FocalTech - Interim / Quarterly Report 2017

FocalTech Systems Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Nine Months Ended September 30, 2017 and 2016

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars, Except Par Value)

ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss - current (Notes 7 and 31) Available-for-sale financial assets - current (Note 8) Trade receivables, net (Note 10) Inventories (Note 11) Other financial assets (Note 12) Other current assets Total current assets NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Note 8) Held-to-maturity financial assets - non-current (Note 9) Financial assets measured at cost (Note 13) Property, plant and equipment (Note 15) Goodwill (Notes 16) Other intangible assets (Note 17) Deferred tax assets Other non-current assets (Notes 15 and 33) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 18) Financial liabilities at fair value through profit or loss - current (Notes 7 and 31) Trade payables (Note 20) Other payables (Notes 21) Current tax liabilities (Note 4) Current portion of bonds payable (Note 19) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities Net defined benefit liabilities - non-current (Note 4) Guarantee deposits received Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Note 23 and 28) Share capital Ordinary shares Capital surplus Additional paid-in capital Treasury shares Changes in ownership interests in subsidiaries Employee share options Employee restricted shares Employee share options - expired Total capital surplus Retained earnings Legal reserve Undistributed earnings Total retained earnings Other equity Exchange differences from translating the financial statements of foreign operations Equity directly associated with non-current assets held for sale Unearned employee compensation Total other equity Treasury shares Equity attributable to owners of the company NON-CONTROLLING INTERESTS Total equity TOTAL		September 30, 2017 Amount % $ 2,137,765 14 - - 21,197 - 1,496,364 10 3,344,917 22 2,646,981 17 221,319 1 9,868,543 64 266,729 2 - - 75,650 - 1,364,462 9 3,237,268 21 229,808 2 126,111 1 138,096 1 5,438,124 36 $ 15,306,667 100 $ 907,800 6 - - 2,085,713 14 768,872 5 8,017 - - - 77,949 - 3,848,351 25 175,595 1 46,210 1 183,901 1 10,400 - 416,106 3 4,264,457 28 2,981,576 19 6,534,066 43 40,868 - 1,269 - 24,131 - 55,123 1 16,386 - 6,671,843 44 186,154 1 1,294,265 9 1,480,419 10 113,570 - (1,193) - (29,617) - 82,760 - (191,998) (1) 11,024,600 72 17,610 - 11,042,210 72 $ 15,306,667 100		December 31, 2016 Amount % $ 3,265,779 22 - - - - 1,334,499 9 2,537,657 17 2,304,897 15 123,117 1 9,565,949 64 175,839 1 - - 80,625 - 112,096 1 3,237,268 22 202,982 1 136,369 1 1,446,203 10 5,391,382 36 $ 14,957,331 100 $ 645,000 4 - - 1,540,640 10 905,327 6 8,858 - - - 63,080 1 3,162,905 21 185,983 1 46,386 1 113,275 1 10,400 - 356,044 3 3,518,949 24 2,965,344 20 6,468,819 43 40,305 - 582 - 27,578 - 73,797 1 14,765 - 6,625,846 44 165,045 1 1,335,160 9 1,500,205 10 433,584 3 (1,498) - (36,040) - 396,046 3 (62,992) (1) 11,424,449 76 13,933 - 11,438,382 76 $ 14,957,331 100		September 30, 2016
						Amount % $ 1,808,230 13 123,863 1 - - 1,430,625 11 2,667,194 19 2,311,664 17 176,313 1 8,517,889 62 28,292 - 15,816 - 47,040 - 114,785 1 3,237,268 23 210,229 2 145,595 1 1,458,892 11 5,257,917 38 $ 13,775,806 100 $ 313,600 3 1,408 - 954,587 7 952,470 7 6,238 - 33,642 - 129,421 1 2,391,366 18 183,005 1 47,889 - 77,722 1 10,400 - 319,016 2 2,710,382 20 2,961,416 21 6,438,354 47 236 - - - 65,858 - 94,833 1 13,730 - 6,613,011 48 165,045 1 1,188,092 9 1,353,137 10 315,860 2 (102) - (45,291) - 270,467 2 (132,607) (1) 11,065,424 80 - - 11,065,424 80 $ 13,775,806 100

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

REVENUE (Note 24) COSTS OF SALES (Note 11 and 25) GROSS PROFIT OPERATING EXPENSES (Note 22, 25, 28 and 33) Selling and marketing expenses General and administrative expenses Research and development Total operating expenses OPERATIONS INCOME (LOSS) NON-OPERATING INCOME AND EXPENSES Finance costs (Note 25) Net gain(loss) of fair value change of financial assets and liabilities at fair value through profit or loss (Note 31) Other gains and losses - net (Note 19) Loss on disposal of property, plant and equipment Loss on foreign currency exchange Interest income Total non-operating income and expenses INCOME (LOSS) BEFORE INCOME TAX INCOME TAX (EXPENSE) BENEFIT (Note 4 and 26) NET INCOME (LOSS) OTHER COMPREHENSIVE INCOME Items that may be reclassified subsequently to profit or loss:		For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30		For the Nine Months	EndedSeptember 30	EndedSeptember 30
		2017			2016		2017		2016
		Amount $ 3,264,928 (2,592,359) 672,569 (130,475 ) (84,014 ) (328,626) (543,115) 129,454 (281 ) - 4,378 - 3,890 13,589 21,576 151,030 (17,037) 133,993	% 100 (79) 21 (4 ) (3 ) (10) (17) 4 - - - - - 1 1 5 (1) 4		Amount % $ 3,056,139 100 (2,428,595) (80) 627,544 20 (114,728 ) (4 ) (77,764 ) (2 ) (332,077) (11) (524,569) (17) 102,975 3 (844 ) - (24 ) - 4,355 - - - (12,573 ) - 10,797 - 1,711 - 104,686 3 (11,736) - 92,950 3		Amount % $ 8,023,430 100 (6,320,513) (79) 1,702,917 21 (353,283 ) (4 ) (230,626 ) (3 ) (966,923) (12) (1,550,832) (19) 152,085 2 (5,275 ) - - - 12,262 - (27 ) - (29,904 ) - 46,682 - 23,738 - 175,823 2 (18,837) - 156,986 2		Amount % $ 8,324,695 100 (6,685,176) (80) 1,639,519 20 (335,376 ) (4 ) (224,619 ) (3 ) (983,962) (12) (1,543,957) (19) 95,562 1 (8,098 ) - 17,858 - (24,681 ) - (1,986 ) - (40,655 ) (1 ) 45,402 1 (12,160) - 83,402 1 (18,329) - 65,073 1

(Continued)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30	For the Three Months EndedSeptember 30	For the Nine Months	For the Nine Months	EndedSeptember 30	EndedSeptember 30
2017	2016		2017	% (4 ) - (4) (2) 2 - 2 (2 ) - (2)	2016
Amount % (5,183 ) - 232 - (4,951) - $ 129,042 4 139,131 4 (5,138) - $ 133,993 4 134,180 4 (5,138) - $ 129,042 4 $ 0.49 $ 0.48	Amount (178,107 ) (102) (178,209) $ (85,259) 92,950 - $ 92,950 (85,259 ) - $ (85,259) $ 0.32 $ 0.32	% (6 ) - (6) (3) 3 - 3 (3 ) - (3)	Amount (320,014 ) 305 (319,709) $ (162,723) 170,191 (13,205) $ 156,986 (149,518 ) (13,205) $ (162,723) $ 0.59 $ 0.58		Amount (293,663 ) (102) (293,765) $ (228,692) 65,073 - $ 65,073 (228,692 ) - $ (228,692) $ 0.22 $ 0.22	% (4 ) - (4) (3) 1 - 1 (3 ) - (3)

