FocalTech — Interim / Quarterly Report 2018

Dec 10, 2018

FocalTech Systems Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Three Months Ended March 31, 2018 and 2017

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) Financial assets at fair value through other comprehensive income - current (Note 4 and 8) Available-for-sale financial assets - current (Note 4 and 9) Trade receivables, net (Note 4 and 12) Inventories (Note 13) Other financial assets (Note 4 and 11) Other current assets Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss - non-current (Note 4 and 7) Financial assets at fair value through other comprehensive income - non-current (Note 4 and 8) Available-for-sale financial assets - non-current (Note 4 and 9) Financial assets measured at cost - non-current (Note 4 and 10) Property, plant and equipment (Note 15) Goodwill (Notes 16) Other intangible assets (Note 17) Deferred tax assets Other non-current assets (Note 15 and 31) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 18) Trade payables (Note 19) Other payables (Note 20) Current tax liabilities (Notes 4) Other current liabilities (Notes 23) 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 (Notes 22 and 27) 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 Unrealized loss on financial assets at fair value through other comprehensive income 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		March 31, 2018 Amount % $ 2,786,399 20 14,640 - - - 1,617,128 12 1,991,627 15 1,607,478 12 248,443 2 8,265,715 61 46,362 - 238,913 2 - - - - 1,434,437 10 3,237,268 24 194,509 1 118,858 1 91,674 1 5,362,021 39 $13,627,736 100 $ - - 1,324,230 10 734,665 5 408,952 3 125,726 1 2,593,573 19 34,562 1 29,552 - 306,908 2 10,400 - 381,422 3 2,974,995 22 2,984,430 22 6,566,622 48 40,868 1 1,269 - 36,768 - - - 17,356 - 6,662,883 49 186,154 1 1,028,513 8 1,214,667 9 (18,922) - (3,939) - - - - - (22,861) - (188,815) (2) 10,650,304 78 2,437 - 10,652,741 78 $ 13,627,736 100		December 31, 2017 Amount % $ 2,596,128 19 - - 35,814 - 1,257,525 9 2,685,765 20 1,385,904 10 212,037 2 8,173,173 60 - - - - 245,640 2 74,400 - 1,408,474 10 3,237,268 24 210,714 2 104,501 1 89,898 1 5,370,895 40 $13,544,068 100 $ - - 1,310,390 10 738,870 5 411,977 3 82,620 1 2,543,857 19 15,876 - 29,620 - 200,951 2 10,400 - 256,847 2 2,800,704 21 2,983,700 22 6,565,204 49 40,868 - 1,269 - 30,179 - - - 17,356 - 6,654,876 49 186,154 1 1,058,985 8 1,245,139 9 47,154 - - - (2,791) - - - 44,363 - (191,998) (1) 10,736,080 79 7,284 - 10,743,364 79 $ 13,544,068 100		March 31, 2017
				Amount $ 2,596,128 - 35,814 1,257,525 2,685,765 1,385,904 212,037 8,173,173 - - 245,640 74,400 1,408,474 3,237,268 210,714 104,501 89,898 5,370,895 $13,544,068 $ - 1,310,390 738,870 411,977 82,620 2,543,857 15,876 29,620 200,951 10,400 256,847 2,800,704 2,983,700 6,565,204 40,868 1,269 30,179 - 17,356 6,654,876 186,154 1,058,985 1,245,139 47,154 - (2,791) - 44,363 (191,998) 10,736,080 7,284 10,743,364 $ 13,544,068		Amount % $ 2,214,779 16 - - 1,145,304 8 3,030,734 21 2,241,574 16 146,017 1 8,778,408 62 - - - - 174,275 1 75,825 - 107,895 1 3,237,268 23 244,116 2 141,838 1 1,370,990 10 5,352,207 38 $14,130,615 100 $ 606,600 4 1,271,993 9 740,864 5 6,797 - 63,358 1 2,689,612 19 176,181 1 46,327 - 106,531 1 10,400 - 339,439 2 3,029,051 21 2,970,232 21 6,487,567 46 40,868 - 582 - 24,214 - 73,785 1 15,384 - 6,642,400 47 165,045 1 1,331,321 10 1,496,366 11 79,975 - - - (1,581) - (33,744) - 44,650 - (61,665) - 11,091,983 79 9,581 - 11,101,564 79 $ 14,130,615 100

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

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

REVENUE (Note 4 and 23) COSTS OF SALES (Notes 13 and 24) GROSS MARGIN OPERATING EXPENSES (Notes 21, 24, 28 and 30) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses OPERATIONS INCOME( LOSS) NON-OPERATING INCOME AND EXPENSES Finance costs (Note 24) Interest income Loss on foreign currency exchange Other gains and losses - net Total non-operating income and expenses INCOME (LOSS) BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 25) NET INCOME (LOSS) OTHER COMPREHENSIVE INCOME Items that will not be reclassified to profit or loss: Income tax relating to those items not to be reclassified to profit or loss(Notes25) Items that may be reclassified subsequently to profit or loss: Exchange differences from translating the financial statements of foreign operations Unrealized gains from debt instrument investments measured at fair value through other comprehensive loss Unrealized loss on available-for-sale financial assets		For the Three Months	For the Three Months	Ended March 31
		2018 Amount % $ 2,612,661 100 (2,087,644) (80) 525,017 20 (99,749) (4) (80,188) (3) (340,909) (13) (520,846) (20) 4,171 - (564) - 17,326 1 (15,958) (1) 19,703 1 20,507 1 24,678 1 (15,081) (1) 9,597 - - - (276) - - - (66,076) (2) (1,148) - - -		2017
				Amount % $ 2,161,081 100 (1,663,119) (77) 497,962 23 (103,893) (5) (72,042) (4) (305,951) (14) (481,886) (23) 16,076 - (2,619) - 15,874 1 (44,633) (2) 4,869 - (26,509) (1) (10,433) (1) 2,234 - (8,199) (1) - - - - - - (353,609) (16) - - (83) - (Continued)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

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

Items that may be reclassified subsequently to profit or loss Other comprehensive income for the period, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET PROFIT ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interests EARNINGS PER SHARE (Note 26) Basic Diluted		For the Three Months	For the Three Months	Ended March 31
		2018 Amount % $ (67,224) (2) (67,500) (2) $ (57,903) (2) $ 14,444 - (4,847) - $ 9,597 - $ (53,056) (2) (4,847) - $ (57,903) (2) $ 0.05 $ 0.05		2017
				Amount % $ (353,692) (16) (353,692) (16) $ (361,891) (17) $ (3,847) - (4,352) - $ (8,199) - $ (357,539) (17) (4,352) - $ (361,891) (17) $ (0.01) $ (0.01)
		$		$
		$		$
		$		$
		$		$
		$		$

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)

