,580) N/A Dean and other the phase of delivery semiconductors testing and sample ferment in delivery 2021, there will be improveme nt. Note: Taiwan GPP established the subsidiary YangzhouGPP Inc. in Yangzhou in December 2019, and completed foreign investment registration and remitted capital of US$ 330 thousands in March 2020.

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(III) Investment plan for the following year The Company will phase by phase expand the business scale depending on its development; in the future, the remaining subsidiaries will dr aw up new investment plans depending on operating needs at appropriate time. VI. Evaluation on risk issues: Issues among those as enumerated below in the most recent year and as of the date of publication of the Annual Report (I) The impact of interest rates, exchange rate changes and inflation upon the Company's profit and loss and future response measures 1. Impact upon the Company's profit and/or loss (1) Interest rate change and corresponding measures Unit： NT$1,000； % Item Year of 2019 Net operating income 1,757,464 Net pre-tax loss (124,798) Interest income 3,490 Ratio of interest income to net operating income 0.20 Ratio of interest income to net pre-tax loss (2.80) Interest expense 29,240 Ratio of interest expense to net operating income 1.66 Ratio of interest expense to net pre-tax loss 23.43 The company's interest income and interest expenses in 2019 accounted for a low proportion of net operating income. The company has a good credit record and good inter-bank relationship and has obtained sufficient credit lines. The impact of future interest rate changes on the company’s business profits and balance risks is still under control and will not have a significant influence. To reduce the risk of impact of future interest rate fluctuations on profitability, the company plans to effectively improve the credit quality through good asset and liability management to reduce capital costs and attain the best profits. (2) Exchange rate changes and corresponding measures Unit： NT$1,000； % Item Year of 2019 Net foreign exchange balance (597) Ratio of net foreign exchange balance to net operating income (0.03) Ratio of net foreign exchange balance to net pre-tax loss 0.48 The company's products are mainly exported to China, and partially to Europe and the United States. Thus they are mostly denominated and sold in RMB, and partially in US dollar; As for the purchase of raw materials, except for some special raw materials that must be purchased from abroad and denominAted in US dollar, other major raw materials are all from Chinese manufacturers and are mainly denominated in RMB.

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Sales transactions are denominated in RMB and US dollar, and purchase transactions are denominated in RMB and US dollar respectively. The offset of account receivables have a certain natural hedging effect, however the main operating region is China, where the functional currency is RMB and daily expenses are paid in RMB. To reduce the impact of exchange rate fluctuations on the company's balance, the finance department will collect exchange rate information at all times, undertake trend judgment and risk evaluation, maintain close contact with banks, and adjust foreign currency positions at the right time to avoid exchange risk. (3) The impact of inflation and corresponding measures The company pays attention to market price fluctuations at any time and maintains a good interactive relationship with customers and suppliers. If the purchase cost increases on account of inflation, the company will also adjust the sales price appropriately if necessary. Generally speaking, there is no significant impact of inflation on the company's balance. (II) Policies on high-risk and highly leveraged investments, loans to third parties, endorsements/guarantees, and trading of derivatives; describe the main causes of any profit or loss incurred and future responsive measures 1. High-risk, highly leveraged investments: NA. 2. Fund loaned to others: Please refer to Appendix annexed hereto (P.183). 3. Endorsements/guarantees: Please refer to Appendix annexed hereto (P.184). 4. Derivatives: NA. (III) Future research & development plans and the funds budgeted into research & development The company mainly undertakes the research and development, manufacture and sales of rectifier diodes and bridge rectifiers. The R&D products are mostly Open Junction rectifier chips, Glass Passivated rectifier chips, Trench Schottky chips, bridge rectifier components, axial rectifier diodes, surface mount rectifier diodes, automotive rectifier diodes and photovoltaic bypass rectifier diodes. All product requirements conform to industry standards and local regulations and meet customer needs. The applications mainly include green power generation, power management and conversion, line polarity protection and circuit flyback. Major customers are distributed in the industry areas of computer, communications, automotive, and consumer electronics. The company takes the development of light and thin electronic products and the environmental protection trends such as energy conservation and carbon reduction as research direction; in the long term, the company will keep staying ahead of market and

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industrial development trends, invest in diode research and development to accumulate diode R&D strengths, deepen its competitiveness, integrate and adjust key research and development in the service field, pay close attention to the future development of the industry, and timely grasp the development of emerging electronics industry to meet the needs of market trend. The company's future investment expense in research and development is estimated at approximately 3% of the annual operating income. (IV) Financial impacts and responsive measures due to change of local and foreign regulation: The registration country of the company is British Cayman Islands, while the main operating regions are Hong Kong, China and Taiwan. The company's various business is implemented on the basis of major domestic and foreign policies and regulations, and the company always pays attention to the development trend of major domestic and foreign policies and changes of regulations to timely adjust to market environment change and take appropriate corresponding measures. Therefore there is no significant impact of changes of major domestic and foreign policies and regulations on financial operations. (V) Financial impacts and responsive measures due to technological or industrial changes: In the latest year and as of the date of publication of the public statement, no technological or industrial changes that have had a significant impact on the company's financial operations have occurred. Besides continuously improving product quality and dedicating to manufacturing process improvement, the company also introduces new technologies and cooperates closely with customers to stay ahead of the latest trends. Furthermore, the company adopts a sound financial management strategy to maintain market competitiveness. (VI) Crisis management, impacts, and responsive measures due to change of corporate image: The company's management embraces the concept of sustainable management to shaped the corporate culture, and built the external recognition from various fields with a conservative and steady growth pace. Therefore, the corporate culture recognized by the outside and inside of the company is the composition of the corporate image. Hence, the company believes that keeping a stable management is the only way to maintain the company’s corporate image. Any external and internal crisis, as long as the management is stable, will return to the spirit of the company's original establishment under the empirical principle. Thus, since the establishment, there has not been any crisis due to the change of corporate image in the company. (VII) Expected benefits, risks and responsive measures in relation to mergers and acquisitions undertaken:

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The company has no acquisition in 2019 and as of the publication date of the public statement. (VIII) Benefits anticipated from factory expansions, the potential benefits and the corresponding measures. Because it has been more than 20 years since the construction of the company's factory in 1992, the early construction and design, whether it is the management of route, facility planning and installation, are no longer sufficient for today ’s needs. To avoid that the increasingly strict requirements of environmental pollution in the future lead the old factory to no longer meet the government regulations, and to adjust to China's increasing labor costs, the company leased the 45,000 square-meter factory in Beishan Industrial Park, Yangzhou City, Jiangsu Province, from the related party Yangzhou Hongyu Electronic Technology Co., Ltd., introducing automated production to increase production capacity and enhance corporate competitiveness. The factory relocation plan of the company was approved by the board of directors on February 21, 2017. It was planned to produce four-inch wafers with automated equipment; the products are mainly used for various types of discrete components. The company has officially relocated to the first phase area of the new factory on May 12, 2019; the relevant manufacturing process equipments are all in operation, and currently they can all meet the needs of end customers. It is expected that the second phase of the construction will be fully accepted in 2021 Q2. The aforementioned investment case is mainly based on the current market demand for the company ’s business and the improvement for insufficient functions of the existing factory. With the existing customer base and production data as the benchmarks, the case should be feasible and has no potential risks regarding technology or operations. Hence there is no significant adverse impact on the company's financial and operating aspect. (IX) Risks of and countermeasures against the concentration in purchase or sales (1)Risks of purchase concentration and corresponding measures The major raw materials required for the company's production of are wafers, frames, leads, terminals, solders, die and plastic packaging materials. Because of the large number of suppliers of the aforementioned materials and sufficient yet scattered supply, the risk of purchase concentration is relatively low. (2)Risks of sales concentration and corresponding measures The company do not have a trading partner that accounts for more than 30% of the total sales in the latest year and did not focus on the sales of a single customer, therefore the company do not face the risk of sales concentration.

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(X) The impact of a large number of shares transferred or replaced onto the Company by the directors, supervisors or key shareholders holding more than 10% of the shares, the risks of and countermeasures against such acts. The Company's directors and supervisors have held shares exactly pursuant to the percentages as specified by the competent authority(ies) without a large number of transfers and replacements at all. (XI) The impact of a change in the managerial power upon the Company, the potential risks and corresponding measures thereof In the latest year and as of the date of publication, there was no change in management right of the company. The company has strengthened corporate governance measures, introduced independent directors, and established the audit committee in the hopes of enhancing the protection of overall shareholders' equity. Besides, the company's operation relies on professional managers. Business performance is good, and the company has stipulated complete internal control system and relevant management regulations; even if the management right changes in the future, there should not be significant influence on the company's operation (XII) Handing of litigious & non-litigious acts: Nil. (XIII) Other major risks and corresponding measures: (1) Fierce competition in the market leading to cutting-price competition A. Strengthen automated production and actively expand the market to compete for orders to attain economies of scale in production; gain purchase bargaining and more preferential payment terms through the increase in scale. B. Develop new products with high added value, increase the production proportion of new products, and keep strengthening management to maintain and improve stability of product quality. C. Vertical integration of wafer factory resources of the company group. (2) Uncertain policies of different countries' green energy subsidy A. Actively develop new foreign customers outside China to diversify operating risks. B. Continue to cooperate with international manufacturers to provide high-efficiency module products. C. Expand the market of energy-saving products except for solar power. (3)Trend of China’s labor shortage A. Continue to introduce production equipment automation and manufacturing process integration to reduce manpower dependence, and strengthen employee work training to enhance work efficiency for the purpose of reducing the impact of labor costs on operations.

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B. Reflect the cost on product prices at the right time to slow down the impact on the company's gross margin as labor cost rise. C. Actively search for strategic outsourcing suppliers to make up for the gap in production capacity. (4) Risks of shareholders' equity protection There are many differences between the Company Act of British Cayman Islands and that of Taiwan. Although the company has stipulated the Articles of Association according to ”Checklist for the Interest Protection of Shareholders from Registration Country of Foreign Issuer”stipulated by Taiwan Stock Exchange, the regulations of the two places still have lots of differences regarding the rules of company's operations. Thus investors cannot apply the perspective of legal rights protection of investment in Taiwanese companies to the invested Cayman Islands company. Investors should actually understand it and consult experts to determine whether there is unavailable protection of shareholders' equity investing in a British Cayman Islands company. VII. Other important issues: Nil. (I) Explanation of the evaluation of information security risks: As the company relies more and more on the operation of the systems and often implements various business through the Internet, information security is a significant and inevitable challenge. As information security incidents of major companies in the world go viral and security threats such as hacker intrusions, social engineering, drive-by downloads, computer viruses and other are increasing day by day, the company actively enhances information security ability, establishes effective information security management mechanism for the purpose of avoiding waste and loss of the company's resources and preventing damage to goodwill or image. In addition, the company also aims to improve the operating procedure and enhance the efficiency of operations. (II) Corresponding measures for security risks： The company's measures for information security control are as follows：  System backup: Establish a backup mechanism and remote backup storage for the company's important systems, and schedule an annual backup drill contingency operation.  Network security: Establish exclusive corporate level wired and wireless networks and bind them to computers, effectively controlling the usage of network; control the Internet surfing of employees and adopt the conversion mechanism to avoid virus infection or Trojan horse attacks via the Internet.  Mail control: Establish a blocking system for spam filtering, keep promoting relevant information about email social engineering attacks, and undertake click

- 108 - inspection on an irregular basis.  Security Scanning and Viruses: Assign specific people to scan the company's external host for vulnerability every quarter and undertake system vulnerability repair operations.  Establish the anti-virus system for information security and adopt a third-party security project. When there is a suspected attack by a hacker or the system get a virus, the system administrator will be notified via email. Control the installation of software in personal computer to prevent unauthorized softwares.  In the aspect of user endpoint security protection, the company's host server and user computers can be repaired timely, in addition to building an antivirus system and distributing the system update mechanism through Windows.

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Part Eight - Special Remarks I. Information on affiliates (I) Organization chart of affiliated enterprises Mar. 31. 2020

P.T. XXXXX INDONE SIA Shareholding

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(II) Fundamental particulars of affiliated enterprises and the division of labor thereof 2019/3/31 Incorporat Respons Division of labor Presiden Major business lines or Names of enterprises ion Address Capital ible of affiliated t production items Date person enterprises Room 919, Fudu Industrial Building, US$26,746 Jane Jane JETPER Technology Limited 2009/8/14 79-84 Kwai Cheong Road, Kwai Holding Company Share holding million Kao Kao Chung, New Territories, Hong Kong Room 919, Fudu Industrial Building, HY Technology Development (H.K.) Jane Jane Sale of rectifiers, diodes 2013/3/14 79-84 Kwai Cheong Road, Kwai US$1,000 Sales Co., Limited Kao Kao and other semiconductors Chung, New Territories, Hong Kong No. 45, Yongyang East Road, Hanjiang Production and sale of Yang Zhou HY Technology US$26,746 David Chung Production and 2003/11/5 District, Yangzhou City, Jiangsu rectifiers, diodes and other Development Co., Limited million Fang Chi Lin sales Province, China semiconductors Design, No. 7, Gongye 1st Rd., Pingzhen Dist., Jane Jeff Sale of rectifiers, diodes Taiwan GPP Inc. 1993/7/29 NT$200 million production and Taoyuan City Kao Fang and other semiconductors sales No.5 Weichai Avenue, Huaisi Town, Sales of semiconductor Jeff Jeff Yang Zhou GPP Inc. 2019.12.10 Hanjiang District, Yangzhou City, US$0.33 million rectifiers, semiconductors Sales Fang Fang Jiangsu Province, China and components (III) The facts should be disclosed under Article 369-3 of the Company Act, as presumed under control or auxiliary relationship: Nil. (IV) Data of directors and general managers of affiliated enterprises: Mar. 31, 2020; Unit: in share

Names or Shareholding Names of enterprises Occupational title responsible Number of Shareholding persons shares percentage (%)

JETPER Technology Limited President Jane Kao 0 0

HY Technology Development (H.K.) Co., 0 0 President Jane Kao Limited Yang Zhou HY Technology Development 0 0 Chairman David Fang Co., Limited 0 0 Taiwan GPP Inc. Chairman Jane Kao Yang Zhou GPP Inc. President Jeff Fang 0 0

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(V) Financial conditions and financial performance of affiliated enterprises 2020/3/31 ; Unit: US$ thousands, unless otherwise stated Earnings per Operating Operating Current net Names of enterprises Capital Total assets Total liabilities Net worth share (NT$) income margin income (loss) (Loss) JETPER Technology Limited 26,746 39,428 2 39,426 0 (1) 572 Note HY Technology Development 1 552 3,926 431 5 2 1 Note (H.K.) Co., Limited Yang Zhou HY Technology 26,746 70,929 31,721 39,208 9,121 284 572 Note Development Co., Limited Taiwan GPP Inc. NT$200,000 NT$663,702 NT$249,288 NT$414,415 NT$22,33 (NT$28,463) NT$28,516 Note Yang Zhou GPP Inc. 330 394 66 328 32 (1) 2 Note Note: 1. The investees in China are in the type of limited companies, without holding of shares 2. Except Taiwan Glass Electronics in thousand New Taiwan Dollars, thousand US Dollars in all other companies. (VI) The consolidated financial statements of affiliated enterprises: Same as the consolidated financial statements of the Company and its subsidiaries. Please refer to Appendix annexed hereto (P.121~190). (VII) Report on relationship: Nil. II. Private placement of securities in the last year up till the publication date of this annual report: Nil. III. Holding or disposal of the company's shares by subsidiaries in the last year, up till the publication date of this annual report: Nil. IV. Other supplementary information: Major Difference between the Company's Articles of Association and Taiwan's Shareholder Rights Protection Checklist The Company has amended the current Articles of Association according to the major items of shareholders' interest protection listed in “Checklist for the Interest Protection of Shareholders from Registration Country of Foreign Issuer” (hereinafter referred to as the "Checklist for the Interest Protection of Shareholders"), which was amended and announced by the Taiwan Stock Exchange on December 25, 2019. However, the draft of amendments to the Articles of Association are only approved by the company's board of directors and are yet to be approved by the special resolution in the shareholders meeting on June 22, 2020. Besides, because some important items of shareholders' interest protection are not applicable under the regulation of Cayman, they have not been stipulated in the company's Articles of Association. Please refer to the following table for details:

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences 1. Shareholders' meetings shall be convened in the territory of Taiwan. 1. Since shareholders holding shareholders' meeting outside Taiwan by The company shall seek TWSE's approval within two days of (i) the themselves does not require any approval from the local competent passing of the board resolution or (ii) the approval by the competent authority under the Cayman Island Companies Law, Article 19.6 of the authority for convention of shareholders' meeting, if the shareholders' Company's Articles of Association ("AOA") only stipulates that the meeting is to be held outside Taiwan. shareholders shall file with the TWSE or Taipei Exchange for approval before convening a general meeting by themselves, instead of “filing 2. Shareholders continuously holding 3% or more of the total issued shares with the TWSE for approval within two days of receipt by the for a year or longer may submit a proposal to the board of directors, shareholders of the permission from the competent authority” required setting forth the subjects for discussion and reasons, to request by the Shareholder Rights Protection Checklist. This difference does not convention of an extraordinary shareholders' meeting. If the board of substantially affect the rights of shareholders in Taiwan. directors fails to give a notice for convening an extraordinary shareholders' meeting within 15 days of the submission, such 2. In addition, under the Cayman Islands Companies Law, convening an shareholders may convene an extraordinary meeting after obtaining extraordinary shareholders' meeting offshore is not subject to any approval from the competent authority. approval of the local competent agency in the Cayman Islands; thus, Article 19.6 of AOA does not stipulate that the shareholders shall file with the competent authority for approval before convening the extraordinary shareholders meeting. 1. The company may allow its shareholders to exercise voting rights at a With respect to exercise of voting rights of the shareholders in writing or via shareholders' meeting in writing or via electronic transmission; electronic transmission, Cayman Islands Companies Law does not specify provided, however, for the company meeting the conditions under whether a member exercising his voting power by way of written ballot or "Application of Electronic Transmission" prescribed by Taiwan by electronic transmission could be regarded as attending the shareholders' securities authority and the primary exchange-listed company initially meeting in person, and Cayman Islands counsel is not aware of a relevant listing its shares, voting via electronic transmission shall be recognized case law. As an alternative, Article 25.4 of the AOA stipulates that "A as an effective way to exercise shareholder's voting rights. Member who exercises his voting power at a general meeting by way of a written ballot or by electronic transmission shall be deemed to have 2. The method for exercising voting right in writing or via electronic appointed the chairman of the general meeting as his proxy to vote his transmission shall be specified in the notice for convening the shares at the general meeting only in the manner directed by his written shareholders' meeting. A shareholder exercising his voting rights in instrument or electronic document. The chairman of the general meeting writing or via electronic transmission shall be deemed to have attended as proxy shall not have the power to exercise the voting rights of such the shareholders' meeting in person, but shall be deemed to have waived Members with respect to any matters not referred to or indicated in the his voting rights in respect of any extemporary motions and written or electronic document and/or any amendment to resolution(s) amendments to the original proposals at the shareholders' meeting. proposed at the said general meeting. For the purpose of clarification, such Members voting in such manner shall be deemed to have waived their voting rights with respect to any extemporary matters or amendment to

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences resolution(s) proposed at the general meeting." Article 26.3 of the AOA further provides that the voting rights so exercised by such chairman by proxy are exempt from being capped at 3% of the total voting rights represented by the issued and outstanding shares of the Company. Considering that the above-mentioned differences arise from lack of equivalent provisions under Cayman Islands Companies Law, they should have limited effects on the rights of shareholders in Taiwan. The following proposals involving major shareholder rights shall be adopted 1. With reference to the means of resolution by the shareholders' meeting, in by a majority of the voting rights represented by the shares which are held by addition to the ordinary resolution and the supermajority resolution under the shareholders present at the meeting and account for at least two-thirds of Taiwan law, the “Special Resolution” as defined under the Cayman the total issued and outstanding shares of the company. Such proposals may Islands Companies Law is prescribed by Article 1.1 of the AOA, which be adopted by at least two-thirds of the voting rights represented by the shares means subject to Cayman Islands Companies Law, a resolution passed by which are held by the shareholders present at the meeting and account for at at least two-thirds of the votes (as provided in Article 23.1, shareholders least half of the total issued and outstanding shares of the company, if the representing more than one-half of the total issued shares shall be total number of shares held by the shareholders present at the meeting does present at the meeting) cast by shareholders present in person or by proxy not meet the above threshold: or in the case of a corporate or non-natural person shareholder, by representative. 1. Entry into, alteration of or termination of any agreement whereby all businesses are leased, entrusted to others for operation or operated 2. According to the Cayman Islands Companies Law, the following matters continually and jointly with others, assignment of all or a substantial shall be adopted by a special resolution: part of the businesses or property, or assumption of all businesses or property from others by the company that may have a material effect on (1) Change of the AOA: the company's operation; According to the Cayman Islands Companies Law, changes to the AOA shall be subject to Special Resolution. Therefore, the resolution 2. Changes to the articles of association; requirement for changes to the constitutional documents in Article 12.1 of the AOA is not changed to the matters requiring a supermajority 3. A resolution of a preferred shareholders' meeting is necessary to approve resolution under Taiwan law as required by the Shareholder Rights the change to the articles of association that may prejudice the preferred Protection Checklist. In addition, according to Article 13 of the AOA, shareholder rights; any modification or alteration in the Articles is prejudicial to the preferential rights of any class of shares, it shall be passed by a special 4. Distribution of dividends and bonuses in part or in whole by way of resolution at meeting of shareholders of that class of shares, apart from issuance of new shares; being passed by Special Resolution of the Company's general meeting.

5. Resolutions on dissolution, merger or de-merger. (2) Dissolution:

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences Under the Cayman Islands Companies Law, where a company resolves to carry out voluntary liquidation and dissolution due to its failure to repay its debts when due, such dissolution shall be passed by shareholders at the general meeting; provided, where the company voluntarily carries out voluntary liquidation and dissolution, such dissolution shall be passed by a special resolution under the Cayman Islands Companies Law. Accordingly, the resolution requirement for the company's liquidation and dissolution under Article 12.4 of the AOA is not changed to the matters requiring Supermajority Resolution under Taiwan law as required by the Shareholder Rights Protection Checklist.

(3) Merger: Article 12.3(b) of the AOA stipulates that a merger (except for any Merger which falls within the definition of "merger" and/or "consolidation" under the Cayman Islands Companies Law, which requires the approval of the Company by Special Resolution only) shall be passed by Supermajority Resolution, because the Cayman Islands Companies Law contains a compulsory provision regarding the merger defined under Cayman Islands law.

The difference between above-mentioned matters and the Shareholder Rights Protection Checklist lies in the fact that the AOA prescribes the Shareholder Rights Protection Checklist that requires Supermajority Resolution on matters to be approved by a Supermajority Resolution and by a Special Resolution. Such difference should only have limited impact on shareholder rights, because it arises from Cayman Islands law and because the AOA has prescribed the Shareholders' Rights Protection Checklist that requires Supermajority Resolution on matters to be approved by Supermajority Resolution and/or by Special Resolution. 1. Supervisors of the company shall be elected by the shareholders' There is no such a concept as a “supervisor” under Cayman Islands law. In meeting, and at least one supervisor shall have a domicile within addition, no provision relating to supervisors is stipulated in the AOA Taiwan. because the Company has an Audit Committee.

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences 2. The term of office of a supervisor shall not exceed three years, but he may be eligible for re-election.

3. In case all supervisors of the company are discharged, the board of directors shall, within 60 days, convene an extraordinary general meeting to elect new supervisors.

4. Supervisors shall supervise the execution of business operations of the company, and may at any time or from time to time investigate the company's business and financial conditions, inspect, transcribe or make copies of the accounting books and documents, and request the board of directors or officers to make reports thereon.

5. Supervisors shall examine the various statements and records prepared for submission to the shareholders' meeting by the board of directors, and shall make a report on their findings and opinions at the shareholders' meeting.

6. In performing their functional duties, supervisors may appoint, on behalf of the company, a certified public accountant or a lawyer to conduct the examination.

7. Supervisors may attend the meeting of the board of directors to express their opinions. In case the board of directors or any director commits any act in carrying out any business of the company in violation of the laws, regulations, the AOI or the resolutions of the shareholders' meeting, supervisors shall forthwith require the board of directors or the director, as the case may be, to cease such act in a notice.

8. Individual supervisors may solely exercise their respective power of supervision.

9. A supervisor shall not concurrently act as a director, an officer or other staff of the company.

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences 1. Shareholders holding at least 1% of the company's total issued and There is no such a concept as a “supervisor” under Cayman Islands law. In outstanding shares for more than six months are entitled to request, in addition, no provision relating to supervisors is stipulated in the AOA writing, supervisors to file an action against the directors for the because the Company has an Audit Committee. However, by referring to company, with the Taiwan Taipei District Court being the competent the provision of Article 214 of Taiwan's Company Act regarding the filing of court of first instance. an action against directors at the request of minority shareholders, Article 48.3 of the AOA provides that "To the extent permitted under the laws of the 2. In the event that supervisors fail to file such action within 30 days after Cayman Islands, Members continuously holding one per cent (1%) or more the request by the shareholders, the shareholders may file such action for of the total issued shares of the Company for six months or longer may: the company, with the Taiwan Taipei District Court being the competent court of first instance. (a) request in writing the Board to authorise any Independent Director of the Audit Committee to file a petition with the Taipei District Court, ROC for and on behalf of the Company against any of the Directors; or

(b) request in writing any Independent Director of the Audit Committee to file a petition with the Taipei District Court, the ROC for and on behalf of the Company against any of the Directors; or

the Member(s) may, to the extent permitted under the laws of the Cayman Islands, file a petition with the Taiwan Taipei District Court, the ROC for and on behalf of the Company against the relevant Directors within thirty (30) days after such Member(s) having made the request under the preceding clause (a) or (b) if (i) in the case of clause (a), the Board fails to make such authorisation or the Independent Director of the Audit Committee having been authorised by the Board fails to file such petition, or (ii) in the case of clause (b), the Independent Director of the Audit Committee fails to file such petition."

However, Cayman Islands counsel advised on the above provisions from the Cayman Islands law perspective as follows:

There is no specific statutory provision under the Cayman Islands Companies Law which allows minority members to commence derivative action against a director in the courts of the Cayman Islands.

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences

The AOA is not a contract between shareholders and directors; rather, it is a contract between shareholders and the company. Therefore, according to Cayman Islands counsel, even if the AOA permitted minority shareholders to file a derivative action against directors, such directors will not be bound by such permission. However, under the common law, the right to commence a derivative action (including against the directors of the company) is available to all shareholders (including minority shareholders), irrespective of the level of the shareholding or the amount of time they have held their shares. Once the proceedings are commenced by the shareholders, the Cayman Islands court will have the absolute discretion in determining whether or not to allow a derivative action to proceed. That means, even if the AOA contains a provision permitting minority shareholders (or certain shareholders with the requisite shareholding and holding period) to commence an action on behalf of the company against the directors, whether the shareholders will be entitled to continue with the claim is a matter for the Cayman court to decide.

According to a relevant decision given by the Cayman Islands Grand Court, the applicable test when determining whether to give leave to continue a derivative action, was whether the court was satisfied that the plaintiff had a prima facie case both in relation to the merits of the claim on behalf of the company and that the alleged wrongdoing had been perpetrated by those in control of the company and who were in a position to prevent the company from pursuing a claim against them. The court will make its decision based on the facts of each case (though the provisions of the AOA of the company would be a factor but would not be determinative). Under Cayman Islands law, the board of directors is required to act together as a whole (rather than each director acting individually), for and on behalf of the Company. Therefore, the directors are required to pass board resolutions in accordance with the AOA of the Company to authorise any director(s) to commence proceedings on behalf of the Company, against another director.

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences There is no specific statutory provision under the Cayman Islands Companies Law which expressly empowers shareholders to demand the board of directors to convene a board meeting to pass certain resolutions. However, there is nothing under the Cayman Islands Companies Law which prohibits the company from setting out the meeting procedures of board meetings (including how they are to be convened) in its AOA. 1. Director of a company shall have the loyalty and shall exercise the due Though Article 48.4 of the AOA has stipulated that "Without prejudice and care of a good administrator in conducting the business operations of the subject to the general directors' duties that a Director owe to the Company company; and if he/she has acted contrary to this provision, he/she shall and the Members under common law principals and the laws of the Cayman be liable for the damages to be sustained by the company therefrom. In Islands, a Director shall perform his fiduciary duties of loyalty and due care case the responsible person of a company does anything for of a good administrator in the course of conducting the Company’s business, himself/herself or on behalf of another person in violation of the above, and shall indemnify the Company, to the maximum extent legally the shareholders meeting may, by a resolution, consider the profit from permissible, from any loss incurred or suffered by the Company arising from such an act as earnings of the company. breach of his fiduciary duties. If a Director has made any profit for the benefit of himself or any third party as a result of any breach of his fiduciary 2. A director of a company has, in the course of conducting the business duties, the Company shall, if so resolved by the Members by way of an operations, violated any provision of the applicable laws and/or Ordinary Resolution, take all such actions and steps as may be appropriate regulations and thus caused damage to any other person, he/she shall be and to the maximum extent legally permissible to seek to recover such profit liable, jointly and severally, for the damage to such other person. from such relevant Director. If a Director has, in the course of conducting the Company’s business, violated any laws or regulations that causes the 3. Supervisors or managerial officers of a company acting within the scope Company to become liable for any compensation or damages to any person, of their duties shall be held liable as if in the same position as the such Director shall become jointly and severally liable for such directors of the company. compensation or damages with the Company and if for any reason such Director is not made jointly and severally liable with the Company, such Director shall indemnify the Company for any loss incurred or suffered by the Company caused by a breach of duties by such Director. The Officers, in the course of performing their duties to the Company, shall assume such duties and obligations to indemnify the Company in the same manner as if they are Directors."

However, Cayman Islands counsel advises on the above-mentioned Article from the Cayman Islands Law perspective as follows:

The duties of a director owed under Cayman Islands law to his company can

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Major Items for Shareholder Rights Protection The Company's Articles of Association and Reasons for the Differences be conveniently divided into duties at common law, being those of skill, care and diligence, on the one hand, and fiduciary duties, on the other. However, directors also owe statutory duties under various statutes, and, in certain circumstances, may owe duties to third parties such as creditors. Once a company is insolvent or is "doubtfully solvent" the directors must consider the creditors' interests when discharging their duties. Any right to damages sought against the director in relation to the breach of his liability should however be included in his service contract as the memorandum and articles of association is a contract between the company and shareholders to which the director is not a party.