$	$		$		$

$	$		$		$

$	$		$		$

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

(Concluded)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars)
BALANCE, JANUARY 1, 2016 Appropriation of 2015 earnings Legal reserve Cash dividends distributed by the Company Net income for the nine months ended September 30, 2016 Other comprehensive loss for the nine months ended September 30, 2016, net of income tax Total comprehensive income (loss) for the nine months ended September 30, 2016 Buy-back of ordinary shares (Note 23) Compensation cost of employee share options (Notes 23 and 28) Issue of ordinary shares under employee share options (Notes 23 and 28) Compensation cost of employee restricted shares (Notes 28) Cancellation of employee restricted shares (Notes 23) Dividend returned for unvested employee restricted shares BALANCE AT SEPTEMBER 30, 2016 BALANCE, JANUARY 1, 2017 Appropriation of 2016 earnings Legal reserve Cash dividends distributed by the Company Net income for the nine months ended September 30, 2017 Other comprehensive loss for the nine months ended September 30, 2017, net of income tax Total comprehensive income (loss) for the nine months ended September 30, 2017 Buy-back of ordinary shares (Note 23) Treasury stock transferred to employees (Note 23 and 28) Changes in ownership interests in subsidiaries (Note 29) Compensation cost of employee share options (Note 23 and 28) Issue of ordinary shares under employee share options (Note 23 and 28) Compensation cost of employee restricted shares (Note 28) Cancellation of employee restricted shares (Note 23) Dividend return on unvested employee restricted stock Increase in non-controlling interests BALANCE ATSEPTEMBER30, 2017		Equity Attributable to Owners of the Company			Non-controlling Total Interests $ 11,572,767 $ - - - (212,240) - 65,073 - (293,765) - (228,692) - (132,607) - 9,281 - 41,757 - 15,209 - (77) - 26 - $ 11,065,424 $ - $ 11,424,449 $ 13,933 - - (189,985) - 170,191 (13,205) (319,709) - (149,518) (13,205) (245,812) - 116,806 - 687 (687) 26,594 - 34,987 - 6,423 - (39) - 8 - - 17,569 $ 11,024,600 $ 17,610	Total Equity $ 11,572,767 - (212,240) 65,073 (293,765) (228,692) (132,607) 9,281 41,757 15,209 (77) 26 $ 11,065,424 $ 11,438,382 - (189,985) 156,986 (319,709) (162,723) (245,812) 116,806 - 26,594 34,987 6,423 (39) 8 17,569 $ 11,042,210
	ShareCapital Ordinary Shares Capital Surplus $ 2,933,299 $ 6,592,641 - - - - - - - - - - - - - 9,281 29,593 12,164 - - (1,476) (1,075) - - $ 2,961,416 $ 6,613,011 $ 2,965,344 $ 6,625,846 - - - - - - - - - - - - - - - 687 - 26,594 16,484 18,503 - - (252) 213 - - - - $ 2,981,576 $ 6,671,843	Retained Earnings Undistributed Legal Reserve Earnings $ 141,463 $ 1,358,815 23,582 (23,582) (212,240) - 65,073 - - - 65,073 - - - - - - - - - - - 26 $ 165,045 $ 1,188,092 $ 165,045 $ 1,335,160 21,109 (21,109) (189,985) - 170,191 - - - 170,191 - - - - - - - - - - - - - - - 8 - - $ 186,154 $ 1,294,265	Other Equity	Unearned Employee Compensation Treasury Shares $ (62,974) $ - - - - - - - - - - - - (132,607) - - - - 15,209 - 2,474 - - - $ (45,291) $ (132,607) $ (36,040) $ (62,992) - - - - - - - - - - - (245,812) - 116,806 - - - - - - 6,423 - - - - - - - $ (29,617) $ (191,998)
			Exchange Differences from Translating Financial Statement of Equity Directly Associated with Non-current Assets Foreign Operations Held for Sale $ 609,523 $ - - - - - - - (293,663) (102) (293,663) (102) - - - - - - - - - - - - $ 315,860 $ (102) $ 433,584 $ (1,498) - - - - - - (320,014) 305 (320,014) 305 - - - - - - - - - - - - - - - - - - $ 113,570 $ (1,193)
		Legal Reserve $ 141,463 23,582 - - - - - - - - - $ 165,045 $ 165,045 21,109 - - - - - - - - - - - - $ 186,154

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax from continuing operation Adjustments for: Depreciation expenses Amortization expenses Gain on financial assets and liabilities at fair value through profit or loss Finance costs Interest income Compensation cost of employee share options Compensation cost of employee restricted shares Loss on disposal of property, plant and equipment Write-down of inventories Unrealized loss on foreign currency exchange Loss on buy-back of bonds payable Changes in operating assets and liabilities Trade receivables Inventories Other current assets Trade payables Other payables Other current liabilities Net defined benefit liabilities Cash generated from operations Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale financial assets Purchase of held-to-muturity financial assets Purchase for property, plant and equipment Proceeds from disposal of property, plant and equipment Purchase of intangible assets Decrease in other financial assets Increase in other non-current assets Interest received Net cash generated from investing activities		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 175,823 32,815 52,686 - 5,275 (46,682) 26,594 6,423 27 26,927 (14,164) - (189,377) (934,514) (95,412) 601,408 (106,885) 16,683 (176) (442,549) (5,199) (9,499) (457,247) (124,057) - (16,643) - (81,220) (480,145) 10,703 42,128 (649,234)	2016 $ 83,402 40,497 40,477 (17,858) 8,098 (45,402) 9,281 15,209 1,986 141,631 1,932 32,021 145,809 (324,308) (50,318) 2,803 14,934 65,991 (279) 165,906 (1,987) (7,108) 156,811 (29,359) (16,355) (12,786) 500 (80,877) 2,831,283 (1,474,441) 53,844 1,271,809 (Continued)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings Repayment of bonds payable Decrease in guarantee deposits Cash dividends Proceeds form issue on ordinary shares under employee share options Buy-back of ordinary shares Treasury stock transferred to employees Increase in non-controlling interests Payment for cancellation of employee restricted stock Proceeds from dividend returned by unvested employee restricted shares Net cash used in financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 305,392 - 71,342 (189,985) 34,987 (245,812) 116,806 17,569 8 (75) 110,232 (131,765) (1,128,014) 3,265,779 $ 2,137,765	2016 57,289 (990,617) (10,128) (212,240) 41,757 (132,607) - - 26 (376) (1,246,896) (63,935) 117,789 1,690,441 $ 1,808,230

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

(Concluded)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017AND 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

FocalTech Systems Co., Ltd. (the “FocalTech” or the “Company”) was incorporated in the Republic of China (“ROC”) in January 2006 and moved to Hsinchu Science Park in April of the same year. The Company was formerly known as Orise Technology Co., Ltd. and renamed on January 17, 2015. The Company is mainly engaged in research, development, design, and sale of LCD Drive IC, and also provision of the related hardware and software application design, manufacturing, repairs and consulting service.

The shareholders’ meeting of the Company resolved to acquire FocalTech Corporation, Ltd. through a share swap, with the reference date of the acquisition and share swap on January 2, 2015. This Acquisition was comprehensively considered as a reverse merger, where FocalTech Corporation, Ltd. was treated as the acquirer and the Company as the acquiree.

The Company’s shares have been listed on the Taiwan Stock Exchange (“TSE”) since July 2007.

The consolidated financial statements are presented in the Company’s functional currency, New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on October 30, 2017.

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) endorsed and issued into effect by the Financial Supervisory Commission (FSC)(collectively, “IFRSs”).

Except the following items, the initial adoption in 2017 of the IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers above would not result in material impact on the Company’s accounting policies:

1) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to the disclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose in every reporting period the recoverable amount of an asset or each cash-generating unit. The amendment clarifies that such disclosure of recoverable amounts is required only when an impairment loss has been recognized or reversed during the period. Furthermore, the Group is required to disclose the discount rate used in measurements of the recoverable amount based on fair value less costs of disposal measured using a present value technique.

2) Annual Improvements to IFRSs: 2010-2012 Cycle

Several standards including IFRS 2 “Share-based Payment”, IFRS 3 “Business Combinations” and IFRS 8 “Operating Segments” were amended in this annual improvement.

The amended IFRS 2 changes the definitions of “vesting condition” and “market condition” and adds definitions for “performance condition” and “service condition”. The amendment clarifies that a performance target can be based on the operations (i.e. a non-market condition) of the Group or another entity in the same group or the market price of the equity instruments of the Group or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Group, but also of other entities outside the Group. The accounting treatments are different among the share-based payment agreements of “market condition,” “non-market condition,” and “non-vesting condition.” The amendment above would affect the accounting treatments of the share-based payment agreements from 2017. Please refer to Note 28 for the share-based payment arrangements of 2017.

IFRS 3 was amended to clarify that contingent consideration should be measured at fair value, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39. Changes in fair value should be recognized in profit or loss.

The amended IFRS 8 requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”. The amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segments’ assets are regularly provided to the chief operating decision-maker.

IFRS 13 was amended to clarify that the insurance of IFRS 13 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of not discounting is immaterial.

3) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments append several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs recognized by the FSC and applied from 2017. In addition, as a result of the implementation review of IFRSs in Taiwan, the amendments emphasize certain recognition and measurement considerations and add requirements for disclosures of related party transactions and goodwill.

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second degree relatives of the chairman of the board of directors or president of the Group are deemed to have a substantive related party relationship with the Group, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Group has significant transactions. If the transaction or balance with a specific related party is 10% or more of the Group’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

The disclosure is required if there is a significant difference between the following operation result and the expectation set on acquisition date.

The disclosures of related impairment of goodwill will be enhanced when the above amendments are retrospectively applied in 2017, please refer to Note 16.

b. The IFRSs issued by the Regulations Governing the Preparation of Financial Reports by Securities Issuers and recognized by FSC with effective date starting 2018.

Effective Date New, Revised or Amended Standards and Interpretations Announced by IASB (Note 1) Annual Improvements to IFRSs 2014-2016 Cycle Note 2 Amendments to IFRS 2 “Shared-Based Payment” January 1, 2018 Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments January 1, 2018 under IFRS 4 Insurance Contracts” IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of January 1, 2018 IFRS 9 and Transition Disclosures” IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendment to IFRS 15 “Clarifications to IFRS 15” January 1, 2018 Amendment to IAS 7 “Disclosure Initiative” January 1, 2017 Amendments to IAS 12 “Recognition of Deferred Tax Assets for January 1, 2017 Unrealized Losses” Amendments to IAS 40 “Transfers of investment property” January 1, 2018 IFRIC 22 “Foreign Currency Transactions and Advance January 1, 2018 Consideration”

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.
1) IFRS 9 “Financial Instruments” and related amendments

Recognition, measurement and impairment of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows:

a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method;
b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to measure an equity investment, which is not held for trading, in the fair value, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

The Group assessed the financial assets held on September 30, 2017, and decided that the unlisted share investment recognized as financial assets measured at cost will reclassify financial assets measured as fair value based on IFRS 9.

IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

The Group simplifies the approach to recognize trade receivables allowance by expected credit losses before collection. The Group evaluates to adjust the allowance of the investment on debt instruments by 12-month or full lifetime expected credit losses, determined by whether if there is a significant increase in the credit risk. In general, the Group anticipates that the application of the expected credit loss model of IFRS 9 may result in earlier recognition of credit losses for financial assets.

The Company elects not to restate the comparing information in the reporting period of 2017 when applying IFRS 9 for the classification, measurement and impairment of financial assets. The cumulative effect would be initially recognized on the beginning of the reporting period in which the Company first applies IFRS9 and will disclose the difference and adjustment. In addition, the Group will disclose the difference between applying IFRS 9 and current standards in 2018.

2) IFRS 15 “Revenue from Contracts with Customers” and the related amendments

IFRS 15 specifies the recognition principle of income generated from the customer contracts; also, the guidelines will replace IAS 18 “Income,” IAS 11 “Construction Contracts,” and related interpretations.

The Consolidated Company after adopting IFRS 15 has income recognized according to the following steps:

Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contracts; and
Recognize revenue when the entity satisfies a performance obligation.

The Group elects to retrospectively apply IFRS 15 for the contracts that won’t be completed on

January 1, 2018 and reflect the cumulative effect in the retained earnings.

In addition, the Group will disclose the difference between applying IFRS 15 and current standards in 2018.

3) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded in the functional currency by the spot exchange rate at the date of the transaction. IFRIC 22 further explains that the transaction date is the date on which an entity recognizes payment or receipt of advance consideration for a non-monetary asset or non-monetary liability. If there are multiple payments or receipts in advance, the entity shall discriminate the date of the transaction for each payment or receipt of advance consideration respectively.

The Company will first apply IFRIC 22 prospectively to all assets, expenses and income from and after the reporting period of January1,2018.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance, and assessment.

c. New IFRSs in issue but not yet endorsed by the FSC

New, Revised or Amended Standards and Interpretations Amendments to IFRS 9 “Prepayments Features with Negative Compensation” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 16 “Leases” IFRS 17 “Insurance Contracts” Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” IFRIC 23 “Uncertainty over Income Tax Treatments”	Effective Date Announced by IASB (Note 1)
	January 1, 2019 To be determined by IASB January 1, 2019 January 1, 2021 January 1, 2019 January 1, 2019

New, Revised or Amended Standards and Interpretations
Amendments to IFRS 9 “Prepayments Features with Negative
Compensation”

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”

IFRS 16 “Leases”

IFRS 17 “Insurance Contracts”

Amendments to IAS 28 “Long-term Interests in Associates and Joint
Ventures”

IFRIC 23 “Uncertainty over Income Tax Treatments”

Effective Date
Announced by IASB (Note 1)

January 1, 2019
To be determined by IASB
January 1, 2019
January 1, 2021
January 1, 2019
January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

1) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Company should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities.

The application of IFRS 16 is not expected to have a material impact on the accounting of the

Company as lessor.

When IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

2) IFRIC 23 “Uncertainty over Income Tax Treatments”

IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Company should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Company concludes that it is probable that the taxation authority will accept the Company declaration, the Company’s financial statements should reflect consistently with its income tax filing, using the same assumptions regarding the taxable income, tax bases, unused loss credits, unused tax credits or tax rates. If it is not probable to be accepted by the taxation authority, the Company should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method could come out the better prediction to the resolution of the uncertainty. The Company has to reassess its judgments and estimates if facts and circumstances change.

The Company shall either retrospectively apply IFRIC 23 and restate each prior reporting period presented, and, if this is possible without the use of hindsight, or retrospectively recognize the cumulative effect initially on the beginning of the reporting period in which the Company first applies IFRIC23.

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 (“the Regulations”) and IAS 34 “Interim Financial Reporting” as endorsed by the FSC. Disclosure information included in these interim consolidated financial statements is less than the disclosure information required in a complete set of annual financial statements.

b. Basis of Preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments and net defined benefit liability (i.e. present value of defined benefit obligation minus fair value of plan assets) that are measured at fair values, as explained in the accounting policies below.

The evaluation of fair value could be classified into Degree 1 to Degree 3 by the observable intensity and importance of related input value:

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 the 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 the asset or liability.

c. Basis of consolidation

About the detail information, holding percentages, and main business of the subsidiaries, please refer to Note 14.

d. Other significant accounting policies

Except for the following, the accounting policies applied in the consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2016.

1) Retirement benefit costs

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant plan amendments, settlements, or other significant one-off events.

2) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period income taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax income the tax rate that would be applicable to expected total annual earnings.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Except for the following, the uncertainty of critical accounting judgments, estimations and assumptions applied are consistent with those in the consolidated financial statements for the year ended December 31, 2016.

Income taxes

As of September 30, 2017, December 31, 2016, and September 30, 2016, no deferred tax liabilities has been recognized on earnings of the subsidiaries of $4,001,097 thousand, $4,328,808 thousand and $4,252,246 thousand, respectively, due to the dividend policy of the subsidiaries was approved by the Company, the reversal of temporary differences of earning of the subsidiaries would be control and it’s probable that the temporary differences will not reverse in the foreseeable future.

6. CASH AND CASH EQUIVALENTS

7.
8.

September 30,
2017
December 31,
2016
September 30,
2016
Cash on hand
$ 1,383
$ 4,321
$ 2,147
Checking accounts and demand deposits
923,979
1,343,883
1,339,209
Cash equivalent (fixed deposit with original
maturities less than three months)

1,212,403

1,917,575

466,874
$ 2,137,765
$ 3,265,779
$ 1,808,230
The market rate intervals of cash in bank at the end of the reporting period were as follows:
September 30,
2017
December 31,
2016
September 30,
2016
Demand deposits
0.001%-0.35% 0.001%-0.35% 0.001%-0.35%
Fixed deposits
0.13%-1.68%
0.2%-6%
0.6%-4.5%
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
September 30,
2017
December 31,
2016
September 30,
2016
Financial assets at FVTPL-current
Financial assets designated as at FVTPL
Credit-linked structured note
$ -
$ -
$ 123,863
Financial liabilities at FVTPL-current
Financial liabilities held for trading
Convertible option attached to the convertible
bonds
$ -
$ -
$ 1,408
AVAILABLE-FOR-SALE FINANCIAL ASSETS
September 30,
2017
December 31,
2016
September 30,
2016
Current
Foreign investments
Fixed income bonds
$ 21,197
$ -
$ -
Non-current
Foreign investments
Fixed income bonds
$ 266,729
$ 175,839
$ 28,292

In July 2016, the Group bought fixed income bonds, with the yield rates between 1.708% and 3.0168%. The maturity dates were of January 20, 2018 and November 30, 2020, respectively.

Available-for-sale financial assets were not been pledged as a collateral.

9. HELD-TO-MATURITY FINANCIAL ASSETS - NON-CURRENT

	September	September	30,	December	December	31,	September 30,	September 30,
		2017			2016			2016
Non-current
Foreign investments
Fixed income bonds	$		-	$		-	$	15,816

In July 2016, the Group bought fixed income bonds with the yield rate at 1.9%, and matured on January 20, 2018. The Group reclassified to available-for-sale financial assets-non-current based on the purpose of transaction in the 4[rd] quarter of 2016.

Hold-to-maturity financial assets were not been pledged as a collateral.

10. TRADE RECEIVABLES, NET

		September 30,	December 31,	September 30,
		2017	2016	2016
Trade	receivables	$ 1,599,248	$ 1,444,149	$ 1,537,249
Less:	Allowance for doubtful accounts	(102,884)	(109,650)	(106,624)
Trade	receivables, net	$ 1,496,364	$ 1,334,499	$ 1,430,625

The average credit period on sales of goods was 60-120 days. No interest was charged on trade receivables. In determining the recoverability of a trade receivable, the Group considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for impairment loss were recognized based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial position.

For the trade receivables balances that were past due at the end of the reporting period, the Group did not recognize an allowance for impairment loss, because there was not a significant change in credit quality and the amounts were still considered recoverable. The Group did not hold any collateral or other credit enhancements for these balances.

The aging of receivables that were past due but not impaired was as follows:

	September 30,	September 30,	December 31,	December 31,	September 30,
		2017		2016	2016
Less than 60 days	$	983	$	3,053	$ 33,101
61-180 days		165		-	15,427
More than 180 days		13,521		19,634	12,929
	$	14,669	$	22,687	$ 61,457

The above aging schedule was based on the past due date from end of credit term.