BALANCE, JANUARY 1, 2017 Net loss for the three months ended March 31, 2017 Other comprehensive loss for the three months ended March 31, 2017, net of income tax Total comprehensive income (loss) for the three months ended March 31, 2017 Treasury stock transferred to employees (Note 22 and 27) Compensation cost of employee share options (Note 22 and 27) Issue of ordinary shares under employee share options (Note 22 and 27) Compensation cost of employee restricted shares (Note 27) Cancellation of employee restricted shares (Note 22) Dividend return on unvested employee restricted stock BALANCE AT MARCH 31, 2017 BALANCE, JANUARY 1, 2018 Effects of retrospective application and restatement Restated balance as of January 1, 2018 Net income for the three months ended March 31, 2018 Other comprehensive loss for the three months ended March 31, 2018, net of income tax Total comprehensive income (loss) for the three months ended March 31, 2018 Treasury stock transferred to employees (Note 22 and 27) Compensation cost of employee share options (Note 22 and 27) Issue of ordinary shares under employee share options (Note 22 and 27) BALANCE AT MARCH 31, 2018			Equity Attributable toOwners of theCompany	Equity Attributable toOwners of theCompany	Non-controlling Total Interests $ 11,424,449 $ 13,933 (3,847) (4,352) (353,692) - (357,539) (4,352) 1,327 - 7,399 - 14,042 - 2,296 - 1 - 8 - $ 11,091,983 $ 9,581 $ 10,736,080 $ 7,284 (44,640) - 10,691,440 7,284 14,444 (4,847) (67,500) - (53,056) (4,847) 3,183 - 7,781 - 956 - $ 10,650,304 $ 2,437	Total Equity $ 11,438,382 (8,199) (353,692) (361,891) 1,327 7,399 14,042 2,296 1 8 $ 11,101,564 $ 10,743,364 (44,640) 10,698,724 9,597 (67,500) (57,903) 3,183 7,781 956 $ 10,652,741
	ShareCapital Ordinary Shares Capital Surplus $ 2,965,344 $ 6,625,846 - - - - - - - - - 7,399 4,983 9,059 - - (95) 96 - - $ 2,970,232 $ 6,642,400 $ 2,983,700 $ 6,654,876 - - 2,983,700 6,654,876 - - - - - - - - - 7,781 730 226 $ 2,984,430 $ 6,662,883		Retained Earnings Undistributed Legal Reserve Earnings $ 165,045 $ 1,335,160 - (3,847) - - - (3,847) - - - - - - - - - - - 8 $ 165,045 $ 1,331,321 $ 186,154 $ 1,058,985 - (44,640) 186,154 1,014,345 - 14,444 - (276) - 14,168 - - - - - - $ 186,154 $ 1,028,513	Other Equity Unrealized gains (losses) from Differences from financial asset Translating Equity Directly measured at fair Financial Associated with value through Statement of Non-current other Unearned Foreign Assets comprehensive Employee Operations Held for Sale income Compensation Treasury Shares $ 433,584 $ (1,498) $ - $ (36,040) $ (62,992) - - - - - (353,609) (83) - - - (353,609) (83) - - - - - - - 1,327 - - - - - - - - - - - - - 2,296 - - - - - - - - - - - $ 79,975 $ (1,581) $ - $ (33,744) $ (61,665) $ 47,154 $ (2,791) $ - $ - $ (191,998) - 2,791 (2,791) - - 47,154 - (2,791) - (191,998) - - - - - (66,076) - (1,148) - - (66,076) - (1,148) - - - - - - 3,183 - - - - - - - - - - $ (18,922) $ - $ (3,939) $ - $ (188,815)
			Legal Reserve $ 165,045 - - - - - - - - - $ 165,045 $ 186,154 - 186,154 - - - - - - $ 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 (loss) before income tax from continuing operation Adjustments for: Depreciation expenses Amortization expenses Gains from reversal of impairment loss on expected credit Finance costs Interest income Compensation cost of employee share options Compensation cost of employee restricted shares Write-down of inventories Unrealized loss (gain) on foreign currency exchange Changes in operating assets and liabilities Increase in financial assets mandatorily classified as at fair value through profit or loss 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 Proceeds from disposal of financial asset at fair value through other comprehensive income Purchase of available-for-sale financial assets Purchase for property, plant and equipment Purchase of intangible assets Increase in other financial assets Increase in other non-current assets Interest received Net cash generated from investing activities		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2018 $ 24,678 15,954 16,390 (6,084) 564 (17,326) 7,781 - 28,185 (11,029) (17,257) (361,708) 632,145 (29,948) 28,228 2,655 43,328 (68) 356,488 (564) (5,247) 350,677 20,510 - (20,044) (2,205) (250,064) (595) 11,967 (240,431)	2017 $ (10,433) 9,949 16,568 - 2,619 (15,874) 7,399 2,296 12,861 (2,400) - 162,193 (604,880) (23,523) (219,578) (128,679) 3,143 (59) (788,398) (2,143) (5,405) (795,946) - (9,242) (7,310) (63,433) (67,979) (2,643) 11,856 (138,751) (Continued)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in guarantee deposits Issue of ordinary shares under employee share options Treasury stock transferred to employees Payment for cancellation of employee restricted shares 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 (DECREASE ) 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 Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2018 $ 108,651 956 3,183 - - 112,790 (32,765) 190,271 2,596,128 $ 2,786,399	2017 $ (6,744) 14,042 1,327 (28) 8 8,605 (124,908) (1,051,000) 3,265,779 $ 2,214,779

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

(Concluded)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (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 April 24, 2018.

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) recognized 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) IFRS 9 “Financial Instruments” and related amendment

IFRS 9 “Financial Instruments” supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, and IFRS 7 “Financial Instruments: Disclosures” and other standards are consequentially amended as well. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets. The relevant accounting policies could be found in Note 4.

Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed on January 1, 2018, the Company performed an assessment of the classification of the financial assets, retrospective applied IFRS 9, and elected not to restate prior reporting periods.

The following table shows the original measurement categories and carrying amounts under IAS 39 and

the new measurement categories and carrying amounts under IFRS 9 for each class of the Company’s financial assets and financial liabilities on January 1, 2018.

Financial Assets Cash and cash equivalents Preferred stock investments Private funds Bond investments Accounts/notes receivables, other financial assets and refundable deposits	Measurement Category IAS 39 IFRS 9 Loans and receivables At amortized cost Available‑for‑ salefinancial assets Mandatorily at fair value through profit or loss (FVTPL) Available‑for‑ salefinancial assets Mandatorily at fair value through profit or loss (FVTPL) Available‑for‑ salefinancial assets At fair value for debt instrument investment through other comprehensive income (FVTOCI) Loans and receivables At amortized cost	Carrying Amount IAS 39 IFRS 9 Remark $ 2,596,128 $ 2,596,128 (a) 44,640 - (b) 29,760 29,760 (b) 281,454 281,454 (c) 2,684,032 2,684,032 (a)

FVTPL Add: Reclassification from available for sale (IAS 39) Financial assets measured at cost - remeasurement (IAS 39) FVTOCI Add: Reclassification from available for sale financial assets (IAS 39) Total	IAS 39 Carrying Amount as of January 1, 2018 Reclassification Remeasuremen t $ - - $ 74,400 - - $ (44,640) - 74,400 (44,640) - 281,454 - - 281,454 - $ - $ 355,854 $ (44,640)	IFRS 9 Carrying Amount as of January 1, 2018 $ 29,760 281,454 $ 311,214	Retained Earnings Effect on January 1, 2018 Note (b) (b) $ (44,640 ) (c) - $ (44,640)

• a) Cash and cash equivalents, notes and accounts receivables, other financial assets and refundable deposits, that were previously classified as loans and receivables under IAS 39, would be measured at amortized cost with an assessment of expected credit losses under IFRS 9.