Under Cayman Islands law, managerial officers generally do not owe the same duty to the company and shareholders as owed by the directors. However, if the managerial officer is authorized to act on its behalf in a senior management capacity, he would be subject to the same duties as those imposed on a director. For the avoidance of doubt, generally the employment agreement between the Cayman company and the managerial officer should set out his duties to the Company and shareholders and his liabilities. Again, right to damages sought against the managerial officer in relation to the breach of his liability should however be included in his employment contract as the memorandum and articles of association is a contract between the company and shareholders to which the managerial officer is not a party.

In addition, as to the provisions regarding considering the profit from such an act as earnings of the company, due to the uncertainty and level of comprehensiveness, Cayman Island counsel doubt the enforceability of such provisions. For example, does the breach need to be conclusively determined by a court without appeal and how earnings are determined. The Cayman counsel expressed the opinion that this article does not limit the director's duty, and directors are still subject to various statutory, common law and fiduciary duties. Part Nine - Any occurrence of event defined under Subparagraph 2, Paragraph 2, Article 36 of the "Securities and Exchange Act" in the previous year up till the publication date of this annual report that significantly impacted shareholders’ equity or security prices: Nil.

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Appendix: Consolidated Financial Statements and CPA Review Report in the most recent year

HY ELECTRONIC (CAYMAN) LIMITED and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders HY ELECTRONIC (CAYMAN) LIMITED

Opinion

We have audited the accompanying consolidated financial statements of HY ELECTRONIC (CAYMAN) LIMITED (the “Corporation”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”).

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 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (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 for the year ended December 31, 2019 in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants, Rule No. 1090360805 issued by the Financial Supervisory Commission of the Republic of China on February 25, 2020, and auditing standards generally accepted in the Republic of China. We conducted our audit of the consolidated financial statements for the year ended December 31, 2018 in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2019. 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.

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The key audit matters identified in the consolidated financial statements of the Group for the year ended December 31, 2019 are stated as follows:

Revenue Recognition

HY Group mainly engages in the manufacture and sale of rectifiers, diodes, and related semiconductor components. Sales of solar diode products accounted for a higher proportion of the consolidated operating revenue. In addition, subsidies were reduced for related energy-saving products in certain regions and may affect customers’ willingness to place orders, resulting in increased risk of revenue recognition. Therefore, we considered the occurrence of sales revenue of these products as a key audit matter.

We understood the design of internal control and determined the effectiveness of its implementation. We performed internal control tests by selecting samples from the sales schedule. We reviewed the relevant documents such as orders, packing lists, invoices and collections, etc. to confirm the occurrence of sales revenue.

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 IFRS, IAS, IFRIC, and 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 members of the audit committee) are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

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

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

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

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

6. Obtain sufficient and appropriate audit evidence regarding the financial information of 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 for the year ended December 31, 2019 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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The engagement partners on the audit resulting in this independent auditors’ report are Ya-Ling Wong and Hui-Min Huang.

Deloitte & Touche Taipei, Taiwan Republic of China

March 30, 2020

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with 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 applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

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HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

2019 2018 ASSETS Amount % Amount %

CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) $ 336,074 10 $ 321,721 9 Financial assets at fair value through other comprehensive income (Notes 4 and 8) 995 - 839 - Financial assets at amortized cost (Notes 4, 9 and 32) 62,538 2 109,756 3 Notes and accounts receivable, net (Notes 4, 5, 10 and 24) 710,353 22 704,871 20 Other receivables from related parties (Note 31) 40,473 1 81 - Inventories (Notes 4 and 11) 389,106 12 415,385 12 Prepayments (Notes 28 and 31) 22,449 1 28,795 1 Non-current assets held for sale (Notes 4 and 12) - - 164,573 5 Other current assets 27,142 1 27,082 1

Total current assets 1,589,130 49 1,773,103 51

NON-CURRENT ASSETS Investments accounted for using the equity method (Notes 4 and 14) 37,329 1 - - Property, plant and equipment (Notes 4, 15 and 32) 1,143,107 36 1,372,006 39 Right-of-use assets (Notes 3, 4, 16 and 32) 149,813 5 - - Investment properties (Notes 4, 17 and 32) 193,239 6 208,629 6 Deferred tax assets (Notes 4 and 26) 28,253 1 31,301 1 Prepayments for equipment (Note 15) 50,194 1 59,108 2 Long-term prepayments for leases (Notes 4 and 32) - - 41,722 1 Other non-current assets (Notes 4 and 22) 21,269 1 22,448 -

Total non-current assets 1,623,204 51 1,735,214 49

TOTAL $ 3,212,334 100 $ 3,508,317 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES Short-term borrowings (Notes 18, 31 and 32) $ 393,867 12 $ 385,844 11 Financial liabilities at fair value through profit or loss (Notes 4, 7 and 19) 13,797 1 13,500 - Notes and accounts payable, net 545,960 17 447,048 13 Other payables (Notes 4, 20, 21 and 31) 174,105 5 199,198 6 Current portion of long-term liabilities (Notes 18, 19, 31 and 32) 466,289 15 10,515 - Other current liabilities (Notes 4, 16, 24, 26 and 31) 11,123 - 56,103 2

Total current liabilities 1,605,141 50 1,112,208 32

NON-CURRENT LIABILITIES Bonds payable (Notes 4 and 19) - - 476,718 13 Long-term borrowings (Notes 18, 31 and 32) 124,205 4 76,516 2 Lease liabilities (Notes 3, 4, 16 and 31) 107,289 3 - - Long-term finance lease payables from related parties (Notes 4, 20 and 31) - - 267,402 8 Other non-current liabilities (Notes 4 and 26) 172 - 89 -

Total non-current liabilities 231,666 7 820,725 23

Total liabilities 1,836,807 57 1,932,933 55

EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION (Notes 4 and 23) Ordinary shares 674,993 21 658,530 19 Capital surplus 343,464 11 343,464 10 Retained earnings 338,073 10 477,224 14 Other equity (106,429) (3) (54,591) (2)

Total equity attributable to owners of the corporation 1,250,101 39 1,424,627 41

NON-CONTROLLING INTERESTS 125,426 4 150,757 4

Total equity 1,375,527 43 1,575,384 45

TOTAL $ 3,212,334 100 $ 3,508,317 100

The accompanying notes are an integral part of the consolidated financial statements.

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HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share)

2019 2018 Amount % Amount %

OPERATING REVENUE (Notes 4 and 24) $ 1,757,464 100 $ 2,063,177 100

OPERATING COST (Notes 11 and 25) 1,637,605 93 1,797,576 87

GROSS PROFIT 119,859 7 265,601 13

OPERATING EXPENSES (Notes 10, 25 and 31) Selling and marketing expenses 98,116 6 106,917 5 General and administrative expenses 123,628 7 130,132 6 Research and development expenses 68,532 4 69,126 4 Expected credit loss (gain) (11,829) (1) 41,097 2

Total operating expenses 278,447 16 347,272 17

LOSS FROM OPERATIONS (158,588) (9) (81,671) (4)

NON-OPERATING INCOME AND EXPENSES (Notes 4, 12, 14, 17,19, 25, 28, 31 and 33) Gain from bargain purchase - - 137,282 7 Other gains and losses 19,113 1 (5,009) - Finance costs (29,240) (2) (41,662) (2) Share of loss of associates (5,580) - - - Gain on disposal of non-current assets held for sale 50,094 3 - - Foreign exchange gain (loss), net (597) - 4,048 -

Total non-operating income and expenses 33,790 2 94,659 5

PROFIT (LOSS) BEFORE INCOME TAX (124,798) (7) 12,988 1

INCOME TAX EXPENSE (BENEFIT) (Notes 4 and 26) 6,824 - (9,943) -

NET PROFIT (LOSS) FOR THE YEAR (131,622) (7) 22,931 1

OTHER COMPREHENSIVE INCOME (LOSS) (Note 4) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligation 19 - 544 - Unrealized gain (loss) on investments in equity instruments at fair value through other comprehensive income 157 - 298 - 176 - 842 - (Continued)

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HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share)

2019 2018 Amount % Amount %

Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translating the financial statements of foreign operations $ (51,948) (3) $ (15,055) (1)

Other comprehensive loss for the year, net of income tax (51,772) (3) (14,213) (1)

TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR $ (183,394) (10) $ 8,718 -

NET PROFIT (LOSS) ATTRIBUTABLE TO: Owners of the Corporation $ (106,238) (6) $ 35,390 2 Non-controlling interests (25,384) (1) (12,459) (1)

$ (131,622) (7) $ 22,931 1

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Corporation $ (158,063) (9) $ 20,925 1 Non-controlling interests (25,331) (1) (12,207) (1)

$ (183,394) (10) $ 8,718 -

EARNINGS (LOSS) PER SHARE (Note 24) Basic $ (1.57) $ 0.54 Diluted $ (1.57) $ 0.54

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

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HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

Entity Attributable to Owners of the Corporation Other Equity Unrealized Gain (Loss) on Foreign Financial Currency Assets at Fair Translation Value Though Share Capital - Ordinary Shares Retained Earnings Reserve Other Shares in Capital Special Unappropriated Foreign Comprehensive Non-controlling Thousands Amount Surplus Legal Reserve Reserve Earnings Total Operations Income Total Total Interests Total Equity

BALANCE AT JANUARY 1, 2018 63,353 $ 633,530 $ 248,420 $ 16,217 $ 18,728 $ 469,861 $ 504,806 $ (39,745) $ - $ (39,745) $ 1,347,011 $ - $ 1,347,011

Appropriation of the 2017 earnings Legal reserve - - - 17,777 - (17,777) ------Special reserve - - - - 21,017 (21,017) ------Cash dividends to shareholders - - - - - (63,353) (63,353) - - - (63,353) - (63,353)

Net profit (loss) for the year ended December 31, 2018 - - - - - 35,390 35,390 - - - 35,390 (12,459) 22,931

Total comprehensive income (loss) for the year ended December 31, 2018 - - - - - 381 381 (15,055) 209 (14,846) (14,465) 252 (14,213)

Issuance of ordinary shares 2,500 25,000 75,000 ------100,000 - 100,000

Equity component of convertible bonds issued by the Corporation - - 18,451 ------18,451 - 18,451

Recognition of employee share options by the Corporation - - 1,593 ------1,593 - 1,593

Changes in non-controlling interests ------162,964 162,964

BALANCE AT DECEMBER 31, 2018 65,853 658,530 343,464 33,994 39,745 403,485 477,224 (54,800) 209 (54,591) 1,424,627 150,757 1,575,384

Appropriation of the 2018 earnings Legal reserve - - - 3,539 - (3,539) ------Special reserve - - - - 14,846 (14,846) ------Share dividends to shareholders 1,646 16,463 - - - (16,463) (16,463) ------Cash dividends to shareholders - - - - - (16,463) (16,463) - - - (16,463) - (16,463)

Net loss for the year ended December 31, 2019 - - - - - (106,238) (106,238) - - - (106,238) (25,384) (131,622)

Total comprehensive income (loss) for the year ended December 31, 2019 - - - - - 13 13 (51,948) 110 (51,838) (51,825) 53 (51,772)

BALANCE AT DECEMBER 31, 2019 67,499 $ 674,993 $ 343,464 $ 37,533 $ 54,591 $ 245,949 $ 338,073 $ (106,748) $ 319 $ (106,429) $ 1,250,101 $ 125,426 $ 1,375,527

The accompanying notes are an integral part of the consolidated financial statements.

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HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES Profit (loss) before income tax $ (124,798) $ 12,988 Adjustments for: Depreciation expenses 131,220 151,447 Amortization expenses 1,849 2,233 Expected credit loss recognized (reversal of impairment loss) on accounts receivable (11,829) 41,097 Net loss on fair value change of financial liabilities at fair value through profit or loss 1,073 9,400 Finance costs 29,240 41,662 Interest income (3,490) (2,149) Compensation costs of employee share-based payments - 1,593 Share of loss of associates 5,580 - Loss on disposal of property, plant and equipment 688 6,046 Gain on lease modification (3,736) - Gain on disposal of investment properties - (762) Gain on disposal of non-current assets held for sale (50,094) - Gain from bargain purchase - (137,282) Write-down of inventories 38,466 33,474 Loss (gain) on foreign exchange, net (10,334) 3,746 Gain on bond redemption (1,813) - Amortization of long-term prepayments for leases - 1,054 Changes in operating assets and liabilities Notes and accounts receivable (20,875) 273,078 Other receivables from related parties (395) (58) Inventories (7,780) (98,612) Prepayments 5,918 (6,421) Other current assets 2,290 (11,585) Notes and accounts payable 128,432 (250,754) Other payables (30,835) (20,298) Other current liabilities (4,264) 40,567 Other non-current liabilities 83 - Cash generated from operations 74,596 90,464 Income tax paid (6,237) (10,771)

Net cash generated from operating activities 68,359 79,693

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at fair value through other comprehensive income - (3) Purchase of financial assets at amortized cost 47,200 (87,029) Acquisition of associates (42,909) - Net cash outflow on acquisition of subsidiaries - (229,993) Proceeds from the disposal of non-current assets held for sale 130,667 - Payments for property, plant and equipment (174,159) (271,612) (Continued)

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HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

2019 2018

Proceeds from the disposal of property, plant and equipment $ 1,144 $ 1,690 Proceeds from disposal of investment properties - 5,918 Decrease (increase) in other non-current assets (965) 60,309 Interest received 3,364 2,149

Net cash used in investing activities (35,658) (518,571)

CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings 785,524 1,018,827 Decrease in short-term borrowings (765,062) (1,076,998) Issuance of corporate bonds - 500,000 Repayments of bond payables (29,945) - Proceeds from long-term borrowing 60,000 - Repayments of long-term borrowings (10,633) (10,221) Repayment of the principal portion of lease liabilities (17,431) - Cash dividends paid (16,463) (63,353) Issuance of ordinary shares - 100,000 Interest paid (14,665) (38,214)

Net cash (used in) generated from financing activities (8,675) 430,041

EFFECTS OF EXCHANGE RATE CHANGES ON CASH (9,673) 3,695

NET INCREASE (DECREASE) IN CASH 14,353 (5,142)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 321,721 326,863

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 336,074 $ 321,721

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

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HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL

HY ELECTRONIC (CAYMAN) LIMITED (the “Corporation”) was incorporated in 2009 in the Cayman Islands. The Corporation was originally 100% owned by Top Mission Limited. Multi-Glory Services Inc. has become the parent company since some shares were transferred from Top Mission Limited to Multi-Glory Services Inc. in October 2016. Multi-Glory Services Inc. owned 59% shares of the Corporation on December 31, 2019. The Corporation engage in the manufacture and sale of rectifiers, diode, and related semiconductor components.

Its shares have been listed on the Taiwan Stock Exchange since September 26, 2017.

The consolidated financial statements are presented in New Taiwan dollars which is the functional currency of the Corporation.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the board of directors on March 20, 2020.