The movements of the allowance for doubtful trade receivables were as follows:

		Individually	Collectively	Collectively
		Assessed for	Assessed for
		Impairment	Impairment			Total
	Balance at January 1, 2016	$ 111,605	$	-	$	111,605
	Foreign exchange translation	(4,981)		-		(4,981)
	Balance at September 30, 2016	$ 106,624	$	-	$	106,624
	Balance at January 1, 2017	$ 109,650	$	-	$	109,650
	Foreign exchange translation	(6,766)		-		(6,766)
	Balance at September 30, 2017	$ 102,884	$	-	$	102,884
11.	INVENTORIES
		September 30,	December 31,		September 30,
		2017		2016		2016
	Finished goods	$ 1,206,452	$	920,412	$	960,544
	Work in progress	1,161,511		874,762		773,740
	Raw materials and supplies	976,954		742,483		932,910
		$ 3,344,917	$	2,537,657	$	2,667,194

The cost of goods sold included inventory write-downs for the three months ended September 30, 2016, and for the nine months ended September 30, 2017 and 2016 was $46,729 thousand, $26,927 thousand, $141,631 thousand, respectively. The cost of goods sold included reversal of inventory write-downs for the three months ended September 30, 2017 was $963 thousand, respectively.

12. OTHER FINANCIAL ASSETS

OTHER FINANCIAL ASSETS
	September 30,	December 31,	September 30,
	2017	2016	2016
Time deposits with original maturities more than
three months (a)	$ 2,646,981	$ 2,304,897	$ 2,311,664

As of September 30, 2017, December 31, 2016 and September 30, 2016, the market rate intervals of time deposits with original maturities more than three months were 0.90%-2.70%, 0.40%-2.20% and 0.37%-2.7%, respectively.

13. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT

	September 30,	December 31,	September	30,
	2017	2016	2016
Available-for-sale
Non-publicly traded stocks	$ 45,390	$ 48,375	$ 47,040
Mutual funds	30,260	32,250		-
	$ 75,650	$ 80,625	$ 47,040

Management believed that the above investments held by the Group, whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore they were measured at cost less impairment at the end of reporting period.

Financial assets measured at cost were not pledged as collateral.

14. SUBSIDIARIES

Details of the Group’s subsidiaries included in the consolidated financial statements were as follows:

Investor Investee Main Businesses FocalTech Systems Co., Ltd. FocalTech Corporation, Ltd. Investment activity FocalTech Electronics, Ltd. Research, development, manufacturing and sale of integrated circuits FocalTech Systems Co., Ltd. And FocalTech Electronics Co., Ltd. FocalTech Smart Sensors Co., Ltd. Research, development, manufacturing and sale of integrated circuits FocalTech Corporation, Ltd. FocalTech Systems, Inc. Investment activity FocalTech Systems, Inc. FocalTech Systems, Ltd. Research, development, manufacturing and sale of integrated circuits FocalTech Systems, Ltd. FocalTech Systems (Shenzhen) Co., Ltd. Design and research of integrated circuits FocalTech Electronics Co., Ltd. Import and export of integrated circuits FocalTech Electronics, Ltd. FocalTech Electronics (Shanghai) Co., Ltd. Sales support and post-sales service for affiliates’ IC products FocalTech Electronics (Shenzhen) Co., Ltd. Design and research of integrated circuits Hefei PineTech Electronics Co., Ltd. Research, development, manufacturing and sale of integrated circuits	Proportion ofOwnership
	September 30, 2017 December 31, 2016 September 30, 2016 100% 100% 100% 100% 100% 100% 67.11% a 69% a 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% b b

Investor
Investee
Main Businesses
FocalTech Systems
Co., Ltd.
FocalTech Corporation,
Ltd.
Investment activity
FocalTech Electronics,
Ltd.
Research, development,
manufacturing and sale of
integrated circuits
FocalTech Systems
Co., Ltd. And
FocalTech
Electronics Co.,
Ltd.
FocalTech Smart Sensors
Co., Ltd.
Research, development,
manufacturing and sale of
integrated circuits
FocalTech
Corporation, Ltd.
FocalTech Systems, Inc.
Investment activity
FocalTech Systems,
Inc.
FocalTech Systems, Ltd.
Research, development,
manufacturing and sale of
integrated circuits
FocalTech Systems,
Ltd.
FocalTech Systems
(Shenzhen) Co., Ltd.
Design and research of
integrated circuits
FocalTech Electronics
Co., Ltd.
Import and export of integrated
circuits
FocalTech
Electronics, Ltd.
FocalTech Electronics
(Shanghai) Co., Ltd.
Sales support and post-sales
service for affiliates’ IC
products
FocalTech Electronics
(Shenzhen) Co., Ltd.
Design and research of
integrated circuits
Hefei PineTech
Electronics Co., Ltd.
Research, development,
manufacturing and sale of
integrated circuits

Proportion ofOwnership

September
30, 2017
December 31,
2016
September
30, 2016
100%
100%
100%
100%
100%
100%
67.11%
a
69%
a
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
b
b

a. FocalTech Smart Sensors Co., Ltd. was incorporated in July 2016, 100% owned by the Group. The Group’s holding diluted to 69% and 67.11% after the capital injection in November 2016 and September 2017, respectively due to employee stock option plan and/or no pro rata subscription in new share.
b. The Group has the power to appoint and remove the majority of the board of directors and has the power to control the activities of Hefei PineTech Electronics Co., Ltd.; therefore, Hefei PineTech Electronics Co., Ltd. is identified as a subsidiary of the Group. Hefei PineTech Electronics Co., Ltd. was 100% owned by the Group after share acquisition in 2017.

As of September 30, 2017 and 2016, the immaterial subsidiaries of the Group included FocalTech Smart Sensors Co., Ltd., FocalTech Electronics Co., Ltd., FocalTech Systems (Shenzhen) Co., Ltd., FocalTech Electronics (Shenzhen) Co., Ltd., FocalTech Electronics (Shanghai) Co., Ltd. and Hefei PineTech Electronics Co., Ltd. The financial statements of the immaterial subsidiaries had not been reviewed by the auditers.

As of September 30, 2017 and 2016, the total amounts of assets of the immaterial subsidiaries were $2,050,155 thousand and $1,986,072 thousand, 13% and 14% of total consolidated assets, respectively. The total amounts of liabilities were $588,924 thousand and $584,263 thousand, 14% and 22% of total consolidated liabilities, respectively. For the three months ended September 30, 2017 and 2016, and for the nine months ended September 30, 2017 and 2016, the total immaterial subsidiaries comprehensive income (loss) has been recognized $11,091 thousand, ($52,828) thousand, ($70,757) thousand, and ($94,240) thousand, that held 9%, 62%, 43%, and 41% in the consolidated statements of comprehensive income (loss), respectively.

15. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2016 Additions Disposals Effect of foreign currency exchange differences Balance at September 30, 2016 Accumulated depreciation Balance at January 1, 2016 Depreciation Disposals Effect of foreign currency exchange differences Balance at September 30, 2016 Carrying amounts at September 30, 2016 Cost Balance at January 1, 2017 Additions Disposals Effect of foreign currency exchange differences Reclassification Balance at September 30, 2017 Accumulated depreciation Balance at January 1, 2017 Depreciation Disposals Effect of foreign currency exchange differences Balance at September 30, 2017 Carrying amounts at December 31, 2016 and January 1, 2017 Carrying amounts at September 30, 2017	Buildings Development Equipment $ 37,600 $ 195,807 - 8,552 - (7,992) - (6,987) $ 37,600 $ 189,380 $ 1,184 $ 124,836 627 27,915 - (7,992) - (5,379) $ 1,811 $ 139,380 $ 35,789 $ 50,000 $ 37,600 $ 159,892 - 9,191 - (3,245) 19,589 (4,361) 1,250,071 - $ 1,307,260 $ 161,477 $ 2,020 $ 109,056 7,002 16,335 - (3,242) 100 (3,661) $ 9,122 $ 118,488 $ 35,580 $ 50,836 $ 1,298,138 $ 42,989	Office Equipment $ 14,258 634 (71) (725) $ 14,096 $ 7,243 1,543 (24) (385) $ 8,377 $ 5,719 $ 14,180 152 (29) (190) - $ 14,113 $ 8,839 1,439 (5) (95) $ 10,178 $ 5,341 $ 3,935	Information Equipment $ 37,443 3,600 - (2,502) $ 38,541 $ 18,205 4,047 - (1,290) $ 20,962 $ 17,579 $ 38,730 3,841 - (598) - $ 41,973 $ 22,142 4,101 - (312) $ 25,931 $ 16,588 $ 16,042	Leasehold Improve- ments $ 42,362 - (5,109) (1,145) $ 36,108 $ 27,814 6,365 (2,670) (1,099) $ 30,410 $ 5,698 $ 35,956 3,555 - (286) - $ 39,225 $ 32,205 3,938 - (276) $ 35,867 $ 3,751 $ 3,358	Total $ 327,470 12,786 (13,172) (11,359) $ 315,725 $ 179,282 40,497 (10,686) (8,153) $ 200,940 $ 114,785 $ 286,358 16,739 (3,274) 14,154 1,250,071 $ 1,564,048 $ 174,262 32,815 (3,247) (4,244) $ 199,586 $ 112,096 $ 1,364,462

FocalTech Systems (Shenzhen) Co., Ltd. prepaid RMB 292,408 thousand (tax included) in 2016 for the office building, recorded as other non-current assets. The Group reclassified as Buildings and other non-current assets after obtaining official registration and related documents in the 2[nd] quarter of 2017.