• b) Since the cash flows of unlisted stock investments and private funds, previously classified as financial assets measured at cost under IAS 39, are not fully matched for the payments of the principals and interests of the outstanding principal amounts, and unlisted stock investments and private funds are equity instruments held for trading, they are mandatorily reclassified as measured at fair value through profit or loss under IFRS 9 and needed to be remeasured. In respect of unlisted stock investments, the adjustments would result in a decrease in carrying

amount and retained earnings of NT$44,640 thousand on first application date.

• c) The bond investments are classified as available-for-sale financial assets under IAS 39 and measured at fair value. Since the contractual cash flows are fully matched for the payments of the principals and interests of the outstanding principal amounts, and the purpose of the business model could be achieved by receiving contractual cash flows and selling those financial assets, these bond investments are measured at fair value through other comprehensive income under IFRS 9.

• 2) IFRS 15 “Revenue from Contracts with Customers” and related amendment

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 relevant accounting policies could be found in Note 4.

• 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.

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

New, Revised or Amended Standards and Interpretations "Annual Improvements to IFRSs 2015-2017 Cycle" Amendments for IFRS 9 “Prepayments Features with Negative Compensation” Amendments for IFRS 10 and IAS 28 “Sales or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 16 “Leases” IFRS 17 “Insurance Contracts” Amendments for IFRS 19 “Employee Benefits - Plan Amendment, Curtailment or Settlement” Amendments for IFRS 28 “Long-term Equity for Associated or Joint Venture Companies ” IFRIC 23 “Treatment of Income Tax Uncertainty”

Effective Date Announced by IASB (Note 1)

January 1, 2019 January 1, 2019 (Note 2) To be determined January 1, 2019 (Note 3) January 1, 2021 January 1, 2019 (Note 4) 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. Note 2: The FSC allows the Group to select earlier adoption of the amendments from January 1, 2018. Note 3: On December 19, 2017, the FSC announced that companies should apply IFRS 16 on January 1, 2019. Note 4: This amendment applies to the amendment, curtailment or settlement of employee benefit plans that occurred after January 1, 2019.

• 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.

• 3) Amendments to IAS 19 " Employee Benefits - Plan Amendment, Curtailment or Settlement"

The amendment provides that when the plan is amended, curtailed or settled, the current service cost and net interest for the remainder of the year shall be determined on the basis of the actuarial assumptions used to re-measure the net defined benefit liabilities (assets). In addition, the amendment clarifies the impact of the plan's amendment, curtailment or settlement on rules applied to the asset cap. The aforementioned amendments will is applied prospectively.

Except for the statements above, as of the date on that consolidated financial statements approved to issue, the Company is continuously assessing and evaluating the possible impacts that the application of other standards and interpretations will have on the Company’s financial position and financial performance, and will disclose the relevant impacts 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 (“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 are prepared on the historical cost basis, except for the financial instruments measured at fair value and the net defined benefit liabilities recognised in the fair value of the estimated assets, and 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 accounting policies of financial instruments and revenue recognition and 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, 2017.

• 1) 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 issue of financial assets and financial liabilities 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 fair value through profit or loss are recognized immediately in profit or loss.

• a) Financial assets

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

• i) Measurement category

2018

The Group’s financial assets include those measured at FVTPL, at amortized cost and investments in debt instruments measured at FVTOCI.

• A. Financial asset at FVTPL

The equity instruments that are not specified as FVTOCI and debt instruments that do not meet the criteria of amortized cost or FVTOCI are mandatorily required to be measured at FVTPL. Any gain or loss arising from the remeasurement is recognized in profit or loss at fair value, including any interest or dividend earned on the financial asset. The

determination methodology of fair value of financial instruments states in Note 29.

B. Financial assets at amortized cost

Financial assets that meet both two following conditions will subsequently be measured at amortized cost:

(i) The objective of the business model to hold the financial asset is to collect contractual cash flows; and

(ii) The cash flows from contractual terms of the financial asset on specified dates are solely matched for payments of principal and interests on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, account receivables at amortized cost, other financial assets, and refundable deposits, are measured at amortized cost, which equals to gross carrying amount determined by the effective interest method, subtracting any impairment loss. Foreign exchange differences are recognized in profit or loss.

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

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

(ii) Financial asset that has subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset.

Cash equivalents include time deposits with original maturities within 3 months from obtaining date, high liquidation level, readily convertible to a known amount of cash at any time, and low risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• C. Investments in debt instruments at FVTOCI

Investments in debt instruments that meet both the following conditions are subsequently measured at FVTOCI:

(i) The objective of the business model to hold the financial asset is to collect contractual cash flows and sell financial assets; and

(ii) The cash flows from contractual terms of the financial asset on specified dates are solely matched for payments of principal and interests on the principal amount outstanding.

Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment losses or reversed gains on investments in debt instruments at FVTOCI are recognized in profit or loss. Other changes in the carrying amount of these debt instruments are recognized in other comprehensive income and will be reclassified to profit or loss when these debt instruments are disposed.

2017

The Group’s financial assets are classified into available-for-sale financial assets, loans and receivables.

a. Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as 1) loans and receivables, 2) held-to-maturity financial assets or 3) financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Foreign exchange gains or losses from available-for-sale financial assets, interest incomes from the monetary available-for-sale financial assets by effective interest method and dividends from available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

Available-for-sale equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less any identified impairment loss at the end of each reporting period. Such financial instruments are subsequently remeasured at fair value when they can be reliably measured, and the difference between the carrying amount and fair value is recognized in other comprehensive income. When the impairment is confirmed, the cumulative loss previously recognized in other comprehensive income should be reclassified to loss.

b. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalent, other financial assets and refundable deposits) are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

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

ii) Impairment of financial assets

2018

At the end of each reporting period, a loss allowance for expected credit loss is recognized for financial assets at amortized cost (including accounts receivable) and for investments in debt instruments that are measured at FVTOCI.

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

All impairment gain or loss of the financial instruments with a corresponding adjustment to their carrying amount are through an allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset.