3. APPLICATION OF NEW AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC did not have any material impact on the accounting policies of the Corporation and its subsidiaries (collectively referred to as the “Group”):

 IFRS 16 “Leases”

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessee and lessor. It supersedes IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, and a number of related interpretations. Refer to Note 4 for information relating to the relevant accounting policies.

Definition of a lease

The Group elects to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 are not reassessed and are accounted for in accordance with the transitional provisions under IFRS 16.

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The Group as lessee

The Group recognizes right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value asset and short-term leases are recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group presents the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities and the interest portion are classified within financing activities. Prior to the application of IFRS 16, payments under operating lease contracts are recognized as expenses on a straight-line basis. Prepaid lease payments for land use rights of land located in China are recognized as prepayments for leases. Cash flows for operating leases are classified within operating activities on the consolidated statements of cash flows. Leased assets and finance lease payables were recognized on the consolidated balance sheets for contracts classified as finance leases.

The Group elects to apply IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized in retained earnings on January 1, 2019. Comparative information is not restated.

The lease liabilities were recognized on January 1, 2019 for leases previously classified as operating leases under IAS 17. Lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments. The Group applies IAS 36 to all right-of-use assets.

The Group applies the following practical expedients:

1) The Group applies a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.

2) The Group accounts for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.

3) The Group excludes initial direct costs from the measurement of right-of-use assets on January 1, 2019.

4) The Group uses hindsight, such as in determining lease terms, to measure lease liabilities.

For leases previously classified as finance leases under IAS 17, the carrying amounts of right-of-use assets and lease liabilities on January 1, 2019 are determined as at the carrying amounts of the respective leased assets and finance lease payables on December 31, 2018.

The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 is 5.91%. The difference between the (i) lease liabilities recognized and (ii) operating lease commitments disclosed under IAS 17 on December 31, 2018 is explained as follows:

The future minimum lease payments of non-cancellable operating lease commitments on December 31, 2018 $ 462,833 Less: Recognition exemption for leases of low-value assets (149) Less: Recognition exemption for short-term leases (3,531)

Undiscounted amounts on January 1, 2019 $ 459,153

Discounted amounts using the incremental borrowing rate on January 1, 2019 $ 281,360

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The Group as lessor

The Group does not make any adjustments for leases in which it is a lessor, and it accounts for those leases with the application of IFRS 16 starting from January 1, 2019.

The impact on assets, liabilities and equity as of January 1, 2019 from the initial application of IFRS 16 is set out as follows:

Adjustments As Originally Arising from Stated on Initial Restated on January 1, 2019 Application January 1, 2019

Prepayments for leases (included in other current assets) $ 178 $ (178) $ - Right-of-use assets - 275,018 275,018 Lease assets 268,983 (268,983) -

Total effect on assets $ 269,161 $ 5,857 $ 275,018

Lease liabilities - current $ - $ 11,732 $ 11,732 Finance lease payables - current 8,101 (8,101) - Lease liabilities - non-current - 269,628 269,628 Finance lease payables - non-current 267,402 (267,402) -

Total effect on liabilities $ 275,503 $ 5,857 $ 281,360 b. The IFRSs endorsed by the Financial Supervisory Commission (FSC) for application starting from 2020

New, Amended or Revised Standards and Interpretations Effective Date (the “New IFRSs”) Announced by IASB (Note 1)

Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 1) Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark January 1, 2020 (Note 2) Reform” Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)

Note 1: The Group shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

Note 2: The Group shall apply these amendments retrospectively for annual reporting periods beginning on or after January 1, 2020.

Note 3: The Group shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.

As of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards described above and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

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c. New IFRSs in issue by International Accounting Standards Board (IASB) but not yet endorsed and issued into effect by the FSC

Effective Date New IFRSs Announced by IASB (Note)

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined by IASB between An Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 “Classification of Liabilities as Current or January 1, 2022 Non-current”

Note: Unless stated otherwise, the above New IFRSs are effective for annual reporting periods beginning on or after their respective effective dates.

As of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

3) Level 3 inputs are unobservable inputs for an asset or liability.

c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within 12 months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

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Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

2) Liabilities due to be settled within 12 months after the reporting period; and

3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current. d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Corporation and the entities controlled by the Corporation (i.e., its subsidiaries).

Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement comprehensive income from the effective dates of acquisitions up to the effective dates of disposals, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Corporation. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Corporation and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

See Note 13 and Tables 7 and 8 for detailed information on subsidiaries including percentages of ownership and main businesses. e. Business combinations

Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are generally recognized in expenses as they are incurred and services are acquired.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interests in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held interests in the acquiree, the excess is recognized immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value. f. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (i.e., foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

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At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

For the purpose of presenting consolidated financial statements, the functional currencies of the Corporation and the group entities (including subsidiaries in other countries that use currencies which are different from the currency of the Corporation) are translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income attributed to the owners of the Corporation and non-controlling interests as appropriate. g. Inventories

Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at the weighted-average cost. h. Investment in associates

An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor an interest in a joint venture.

Group uses the equity method to account for its investments in associates.

Under the equity method, investments in an associate are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of the equity of associates.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When the Corporation subscribes for additional new shares of 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 associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in capital surplus from investments in associates and joint ventures accounted for using the equity method. If the Group’s ownership interest is reduced due to its additional subscription of the new shares of the associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required had the investee directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for using the equity method is insufficient, the shortage is debited to retained earnings.

When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further loss, if any. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

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The entire carrying amount of an investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date, and the fair value is regarded as the investment’s fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required had that associate directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture, the Group continues to apply the equity method and does not remeasure the retained interest.

When the Group transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group. i. Property, plant and equipment

Property, plant and equipment are measured at cost less accumulated depreciation. Before January 1, 2019, property, plant and equipment also included assets held under finance leases.

Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. For assets which were held under finance leases before January 1, 2019, if their respective lease terms are shorter than their useful lives, such assets are depreciated over their lease terms. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss. j. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties also include land held for a currently undetermined future use.

Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

On derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount of the asset is included in profit or loss. k. Intangible assets

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization of intangible assets is recognized using in the straight-line method. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

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l. Impairment of tangible and intangible assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered any impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the smallest group of cash-generating units on a reasonable and consistent basis of allocation.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

Before the Group recognizes an impairment loss from assets related to contract costs, any impairment loss on inventories, property, plant and equipment and intangible assets related to the contract shall be recognized in accordance with applicable standards. Then, impairment loss from the assets related to the contract costs is recognized to the extent that the carrying amount of the assets exceeds the remaining amount of consideration that the Group expects to receive in exchange for related goods or services less the costs which relate directly to providing those goods or services and which have not been recognized as expenses. The assets related to the contract costs are then included in the carrying amount of the cash-generating unit to which they belong for the purpose of evaluating impairment of that cash-generating unit.

When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset, cash-generating unit or assets related to contract costs is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset, cash-generating unit or assets related to contract costs in prior years. A reversal of an impairment loss is recognized in profit or loss. m. Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset is available for immediate sale in its present condition. To meet the criteria for the sale being highly probable, the appropriate level of management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within 1 year from the date of classification.

Non-current assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Recognition of depreciation of those assets would cease. n. Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

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1) Financial assets

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

a) Measurement categories

Financial assets are classified into the following categories: Financial assets at amortized cost and investments in equity instruments at FVTOCI.

i. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalent and notes and accounts receivables at amortized cost, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for:

i) Purchased or originated credit-impaired financial assets, for which interest income is calculated by applying the credit adjusted effective interest rate to the amortized cost of such financial assets; and

ii) Financial assets that are not credit impaired on purchase or origination but have subsequently become credit impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

A financial asset is credit impaired when one or more of the following events have occurred:

i) Significant financial difficulty of the issuer or the borrower;

ii) Breach of contract, such as a default;

iii) It is becoming probable that the borrower will enter bankruptcy or undergo a financial reorganization; or

iv) The disappearance of an active market for that financial asset because of financial difficulties.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

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ii. Investments in equity instruments at FVTOCI

On initial recognition, the Group may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead, it will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment. b) Impairment of financial assets and contract assets

The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including notes and accounts receivable).

The loss allowance for accounts receivable is measured at an amount equals to lifetime expected credit losses (ECLs). For financial assets at amortized cost and investments in debt instruments that are measured at FVTOCI, when the credit risk on the financial instrument has not increased significantly since initial recognition, a loss allowance is recognized at an amount equal to expected credit losses resulting from possible default events of a financial instrument within 12 months after the reporting date. If, on the other hand, there has been a significant increase in credit risk since initial recognition, a loss allowance is recognized at an amount equal to expected credit loss resulting from all possible default events over the expected life of a financial instrument.

Expected credit losses reflect the weighted average of credit losses with the respective risks of default occurring as the weights. 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. In contrast, lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument.

For internal credit risk management purposes, the Group determines that the following situations indicate that a financial asset is in default (without taking into account any collateral held by the Group):

i. Internal or external information show that the debtor is unlikely to pay its creditors.

ii. When a financial asset is more than 90 days past due unless the Group has reasonable and corroborative information to support a more lagged default criterion.

The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. c) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

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On derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in an equity instrument at FVTOCI, the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

2) Financial liabilities

a) Subsequent measurement

Except the following situations, all financial liabilities are measured at amortized cost using the effective interest method:

 Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when such financial liabilities are held for trading, with any gain or loss arising on remeasurement recognized in profit or loss.

Fair value is determined in the manner described in Note 30.

b) Derecognition of financial liabilities

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

3) Convertible bonds

The component parts of compound instruments (i.e., convertible bonds) issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

On initial recognition, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or upon the instrument’s maturity date. Any embedded derivative liability is measured at fair value.

The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as liabilities component and equity will remain in equity until the conversion option is exercised; in which case, the balance recognized in equity will be transferred to share capital and capital surplus - share premiums. When the conversion option remains unexercised at maturity, the balance recognized in equity will be transferred to capital surplus - share premiums.

Transaction costs that relate to the issuance of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component. o. Revenue recognition

The Group identifies contracts with customers, allocates the transaction price to the performance obligations and recognizes revenue when performance obligations are satisfied.

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Revenue from the sale of goods comes from sales of electronic equipment. Sales of electronic equipment are recognized as revenue when the goods are shipped because it is the time when the customer has the primary responsibility for sales to future customers and bears the risks of obsolescence. Accounts receivables are recognized concurrently.

The Group does not recognize sales revenue on materials delivered to and from subcontractors because this delivery does not involve a transfer of risks and rewards of the materials’ ownership.

For contracts to sell properties in the ordinary course of business, the fixed transaction price is received in instalments and recognized as a contract liability. The transaction price, after adjusting for the effect of the significant financing component, is recognized as revenue when the construction is completed and the property is transferred to the buyer. p. Leasing

2019

At the inception of a contract, the Group assesses whether the contract is, or contains, a lease.

1) The Group as lessor

Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Lease payments (less any lease incentives payable) from operating leases are recognized as income on a straight-line basis over the terms of the relevant leases. Initial direct costs incurred in obtaining operating leases are added to the carrying amounts of the underlying assets and recognized as expenses on a straight-line basis over the lease terms.

When a lease includes both land and building elements, the Group assesses the classification of each element separately as a finance or an operating lease based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the lessee. The lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of a contract. If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with its lease classification. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases; in which case, the entire lease is classified as an operating lease.

2) The Group as lessee

The Group recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus any initial direct costs. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

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Lease liabilities are initially measured at the present value of the lease payments which comprise fixed payments. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses the lessee’s incremental borrowing rate.

Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Group remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line in the consolidated balance sheets.

2018

Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

2) The Group as lessee

Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is a finance lease obligation.

Finance expenses implicit in lease payments for each period are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets; in which case, they are capitalized.

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

3) Leasehold land and buildings for own use

When a lease includes both land and building elements, the Group assesses the classification of each element separately as a finance or an operating lease based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the lessee. The minimum lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with its lease classification. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases; in which case, the entire lease is classified as an operating lease.

4) Long-term prepayment for leases

Long-term prepayment for leases is recognized as land use right and amortized on a straight-line basis over 36 to 50 years.

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q. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related services.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered services entitling them to the contributions.

The pensions of the subsidiary in the China is submitted and allocated according to the relevant regulations of the central and local governments, and various insurances and allowances are allocated to the individual labor account according to the specific proportion of the employees’ monthly salary base. r. Employee share options

The fair value at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Group’s best estimates of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. It is recognized as an expense in full at the grant date if vested immediately.

At the end of each reporting period, the Group revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expenses reflect the revised estimate, with a corresponding adjustment to capital surplus - employee share options. s. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. If a temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit, the resulting deferred tax asset or liability is not recognized.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

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Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Estimated impairment of financial assets

The provision for impairment of accounts receivables is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Group’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

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6. CASH

December 31 2019 2018

Cash on hand $ 2,213 $ 2,363 Checking accounts and demand deposits 309,877 319,358 Cash equivalents (investments with original maturities of less than 3 months) Time deposits 23,984 -

$ 336,074 $ 321,721

7. FINANCIAL INSTRUMENTS AT FVTPL

December 31 2019 2018

Financial liabilities at FVTPL - current

Financial liabilities held for trading Derivative financial liabilities (not under hedge accounting) Convertible options $ 13,797 $ 13,500

8. FINANCIAL ASSETS AT FVTOCI

The following are investments in equity instruments as at FVTOCI:

December 31 2019 2018

Current

Domestic investments TPEx-listed shares $ 995 $ 839

The management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments.

9. FINANCIAL ASSETS AT AMORTIZED COST

December 31 2019 2018

Current

Domestic investments Time deposits with original maturities of more than 3 months $ - $ 49,872 Restricted demand deposits 62,538 59,884

$ 62,538 $ 109,756

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Refer to Note 32 for information relating to investments in financial assets at amortized cost pledged as security.

10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

December 31 2019 2018

Notes receivable

At amortized cost Gross carrying amount $ 103,816 $ 112,316 Less: Allowance for impairment loss (5,646) (15,630) 98,170 96,686 Accounts receivable

At amortized cost Gross carrying amount 642,281 646,808 Less: Allowance for impairment loss (30,098) (38,623) 612,183 608,185

$ 710,353 $ 704,871

The average credit period of sales of goods was 30-150 days. No interest was charged on notes and accounts receivable from the date of the invoice. The Group adopted a policy of only dealing with entities that are rated the equivalent of investment grade or higher and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored to manage the credit exposure.