Property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:

Buildings 45 -50years Development equipment 3-5 years Office equipment 3-5 years Information equipment 3-5 years Leasehold improvements 1-5 years

Property, plant and equipment were not been pledged as collateral.

16. GOODWILL

GOODWILL
	September 30,	December 31,	September 30,
	2017	2016	2016
Cost	$ 3,237,268	$ 3,237,268	$ 3,237,268

The reverse merger by FocalTech Corporation, Ltd. on January 2, 2015, with the goodwill of 3,237,268, could bring in the synergy of integration of LCD driver and touch controller under the industry trend. IDC (Integrated Driver Controller) revenue and profit was lower than expected due to longer design-in schedule in panel makers, more complicated verification items for Brand customers and more time to lean the process for the supply chain…etc,. The recoverable amount from IDC (Integrated Driver Controller) still exceeded the carrying value so the Company did not recognize any impairment for the goodwill.

The recoverable amount is calculated by IDC projected net cash flows, discounted at 9.57%, under the assumptions of management team judgments and historical experiences with regard to future growth rates and market shares of smartphone, gross margins and forecasted operating expenses.

17. OTHER INTANGIBLE ASSETS

Cost Balance at January 1, 2016 Additions Effect of foreign currency exchange differences Balance at September 30, 2016 Accumulated amortization Balance at January 1, 2016 Amortization expense Effect of foreign currency exchange differences Balance at September 30, 2016 Carrying amounts at September 30, 2016 Cost Balance at January 1, 2017 Additions Effect of foreign currency exchange differences Balance at September 30, 2017	Licenses and Franchises $ 62,741 4,047 (2,368) $ 64,420 $ 50,675 8,462 (2,241) $ 56,896 $ 7,524 $ 66,668 65,888 (3,819) $ 128,737	Software $ 60,367 76,830 (4,841) $ 132,356 $ 34,907 20,626 (1,978) $ 53,555 $ 78,801 $ 141,943 18,589 (8,257) $ 152,275	Patents Trademark $ 76,744 $ 74,000 - - (19) - $ 76,725 $ 74,000 $ 8,051 $ 7,400 5,839 5,550 (19) - $ 13,871 $ 12,950 $ 62,854 $ 61,050 $ 76,723 $ 74,000 - - (4) - $ 76,719 $ 74,000	Total $ 273,852 80,877 (7,228) $ 347,501 $ 101,033 40,477 (4,238) $ 137,272 $ 210,229 $ 359,334 84,477 (12,080) $ 431,731

18.
19.

Accumulated amortization
Balance at January 1, 2017
$ 60,058 $ 65,679 $ 15,815 $ 14,800 $ 156,352
Amortization expense
12,207
29,090
5,839
5,550
52,686
Effect of foreign currency
exchange differences

(3,280)

(3,830)

(5)

-

(7,115)
Balance at September 30,
2017
$ 68,985
$ 90,939
$ 21,649
$ 20,350
$ 201,923
Carrying amounts at
December 31, 2016 and
January 1, 2017
$ 6,610
$ 76,264
$ 60,908
$ 59,200
$ 202,982
Carrying amounts at
September 30, 2017
$ 59,752
$ 61,336
$ 55,070
$ 53,650
$ 229,808
Other intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:
Licenses and franchises
3-5 years
Software
1-5 years
Patents
7-10 years
Trademark
10 years
BORROWINGS
September 30,
2017
December 31,
2016
September 30,
2016
Unsecured bank loans
Amount
$ 907,800
$ 645,000
$ 313,600
Annual interest rate
2.05-2.10%
1.80%-1.85%
1.25%
BONDS PAYABLE
September 30,
2017
December 31,
2016
September 30,
2016
Domestic 1st unsecured convertible bonds
$ -
$ -
$ 34,600
Less: Discounts on bonds payable
-
-
(958)
Less: Current portion

-

-

(33,642)
$ -
$ -
$ -

The bond liability was fully settled during 2016, referring to Note 18 of the consolidated financial statements for the year ended December 31, 2016 for the detail.

The Company bought back 2,508 sheets of the bonds from the market during 3nd quarter in 2016. Besides, the Company was requested to buy back 7,108 sheets by the bondholder at 103.3% of the par value on June 17, 2016. The total payment for buy-back from the market and put option exercised by the bondholders was $990,617 thousand and the Company recognized the loss of $32,021 thousand.

20. TRADE PAYABLES

TRADE PAYABLES
	September 30,	December 31,	September 30,
	2017	2016		2016
Trade payables	$ 2,085,713	$ 1,540,640	$	954,587

The average credit period on purchases was 30-60 days. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.

21. OTHER PAYABLES

		September 30,	December 31,	September 30,
		2017	2016	2016
Payable	for rebates	$ 329,491	$ 367,744	$ 410,512
Payable	for salaries and bonus	297,203	384,011	407,837
Payable	for labor, health and social insurance	14,907	14,601	16,244
Reserve	for litigations	63,855	73,040	77,948
Payable	for professional services and others	63,416	65,931	39,929
		$ 768,872	$ 905,327	$ 952,470

22. RETIREMENT BENEFIT

Employee benefit expenses in respect of the Group’s defined benefit retirement plans were $218 thousand and $237 thousand, $655 thousand and $710 thousand for the three months ended September 30, 2017 and 2016,and nine months ended September 30, 2017 and 2016, respectively, and were calculated using the actuarially determined pension cost discount rate as of December 31, 2016 and 2015.

23. EQUITY

a. Share capital

Ordinary shares (NT$10 par value per share)

Ordinary shares (NT$10 par value per share)
	September 30,	December 31,	September 30,
	2017	2016	2016
Numbers of shares authorized (in thousands)	500,000	500,000	500,000
Shares authorized	$ 5,000,000	$ 5,000,000	$ 5,000,000
Number of shares issued and fully paid (in
thousands)	298,158	296,534	296,142
Shares issued	$ 2,981,576	$ 2,965,344	$ 2,961,416

b. Capital surplus

b. Capital surplus
BALANCE, JANUARY 1, 2016 Compensation cost of employee share options Issue of ordinary shares under employee share options Employee Share Options -Expired Vested employee restricted shares Cancellation of employee restricted stock BALANCE AT SEPTEMBER 30, 2016 BALANCE, JANUARY 1, 2017 Changes in ownership interests in subsidiaries Treasury Stock transferred to Employees Compensation cost of employee share options Issue of ordinary shares under employee share options Employee share options expired Employee restricted shares vested Cancellation of employee restricted stock BALANCE AT SEPTEMBER 30, 2017		Additional Paid-in Capital (1)		Treasury Shares (1)		Changes in ownership interests in subsidiaries (2)		Employee Share Options (3)		Employee Restricted Shares (3)		Employee Share Options -Expired (2)		Total
		$6,362,250 - 56,013 - 18,940 1,151 $6,438,354 $6,468,819 - - - 46,360 - 18,602 285 $ 6,534,066		$ 236 - - - - - $ 236 $ 40,305 - 563 - - - - - $ 40,868		$ - - - - - - $ - $ 582 687 - - - - - - $ 1,269		$ 103,350 9,281 (43,849) (2,924) - - $ 65,858 $ 27,578 - (563 ) 26,594 (27,857 ) (1,621) - - $ 24,131		$ 115,999 - - - (18,940) (2,226) $ 94,833 $ 73,797 - - - - - (18,602) (72) $ 55,123		$ 10,806 - - 2,924 - - $ 13,730 $ 14,765 - - - - 1,621 - - $ 16,386	$6,592,641 9,281 12,164 - - (1,075) $ 6,613,011 $6,625,846 687 - 26,594 18,503 (Continued) - - 213 $ 6,671,843 (Concluded)

1) This type of capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or converted to share capital (at a certain percentage of the Company’s capital surplus annually).
2) This type of capital surplus may be used to offset a deficit.
3) This type of capital surplus cannot be used for any purposes.
c. Retained earnings and dividend policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends are limited to shareholders and do not include employees. The consequential amendments to the Company’s Articles of Incorporation had been resolved by the shareholders’ meeting on June 22, 2016.

Under the Company’s Articles of Incorporation, in the allocation of the net profits for each fiscal year, the Company should first offset its deficits in previous years and then set aside a legal reserve at 10% of the remaining profits until the accumulated legal capital reserve equals total capital. After deducting the legal reserve and any special reserve as required by laws or related regulations.

Any balance, the distribution of earnings is proposed by the board of directors for approval at the stockholders’ meeting. For the comparison of the original and amended of the “Articles of Incorporation” about the accrual basis of the employees’ compensation and remuneration to directors, please refer to Note 25(c).