2017

The Group assesses whether other financial assets have deducted objective evidence at each balance sheet date. When there is objective evidence that the estimated future cash flows of the financial assets are attributable to the single or multiple events arising from the original recognition of the financial assets, then the financial asset has been impaired

.

For financial assets carried at amortized cost, such as trade receivables, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for that financial asset because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables and other receivables (please specify) where the carrying amount is reduced through the use of an allowance account. When a trade receivable and other receivables are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

iii) 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.

Before 2018, when a financial asset is derecognized in its entirety, the difference between the asset’s carrying amount and the sum of the consideration and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. From 2018, when a financial asset carried at amortized cost is derecognized in its entirety, the difference between the

asset’s carrying amount and the consideration is recognized in profit or loss. If the financial asset is an investment in debt instruments at FVTOCI and derecognized in its entirety, the difference between the asset’s carrying amount and the sum of the consideration and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

b) Equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

• c) Financial liabilities

• i) Subsequent measurement

All the financial liabilities are measured by amortized cost using the effective interest method.

• ii) Derecognition of financial liabilities

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

• 2) Revenue recognition

• a) Sale of goods

2018

After the Group performance obligations from the contract with the customers, it allocates the transaction price to each performance obligations, and recognizes revenue when performance obligations are satisfied.

Revenue comes from sales of goods for IC for portable devices. Revenue is recognized when the goods are delivered to the customer’s specific location, at which time the customer has full discretion over the manner of distribution and price to sell the goods and the primary responsibility for sales to future customers. Revenue and trade receivable is recognized concurrently.

2017

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

• i) The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

• ii) The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

iii) The amount of revenue can be measured reliably;

• iv) It is probable that the economic benefits associated with the transaction will flow to the Group; and

• v) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

b)Interest income

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

• 3) 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.

• 4) 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. The effect of a change in tax rate resulting from the amendment in the tax law is recognized consistent with the accounting treatment of the corresponding transaction itself, and is recognized in profit or loss or other comprehensive income in full in the occurring period.

5. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATIONS AND ASSUMPTIONS

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, 2017.

Income taxes

As of March 31, 2018, December 31, 2017, and March 31, 2017, the deferred tax liabilities on earnings of the subsidiaries, FocalTech Corporation, Ltd. and FocalTech Electronics, Ltd., reporting at $3,135,718 thousand, $3,385,197 thousand, and $3,983,252 thousand, are not recognized respectively, due to the dividend policy of the subsidiaries and the reversal of temporary differences of earnings being able to be controlled by the Company. It’s probable that the temporary differences will not be reversed in the foreseeable future.

6. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
			December 31,
	March 31, 2018			2017	March 31, 2017
Cash on hand	$	1,861	$	1,870	$	3,112
Checking accounts and demand deposits		1,604,460		762,436		782,398
Cash equivalent (fixed deposit with original
maturities less than three months)		1,180,078		1,831,822		1,429,269
	$	2,786,399	$	2,596,128	$	2,214,779

The market rate intervals of cash in bank at the end of the reporting period were as follows:

		December 31,
	March 31, 2018	2017	March 31, 2017
Demand deposits	0.001%-0.4%	0.001%-0.4%	0.001%-0.35%
Fixed deposits	0.6%-4.01%	0.6%-2.4%	0.6%-3.5%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS-NON-CURRENT

		December	31,
	March 31, 2018	2017		March 31, 2017
Mandatorily at fair value through profit or loss
(FVTPL)
Listed preferred shares	$ 10,200	$	-	$	-
Private Funds (Note)	36,162		-		-
	$ 46,362	$	-	$	-

Note ： The investments were previously classified as financial assets measured at cost under IAS 39. Related information of reclassification and 2017 detail could be found in Note 3 and 10.

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME-2018

	March 31, 2018	March 31, 2018
Investments in debt instruments
Current
Foreign investments
Fixed income bonds	$	14,640
Non–Current
Foreign investments
Fixed income bonds	$	238,913
Yield rates	1.963%-3.0168%

Note ： The investments were previously classified as available-for-sale under IAS 39. Note 3 and 9 are the information for reclassification and 2017 detail.

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

			December 31, 2017	December 31, 2017	December 31, 2017	March	March	31, 2017
	Current
	Foreign investments
	Fixed income bonds		$ 35,814				$	-
	Non-Current
	Foreign investments
	Fixed income bonds		$ 245,640				$ 174,275
	Yield rates		1.708%-3.0168%			1.708%-2.6739%
10.	FINANCIAL ASSETS MEASURED AT COST-	NON-CURRENT - 2017
			December 31, 2017			March		31, 2017
	Foreign unlisted preferred shares		$ 44,640				$ 45,495
	Private Funds		29,760				30,330
			$ 74,400				$ 75,825
11.	OTHER FINANCIAL ASSETS
				December		31,
		March 31, 2018			2017		March 31, 2017
	Time deposits with original maturities more than
	three months	$	1,607,478	$	1,385,904		$	2,241,574
	Market rate intervals	1.045%-4.03% 1.045%-3.74%					0.4%-2.7%
12.	TRADE RECEIVABLES, NET
				December		31,
		March 31, 2018			2017		March 31, 2017
	Notes receivables	$	-	$		-	$		6
	Trade receivables		1,710,264		1,385,709			1,248,420
	Less: Allowance for doubtful accounts		(93,136)		(101,184)			(103,122)
	Trade receivables, net	$	1,617,128	$	1,257,525		$	1,145,304
	March 31, 2018

The average credit period on sales of goods was 60-120 days. 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 Company applies the simplified approach prescribed by IFRS 9, which permits the use of allowances of expected credit losses over the lifetime for all trade receivables. The expected credit losses on trade receivables are estimated by using an allowance matrix with references to past customer default records, customer’s current financial position, and general economic conditions of the industry. Due to the past

experiences, there is no significant difference in the loss patterns of different customer groups. Therefore, the allowance matrix does not further distinguish the customer base, and only sets the expected credit loss rate based on the overdue days of trade receivable.

The following table details the loss allowance of trade receivables based on the Company’s allowance

matrix.

March 31, 2018

ix. March 31, 2018
Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECL) Amortized cost	Non Past Due - $ 1,596,575 - $ 1,596,575		Overdue 1-60 Days - $ 2,117 - $ 2,117	Overdue 61-180 Days - $ 155 - $ 155	Overdue Over 181 Days 84% $ 111,417 (93,136) $ 18,281		Total
							- $ 1,710,264 (93,136) $ 1,617,128

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

Beginning balance Less: Impairment loss reversed Difference from foreign exchange translation Ending balance	For the three months ended March 31, 2018	For the three months ended March 31, 2018
	( (	$ 101,184 6,084 ) 1,964) $ 93,136

Wintek Corporation announced the following material information on October 13, 2014. Due to loss of continuous operation, the board of directors of Wintek Corporation approved to apply for court’s ratification for reorganization and emergency disposal in accordance with the relevant rules of the Company Act. As of March 31, 2018, the Group recognized allowance of doubtful trade receivables against Wintek Corporation of 93,136 thousand.