The Group measures the loss allowance for accounts receivable at an amount equal to lifetime ECLs by reference to the past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions and forecasted direction of the industry. The Group writes off a accounts receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For accounts receivable that have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized in profit or loss.

a. Notes receivable

December 31, 2019

Not Past 91 to 180 181 to 365 Over 365 Due 1 to 90 Days Days Days Days Total

Gross carrying amount $ 40,099 $ - $ 60,542 $ 3,175 $ - $ 103,816 Loss allowance (Lifetime ECL) - - (4,059) (1,587) - (5,646)

Amortized cost $ 40,099 $ - $ 56,483 $ 1,588 $ - $ 98,170

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December 31, 2018

Not Past 91 to 180 181 to 365 Over 365 Due 1 to 90 Days Days Days Days Total

Gross carrying amount $ 20,874 $ - $ 75,226 $ 16,216 $ - $ 112,316 Loss allowance (Lifetime ECL) - - (7,522) (8,108) - (15,630)

Amortized cost $ 20,874 $ - $ 67,704 $ 8,108 $ - $ 96,686

The movements of the loss allowance of notes receivables were as follows:

For the Year Ended December 31 2019 2018

Balance at January 1 $ 15,630 $ - Add: Net remeasurement of loss allowance - 15,926 Less: Net remeasurement of loss allowance (9,764) - Foreign exchange gains and losses (220) (296)

Balance at December 31, 2019 $ 5,646 $ 15,630 b. Accounts receivable

December 31, 2019

Not Past 91 to 180 181 to 365 Over 365 Due 1 to 90 Days Days Days Days Total

Gross carrying amount $ 525,940 $ 74,667 $ 11,872 $ 16,155 $ 13,647 $ 642,281 Loss allowance (Lifetime ECL) - (469) (1,017) (14,965) (13,647) (30,098)

Amortized cost $ 525,940 $ 74,198 $ 10,855 $ 1,190 $ - $ 612,183

December 31, 2018

Not Past 91 to 180 181 to 365 Over 365 Due 1 to 90 Days Days Days Days Total

Gross carrying amount $ 482,413 $ 135,366 $ 11,372 $ 7,317 $ 10,340 $ 646,808 Loss allowance (Lifetime ECL) (14,702) (2,183) (4,495) (6,903) (10,340) (38,623)

Amortized cost $ 467,711 $ 133,183 $ 6,877 $ 414 $ - $ 608,185

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The movements of the loss allowance of accounts receivable were as follows:

For the Year Ended December 31 2019 2018

Balance at January 1 $ 38,623 $ 14,287 Add: Loss allowance from business combinations (Note) - 583 Add: Net remeasurement of loss allowance - 25,171 Less: Net remeasurement of loss allowance (2,065) - Less: Amounts written off (5,235) (710) Foreign exchange gains and losses (1,225) (708)

Balance at December 31 $ 30,098 $ 38,623

Note: The increase resulted from the Group’s acquisition of subsidiary on January 2, 2018.

There is no balance larger than 10% of total accounts receivable except the following:

December 31 2019 2018

Company A $ 93,914 $ - Company B - 124,176

11. INVENTORIES

December 31 2019 2018

Finished goods $ 177,535 $ 154,000 Work in progress 138,076 172,958 Raw materials 73,495 88,427

$ 389,106 $ 415,385

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2019 and 2018 were $1,635,214 thousand and $1,757,158 thousand, respectively. The cost of goods sold for the years ended December 31, 2019 and 2018 included inventory write-downs of $38,466 thousand and $33,474 thousand, respectively.

12. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE

December 31, 2018

Freehold land held for sale $ 80,455 Factory building held for sale 65,052 Equipment held for sale 19,066

$ 164,573

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In October 2018, the board of directors resolved to dispose of part of TAIWAN GPP INC.’s land, factory building and equipment to Taiwan Dean Technology Co., Ltd., which has been an associate since April 2019. The transferring price was negotiated at $220,000 thousand and the ownership of the assets had been transferred in February 2019. As of December 31, 2019, the Group received $180,000 thousand and recognized gain on disposal amounted to $50,094 thousand. The residual amount $40,000 thousand is included in other receivables from related parties, refer to Note 31.

13. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements

Proportion of Ownership (%) December 31 Investor Investee Nature of Activities 2019 2018

The Corporation JETPER TECHNOLOGY LIMITED General investment 100 100 (JETPER) HY TECHNOLOGY Sale of rectifier, diode, and the 100 100 DEVELOPMENT (H.K.) CO., semiconductors LIMITED (HY H.K.) TAIWAN GPP INC. (TAIWAN GPP) Design, innovation, manufacture, and 70 70 sale of wafer, rectifier, and other semiconductors JETPER YANGZHOU HY TECHNOLOGY Manufacture and sale of wafer, 100 100 DEVELOPMENT CO., LIMITED rectifier, and other semiconductors (YANGZHOU HY) TAIWAN GPP YANGZHOU GPP INC. Sale of semiconductor rectifier, 100 - Note (YANGZHOU GPP) semiconductors, components and parts

Note: TAIWAN GPP established its subsidiary YANGZHOU GPP at Yangzhou in December 2019. TAIWAN GPP completed its foreign investment registration and remitted funds which amounted to US$330 thousand in March 2020.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates

December 31, 2019

Associates that are not individually material Taiwan Dean Technology, Co., Ltd. (“Taiwan Dean Technology”) $ 37,329

Aggregate information of associates that are not individually material

December 31, 2019

The Group’s share of: Loss from continuing operations for the year $ (5,580)

Investments were accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements of the same period which have been audited.

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15. PROPERTY, PLANT AND EQUIPMENT

Other Leasehold Construction in Land Buildings Machinery Equipment Leased assets Improvement Progress Total Cost

Balance at January 1, 2018 $ 76,597 $ 162,323 $ 726,374 $ 110,309 $ - $ - $ 43,193 $ 1,118,796 Additions - 350 75,642 17,845 288,414 - 117,156 499,407 Disposals - (8,118 ) (6,966 ) (4,209 ) - - - (19,293 ) Reclassification - - 13,435 6,457 - - - 19,892 Acquiring from merging 263,191 176,319 94,560 21,300 - - - 555,370 Reclassification for held for sold (80,455 ) (73,773 ) (31,564 ) (7,291 ) - - - (193,083 ) Effect of foreign currency exchange differences - (1,406 ) (13,919 ) (2,143 ) (5,274 ) - (2,800 ) (25,542 )

Balance at December 31, 2018 $ 259,333 $ 255,695 $ 857,562 $ 142,268 $ 283,140 $ - $ 157,549 $ 1,955,547

Accumulated depreciation

Balance at January 1, 2018 $ - $ 63,564 $ 368,632 $ 56,623 $ - $ - $ - $ 488,819 Depreciation expenses - 23,438 83,390 22,724 14,421 - - 143,973 Disposals - (2,797 ) (5,804 ) (2,956 ) - - - (11,557 ) Reclassification for held for sold - (8,721 ) (18,540 ) (1,249 ) - - - (28,510 ) Effect of foreign currency exchange differences - (853 ) (6,881 ) (1,186 ) (264 ) - - (9,184 )

Balance at December 31, 2018 $ - $ 74,631 $ 420,797 $ 73,956 $ 14,157 $ - $ - $ 583,541

Carrying amounts at December 31, 2018 $ 259,333 $ 181,064 $ 436,765 $ 68,312 $ 268,983 $ - $ 157,549 $ 1,372,006

Cost

Balance at January 1, 2019 $ 259,333 $ 255,695 $ 857,562 $ 142,268 $ 283,140 $ - $ 157,549 $ 1,955,547 Additions - 1,663 65,355 18,479 - 63,408 39,694 188,599 Disposals - - (40,801 ) (1,983 ) - - - (42,784 ) Reclassification for right-of-use assets - - - - (283,140 ) - - (283,140 ) Reclassification for leasehold improvement - - - - - 180,642 (180,642 ) - Effect of foreign currency exchange differences - (3,308 ) (37,437 ) (5,245 ) - (12,061 ) 2,124 (55,927 )

Balance at December 31, 2019 $ 259,333 $ 254,050 $ 844,679 $ 153,519 $ - $ 231,989 $ 18,725 $ 1,762,295

Accumulated depreciation

Balance at January 1, 2019 $ - $ 74,631 $ 420,797 $ 73,956 $ 14,157 $ - $ - $ 583,541 Depreciation expenses - 14,530 70,572 21,922 - 6,392 - 113,416 Disposals - - (39,030 ) (1,922 ) - - - (40,952 ) Reclassification for right-of-use assets - - - - (14,157 ) - - (14,157 ) Effect of foreign currency exchange differences - (2,057 ) (16,964 ) (3,374 ) - (265 ) - (22,660 )

Balance at December 31, 2019 $ - $ 87,104 $ 435,375 $ 90,582 $ - $ 6,127 $ - $ 619,188

Carrying amounts at December 31, 2019 $ 259,333 $ 166,946 $ 409,304 $ 62,937 $ - $ 225,862 $ 18,725 $ 1,143,107

The above items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives as follows:

Category Year

Buildings Main buildings 19-50 years Other 5-27 years Machinery 5-10 years Other equipment 2-10 years Leased assets (reclassification for right-of-use assets since January 1, 2019) 20 years Leasehold improvement 19 years

The Group accumulated depreciation by evaluating individually the service life of the significant component of each property, plant and equipment.

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The price of acquisition of property, plant and equipment includes the prepayment and account payable for the equipment. The relevant reconciliation is as follows:

For the Year End December 31 2019 2018

Payments for property, plant and equipment $ 188,599 $ 499,407 Increase the lease asset - (288,414) Increase (decrease) prepayment for the equipment (7,572) 49,702 Decrease (increase) payables on equipment (6,868) 10,917

$ 174,159 $ 271,612

Property, plant and equipment pledged as collaterals for bank borrowing are set out in Note 32.

16. LEASE ARRANGEMENTS

a. Right-of-use assets - 2019

December 31, 2019

Carrying amounts

Buildings $ 107,211 Land 39,061 Transportation equipment 3,471 Machinery 70

$ 149,813

For the Year Ended December 31, 2019

Additions to right-of-use assets $ 9,811

Depreciation charge for right-of-use assets Buildings $ 7,736 Land 1,036 Transportation equipment 1,610 Machinery 70

$ 10,452

Right-of-use assets pledged as collaterals for bank borrowing are set out in Note 32.

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b. Lease liabilities - 2019

December 31, 2019

Carrying amounts

Current (included in other current liabilities) $ 4,977 Non-current $ 107,289

Range of discount rate for lease liabilities was as follows:

December 31, 2019

Land and Buildings 2%-5.31% Machinery 2% Transportation equipment 2%-2.5%

c. Other lease information

Lease arrangements under operating leases for the leasing out of investment properties are set out in Notes 17.

2019

For the Year Ended December 31, 2019

Expenses relating to short-term leases $ 8,991 Expenses relating to low-value asset leases $ 26 Total cash outflow for leases $ (26,448)

The Group leases certain buildings which qualify as short-term leases and certain assets which qualify as low-value asset leases. The Group has elected to apply the recognition exemption and thus, did not recognize right-of-use assets and lease liabilities for these leases.

17. INVESTMENT PROPERTIES

Completed Investment Properties Cost

Balance at January 1, 2018 $ 224,886 Depreciation (7,474) Disposals (5,156) Effect of foreign currency exchange differences (3,627) Balance at December 31, 2018 208,629 Depreciation (7,352) Effect of foreign currency exchange differences (8,038)

Balance at December 31, 2019 $ 193,239

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The Group disposed of investment properties in 2018, and the gains on disposal were $762 thousand.

The determination of fair value was not performed by independent qualified professional valuers. The valuation was arrived by reference to market evidence of transaction prices for similar properties or future rents by discounted cash flow method. The significant unobservable inputs used include discount rates and the fair value as appraised.

December 31 2019 2018

Fair value $ 228,307 $ 230,198

Discount rate 5.22% 5.91%

The maturity analysis of lease payments receivable under operating leases of investment properties as of December 31, 2019 was as follows:

December 31, 2019

Year 1 $ 10,468 Year 2 11,289 Year 3 11,355 Year 4 11,423 Year 5 11,644 Year 5 onwards 66,035

$ 122,214

The future minimum lease payments of non-cancellable operating lease commitments as of December 31, 2018 are as follows:

December 31, 2018

Not later than 1 year $ 10,678 Later than 1 year and not later than 5 years 46,376 Later than 5 years 87,425

$ 144,479

For the amount of investment properties pledged as deposits for bank loans and borrowings, refer to Note 32.

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18. BORROWINGS

a. Short-term borrowings

December 31 2019 2018

Bank secured loans $ 365,942 $ 301,428 Line of credit borrowings 27,925 84,416

$ 393,867 $ 385,844

The interest rate intervals of the short-term borrowings on the date of balance sheet as follows:

December 31 2019 2018

Bank secured loans 1.30%-5.22% 1.65%-5.31% Line of credit borrowings 4.79%-4.80% 3.60%-5.10%

The borrowings on December 31, 2019 and 2018 is secured by the related parties of the Group and guaranteed by the Group’s time deposits, building and machinery and land use right (included in right-of-use assets in 2019 and long-term prepaid lease in 2018), refer to Notes 31 and 32 for related information.

b. Long-term borrowings

December 31 2019 2018

Bank secured loans $ 136,398 $ 87,031 Less: Current portions 12,193 10,515

Long-term borrowings $ 124,205 $ 76,516

The secured borrowings on December 31, 2019 and 2018 were pledged by the Group’s land and buildings, refer to Note 32 for related information. The expired date is on September 2029. The effective interest rates were 1.60%-1.97% for the years ended 2019 and 2018.

19. BONDS PAYABLE

December 31 2019 2018

Unsecured domestic convertible bonds $ 454,096 $ 476,718 Less: Current portions 454,096 -

$ - $ 476,718

On August 17, 2018, the Corporation issued 5,000 thousand, 3-year, NT$-denominated zero coupon unsecured convertible bonds, with an aggregate principal amount of $500,000 thousand

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Each bond entitles the holder to convert it into ordinary shares of the Corporation at a conversion price of $57.50. After the conversion price is determined, if there is any ex-right or ex-dividend, it should be adjusted according to the conversion price adjustment formula. The appropriation of earnings for 2018 was approved in the shareholders’ meeting on June 2019. The conversion price of $56.10 was adjusted on July 31, 2019 because of the distribution of share dividends. Conversion may occur at any time between November 18, 2018 and August 17, 2021. If the bonds have not been converted, they will be redeemed by cash on August 17, 2021. If the conditions are met, the Corporation may request the creditor to redeem the convertible corporate bonds at the agreed price.

The Corporation may redeem the bonds by cash in whole after 3 months of the issuance and 40 days prior to the maturity date. If the closing price of the Corporation’s ordinary shares on the TWSE exceeds 30% (inclusive) of the conversion price for 30 consecutive trading days, the Corporation may send a “Bond Redemption Notice” in 30 days within 30 consecutive days The Corporation may therefore redeem the bonds by cash in outstanding bonds after 3 months of the issuance and 40 days prior to the maturity date. If the outstanding balance is lower than 10% of the original issuance, the Corporation may send a “Bond Redemption Notice” within 30 days to the bond holder register before 5 consecutive days of sending date.

The base date of bond selling back in advance is on the date of 2 years after the issuance. The Corporation shall send a “Notice of Exercise of the Right of Resale” to the bond holder register before 5 consecutive days of sending date on the 40 days prior to the base date of sale, and the Taipei Exchange shall announce the bondholder to exercise their right of selling back the bond. Bondholder shall notify the Corporation’s Transfer Agent in writing within 30 days before the sale date, and request the Corporation to redeem the convertible corporate bond held by the bondholders with the bonds denomination plus the interest compensation.

The convertible bonds contain both liability and equity components. The equity component was presented in equity under the heading of capital surplus - options. The components of liabilities are classified as liabilities embedded in derivative financial instruments and non-derivative instruments.

For the six months ended June 30, 2019, the Corporation’s subsidiary, Taiwan GPP, repurchased convertible corporate bonds with a denomination of $32,300 thousand in the open market for $29,945 thousand, and accounted for the gain on redemption bonds of $1,813 thousand. The difference between the amount of the redemption price allocated to the equity component and its carrying amount (the original account listed in the capital surplus-employee share options) is $1,192 thousand which was transferred to the capital surplus-expired employee share options.