Considering current and future development plans, investment conditions, capital requirements, and market competition situations, and shareholder benefits, The Company would appropriate the dividends to the shareholders not less than 10% of the current year’s earnings. The dividends could be paid in cash or shares. The cash portion should be equal or more than 10% of the total dividends. It is allowed not to distribute any cash dividend if the cash amount per share is less than NT 0.5.

Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has

exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.

The appropriations of earnings for 2016 and 2015 had approved in the shareholders’ meetings on June 14, 2017 and June 22, 2016, respectively.

Legal reserve Cash dividends	Appropriation of Earnings For the Year Ended December 31 2016 2015 $ 21,109 $ 23,582 189,985 212,240	Dividends Per Share
		For the Year Ended December 31
		2016 2015 $ 0.64 $ 0.7222

d. Treasury

Treasury
	Shares
	(In Thousands)
Number of shares at January 1, 2016	-
Increase during the period	5,000
Number of shares at September 30, 2016	5,000
Number of shares at January 1, 2017	2,376
Increase during the period	6,808
Decrease during the period	(3,248)
Number of shares at September 30, 2017	5,936

Please refer to Note 28 (d) and (e) for the detailed information in The 2nd Shares Buy Back Program.

The treasury shares held by the company cannot be pledged and no dividend and voting right is attached in accordance with the Regulations of Securities and Exchange Act.

24. REVENUE

REVENUE
IC for portable devices Others	For the Three Months Ended September 30 2017 2016 $3,264,928 $3,056,139 - - $3,264,928 $3,056,139			For the Nine Months Ended September 30
		2017 $3,264,928 - $3,264,928		2017 $8,023,430 - $8,023,430	2016 $8,306,876 17,819 $8,324,695

25. NET INCOME

a. Finance costs

Finance costs
Interest on bank loans Interest on deposits Interest on convertible bonds	For the Three Months Ended September 30 2017 2016 $ 281 $ 706 - - - 138 $ 281 $ 844		For the Nine Months Ended September 30
		2017 $ 281 - - $ 281		2017 $ 4,920 355 - $ 5,275	2016 $ 1,633 74 6,391 $ 8,098

b. Depreciation and amortization

Property, plant and equipment Intangible assets An analysis of depreciation and amortization by function Operating expenses Operating costs	For the Three Months Ended September 30 2017 2016 $ 14,020 $ 12,631 17,728 16,428 $ 31,748 $ 29,059 $ 30,038 $ 23,706 1,710 5,353 $ 31,748 $ 29,059	For the Three Months Ended September 30 2017 2016 $ 14,020 $ 12,631 17,728 16,428 $ 31,748 $ 29,059 $ 30,038 $ 23,706 1,710 5,353 $ 31,748 $ 29,059	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 14,020 17,728 $ 31,748 $ 30,038 1,710 $ 31,748		2017 $ 32,815 52,686 $ 85,501 $ 78,767 6,734 $ 85,501	2016 $ 40,497 40,477 $ 80,974 $ 63,178 17,796 $ 80,974

c. Employee benefits expense

Post-employment benefits Defined contribution plans Defined benefit plans Share-based payments Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses	For the Three Months Ended September 30 2017 2016 $ 6,379 $ 6,569 218 237 12,409 10,907 391,075 328,148 $ 410,081 $ 345,861 $ 28,336 $ 22,098 381,745 323,763 $ 410,081 $ 345,861	For the Three Months Ended September 30 2017 2016 $ 6,379 $ 6,569 218 237 12,409 10,907 391,075 328,148 $ 410,081 $ 345,861 $ 28,336 $ 22,098 381,745 323,763 $ 410,081 $ 345,861		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 6,379 218 12,409 391,075 $ 410,081 $ 28,336 381,745 $ 410,081		2017 $ 19,365 655 33,017 1,053,177 $1,106,214 $ 85,034 1,021,180 $1,106,214	2016 $ 19,908 710 24,490 990,126 $1,035,234 $ 62,103 973,131 $1,035,234

The Company arranges to distribute employees’ compensation and remuneration to directors at the rates

no less than 1% and no higher than 1.5%, respectively, of net profit before income tax, employees’ compensation, and remuneration to directors.

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

The bonuses to employees and remuneration to directors for 2016 and 2015 were resolved by the board of directors on February 24, 2017 and February 26, 2016, respectively as follows:

Employees’ compensation Remuneration of directors	For the Year Ended December 31	For the Year Ended December 31
	2016 Cash $ 60,075 645	2015
		Cash $ 51,049 635

There was no difference between the amounts of the employees’ compensation and the remuneration to directors paid and recognized in the consolidated financial statements for the year ended December 31, 2016 and 2015.

Information on the employees’ compensation and remuneration to directors resolved by the Company’s board of directors in 2017 and 2016 are available on the Market Observation Post System website of the Taiwan Stock Exchange.

26. INCOME TAXES

a. Income tax recognized in profit or loss

The major components of tax expense were as follows:

Current tax In respect of the current period Adjustments for prior periods Deferred tax In respect of the current period Income tax expense recognized in profit or loss	For the Three Months Ended September 30 2017 2016 $ 4,334 $ 5,129 613 - 4,947 5,129 12,090 6,607 $ 17,037 $ 11,736	For the Three Months Ended September 30 2017 2016 $ 4,334 $ 5,129 613 - 4,947 5,129 12,090 6,607 $ 17,037 $ 11,736		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 4,334 613 4,947 12,090 $ 17,037		2017 $ 7,977 862 8,839 9,998 $ 18,837	2016 $ 11,838 - 11,838 6,491 $ 18,329

b. The Company’s integrated income tax

The Company’s integrated income tax
September 30, 2017 Imputation credit accounts $ 51,955 Creditable ratio for distribution of earnings	December 31, 2016 September 30, 2016 $ 51,706 $ 51,708 For the Year Ended December 31
	2016 2015 3.89% 4.68%

c. Income tax assessments

The Company and FocalTech Electronics Co., Ltd.’s tax returns until 2014 and 2015, respectively have been assessed by the tax authorities.

27. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share	For the Three Months Ended September 30 2017 2016 $ 0.49 $ 0.32 $ 0.48 $ 0.32	For the Three Months Ended September 30 2017 2016 $ 0.49 $ 0.32 $ 0.48 $ 0.32	Unit: NT$ Per Share For the Nine Months Ended September 30	Unit: NT$ Per Share For the Nine Months Ended September 30	Unit: NT$ Per Share For the Nine Months Ended September 30
		2017 $ 0.49 $ 0.48		2017 $ 0.59 $ 0.58	2016 $ 0.22 $ 0.22

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

Net Income for the Period

Net Income for the Period
Earnings used in the computation of basic earnings per share Effect of potentially dilutive ordinary shares after tax: Convertible bonds Earnings (loss) used in the computation of diluted earnings per share	For the Three Months Ended September 30 2017 2016 $ 139,131 $ 92,950 - - $ 139,131 $ 92,950		For the Nine Months Ended September 30
		2017 $ 139,131 - $ 139,131		2017 $ 170,191 - $ 170,191	2016 $ 65,073 - $ 65,073

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

Weighted average number of ordinary shares in computation of basic earnings per share Effect of potentially dilutive ordinary shares: Convertible bonds Employee share option Employee restricted shares Employees’ compensation or bonus issue to employees Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Three Months Ended September 30 2017 2016 285,839 288,612 - - 2,313 2,503 607 816 1,205 - 289,964 291,931	For the Three Months Ended September 30 2017 2016 285,839 288,612 - - 2,313 2,503 607 816 1,205 - 289,964 291,931	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 285,839 - 2,313 607 1,205 289,964		2017 289,339 - 2,574 611 1,491 294,015	2016 290,733 - 2,838 852 344 294,767

Note: The computation of diluted earnings per share did not include the shares from convertible bonds for three months and nine months ended September 30, 2016 due to anti-dilution.

If the Group is able to select the settlement of the compensation or bonus paid to employees in cash or shares, the weighted average number of outstanding shares used in the computation of diluted earnings per share should include the diluting effect assuming the entire amount of the compensation or bonus settled in shares until the final number of shares distributed to employees is resolved in the following year.