2017

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:

	December 31,	December 31,
		2017	March 31, 2017
Less than 60 days	$	5,049	$ 40,488
61-180 days		-	1,093
More than 180 days		13,292	12,505
	$	18,341	$ 54,086

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
		Assessed for
		Impairment
Balance	at January 1, 2017	$ 109,650
Foreign	exchange translation	(6,528)
Balance	at March 31, 2017	$ 103,122

13. INVENTORIES

INVENTORIES
			December 31,
	March 31, 2018			2017	March 31, 2017
Finished goods	$	569,829	$	993,694	$ 1,206,562
Work in progress		807,251		916,087	964,982
Raw materials and supplies		614,547		775,984	859,190
	$	1,991,627	$	2,685,765	$ 3,030,734

The cost of goods sold included inventory write-downs for the three months ended March 31, 2018 and 2017 was $28,185 thousand and $12,861 thousand, respectively.

14. SUBSIDIARIES

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

			Proportion of Ownership	Proportion of Ownership	Proportion of Ownership
			March 31,	December 31,	March 31,
Investor	Investee	Main Businesses	2018	2017	2017
FocalTech Systems	FocalTech Corporation,	Investment activity	100%	100%	100%
Co., Ltd.	Ltd.
	FocalTech Electronics,	Research, development,	100%	100%	100%
	Ltd.	manufacturing and sale of
		integrated circuits
FocalTech Systems	FocalTech Smart Sensors	Research, development,	-	67.11%(a)	69%(a)
Co., Ltd. And	Co., Ltd.	manufacturing and sale of
FocalTech		integrated circuits
Electronics Co.,	FocalTech Smart Sensors,	Investment activity	67.11%(c)	100%(b)	-
Ltd.	Ltd.
FocalTech Smart	FocalTech Smart Sensors	Research, development,	100%(c)	-	-
Sensors, Ltd.	Co., Ltd.	manufacturing and sale of
		integrated circuits

FocalTech	FocalTech Systems, Inc.	Investment activity	100%	100%	100%
Corporation,Ltd.
FocalTech Systems,	FocalTech Systems, Ltd.	Research, development,	100%	100%	100%
Inc.		manufacturing and sale of
		integrated circuits
FocalTech Systems,	FocalTech Systems	Design and research of	100%	100%	100%
Ltd.	(Shenzhen) Co., Ltd.	integrated circuits
	FocalTech Electronics	Import and export of integrated	100%	100%	100%
	Co.,Ltd.	circuits
FocalTech	FocalTech Electronics	Sales support and post-sales	100%	100%	100%
Electronics, Ltd.	(Shanghai) Co., Ltd.	service for affiliates’ IC
		products
	FocalTech Electronics	Design and research of	100%	100%	100%
	(Shenzhen) Co., Ltd.	integrated circuits
	Hefei PineTech	Research, development,	100%	100%	100%
	Electronics Co., Ltd.	manufacturing and sale of
		integrated circuits

• 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. FocalTech Smart Sensors, Ltd. was incorporated in December 2017 and 100% owned by the Group.

• c. The Group reorganized the investment structure in March 2018. The share swap resulted that FocalTech Smart Sensors, Ltd. 100% owned FocalTech Smart Sensors Co, Ltd. After reorganization, FocalTech Smart Sensors, Ltd. is 67.11% owned by FocalTech Systems Co., Ltd and FocalTech Electronics Co., Ltd.

As of March 31, 2018 and 2017, the immaterial subsidiaries of the Group included FocalTech Smart Sensors Co., Ltd., FocalTech Electronics Co., Ltd., FocalTech Electronics (Shenzhen) Co., Ltd., FocalTech Electronics (Shanghai) Co., Ltd., Hefei PineTech Electronics Co., Ltd. and FocalTech Smart Sensors, Ltd. The financial statements of the immaterial subsidiaries had not been reviewed by the auditors.

As of March 31, 2018 and 2017, the total amounts of assets of the immaterial subsidiaries were $399,177 thousand and $355,380 thousand, 3% and 3% of total consolidated assets, respectively. The total amounts of liabilities were $83,658 thousand, and $120,853 thousand, 3% and 4% of total consolidated liabilities, respectively. For the three months ended March 31, 2018 and 2017, the total immaterial subsidiaries comprehensive loss has been recognized $9,459 thousand and $37,536 thousand, that held 16% and 10% in the consolidated statements of comprehensive loss, respectively.

15. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2017 Additions Disposals Effect of foreign currency exchange differences Balance at March 31, 2017 Accumulated depreciation Balance at January 1, 2017 Depreciation Disposals Effect of foreign currency exchange differences Balance at March 31, 2017 Carrying amounts at March 31, 2017 Cost Balance at January 1, 2018 Additions Effect of foreign currency exchange differences Balance at March 31, 2018 Accumulated depreciation Balance at January 1, 2018 Depreciation Effect of foreign currency exchange differences Balance at March 31, 2018 Carrying amounts at December 31, 2017 and January 1, 2018 Carrying amounts at March 31, 2018	Buildings Development Equipment Office Equipment Information Equipment $ 37,600 $ 159,892 $ 14,180 $ 38,730 - 4,198 - 270 - (550) - - - (5,545) (533) (1,863) $ 37,600 $ 157,995 $ 13,647 $ 37,137 $ 2,020 $ 109,056 $ 8,839 $ 22,142 209 6,009 506 1,361 - (550 ) - - - (4,312) (311) (1,058) $ 2,229 $110,203 $ 9,034 $ 22,445 $ 35,371 $ 47,792 $ 4,613 $ 14,692 $1,358,019 $ 165,491 $ 14,479 $ 42,437 693 18,172 1,045 134 21,486 (471) 175 616 $1,380,198 $ 183,192 $ 15,699 $ 43,187 $ 16,029 $ 121,011 $ 10,236 $ 27,331 9,147 4,437 455 1,365 254 (814) 109 384 $ 25,430 $124,634 $ 10,800 $ 29,080 $1,341,990 $ 44,480 $ 4,243 $ 15,106 $1,354,768 $ 58,558 $ 4,899 $ 14,107	Leasehold Improve- ments Construction in Progress $ 35,956 $ - - 3,555 - - (808) - $ 35,148 $ 3,555 $ 32,205 $ - 1,864 - - - (793) - $ 33,276 $ - $ 1,872 $ 3,555 $ 39,209 $ - - - 237 - $ 39,446 $ - $ 36,554 $ - 550 - 237 - $ 37,341 $ - $ 2,655 $ - $ 2,105 $ -	Total $ 286,358 8,023 (550) (8,749) $ 285,082 $ 174,262 9,949 (550) (6,474) $ 177,187 $ 107,895 $ 1,619,635 20,044 22,043 $ 1,661,722 $ 211,161 15,954 170 $ 227,285 $ 1,408,474 $ 1,434,437

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 2nd quarter of 2017.