Proceeds from issuance (less transaction costs of $3,967 thousand) $ 496,033 Equity component (less transaction costs allocated to the equity component of $149 thousand) (18,451) Redemption and puttable bond (4,100) Liability component at the date of issue (less transaction costs allocated to the liability component of $3,818 thousand) 473,482 Interest charged at an effective interest rate (1.8179%) 3,236 Liability component at December 31, 2018 476,718 Interest charged at an effective interest rate (1.8179%) 8,360 Redeemed convertible bonds (30,982)

Liability component at December 31, 2019 $ 454,096

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20. FINANCE LEASE PAYABLES - 2018

December 31, 2018

Minimum lease payments

Not later than 1 year $ 24,166 Later than 1 year and not later than 5 years 96,664 Later than 5 years 338,323 459,153 Less: Future finance charges 183,650

Present value of minimum lease payments $ 275,503

Present value of minimum lease payments

Not later than 1 year $ 8,101 Later than 1 year and not later than 5 years 37,631 Later than 5 years 229,771

$ 275,503

Current (accounted for other payable) $ 8,101 Non-current 267,402

$ 275,503

The Group leased certain land and manufacturing building under finance leases from related party YANGZHOU HONGYU TECHNOLOGY CO., LTD. The lease term is 20 years. These leases have no terms of renewal or bargain purchase options.

The interest rate underlying all obligations under finance leases was fixed at 5.91% on respective contract date.

21. OTHER PAYABLES

December 31 2019 2018

Payable for social security $ 40,952 $ 46,394 Payable for salaries provision 32,082 38,402 Payable for construction 13,006 11,827 Payable for equipment 12,405 28,967 Provisions for professional service fees 4,487 5,951 Payable for lease payment - 8,101 Others 71,173 59,556

$ 174,105 $ 199,198

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22. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation and TAIWAN GPP INC. adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. JETPER and HY (H.K.) make contributions in proportion to the local laws and regulations.

YANGZHOU HY is proposed according to the relevant regulations of China and Yangzhou City of Jiangsu Province. The various insurances and allowances are allocated to the individual labor account according to the specific proportion of the employee’s monthly salary base.

b. Defined benefit plans

The defined benefit plan adopted by TAIWAN GPP INC. in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the 6 months before retirement. TAIWAN GPP INC. contribute amounts equal to 3% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, TAIWAN GPP INC. assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, TAIWAN GPP INC. is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (the “Bureau”); TAIWAN GPP INC. has no right to influence the investment policy and strategy.

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows:

December 31 2019 2018

Present value of defined benefit obligation $ - $ - Fair value of plan assets (1,340) (1,290)

Net defined benefit assets (included in the other non-current assets) $ (1,340) $ (1,290)

Movements in net defined benefit liabilities (assets) were as follows:

Present Value of Net Defined the Defined Benefit Benefit Fair Value of Liabilities Obligation the Plan Assets (Assets)

Balance at January 1, 2018 $ - $ - $ - Service cost Current service cost 228 - 228 Interest expense (income) 84 (96) (12) Recognized in loss (profit) 312 (96) 216 (Continued)

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Present Value of Net Defined the Defined Benefit Benefit Fair Value of Liabilities Obligation the Plan Assets (Assets)

Remeasurement Return on plan assets (excluded the amount in net interest expense) $ - $ (197) $ (197) Actuarial gain - experience adjustments (347) - (347) Recognized in other comprehensive income (347) (197) (544) Contributions from the employer - (40) (40) Benefits paid (7,458) 7,458 - Acquiring from merging 7,493 (8,415) (922) Balance at December 31, 2018 - (1,290) (1,290) Service cost Current service cost - - - Interest income - (15) (15) Recognized in loss (profit) - (15) (15) Remeasurement Return on plan assets (excluded the amount in net interest expense) - (73) (73) Actuarial loss - experience adjustments 54 - 54 Recognized in other comprehensive income 54 (73) (19) Contributions from the employer - (16) (16) Benefits paid (54) 54 - Acquiring from merging

Balance at December 31, 2019 $ - $ (1,340) $ (1,340) (Concluded)

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

December 31 2019 2018

Discount rate 1.125% 1.125% Expected rate of salary increase 2.000% 2.000%

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23. EQUITY

a. Ordinary shares

December 31 2019 2018

Numbers of shares authorized (in thousand) 100,000 100,000 Amount of shares authorized $ 1,000,000 $ 1,000,000 Number of shares issued and fully paid (in thousand) 67,499 65,853 Shares issued $ 674,993 $ 658,530

The ordinary shares are issued at par value of $10. Each share has one voting right and the right to receive dividends.

On May 11, 2018, the Corporation’s board of directors resolved to issue 2,500 thousand ordinary shares, with a par value of $10, for a consideration of $40 per share at premium. After the capital increase, the paid-in share capital was $658,530 thousand.

On June 10, 2019, the Corporation’s shareholder’s meeting resolved the appropriation of earnings of 2018 and distributed the share dividends of $16,463 thousand.

On March 20, 2020, the Corporation’s board of directors resolved to issue 13,000 thousand ordinary shares with a par value of $10. When the declaration of FSC becomes effective, the authorized chairman will consult with the host underwriters to determine the final issue price.

b. Capital surplus

December 31 2019 2018

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (Note)

Issuance of ordinary shares $ 319,532 $ 319,532

May be used to offset a deficit only

Issuance of ordinary shares (converted from employee share option) 5,417 5,417 Expired employee share option 64 64 Expired conversion options of bonds 1,192 -

May not be used for any purpose

Convertible corporate bond share option 17,259 18,451

$ 343,464 $ 343,464

Note: Such capital surplus may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Corporation’s capital surplus and once a year).

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c. Retained earnings and dividends policy

According to the Corporation’s Articles of Incorporation, during the listing of the Corporation’s shares in the Republic of China, the board of directors shall present in the surplus of each fiscal year when the Corporation’s shares are distributed: (i) the relevant fiscal year’s tax; (ii) making up loss for preceding years.; (iii) setting aside 10% for legal reserve, and (iv) the special surplus reserve required by the Republic of China securities regulatory authority in accordance with the rules of the public offering company. According to the Cayman Company Law and the public company rules, if there are surplus, all or one of the undistributed surpluses accumulated in previous years should be as a shareholder dividend which is distributed according to the shareholding ratio of the shareholders not less than the current year’s after-tax surplus 10% after considering the financial, business and operational factors. Shareholders’ dividends are divided into share dividends and cash dividends, but the cash dividends may not be less than 10%. For the employee and director compensation distribution policies stipulated in the Articles of Incorporation of the Corporation, refer to Note 25 (d) employees’ compensation and remuneration of directors.

An appropriation of earnings to the legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. The legal reserve may be used to cover deficits. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Items referred to Rule No. 1010012865 issued by the FSC and in the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reserved from a special reserve by the Corporation.

The appropriations of earnings for 2018 and 2017 approved in the shareholders’ meetings in June 10, 2019 and in June 8, 2018 respectively, were as follows:

Dividends Per Share Appropriation of Earnings (NT$) For For For For Year 2018 Year 2017 Year 2018 Year 2017

Legal reserve $ 3,539 $ 17,777 Special reserve 14,846 21,017 Cash dividends 16,463 63,353 $ 0.25 $ 1 Share dividends 16,463 - 0.25 -

The board of directors resolved not to appropriate earnings on March 20, 2020 due to the Corporation’s net loss in 2019.

The appropriation of earnings for 2019 is subject to the resolution of the shareholders in the shareholders’ meeting to be held in June 2020.

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24. REVENUE

a. Contact balances

December 31, December 31, January 1, 2019 2018 2018

Notes and accounts receivables $ 710,353 $ 704,871 $ 972,902

Contract liability Sale of goods (accounted as other current liabilities) $ 2,045 $ 6,753 $ 5,714

b. The details of revenue from contracts with customers:

For the Year Ended December 31 2019 2018

Revenue from contracts with customers Revenue from sale of goods $ 1,745,800 $ 2,052,314 Other operating revenue Rental income from properties 11,664 10,863

$ 1,757,464 $ 2,063,177

25. NET PROFIT

a. Finance costs

For the Year Ended December 31 2019 2018

Interest on bank loans $ 15,917 $ 20,882 Interest on convertible bonds 8,360 3,236 Interest on lease liabilities 5,896 - Interest on finance lease payables - 14,603 Other interest expenses 522 4,467 30,695 43,188 Less: Amounts included in the cost of qualifying assets 1,455 1,526

$ 29,240 $ 41,662

Information about capitalized interest is as follows:

For the Year Ended December 31 2019 2018

Capitalized interest $ 1,455 $ 1,526 Capitalization rate 4.36% 4.91%

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b. Depreciation and amortization

For the Year Ended December 31 2019 2018

Property, plant and equipment $ 113,416 $ 143,973 Right-of-use assets 10,452 - Investment properties 7,352 7,474 Intangible assets (accounted as other non-current assets) 1,849 2,233

$ 133,069 $ 153,680

An analysis of depreciation by function Operating costs $ 109,231 $ 118,488 Operating expenses 21,989 32,959

$ 131,220 $ 151,447

An analysis of amortization by function Operating costs $ 23 $ 352 Operating expenses 1,826 1,881

$ 1,849 $ 2,233 c. Employee benefits expense

For the Year Ended December 31 2019 2018

Short-term benefit $ 271,084 $ 285,694 Post-employment benefits Defined contribution plans 18,971 19,753 Defined benefit plans (15) 216 18,956 19,969 Share-based payments Equity-settled - 1,593 Other employee benefits 22,760 26,161

Total employee benefits expense $ 312,800 $ 333,417

An analysis of employee benefits expense by function Operating costs $ 158,021 $ 180,096 Operating expenses 154,779 153,321

$ 312,800 $ 333,417 d. Employees’ compensation and remuneration of directors

The Corporation accrued employees’ compensation at rates no less than 2% and no higher than 15% and remuneration of directors at rates of no higher than 3%. The accrued employee’s compensation between January 1, 2018 and June 30, 2018 are at rates no less than 5% and no higher than 15% before the modification.

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The employee’s compensation and remuneration of directors were not estimated because of net loss in 2019. In March 2019, the employee’s compensation and remuneration of directors in 2018 were distributed in cash by the board of directors as follows:

Amount

For the Year Ended December 31, 2018 Cash

Employees’ compensation $ 761 Remuneration of directors $ 381

If there is any change in the amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in the accounting estimate.

There was no difference between the actual amounts of employees’ compensation and remuneration of directors paid and the amounts recognized in the consolidated financial statements for the year ended December 31, 2018.

Information on the employees’ compensation and remuneration of directors resolved by the Corporation’s board of directors in 2020 and 2019 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

26. INCOME TAXES

a. Income tax recognized in profit or loss

Major components of tax expense (benefit) were as follows:

For the Year Ended December 31 2019 2018

Current tax In respect of the current year $ 4,762 $ 2,941 Adjustments for prior years (45) (3,513) 4,717 (572) Deferred tax In respect of the current year 2,248 (7,992) Adjustments for prior years (141) - Adjustments to deferred tax attributable to changes in tax rates and laws - (1,379) 2,107 (9,371)

Income tax (benefit) recognized in profit or loss $ 6,824 $ (9,943)

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A reconciliation of accounting profit and income tax expense (benefit) is as follows:

For the Year Ended December 31 2019 2018

Profit (loss) before income tax $ (124,798) $ 12,988

Income tax calculated at the statutory rate $ - $ - Tax-exempt income (14,099) (1,096) Unrecognized loss carryforwards and deductible temporary differences 13,531 2,830 Effect of tax rate changes - (1,379) Effect of different tax rates of group entities operating in other jurisdictions 2,214 (9,807) Adjustments for prior years’ tax (186) (3,513) Land value increment tax 2,860 - Others 2,504 3,022

Income tax benefit (expense) recognized in profit or loss $ 6,824 $ (9,943)

The tax rate applicable to the Corporation is 0% and the tax rate applicable to the subsidiaries of the Corporation in Taiwan and TAIWAN GPP INC. is 20%. In 2018, the Income Tax Act in the R.O.C. was amended and the corporate income tax rate was adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings was reduced from 10% to 5%. Subsidiaries in China which are high-tech enterprises apply preferential tax rates, and the income tax rate for profit-making businesses is 15%. For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction. b. Current tax liabilities

December 31 2019 2018

Current tax liabilities (included in other current liability) Income tax payable $ - $ 1,113

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c. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities (included in other non-current liability) were as follows:

For the year ended December 31, 2019

Recognized Opening in Profit or Exchange Closing Balance Loss Differences Balance

Deferred tax assets

Temporary differences Unrealized social security provision $ 6,959 $ (560) $ (255) $ 6,144 Allowance for inventory 15,703 85 (362) 15,426 Allowance for uncollectible account 5,785 (266) (220) 5,299 Loss carryforwards 221 779 - 1,000 Right-of-use assets - 362 (15) 347 Others 2,633 (2,596) - 37

$ 31,301 $ (2,196) $ (852) $ 28,253

Deferred tax liabilities

Temporary differences Others $ 89 $ (89) $ - $ -

For the year ended December 31, 2018

Acquiring Recognized Opening from in Profit or Exchange Closing Balance Merging Loss Differences Balance

Deferred tax assets

Temporary differences Unrealized social security provision $ 7,137 $ - $ (57) $ (121) $ 6,959 Allowance for inventory 5,205 4,816 5,863 (181) 15,703 Allowance for uncollectible account 2,143 11 3,736 (105) 5,785 Loss carryforwards 21 698 (498) - 221 Others - 2,237 396 - 2,633

$ 14,506 $ 7,762 $ 9,440 $ (407) $ 31,301

Deferred tax liabilities

Temporary differences Others $ 20 $ - $ 69 $ - $ 89

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d. Deductible temporary differences and unused loss carryforwards for which no deferred tax assets have been recognized in the consolidated balance sheets

December 31 2019 2018

Loss carryforwards Expiry in 2025 $ 13,162 $ - Expiry in 2026 37,893 37,893 Expiry in 2027 34,527 34,527 Expiry in 2028 14,604 14,128 Expiry in 2029 40,248 -

$ 140,434 $ 86,548

Deductible temporary differences Impairment loss of property, plant and equipment $ 25,842 $ 47,798 Allowance for inventory 37,652 -

$ 63,494 $ 47,798

e. Income tax assessments

The tax returns of the Corporation’s Taiwan branch and TAIWAN GPP INC. through 2017 have been assessed by the tax authorities.