28. SHARE-BASED PAYMENT ARRANGEMENTS

The Company did not have new share option plan or restricted stock plan issued for employees for the nine months ended September 30, 2017 and 2016, except for The 2[nd ] Shares Buy Back Program stated below. The detailed information of the employee share option plans and employee restricted shares plans could be found in Note 27 of the consolidated financial statements of the year ended December 31, 2016.

a. Employee share option plan in 2015

Balance at January 1 Option exercised Options forfeited Balance at September 30	For the Nine Months Ended September 30, 2017	For the Nine Months Ended September 30, 2017	For the Nine Months Ended September 30, 2016 Number of Options Weighted- average Exercise Price (NT$) 2,688,000 $ 12.7 - - (182,000) 12.6 2,506,000 12.4	For the Nine Months Ended September 30, 2016 Number of Options Weighted- average Exercise Price (NT$) 2,688,000 $ 12.7 - - (182,000) 12.6 2,506,000 12.4
		Number of Options Weighted- average Exercise Price (NT$) 2,506,000 $ 12.4 (535,000) 12.2 (412,000) 12.4 1,559,000 12.2		Number of Options Weighted- average Exercise Price (NT$) 2,688,000 $ 12.7 - - (182,000) 12.6 2,506,000 12.4

b. Employee share option plan in 2013

Employee share option plan in 2013
Balance at January 1 Options forfeited Options exercised Options expired Balance at September 30 Options exercisable, end of period	For the Nine Months Ended September 30, 2017 Number of Options Weighted- average Exercise Price (NT$) 1,220,500 $ 38.5 (51,750) 38.5 (244,250) 38.4 (98,250) 38.5 826,250 37.9 826,250 37.9	For the Nine Months Ended September 30, 2016
			Number of Options Weighted- average Exercise Price (NT$) 1,578,500 $ 39.4 (93,750) 39.3 - - (176,000) 39.2 1,308,750 38.5 980,500 38.5

c. Employee share option plan in 2006

Balance at January 1 Options forfeited Options exercised Balance at September 30 Options exercisable, end of period	For the Nine Months Ended September 30, 2017 Number of Options Weighted- average Exercise Price (NT$) 2,662,359 $ 21.01 - - (869,160) 21.95 1,793,199 20.18 1,793,199 20.18	For the Nine Months Ended September 30, 2016	For the Nine Months Ended September 30, 2016
			Number of Options Weighted- average Exercise Price (NT$) 6,738,924 $ 18.61 (699,600) 26.43 (2,959,265) 14.11 3,080,059 20.55 2,306,680 18.87

d. The 2nd Shares Buy Back Program

The eligible employees purchased 50 thousand shares with the total proceeds of $1,327 thousand on February 24, 2017, at $26.53 per share. The fair value of each share purchase right was $11.26 on the purchase date.

e. The 3[rd] Shares Buy Back Program.

On May 12, 2017, the board of directors approved The 3[rd ] Shares Buy Back Program for transferring to employees up to 6,808 thousand shares. The transferred price to employees would be the average purchase price. The eligible employees purchased 3,198 thousand shares with the total proceeds of 115,479 thousand on the grant date, July 24, 2017, at $36.11 per share. The fair value of each share purchase right was $12.85 on the grant date.

According to The 3[rd] Shares Buy Back Program, all the shares would be vested in 3 years, 25% for the first and the second anniversary respectively, and 50% for the third anniversary, if employees are still at work and eligible under related Company rules and policies.

The rules on the unvested shares were as follows;

1) The employees cannot sell, pledge, transfer, donate, or dispose these shares.
2) The Company and the employees should enter into a trust agreement with a trust and custodian institution and authorize the institution to exercise the shareholders’ rights including but not limited to attendance, proposing, speaking and voting in the shareholder meetings.
3) The unvested shares are entitled to receive cash and/or share dividends and the derivatives.

If an employee fails to meet the vesting conditions, the trust institution would dispose the unvested shares and return proceeds to the employee no more than the original purchase price.

Compensation cost recognized for share-based payments above and employee restricted share plans in 2013 and 2014 for the nine months ended September 30, 2017 and 2016 were as follows:

Employee share option plans Share buy-back program Employee restricted share plans Capital surplus - employee share options Other equity - unearned employee compensation		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 2016 $ 6,281 $ 9,281 20,313 - 6,423 15,209 $ 33,017 $ 24,490 For the Nine Months Ended September 30
		2017 $ 26,594 6,423 $ 33,017	2016 $ 9,281 15,209 $ 24,490

29. Equity transactions with non - controlling interests

In September 2017, the Group ownership interest over FocalTech Smart Sensors Co., Ltd. diluted to 67.11% after the capital injection due to employee stock option plan and no pro rata subscription in new share.

The transactions did not change the controlling status. FocalTech Smart Sensors Co., Ltd. was treated as a subsidiary under equity method.

Proceeds received in cash from non-controlling interests The book value in equity accounted for non-controlling interests Equity transaction gap Item to adjust for equity transaction gap Capital surplus - Changes in ownership interests in subsidiaries	FocalTech Smart SensorsCo.,Ltd.	FocalTech Smart SensorsCo.,Ltd.
	$ 17,569 ( 16,882) $ 687 FocalTech Smart SensorsCo.,Ltd.
		$ 687

30. OPERATING LEASE ARRANGEMENTS

The Company is Lessee

The Company and its subsidiaries have lease contracts relate to office, plant and part of office equipment, above contracts would be expired after January 2020.

The lease payments recognized in profit or loss for the current period were as follows:

Lease payment	For the Three Months Ended September 30 2017 2016 $ 12,466 $ 10,916	For the Three Months Ended September 30 2017 2016 $ 12,466 $ 10,916	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 12,466		2017 $ 44,260	2016 $ 43,962

The future minimum lease payments of non-cancellable operating lease commitments were as follows:

	September 30,	December 31,	September 30,
	2017	2016	2016
Not later than 1 year	$ 22,200	$ 31,731	$ 39,999
Later than 1 year and not later than 5 years	10,720	3,992	1,234
	$ 32,920	$ 35,723	$ 41,233

31. FINANCIAL INSTRUMENTS

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

The management believes the carrying amounts of financial assets and financial liabilities not measured of fair value approximate their fair values or cannot be reliably measured.

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

September 30, 2017 Available-for-sale financial assets Fixed income bonds December 31, 2016 Available-for-sale financial assets Fixed income bonds	Level 1 $ - Level 1 $ -	Level 2 $ 287,926 Level 2 $ 175,839	Level 3 $ - Level 3 $ -	Total $ 287,926 Total $ 175,839

September 30, 2016

Financial assets at FVTPL Structured note Available-for-sale financial assets Fixed income bonds Financial liabilities at FVTPL Conversion option of the convertible bonds	Level 1 $ - $ - $ -	Level 2 $ - $ 28,292 $ -	Level 3 $ 123,863 $ - $ 1,408	Total $ 123,863 $ 28,292 $ 1,408

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

For the nine months ended September 30, 2016

For the nine months ended September 30, 2016
	Derivatives
Financial assets at FVTPL
Structured note
Balance at January 1, 2016	$	129,120
Recognized in profit or loss (included in gain on financial assets at FVTPL) -
unrealized		523
Effect of foreign currency exchange differences		(5,780)
Balance at September 30, 2016	$	123,863
	Derivatives
Financial liabilities at FVTPL
Conversion option of the convertible bonds
Balance at January 1, 2016	$	47,818
Recognized in profit or loss (included in gain on financial liabilities at
FVTPL)
Realized		(17,082)
Unrealized		(253)
Repayments		(29,075)
Balance at September 30, 2016	$	1,408

3) Valuation techniques and inputs applied for the purpose of measuring Level 3 fair value measurement
a) Structured Note

Financial Instruments Valuation Techniques and Inputs Credit-Linked Note The fair value provided by the Bank in accordance with the pricing model and / or assumptions of the current and future market conditions, the size and liquidity of the investment and the actual and potential hedging transactions after a reasonable review.

b) Options attached to the convertible bonds

The convertible bond was valuation by the binomial pricing model to Convertible Bonds, the fair value was measured based on the valuation date, duration, the price of the Company’s stock, conversion price, volatility, risk-free interest, risk discount and liquidity risk. The Company obtained the external financial instrument valuation report, the estimation and assumptions used in the valuation report are consistent the information that the market participants used to estimate and assume in the pricing of financial instrument.

c. Categories of financial instruments

Categories of financial instruments
	September	30,	December	31,	September 30,
	2017		2016			2016
Financial assets
Fair value through profit or loss (FVTPL)
Designated as at FVTPL	$	-	$	-	$	123,863
Available-for-sale financial assets (Note 1)	363,576		256,464			75,332
Loans and receivables (Note2)	6,322,387		6,943,655			5,589,026
Held-to-maturity financial assets		-		-		15,816
Financial liabilities
Fair value through profit or loss (FVTPL)
Held for trading		-		-		1,408
Amortized cost (Note 3)	3,946,286		3,204,242			2,332,021

1) The balances included the carrying amount of available-for-sale and financial assets measured at cost.
2) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, trade receivables, other financial assets and guarantee deposits(included in other non-current assets).

3) The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings, trade and other payables, bonds payables and deposits received.

d. Financial risk management objectives and policies

The Group’s major financial instruments include cash and cash equivalents, trade receivable, other financial assets, available-for-sale financial assets, financial assets measured at cost, borrowings, trade

and other payables, bonds payable. The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The board of directors is solely responsible for established and monitored the framework of risk management of the Group, the board of directors authorized the chairman develop and monitored the risk management policy of the Company with the operation center of the Group, and regularly reported the situation to the board of directors.

The Group’s financial risk management policies are developed for identifying and analyzing the financial risks to the Group, evaluating the impacts of the financial risks, and executing the financial-risk aversion policies. The financial risk management are periodically reviewed to reflect changes to the market and the operations. Through the internal controls, such as training and setting up managing requirements and procedures, the Group is engaged in developing a disciplined and constructive control environment, in order to have all employees understand own responsibilities.