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

Buildings 45 years 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
		December 31,
	March 31, 2018	2017	March 31, 2017
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 10%, 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, 2017 Additions Effect of foreign currency exchange differences Balance at March 31, 2017 Accumulated amortization Balance at January 1, 2017 Amortization expense Effect of foreign currency exchange differences Balance at March 31, 2017 Carrying amounts at March 31, 2017 Cost Balance at January 1, 2018 Additions Effect of foreign currency exchange differences Balance at March 31, 2018	Licenses and Franchises $ 66,668 62,189 (4,674) $ 124,183 $ 60,058 2,722 (3,121) $ 59,659 $ 64,524 $ 126,919 - (2,383) $ 124,536	Software $ 141,943 1,244 (7,888) $ 135,299 $ 65,679 10,050 (3,710) $ 72,019 $ 63,280 $ 149,951 2,205 (3,002) $ 149,154	Patents Trademark $ 76,723 $ 74,000 - - (14) - $ 76,709 $ 74,000 $ 15,815 $ 14,800 1,946 1,850 (14) - $ 17,747 $ 16,650 $ 58,962 $ 57,350 $ 76,718 $ 74,000 - - 4 - $ 76,722 $ 74,000	Total $ 359,334 63,433 (12,576) $ 410,191 $ 156,352 16,568 (6,845) $ 166,075 $ 244,116 $ 427,588 2,205 (5,381) $ 424,412

Accumulated amortization Balance at January 1, 2018 Amortization expense Effect of foreign currency exchange differences Balance at March 31, 2018 Carrying amounts at December 31, 2017and January 1, 2018 Carrying amounts at March 31, 2018	$ 72,394 4,308 (1,371) $ 75,331 $ 54,525 $ 49,205	$ 98,685 8,286 (1,994) $ 104,977 $ 51,266 $ 44,177	$ 23,595 1,946 4 $ 25,545 $ 53,123 $ 51,177	$ 22,200 1,850 - $ 24,050 $ 51,800 $ 49,950	$ 216,874 16,390 (3,361) $ 229,903 $ 210,714 $ 194,509

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

18. BORROWINGS

BORROWINGS
				December		31,
	March 31,		2018		2017		March 31, 2016
Unsecured bank loans
Amount	$		-	$		-	$ 606,600
Annual interest rate		-			-		1.46%
TRADE PAYABLE
				December		31,
	March 31,		2018		2017		March 31, 2017
Trade payables	$ 1,324,230			$	1,310,390		$ 1,271,993

19. TRADE PAYABLE

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.

20. OTHER PAYABLES

			December 31,
		March 31, 2018	2017	March 31, 2017
Payable	for rebates	$ 300,963	$ 236,574	$ 309,469
Payable	for salaries and bonus	288,675	349,166	314,911
Payable	for labor, health and social insurance	15,293	15,463	14,486
Reserve	for litigations	60,089	62,800	67,807
Payable	for professional services and others	69,645	74,867	34,191
		$ 734,665	$ 738,870	$ 740,864

21. RETIREMENT BENEFIT

Employee benefit expenses in respect of the Group’s defined benefit retirement plans were $140 thousand and $231 thousand for the three months ended March 31, 2018 and 2017, respectively, and were calculated using the actuarially determined pension cost discount rate as of December 31, 2017 and 2016.

22. EQUITY

• a. Share capital

Ordinary shares (NT$10 par value per share)

Ordinary shares (NT$10 par value per share)
		December 31,
	March 31, 2018	2017	March 31, 2017
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)	298,443	298,370	297,023
Shares issued	$ 2,984,430	$ 2,983,700	$ 2,970,232

• b. Capital surplus

b. Capital surplus
BALANCE, JANUARY 1, 2016 Treasury Stock transferred to Employees Compensation cost of employee share options Issue of ordinary shares under employee share options Employee share options expired Cancellation of employee restricted stock BALANCE AT MARCH 31, 2017 BALANCE, JANUARY 1, 2018 Compensation cost of employee share options Issue of ordinary shares under employee share options BALANCE AT MARCH 31, 2018		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
		$6,468,819 - - 18,640 - 108 $ 6,487,567 $6,565,204 - 1,418 $ 6,566,622		$ 40,305 563 - - - - $ 40,868 $ 40,868 - - $ 40,868		$ 582 - - - - - $ 582 $ 1,269 - - $ 1,269		$ 27,578 (563 ) 7,399 (9,581 ) (619) - $ 24,214 $ 30,179 7,781 (1,192) $ 36,768		$ 73,797 - - - - (12) $ 73,785 $ - - - $ -		$ 14,765 - - - 619 - $ 15,384 $ 17,356 - - $ 17,356		$6,625,846 - 7,399 9,059 - 96 $ 6,642,400 $6,654,876 7,781 226 $ 6,662,883

• 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

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 24(d).

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.

The appropriations of earnings for 2017 and 2016 had been proposed by the company’s board of directors on April 24, 2018 and approved in the shareholders’ meetings on June 14, 2017, respectively, were as follows:

Legal reserve Cash dividends	Appropriation of Earnings For the Year Ended December 31 2017 2016 $ - $ 21,109 - 189,985	Dividends Per Share
		For the Year Ended December 31
		2017 2016 $ - $ 0.64

The Company’s board proposed the cash distribution from additional paid-in capital of $150,000 thousand which comes from the premium over the par value when issuing, approximately $0.5 per share, on April 24, 2018.

The appropriation of earnings and cash distribution from additional paid-in capital for 2017 is subject to the resolution of the shareholders’ meeting to be held on June 2018.

• d. Treasury stock

	Shares
	(In Thousands)
Number of shares at January 1, 2017	2,376
Decrease during the period	(50)
Number of shares at March 31, 2017	2,326
Number of shares at January 1, 2018	5,936
Decrease during the period	(120)
Number of shares at March 31, 2018	5,816

Please refer to Note 27 (d) for the detailed information in The 2[nd] 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.