27. EARNINGS (LOSS) PER SHARE

Unit: NT$ Per Share

For the Year Ended December 31 2019 2018

Basic earnings (loss) per share $ (1.57) $ 0.54 Diluted earnings (loss) per share $ (1.57) $ 0.54

The weighted average number of shares outstanding used for the earnings per share computation was adjusted retroactively for the issuance of bonus shares on July 31, 2019. The basic and diluted earnings per share adjusted retrospectively for the year ended December 31, 2018 are as follows:

Unit: NT$ Per Share

Before After Retrospective Retrospective Adjustment Adjustment

Basic earnings per share $ 0.55 $ 0.54 Diluted earnings per share $ 0.55 $ 0.54

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The earnings and weighted average number of ordinary shares outstanding in the computation of earnings (loss) per share were as follows:

Net Profit (Loss) for the Year

For the Year Ended December 31 2019 2018

Profit (loss) for the year attributable to owners of the Corporation $ (106,238) $ 35,390

Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares)

For the Year Ended December 31 2019 2018

Weighted average number of ordinary shares in computation of basic earnings (loss) per share 67,499 65,675 Effect of potentially dilutive ordinary shares: Employees’ compensation 7 68

Weighted average number of ordinary shares used in the computation of diluted earnings (loss) per share 67,506 65,743

If the Group offered to settle compensation paid to employees in cash or shares, the Group assumed the entire amount of the compensation will be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares was included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

If the outstanding convertible bonds issued by the Corporation are converted to ordinary shares, they are anti-dilutive and excluded from the computation of diluted earnings per share.

28. BUSINESS COMBINATIONS

a. Subsidiaries acquired Proportion of Voting Equity Date of Interests Consideration Subsidiary Principal Activity Acquisition Acquired (%) Transferred

TAIWAN GPP INC. Design, innovation, January 2, 2018 70 $ 354,886 manufacture, and sale of wafer, rectifier, and other semiconductors

The Corporation completed the negotiation of acquisition of 70% TAIWAN GPP INC.’s shares on November 2017, and the acquisition was completed on January 2, 2018. The purpose of acquiring TAIWAN GPP INC. was to continue the expansion of the Group’s in semiconductor segment.

b. Consideration transferred

The Corporation paid consideration in cash. For the year end December 31, 2018, the Corporation has paid off. Acquisition-related costs were excluded from the consideration transferred and were recognized as an expense in the current year.

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c. Assets acquired and liabilities assumed at the date of acquisition

Current assets Cash and cash equivalents $ 89,404 Notes, accounts and other receivables 51,472 Inventories 46,355 Other current assets 4,991 Non-current assets Property, plant and equipment 555,370 Intangible assets 1,631 Other non-current assets 13,952 Current liabilities Notes, accounts and other payables (33,963) Other current liabilities (9,079) Non-current liabilities Long-term borrowings (65,001)

$ 655,132

The receivables acquired in the transaction have a fair value and a gross contractual amount of $51,472 thousand. The best estimates of the contractual cash flows not expected to be collected as of the acquisition date are zero. d. Non-controlling interests

The non-controlling interest (30% ownership interest in TAIWAN GPP INC.) recognized at the acquisition date was measured by reference to the fair value of the non-controlling interest and amounted to $162,964 thousand. The fair value of the non-controlling interest in TAIWAN GPP INC. is estimated based on the purchase price and adjustment for what the market participants would consider. e. Gain from bargain purchase recognized on acquisitions

TAIWAN GPP INC.

Consideration transferred $ 354,886 Plus: Fair value of non-controlling interests 162,964 Less: Fair value of identifiable net assets acquired (655,132)

Gain from bargain purchase recognized on acquisitions $ (137,282) f. Net cash outflow on the acquisition of subsidiary

TAIWAN GPP INC.

Consideration paid in cash $ 354,886 Decrease in prepaid investment (account for as prepayments) (35,489) Less: Cash and cash equivalent acquired (89,404)

Net cash outflow on the acquisition of subsidiary $ 229,993

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g. Impact of acquisitions on the results of the Group

The results of the acquirees since the acquisition date included in the consolidated statements of comprehensive income are as follows:

TAIWAN GPP INC.

Revenue $ 255,476 Net loss $ (4,104)

29. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group’s overall strategy remains unchanged in the future.

Key management personnel of the Group review the capital structure on an annual basis. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Group may adjust the amount of dividends paid to shareholders or the amount of new debt issued or existing debt redeemed.

30. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments that are not measured at fair value

December 31, 2019

Carrying Fair Value Amount Level 1 Level 2 Level 3 Total

Financial liabilities

Financial liabilities at amortized cost Convertible bonds $ 454,096 $ 455,540 $ - $ - $ 455,540

December 31, 2018

Carrying Fair Value Amount Level 1 Level 2 Level 3 Total

Financial liabilities

Financial liabilities at amortized cost Convertible bonds $ 476,718 $ 390,000 $ - $ - $ 390,000

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b. Fair value of financial instruments that are measured at fair value on a recurring basis

1) Fair value hierarchy

December 31, 2019

Level 1 Level 2 Level 3 Total

Financial liabilities at FVTPL

Derivative financial instruments $ - $ - $ 13,797 $ 13,797

Financial assets at FVTOCI

Investments in equity instruments TPEx-listed shares $ 995 $ - $ - $ 995

December 31, 2018

Level 1 Level 2 Level 3 Total

Financial liabilities at FVTPL

Derivative financial instruments $ - $ - $ 13,500 $ 13,500

Financial assets at FVTOCI

Investments in equity instruments TPEx-listed shares $ 839 $ - $ - $ 839

2) Reconciliation of Level 3 fair value measurements of financial instruments

For the year ended December 31, 2019

Financial Liabilities at FVTPL 2019

Balance at January 1 $ 13,500 Recognized in profit or loss (included in other gains and losses) 1,073 Settlements (776)

Balance at December 31 $ 13,797

For the year ended December 31, 2018

Financial Liabilities at FVTPL 2018

Issue date (August 17, 2018) $ 4,100 Recognized in profit or loss (included in other gains and losses) 9,400

Balance at December 31 $ 13,500

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3) Valuation techniques and inputs applied for Level 3 fair value measurement

As for derivative financial instruments-redemption right and puttable right, the fair values of which are determined using binomial convertible bond valuation models where the significant unobservable inputs are historical volatility. An increase in the historical volatility used in isolation would result in an increase in the fair value. As of December 31, 2019 and 2018, the historical volatility used was 37.86% and 46.47%, respectively. c. Categories of financial instruments

December 31 2019 2018

Financial assets

Financial assets at amortized cost (Note 1) $ 1,149,438 $ 1,136,429 Financial assets at FVTOCI Investments in equity instruments at FVTOCI 995 839

Financial liabilities

FVTPL Held for trading 13,797 13,500 Amortized cost (Note 2) 1,704,426 1,595,839

Note 1: The balances include financial assets at amortized cost, which comprise cash and cash equivalent, notes and accounts receivables, other receivables from related parties and pledged deposit.

Note 2: The balances include financial liabilities at amortized cost, which comprise short-term loans, notes and accounts payables, other payables, bonds payable, and long-term loans (including current portions). d. Financial risk management objectives and policies

The Group’s major financial instruments include notes and accounts receivables, notes and accounts payables, short-term and long-term loans. The Group’s Corporate Treasury function monitors and manages the financial risks relating to the operations of the Group through analyze exposures by degree and magnitude of risks. These risks include market risk (including foreign currency risk, interest rate risk), credit risk and liquidity risk.

1) Market risk

The Group’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

There has been no change to the Group’s exposure to market risks or the manner in which these risks are managed and measured.

a) Foreign currency risk

Several subsidiaries of the Corporation have foreign currency sales and purchases which exposes the Group to foreign currency risk.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities are set out in Note 33.

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Sensitivity analysis

The Group is mainly exposed to the U.S. dollar (USD).

The following table details the Group’s sensitivity to a 1% increase and decrease in the Group’s functional currency against the relevant foreign currencies. The sensitivity rate used when reporting foreign currency risk internally to key management personnel and representing management’s assessment of the reasonably possible change in foreign exchange rates is 1%. The sensitivity analysis included outstanding foreign currency denominated monetary items and their translation at the end of the reporting period is adjusted for a 1% change in foreign currency rates. A negative number below indicates an increase in pre-tax profit associated with the Group’s functional currency strengthening 1% against the relevant currency. For a 1% weakening of the Group’s functional currency against the relevant currency, there would be an equal and opposite impact on pre-tax profit, and the balances below would be negative.

NTD to USD For the Year Ended December 31 2019 2018

Gain (loss) $ (1,828) $ (999)

RMB to USD For the Year Ended December 31 2019 2018

Gain (loss) $ (1,036) $ (1,255)

It was mainly attributable to the exposure to outstanding receivables and payables, short-term borrowings denominated in USD which were not hedged at the end of the reporting period. b) Interest rate risk

The Group is exposed to interest rate risk because entities in the Group borrow funds at floating interest rates. Interest trends are evaluated regularly to decide whether hedging activities are applied.

The carrying amounts of the Group’s financial assets and financial liabilities with exposure to interest rate risk at the end of the reporting period were as follows:

December 31 2019 2018

Cash flow interest rate risk Financial assets $ 309,877 $ 319,358 Financial liabilities 530,265 472,875

Sensitivity analysis

The sensitivity analysis below was determined based on the Group’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. The sensitivity rate of 0.5% is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

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If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group’s pre-tax profit for the years ended December 31, 2019 and 2018 would have decreased/increased by $1,102 thousand and $768 thousand, respectively. It was mainly due to the exposure of cash flow interest rate risk from floating rate liabilities.

2) Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. At the end of the reporting period, the Group’s maximum exposure to credit risk, which would cause a financial loss to the Group due to the failure of the counterparty to discharge its obligation, could be equal to the carrying amount of the respective recognized financial assets as stated in the balance sheets.

For the credit risk arising from operations, the policy adopted by the Group is trading with good credit rating company. The Group conducts credit checks and credit analysis, then grants the appropriate credit lines which depends on type of transaction, financial condition, collateral condition, etc. The Group would adjust the credit lines according to the situation in order to control the credit condition of trading partner and control credit exposure.

For the Group’s concentration of credit risk on the Group’s largest customer, refer to Note 10.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining a level of cash deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

The Group relies on bank borrowings as a significant source of liquidity. As of December 31, 2019 and 2018, the Group had available unutilized bank loan facilities set out in (2) below.

a) Liquidity and interest rate risk tables for non-derivative financial liabilities

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Group can be required to pay. The table included both interest and principal cash flows. Specifically, bank loans with a repayment on demand clause were included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities were based on the agreed repayment dates.

To the extent that interest flows are at floating rates, the undiscounted amount was derived from the interest rate curve at the end of the reporting period.

December 31, 2019

3 Months to 1-3 Months 1 Year 1+ Years

Non-interest bearing $ 720,065 $ - $ - Lease liabilities 305 10,314 160,195 Fixed interest rate liabilities - - 501,000 Variable interest rate liabilities 222,746 193,357 131,830

$ 943,116 $ 203,671 $ 793,025

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Additional information about the maturity analysis for lease liabilities:

Less than 1 Year 1-5 Years 5-10 Years 10-15 Years 15-20 Years 20+ Years

Lease liabilities $ 10,619 $ 38,385 $ 46,850 $ 46,850 $ 28,110 $ -

December 31, 2018

3 Months to 1-3 Months 1 Year 1+ Years

Non-interest bearing $ 638,145 $ - $ - Fixed interest rate liabilities 6,041 18,124 944,987 Variable interest rate liabilities 197,805 222,950 77,417

$ 841,991 $ 241,074 $ 1,022,404

b) Financing facilities

December 31 2019 2018

Secured bank overdraft facilities: Amount used $ 530,265 $ 472,875 Amount unused 501,387 463,139

$ 1,031,652 $ 936,014

31. TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

a. Names and categories of related parties

Name Related-party Categories

Ting-Yu Fang The Corporation’s director Kuei-Jen Kao The Corporation’s general manager YANGZHOU HONGYUAN ESTATE DEVELOPMENT CO., Related party in substance LIMITED (HONGYUAN ESTATE) YANGZHOU HONGYU TECHNOLOGY CO., LTD. Related party in substance (HONGYU TECH.) SMART INVESTMENT CO., LTD. (SMART INVESTMENT) Related party in substance TAIWAN DEAN TECHNOLOGY CO., LTD. (TAIWAN Associate (Note) DEAN TECHNOLOGY)

Note: Taiwan Dean Technology has been an associate since April 2019.

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b. Receivables from related parties

Related Party December 31 Line Items Categories/Name 2019 2018

Other receivables from related Associate parties TAIWAN DEAN $ 40,394 $ - TECHNOLOGY Others 79 81

$ 40,473 $ 81

Interest income

For the Year Ended December 31 Related Party Category/Name 2019 2018

Associate TAIWAN DEAN TECHNOLOGY $ 280 $ - c. Lease agreement

Payments for property, plant and equipment

For the Year Ended December 31 Related Party Category/Name 2019 2018

Payments for property, plant and equipment from finance leases

Related party in substance HONGYU TECH. $ - $ 288,159

Related Party December 31 Line Items Categories/Name 2019 2018

Lease liabilities/finance lease Related party in substance payables HONGYU TECH. $ 110,231 $ 275,503

For the Year Ended December 31 Related Party Category/Name 2019 2018

Interest expense

Related party in substance HONGYU TECH. $ 5,799 $ 14,603

Lease expense

Related party in substance $ 1,122 $ 2,000 The Corporation’s general manager 168 168

$ 1,290 $ 2,168

The lease contract was negotiated with reference to the market price and general payment terms.

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Modification of lease arrangement

HONGYU TECH. leased the factory of Beishan Automobile Industrial Park, Yangjiang District, Yangzhou City to YANGZHOU HY for production. The lease period was from January 1, 2018 to December 31, 2037, a total of 20 years. In January 1, 2019, a supplementary contract was signed to reduce the area of leased land and the rental fee (tax excluded) was reduced from RMB5,142 thousand to RMB2,135 thousand, which resulted in gain on lease modification of RMB823 thousand (included in other gains and losses). d. Endorsements and guarantees

1) The guarantee provided by the related party for short-term loans of YANGZHOU HY

For the Year Ended Actual Amount December 31 Related Party Name Mortgage Certificate Used

2019 HONGYU TECH. Buildings $ 73,034 Kuei-Jen Kao Property right (Note) 15,036

$ 88,070

2018 Kuei-Jen Kao Property right (Note) $ 73,840

Note: YANGZHOU HY’s buildings are guaranteed for the bank loan of the Corporation.

2) As of December 31, 2019 and 2018, the chairman of the board and general manager of the Corporation guarantee the short-term and long-term bank loan of the Corporation by their personal identity. e. In October 2018, the Corporation’s board of directors resolved to dispose of a part of Taiwan GPP INC.’s land, factory building and equipment to Taiwan Dean Technology Co., Ltd., which became an associate in April 2019. The negotiated price was $220,000 thousand and the ownership of the assets were transferred in February 2019. As of December 31, 2019, the Group received $180,000 thousand and recognized gain on disposal of non-current assets held for sale of $50,094 thousand. The residual amount of $40,000 thousand is included in other receivables from related parties. On September 16, 2019, the board of directors of subsidiary Taiwan GPP INC. resolved to finance Taiwan Dean Technology with the residual amount at an annual interest rate of 2.8%, and the contract effective date was October 1, 2019. f. Compensation of key management personnel

For the Year Ended December 31 2019 2018

Short-term employee benefits $ 23,263 $ 25,632

The remuneration of directors, supervisors and key executives was determined by the remuneration committee based on the performance of individuals and market trends.