The Group’s board of directors monitors the management on managing the compliance to the financial risk management policies and procedures and reviews the appropriateness of risk management structure. To assist the board of directors, the internal auditors perform period and exceptional reviews on the controls and procedures of financial risk management and report the result of reviews to the board of directors.

1) Market risk

The major financial risks from the Company’s operation were foreign currency exchange risk referred to a) and interest rate risk referred to b).

a) Foreign currency risk

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities which were not in the same functional currency with the Group entity at the end of the reporting period are shown in Note 34.

Sensitivity analysis

The Group was mainly exposed to the U.S. dollar and RMB.

The following table details the Group’s sensitivity to a 5% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period for a 5% change in foreign currency rates. A positive number below indicates an decrease in pre-tax profit and other equity associated with New Taiwan dollars strengthen 5% against the relevant currency. For a 5% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on pre-tax profit and other equity and the balances below would be negative.

Profit or loss/ equity		USD Impact For the Nine Months Ended September 30 2017 2016 $ 17,437(i) $ 13,554(i)		RMB Impact	RMB Impact
				For the Nine Months Ended September 30
		2017 $ 17,437(i)		2017 $ 55(ii)	2016 $ 2,429(ii)

i. This was mainly attributable to the exposure outstanding on USD time deposits, trade receivables, trade, other payables, other current assets and other current liability.

ii. This was mainly attributable to the exposure to outstanding RMB time deposits.

b) Interest rate risk

The Group was exposed to interest risk arising from fixed rate time deposits, bond investments, borrowings, bonds payable, and floating rate demand deposits. The time deposits were at fixed interest rates, and bonds were at fixed rates or with guaranteed minimal interest rates and carried at amortized costs, and, therefore, the variations to interest rates did not affect future cash flows.

The carrying amount of the Group’s financial assets with exposure to interest rates at the end of the reporting period were as follows.

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Fair value interest rate risk
Financial assets	$	4,147,310	$	4,398,311	$	2,946,509
Financial liabilities	$	907,800	$	645,000	$	347,242
Cash flow interest rate risk
Financial assets	$	923,979	$	1,343,883	$	1,339,209

Sensitivity analysis

The sensitivity analyses below were determined based on the Group’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis was prepared assuming the amount of the assets outstanding at the end of the reporting period was outstanding for the whole year. A 25 basis point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 25 basis points higher/lower and all other variables were held constant, the Group’s post-tax profit for the nine months ended September 30, 2017 and 2016 would decrease/increase by $1,732 thousand and $2,511 thousand, respectively.

2) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. As at the end of the reporting period, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure of counterparties to discharge an obligation from the carrying amounts of the financial assets as recognized in the balance sheets.

In order to minimize credit risk, management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of

each individual trade debt at the end of the reporting period to ensure that adequate allowances are made for irrecoverable amounts. In this regard, management believes the Group’s credit risk was significantly reduced.

The credit risk on liquid funds and bonds was limited because the counterparties are banks and entities with high credit ratings.

The Group’s concentration of credit risk was related to the five largest client of trade receivables. Ongoing credit evaluation is performed on the financial condition of trade receivables.

As of September 30, 2017, the Group’s five largest customer took 62.51% of total trade receivables, the remaining transactions with a large number of unrelated customers, thus, no significant concentration of credit risk was observed.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, bank loans are a significant resource of liquidity for the Group.

As of September 30, 2017, December 31, 2016, and September 30, 2016, the available unutilized short-term bank loan facilities refer to (b) Financing facilities.

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

The Group’s remaining contractual maturity for its non-derivative financial liabilities was based on the undiscounted cash flows, including interest and principal cash flow, of financial liabilities from the earliest date on which the Group can be required to pay.

September 30, 2017

On Demand or Less than 1 Year Non-derivative financial liabilities Fixed interest rate liabilities $ 907,800 Non-interest bearing 2,854,585 $ 3,762,385 December 31, 2016 On Demand or Less than 1 Year Non-derivative financial liabilities Fixed interest rate liabilities $ 645,000 Non-interest bearing 2,445,967 $ 3,090,967	1-5 Years $ - 183,901 $ 183,901 1-5 Years $ - 113,275 $ 113,275

September 30, 2016

On Demand or
Less than
1 Year
1-5 Years
Non-derivative financial liabilities
Fixed interest rate liabilities
$ 349,188
$ -
Non-interest bearing

1,907,057

77,722
$ 2,256,245
$ 77,722
Financing facilities
September 30,
2017
December 31,
2016
September 30,
2016
Unsecured bank overdraft facility,
reviewed annually:
Amount used
$ 907,800
$ 645,000
$ 313,600
Amount unused

2,102,600

2,145,000

1,813,600
$ 3,010,400
$ 2,790,000
$ 2,127,200

The amounts above included unsecured bank overdraft facility obtained by the Subsidiaries and only guaranteed by the Company credit.

32. TRANSACTIONS WITH RELATED PARTIES

a. Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.
b. Compensation of key management personnel

Long-term employee benefits Short-term employee benefits Post-employment benefits Share-based payments		For the Three Months Ended September 30 2017 2016 $ 17,172 $ - 5,113 11,966 21 151 1,003 2,005 $ 23,309 $ 14,122		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 17,172 5,113 21 1,003 $ 23,309		2017 $ 18,450 24,909 202 3,316 $ 46,877	2016 $ 4,664 38,742 454 4,866 $ 48,726

33. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for legal proceedings and import customs duties:

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Pledge deposits (classified as other non-current
assets)	$	35,915	$	36,543	$	36,873

34. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the group entities and the exchange rates between foreign currencies and respective functional currencies were disclosed.

The significant assets and liabilities denominated in foreign currencies were as follows:

September 30, 2017
			Exchange Rate
		Foreign	(to its relevant	New Taiwan
	Currencies		functional currency)	Dollars
Financial assets
Monetary items
USD	$	54,425	30.26 (USD:NTD)	$ 1,646,908
USD		2,172	6.6369 (USD:RMB)	65,729
RMB		240	0.1507 (RMB:USD)	1,097
			Exchange Rate
		Foreign	(to its relevant	New Taiwan
	Currencies		functional currency)	Dollars
Financial liabilities
Monetary items
USD		32,046	30.26 (USD:NTD)	969,718
USD		13,027	6.6369 (USD:RMB)	394,188
December 31, 2016
			Exchange Rate
		Foreign	(to its relevant	New Taiwan
	Currencies		functional currency)	Dollars
Financial assets
Monetary items
USD	$	46,040	32.25 (USD:NTD)	$ 1,484,800
USD		1,561	6.9370 (USD:RMB)	50,350
RMB		10,395	0.1442 (RMB:USD)	48,326
Financial liabilities
Monetary items
USD		26,937	32.25 (USD:NTD)	868,732
USD		9,693	6.9370 (USD:RMB)	312,609

September 30, 2016

September 30, 2016
			Exchange Rate
		Foreign	(to its relevant	New Taiwan
	Currencies		functional currency)	Dollars
Financial assets
Monetary items
USD	$	49,803	31.360 (USD:NTD)	$ 1,561,825
USD		1,241	6.6778 (USD:RMB)	38,908
RMB		10,344	0.1497 (RMB:USD)	48,579
Financial liabilities
Monetary items
USD		31,002	31.360 (USD:NTD)	972,228
USD		11,398	6.6778 (USD:RMB)	357,433

35. SEGMENT INFORMATION

Segment information is provided to those who allocate resources and assesse segment performance separately. The Company’s operation focuses on the selling and developing portable device related IC under a single operation unit. Thus, the information of operating segment should not be disclosed individually.

AI assistant

FocalTech — Interim / Quarterly Report 2017

52342_rns_2017-12-29_ed0936a0-1312-4e87-a36a-71c0cabf13c0.pdf

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars, Except Par Value)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

Recognition, measurement and impairment of financial assets

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

c. Basis of consolidation

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

6. CASH AND CASH EQUIVALENTS

9. HELD-TO-MATURITY FINANCIAL ASSETS - NON-CURRENT

10. TRADE RECEIVABLES, NET

12. OTHER FINANCIAL ASSETS

13. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT

14. SUBSIDIARIES

15. PROPERTY, PLANT AND EQUIPMENT

16. GOODWILL

17. OTHER INTANGIBLE ASSETS

20. TRADE PAYABLES

21. OTHER PAYABLES

22. RETIREMENT BENEFIT

23. EQUITY

Ordinary shares (NT$10 par value per share)

b. Capital surplus

24. REVENUE

25. NET INCOME

a. Finance costs

26. INCOME TAXES

c. Income tax assessments

27. EARNINGS PER SHARE

Net Income for the Period

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

28. SHARE-BASED PAYMENT ARRANGEMENTS

b. Employee share option plan in 2013

29. Equity transactions with non - controlling interests

30. OPERATING LEASE ARRANGEMENTS

The Company is Lessee

31. FINANCIAL INSTRUMENTS

September 30, 2016

1) Market risk

a) Foreign currency risk

Sensitivity analysis

Sensitivity analysis

2) Credit risk

September 30, 2017

September 30, 2016

32. TRANSACTIONS WITH RELATED PARTIES

33. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

34. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

September 30, 2016

35. SEGMENT INFORMATION

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