23. REVENUE

REVENUE
IC for portable devices Contract balances March 31, 2018 Contract liabilities Sales of goods $ 69,474		For the Three Months Ended March 31
		2018 2017 $ 2,612,661 $ 2,161,081 December 31, 2017 March 31, 2017 $ 29,341 $ 28,776

24. NET INCOME (LOSS)

• a. Finance costs

Interest on deposits Others Interest on bank loans Depreciation and amortization Property, plant and equipment Intangible assets An analysis of deprecation by function Operating expenses Operating costs		For the Three Months Ended March 31	For the Three Months Ended March 31
		2018 2017 $ 471 $ 355 93 - - 2,264 $ 564 $ 2,619 For the Three Months Ended March 31
		2018 $ 15,954 16,390 $ 32,344 $ 31,767 577 $ 32,344	2017 $ 9,949 16,568 $ 26,517 $ 23,808 2,709 $ 26,517

• b. Depreciation and amortization

c. Employee benefits expense

Post-employment benefits Defined contribution plans Defined benefit plans (Note 21) Share-based payments (Note 27) Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating expenses Operating costs		For the Three Months Ended March 31	For the Three Months Ended March 31
		2018 2017 $ 7,057 $ 6,329 140 231 7,781 9,695 342,557 322,421 $ 357,535 $ 338,676 For the Three Months Ended **March 31 **
		2018 $ 330,333 27,202 $ 357,535	2017 $ 310,755 27,921 $ 338,676

d. The remuneration to employees and directors

The Company stipulates 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. Due to the pretax loss in 2017, there was no accrual for any remuneration to employees and directors. The estimated employees’ compensation and remuneration to directors from January 1 to March 31, 2018 are as following:

Accrual rate

Employees’ compensation Remuneration of directors Amount Employees’ compensation Remuneration of directors		For the Three Months Ended March 31,2018
		19.52% 0.48% For the Three Months Ended March 31,2018
		$ 6,023 $ 147

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 was resolved by the board of directors on February 24, 2017, respectively as follows:

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

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.

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.

25. INCOME TAXES

• a. Income tax expense (income) recognized in profit or loss

Current tax In respect of the current year Adjustments for prior years Deferred tax In respect of the current year Effect of tax rate changes Income tax expense recognized in profit or loss		For the Three Months Ended March 31	For the Three Months Ended March 31
		2018 $ 10,793 - 10,793 15,725 (11,437) 4,288 $ 15,081	2017 $ 3,533 249 3,782 (6,016) - (6,016) $ (2,234)

In 2018, the amendment of the Republic of China Income Tax Law let the income tax rate for corporations adjust to 20% from 17%. The effect of the change in tax rate on deferred tax income was recognized in profit in 2018. In addition, the tax rate applicable to the undistributed earnings was reduced from 10% to 5%.

• b. Income tax expense recognized in other comprehensive income

Deferred income tax Effect of tax rate change	For the Three Months Ended March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2018 $ 276	2017 $ -

c. Income tax assessments

The Company’s tax returns until 2015, FocalTech Electronics Co., Ltd. and FocalTech Smart Sensors Co., Ltd.’s tax returns until 2016 have been assessed by the tax authorities.

26. EARNINGS PER SHARE

EARNINGS PER SHARE
Basic earnings per share Diluted earnings per share	Unit: NT$ Per Share For the Three Months Ended March 31
		2018 $ 0.05 $ 0.05	2017 $ (0.01) $ (0.01)

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

Net Profit for the Year

Net Profit for the Year
Earnings used in the computation of basic earnings per share	F	or the Three Months Ended March 31
		2018 $ 14,444	2017 $ (3,847)

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: Employee share option (Note) Employees’ compensation or bonus issue to employees (Note) Employee restricted shares (Note) Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Three Months Ended March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2018 287,838 1,215 189 - 289,242	2017 291,098 - - - 291,098

Note ： The computation of diluted earnings per share did not include the shares from employee share options, employees’ compensation and Employee Restricted Shares for three months ended March 31 2017 due to anti-dilution.

If the Group is able to select the settlement of the compensation 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 settled in shares until the final number of shares distributed to employees is resolved in the following year.

27. SHARE-BASED PAYMENT ARRANGEMENTS

The Company did not have new share option plan or restricted stock plan issued for employees for the three months ended March 31, 2018 and 2017, 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 25 of the consolidated financial statements of the year ended December 31, 2017.

• a. Employee share option plan in 2015

Balance at January 1 Options exercised Options forfeited Balance at March 31		For the Three Months Ended March 31, 2018 Number of Options Weighted- average Exercise Price (NT$) 1,476,500 $ 12.2 (60,000) 12.2 (33,000) 12.2 1,383,500 12.4		For the Three Months Ended March 31, 2017
				Number of Options Weighted- average Exercise Price (NT$) 2,506,000 $ 12.4 - - (100,000) 12.4 2,406,000 12.4

• b. Employee share option plan in 2013

Balance at January 1 Options forfeited Options exercised Options expired Balance at March 31 Options exercisable, end of period		For the Three Month Ended March 31	For the Three Month Ended March 31	For the Three Month Ended March 31
		2018 Number of Options Weighted- average Exercise Price (NT$) 768,750 $ 37.9 - - - - (38,500) 37.9 730,250 37.9 730,250 37.9		2017
				Number of Options Weighted- average Exercise Price (US$) 1,220,500 $ 38.5 (25,750) 38.5 (155,500) 38.5 (37,500) 38.5 1,001,750 38.5 725,250 38.5

c. Employee share option plan in 2006

Balance at January 1 Options forfeited Options exercised Balance at March 31 Options exercisable, end of period		For the Three Month Ended March 31	For the Three Month Ended March 31	For the Three Month Ended March 31
		2018 Number of Options Weighted- average Exercise Price (NT$) 1,637,199 $ 19.84 - - (13,000) 17.24 1,624,199 19.86 1,624,199 19.86		2017
				Number of Options Weighted- average Exercise Price (US$) 2,662,359 $ 21.01 - - (342,853) 23.49 2,319,506 20.65 2,168,935 20.04

d. The 2[nd] Shares Buy Back Program.

The Company's employee subscription base dates were February 8, 2018 and February 24, 2017. The eligible employees subscribed 120 thousand shares and 50 thousand shares at the price of 26.53 with the total proceeds as 3,183 thousand and 1,327 thousand respectively. The fair value of the transfer date of the share purchase option is 11.26.

Compensation cost recognized for share-based payments above and employee restricted share plans in 2013 and 2014 for the three months ended March, 2018 and 2017 were as follows:

Employee share option plans Shares buy back and transfer to employee program Employee restricted share plans Capital surplus - employee share options Other equity - unearned employee compensation		For the Three Months Ended March 31	For the Three Months Ended March 31
		2018 2017 $ 909 $ 2,271 6,872 5,128 - 2,296 $ 7,781 $ 9,695 For the Three Months Ended March 31
		2018 $ 7,781 - $ 7,781	2017 $ 7,399 2,296 $ 9,695

28. 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:

	March	31, 2018	March 31, 2017
lease payment	$	8,965	$ 16,008

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

		December 31,
	March 31, 2018	2017	March 31, 2017
Not later than 1 year	$ 26,153	$ 29,819	$ 33,187
Later than 1 year and not later than 5 years	7,136	12,021	17,835
	$ 33,289	$ 41,840	$ 51,022

29. 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

March 31, 2018 Financial assets at FVTPL Listed preferred shares Private funds Total Financial assets at FVTOCI Investments in debt instruments Fixed income bonds December 31, 2017 Available-for-sale financial assets Investments in debt instruments Fixed income bonds	Level 1 $ 10,200 - $ 10,200 $ - Level 1 $ -	Level 2 $ - - $ - $ 253,553 Level 2 $ 281,454	Level 3 $ - 36,162 $ 36,162 $ - Level 3 $ -	Total $ 10,200 36,162 $ 46,362 $ 253,553 Total $ 281,454

March 31, 2017

Available-for-sale financial assets Investments in debt instruments Fixed income bonds	Level 1 $ -	Level 2 $ 174,275	Level 3 $ -	Total $ 174,275

There was no type transfer between Level 1 and Level 2 for the three months ended March 31, 2018 and 2017.