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32. ASSETS PLEDGED AS COLLATERAL

The following assets were provided as collateral for long-term and short-term borrowings, and the bank’s acceptance bill:

December 31 2019 2018

Property, plant and equipment, net $ 257,014 $ 344,164 Investment properties 189,175 202,916 Right-of-use assets 39,061 - Pledged deposits (included in financial assets at amortized cost/other financial assets) 62,538 59,884 Long-term prepaid lease - 41,722

$ 547,788 $ 648,686

33. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Group’s entities’ significant financial assets and liabilities denominated in foreign currencies aggregated by foreign currencies other than functional currencies and the related exchange rates between foreign currencies and respective functional currencies were as follows:

December 31, 2019

Foreign Carrying Currencies Exchange Rate Amount Foreign currency assets

Monetary items USD $ 8,628 29.980 (USD:NTD) $ 258,683 USD 5,173 6.9762 (USD:RMB) 155,098

Foreign currency liabilities

Monetary items USD 2,530 29.980 (USD:NTD) 75,857 USD 1,718 6.9762 (USD:RMB) 51,514

December 31, 2018

Foreign Carrying Currencies Exchange Rate Amount Foreign currency assets

Monetary items USD $ 4,775 30.715 (USD:NTD) $ 146,651 USD 7,921 6.8632 (USD:RMB) 243,279

Foreign currency liabilities

Monetary items USD 1,521 30.715 (USD:NTD) 46,732 USD 3,835 6.8632 (USD:RMB) 117,793

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For the years ended December 31, 2019 and 2018, net foreign exchange gains (losses) (realized and unrealized) were $(597) thousand and $4,048 thousand, respectively. The amounts were due to the volatility of the exchange rate of USD.

34. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and investees:

1) Financing provided to others (Table 1)

2) Endorsements/guarantees provided (Table 2)

3) Marketable securities held (excluding investments in subsidiaries, associates and joint ventures) (Table 3)

4) Marketable securities acquired and disposed of at costs or prices of at least $300 million or 20% of the paid-in capital: None

5) Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital: None

6) Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital (Table 4)

7) Total purchases from or sales to related parties amounting to at least $100 million or 20% of the paid-in capital (Table 5)

8) Receivables from related parties amounting to at least $100 million or 20% of the paid-in capital: None

9) Trading in derivative instruments (Notes 7 and 19)

10) Intercompany relationships and significant intercompany transactions (Table 6)

11) Information on investees (Table 7)

b. Information on investments in mainland China (Table 8)

1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area.

2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses:

a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period.

b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period.

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c) The amount of property transactions and the amount of the resultant gains or losses.

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes.

e) The highest balance, the end of period balance, the interest rate range, and total current period interest with respect to financing of funds.

f) Other transactions that have a material effect on the profit or loss for the year or on the financial position, such as the rendering or receipt of services.

35. SEGMENT INFORMATION

Information reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance focuses on the classification of region. The reportable segments of the Group are in Taiwan, Hong-Kong and mainland China.

a. Segment revenue and results

The following was an analysis of the Group’s revenue and results from continuing operations by reportable segments:

Taiwan and Mainland Hong Kong China Total

For the year ended December 31, 2019

Revenue from external customers $ 435,787 $ 1,321,677 $ 1,757,464 Inter-segment revenue 32,386 228,438 260,824 Segment revenue $ 468,173 $ 1,550,115 2,018,288 Eliminations (260,824)

Consolidated revenue $ 1,757,464

Segment income $ 60,531 $ (219,119) $ (158,588) Share of profit or loss of associates (5,580) Financial cost (29,240) Gain on disposal of non-current assets held for sale 50,094 Exchange gain (597) Other gains and losses 19,113

Loss before tax $ (124,798)

For the year ended December 31, 2018

Revenue from external customers $ 620,769 $ 1,442,408 $ 2,063,177 Inter-segment revenue 114,719 265,626 380,345 Segment revenue $ 735,488 $ 1,708,034 2,443,522 Eliminations (380,345)

Consolidated revenue $ 2,063,177 (Continued)

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Taiwan and Mainland Hong Kong China Total

Segment income $ 197,078 $ (278,749) $ (81,671) Gain from bargain purchase 137,282 Financial cost (41,662) Exchange gain 4,048 Other gains and losses (5,009)

Profit before tax $ 12,988 (Concluded)

Segment profit was the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. b. Revenue from major products

For the Year Ended December 31 2019 2018

Solar power diode $ 721,272 $ 741,453 Rectifier (bridge) 510,612 641,179 Diode 311,178 349,065 Other 214,402 331,480

$ 1,757,464 $ 2,063,177 c. Geographical information

The Group’s non-current assets by location of assets are detailed below.

Non-current Assets December 31 2019 2018

Mainland China $ 1,058,011 $ 1,044,743 Taiwan and Hong Kong 536,940 659,170

$ 1,594,951 $ 1,703,913 d. Information about major customers

No single customer contributed 10% or more to the Group’s revenue for 2019 and 2018.

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TABLE 1

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Actual Collateral Financing Limit Financial Highest Balance Business Reasons for Aggregate Related Ending Balance Borrowing Interest Nature of Allowance for for Each No. Lender Borrower Statement for the Period Transaction Short-term Financing Limit Note Party (Note 3) Amount Rate (%) Financing Impairment Loss Item Value Borrower Account (Note 3) Amount Financing (Notes 1 and 2) (Notes 3 and 4) (Notes 1 and 2)

1 HY (H.K.) JETPER Other receivables Yes $ 1,771 $ - $ - - Short-term $ - Working $ - - $ - $ 125,010 $ 250,020 from related (HK$ 460 financing capital parties thousand)

2 JETPER The Corporation Other receivables Yes 29,980 29,980 - - Short-term - Working - - - 121,719 486,845 from related (US$ 1,000 (US$ 1,000 financing capital (US$ 4,060 (US$ 16,239 parties thousand) thousand) thousand) thousand) YANGZHOU HY Other receivables Yes 29,980 29,980 - - Short-term - Working - - - 125,010 250,020 from related (US$ 1,000 (US$ 1,000 financing capital parties thousand) thousand)

3 Taiwan GPP Inc. Taiwan Dean Tech. Other receivables Yes 40,000 40,000 40,000 2.8 Short-term - Working - Check 40,000 44,339 177,354 (Note 3) from related financing capital parties

Note 1: The total amount for lending to a company shall not exceed 10% of the net value of HY (H.K.), JETPER and Taiwan GPP Inc. The total amount available for lending purpose shall not exceed 40% of the net worth of HY (H.K.), JETPER and Taiwan GPP Inc.

If one entity of the Group lends to others whose voting shares are 100% owned by the same parent company, directly or indirectly, the total amount for lending to a company shall not exceed 10% of the net value of the Corporation and the total amount available for lending purpose shall not exceed of the net value 20% of the Corporation.

Note 2: At exchange rate on December 31, 2019, US$1=NT$29.98, HK$1=NT$3.849

Note 3: On September 16, 2019, the board of directors of Taiwan GPP Inc. resolved to finance Taiwan Dean Tech. with $40,000 thousand at an annual interest rate of 2.8%.

Note 4: Eliminated upon consolidation.

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TABLE 2

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Endorsee/Guarantee Ratio of Accumulated Limit on Maximum Endorsement/ Endorsement/ Outstanding Amount Endorsement/ Endorsement/ Endorsement/ Amount Aggregate Guarantee Given Guarantee Given Endorsement/ Actual Borrowing Endorsed/ Guarantee to Net Guarantee Given No. Endorser/Guarantor Guarantee Given Endorsed/ Endorsement/ by Parent on on Behalf of Name Relationship Guarantee at the Amount Guaranteed by Value in Latest by Subsidiaries on on Behalf of Each Guaranteed Guarantee Limit Behalf of Companies in End of the Period Collateral Financial Behalf of Parent Party During the Period Subsidiaries Mainland China Statements (%)

0 The Corporation (Note 1) HY (H.K.) Subsidiary $ 250,020 $ 71,952 $ 71,952 $ - $ - 6 $ 1,000,081 Yes No No (US$ 2,400 (US$ 2,400 thousand) thousand) YANGZHOU HY Subsidiary 250,020 179,880 179,880 12,892 - 14 1,000,081 Yes No Yes (US$ 6,000 (US$ 6,000 (RMB 3,000 thousand) thousand) thousand)

Note 1: The amount of the guarantee provided by the Corporation to an individual entity shall not exceed 20% of the net value of the Corporation. However, the total amount of the guarantee provided by the Corporation to an individual entity shall not exceed 80% of the net value of the Corporation.

Note 2: At exchange rate on December 31, 2019, US$1=NT$29.98, RMB1=NT$4.297.

Note 3: As of December 31, 2019, the actual borrowing amount used was US$430 thousand (RMB3,000 thousand).

Note 4: On November 7, 2019, the board of directors of the Corporation resolved to extend the old loan of US$3 million which was signed with CTBC Bank.

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TABLE 3

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars)

December 31, 2019 Relationship with the Number of Holding Company Name Type and Name of Marketable Securities Financial Statement Account Carrying Percentage of Note Holding Company Shares (In Fair Value Amount Ownership (%) Thousand)

Taiwan GPP Inc. Shares Prosperity Dielectrics Co., Ltd. (PDC) None Financial assets at FVTOCI 14 $ 995 - $ 995 Note

Note: The marketable securities held by the Corporation is not provided as guarantee or pledge for loan and is not be restricted.

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TABLE 4

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

DISPOSAL OF INDIVIDUAL REAL ESTATE AT PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars)

Original Transaction Gain (Loss) on Seller Property Event Date Carrying Amount Collection Counterparty Relationship Purpose of Disposal Price Reference Other Terms Acquisition Date Amount Disposal

Taiwan GPP Inc. Land, building and October 1, 2018 Not applicable $ 164,573 $ 220,000 Received $180,000 $ 50,094 Taiwan Dean Note Activating asset and The appraisal report On September 16, 2019, equipment thousand for the Technology Co., Ltd. fulfilling operation issued by Chih Wei the board of director’s year ended capital, enforcing Real estate resolved to finance the December 31, 2019 financial appraiser firm and residual amount construction Yuhua Assets $40,000 thousand to Appraisal Co., Ltd. Taiwan Dean Tech. since October 1, 2019

Note: Taiwan Dean Tech. has become associate since April 2019.

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TABLE 5

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Notes/Accounts Transaction Details Abnormal Transaction Receivable (Payable) Buyer Related Party Relationship Note Purchase/ % of % of Amount Payment Terms Unit Price Payment Terms Ending Balance Sale Total Total

YANGZHOU HY HY (H.K.) Subsidiary to subsidiary Sale $ (126,596) (8) Collect after 120 days of the - - $ 8,603 1 (Note) month of delivery

HY (H.K.) YANGZHOU HY Subsidiary to subsidiary Purchase 126,596 97 Collect after 120 days of the - - (8,603) (99) (Note) month of delivery

YANGZHOU HY The Corporation Subsidiary to parents Sale (101,841) (6) Collect after 120 days of the - - 73,159 1 (Note) month of delivery

The Corporation YANGZHOU HY Parents to subsidiary Purchase 101,841 77 Collect after 120 days of the - - (73,159) (99) (Note) month of delivery

Note: Eliminated upon consolidation.

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TABLE 6

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2019 (Amounts In Thousands of New Taiwan Dollars)

Transaction Details % of Total Sales No. Investee Company Counterparty Relationship Amount Financial Statement Accounts Payment Terms or Total Assets (Note 2) (Note 1)

0 The Corporation YANGZHOU HY Parent to subsidiary Payables from related parties $ 73,159 By negotiations 2 HY (H.K.) Parent to subsidiary Other revenue 28,892 By negotiations 2

1 YANGZHOU HY HY (H.K.) Subsidiary to subsidiary Sale 126,596 By negotiations 7 The Corporation Subsidiary to Parent Sale 101,841 By negotiations 6

Note 1: The table only shows cases the significant intercompany transactions over 1% of consolidated total income or total asset.

Note 2: Eliminated upon consolidation.

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TABLE 7

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investment Amount As of December 31, 2019 Net Income Share of Number of Carrying Name of Investor Name of Investee Location Main Business and Product December 31, December 31, (Loss) of the Profit (Loss) Note Shares (In % Amount 2019 2018 Investee (Note) Thousand) (Note)

The Corporation JETPER Hong Kong General investment US$ 26,746 US$ 26,746 26,746 100 $ 1,217,083 $ (4,972) $ (4,972) (Note) HY (H.K.) Hong Kong Sale of rectifier, diode and other semiconductors US$ 1 US$ 1 1 100 12,886 (17,831) (17,831) (Note) Taiwan GPP Inc. (Taiwan GPP) Taiwan Design, innovation, manufacture and sale of 354,886 354,886 14,000 70 268,151 20,402 (58,376) (Note) rectifier, diode and other semiconductor

Taiwan GPP Inc. Taiwan Dean Tech. Taiwan Manufacture and sale of rectifier and other 42,909 - 2,000 20 37,329 (27,899) (5,580) semiconductor

Note: Eliminated upon consolidation.

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TABLE 8

HY ELECTRONIC (CAYMAN) LIMITED AND SUBSIDIARIES

INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investment Flows Accumulated Accumulated Outward Carrying Accumulated Outward % Remittance for Net Income Investment Amount as of Repatriation of Remittance for Ownership Main Businesses and Paid-in Capital Investment (Loss) of the Gain (Loss) December 31, Investment Investee Company Method of Investment Investment of Direct or Note Products (Note 1) Outflow Inflow from Taiwan Investee (Notes 1, 2 2019 Income as of from Taiwan Indirect as of (Notes 1 and 2) and 5) (Notes 1, 2 December 31, as of Investment December 31, and 5) 2019 January 1, 2019 2019

YANGZHOU HY Manufacture and sales of $ 903,530 The Corporation indirectly $ 903,530 $ - $ - $ 903,530 $ (3,616) 100 $ (3,616) $ 1,210,562 $ - - rectifier, diode and other (US$ 26,746 owns these investees (US$ 26,746 (US$ 26,746 (US$ (117) (US$ (117) (US$ 40,379 semiconductor thousand) through investment thousand) thousand) thousand) thousand) thousand) company registered in a third region

YANGZHOU GPP Sale of semiconductor - The Corporation invests - - - - - 100 - - - Note 4 INC. rectifier, and registers through semiconductors, subsidiary Taiwan GPP components and parts Inc.

Accumulated Outward Remittance for Investment Amount Authorized by Upper Limit on the Amount of Investment Investment in Mainland China as of Investment Commission, MOEA Stipulated by Investment Commission, December 31, 2019 (Note 1) MOEA (Note 1)

$ - $ - Not applicable

Note 1: Beside investment loss at average rate of the year ended December 31, 2019, US$1=NT$30.912; others at exchange rate on December 31, 2019, US$1= NT$29.98.

Note 2: The carrying amount and related investment income of the equity investment were calculated based on the audited financial statements of the corresponding year.

Note 3: The significant transactions between the Corporation and its subsidiaries in mainland China through a third region directly or indirectly. Refer to Tables 1, 2, 5 and 6.

Note 4: Taiwan GPP Inc. established subsidiary YANGZHOU GPP INC. at Yangzhou in December 2019. The Taiwan GPP Inc. completed foreign investment registration and remitted funds which amounted to US$330 thousand in March 2020.

Note 5: Eliminated upon consolidation.

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HY Electronic (Cayman) Limited 虹揚發展科技股份有限公司

董事長：方丁玉