• 2) Reconciliation of financial instruments measured by Level 3 fair value

For the Three Months ended March 31, 2018

For the Three Months ended March 31, 2018
		Equity
	Investments
Financial assets at FVTPL
Balance at January 1, 2018	$	29,760
Purchases		7,057
Effect of foreign currency exchange differences		(655)
Balance at March 31, 2018	$	36,162

• 3) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value measurement

The fair values of foreign fixed income bonds are determined by quoted market prices provided by the independent third party.

• 4) Valuation techniques and inputs applied for the purpose of measuring Level 3 fair value measurement

The unlisted equity investment is measured by the asset method, which evaluate the total value of individual asset and individual liability of the target to reflect the overall value of the company or business. The Company had carefully evaluated and selected the suitable evaluation method and the individual fair value of each asset and liability, but the use of different evaluation models or fair values may result in different evaluation results.

• c. Categories of financial instruments

Categories of financial instruments
			December	31,
	March 31, 2018		2017		March 31, 2017
Financial assets
Fair value through profit or loss (FVTPL)
Mandatorily at FVTPL	$	46,362	$	-	$	-
Loans and receivables (Note 1)		-	5,280,160			5,641,921
Available-for-sale financial assets (Note 2)		-	355,854			250,100
Amortized cost (Note 3)		6,047,819		-		-
Financial assets at FVTOCI

		December	31,
	March 31, 2018	2017		March 31, 2017
Investments in debt instruments	253,553		-	-
Financial liabilities
Amortized cost (Note 4)	2,365,803	2,250,211		2,725,988

• 1) The amounts included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes and trade receivables, other financial assets and refundable deposits, booked in other non-current assets.

• 2) The balances included the carrying amount of available-for-sale and financial assets measured at cost.

• 3) The amounts included financial assets measured at amortized cost, which comprise cash and cash equivalents, notes and trade receivables, other financial assets and refundable deposits, booked in other non-current assets.

• 4) The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings, trade and other 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, financial assets at FVTPL, available-for-sale financial assets, financial assets measured at cost, financial assets at FVTOCI, borrowings, trade and other payables. 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 32.

Sensitivity analysis

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

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	USD Impact
		For the Three Months Ended March 31
		2018 $ 31,197(i)	2017 $ 18,627(i)

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.

b) Interest rate risk

The Group was exposed to interest risk arising from fixed rate time deposits, bond investments, borrowings 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.

		December	December	31,
	March 31, 2018		2017		March 31, 2017
Fair value interest rate risk
Financial assets	$ 3,041,109	$	3,499,180		$	3,845,118
Financial liabilities	$ -	$		-	$	606,600
Cash flow interest rate risk
Financial assets	$ 1,604,460	$	762,436		$	782,398

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 three months ended March 31, 2018 and 2017 would decrease/increase by $1,003 thousand and $489 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.

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 March 31, 2018, the Group’s five largest customers took 63% of total trade receivables, the remaining transactions with a large number of unrelated customers, thus, no significant concentration of credit risk was observed.

Credit risk management for investments in debt instruments

The Company’s investments in debt instruments are financial assets at fair value through other comprehensive income. The Company policy allows only to invest the targets with credit ratings equal to or higher than the investment grade and with low credit risk after the impairment assessment. Credit rating information is provided by independent rating institute. The Company continuously tracks external rating information to monitor changes in credit risk of the invested debt instruments, and also examines other information such as the bond yield curve and the debtor's material information to assess whether the credit risk of the debt instrument investment has increased significantly after the original recognition.

The Company assesses the 12-month expected credit loss based on the probability of default and loss given from default provided by external credit rating agencies. The current credit risk assessment policies and carrying amount of investments in debt instruments for each credit rating are as follows:

Category Performing	Description Basis for Recognizing Expected Credit Loss The debtor with low credit risk and fully capable paying off contractual cash flows 12 months expected credit loss	Expected Credit Loss Ratio 0%	Carrying Amount as of March 31, 2018	Carrying Amount as of March 31, 2018
				$ 253,553

• 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 liquidtiy for the Group.

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

• a) Liquidity and interest risk rate tables for financial liabilities

The Group’s remaining contractual maturity for its 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.

March 31, 2018

b)	Non-interest bearing December 31, 2017 Non-interest bearing March 31, 2017 Fixed interest rate liabilities Non-interest bearing Financing facilities Unsecured bank overdraft facility, reviewed annually: Amount used Amount unused	On Demand or Less than 1 Year 1-5 Years $ 2,058,895 $ 306,908 On Demand or Less than 1 Year 1-5 Years $ 2,049,260 $ 200,951 On Demand or Less than 1 Year 1-5 Years $ 606,600 $ - 2,012,857 106,531 $ 2,619,457 $ 106,531 March 31, 2018 December 31, 2017 March 31, 2017 $ - $ - $ 606,600 3,346,300 3,385,600 2,306,600 $ 3,346,300 $ 3,385,600 $ 2,913,200

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

30. 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 March 31	For the Three Months Ended March 31	For the Three Months Ended March 31
		2018 $ 7,196 9,863 89 1,689 $ 18,837	2017 $ 4,475 13,392 152 1,782 $ 19,801

31. ASSETS PLEDGED AS COLLATERAL

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

			December 31,	December 31,
	March	31, 2018		2017	March	31, 2017
Pledge deposits (classified as other non-current
assets)	$	36,400	$	35,882	$	34,773

32. 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:

March 31, 2018

March 31, 2018
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	66,977	29.105 (USD:NTD)	$ 1,949,363
USD		1,965	6.2881 (USD:RMB)	57,198
Financial liabilities
Monetary items
USD		33,664	29.105 (USD:NTD)	979,802
USD		13,840	6.2881 (USD:RMB)	402,818

December 31, 2017

December 31, 2017
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	64,113	29.76 (USD:NTD)	$ 1,908,009
USD		1,971	6.5342 (USD:RMB)	58,644
Financial liabilities
Monetary items
USD		27,718	29.76 (USD:NTD)	824,887
USD		7,920	6.5342 (USD:RMB)	235,704
March 31, 2017
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	45,394	30.33 (USD:NTD)	$ 1,376,793
USD		1,681	6.8993 (USD:RMB)	50,997
Financial liabilities
Monetary items
USD		24,445	30.33 (USD:NTD)	741,409
USD		10,348	6.8993 (USD:RMB)	313,846

33. 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.