FocalTech — Interim / Quarterly Report 2020

Nov 13, 2020

FocalTech Systems Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Three Months Ended March 31, 2020 and 2019

This is the translation of the financial statements. CPAs do not audit or review on this translation.

INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Shareholders FocalTech Systems Co., Ltd.

Introduction

We have reviewed the accompanying consolidated balance sheets of FocalTech Systems Co., Ltd. and its subsidiaries (collectively, the “Company”) as of March 31, 2020 and 2019, the related consolidated statements of comprehensive income, of consolidated statements of changes in equity and of cash flows for the three months then ended, and the related notes to the consolidated financial statements, including a summary of significant accounting policies. Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews.

Scope of Review

Except as explained in the following paragraph, we conducted our reviews in accordance with Statement of Auditing Standards No. 65 "Review of Financial Information Performed by the Independent Auditor of the Entity". A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Basis for Qualified Conclusion

As disclosed in Note 12 to the consolidated financial statements, the financial statements of non-significant subsidiaries included in the consolidated financial statements referred to in the first paragraph were not reviewed. As of March 31, 2020 and 2019, combined total assets of these non-significant subsidiaries were NT$588,619 thousand and NT$394,441 thousand, respectively, representing 5% and 4%, respectively, of the consolidated total assets, and combined total liabilities of these subsidiaries were NT$98,299 thousand and NT$42,116 thousand, respectively, representing 2% and 2%, respectively, of the consolidated total liabilities; for the three months ended March 31, 2020 and 2019, the amounts of combined comprehensive loss of these subsidiaries were NT$25,489 thousand and NT$55,298 thousand, respectively, representing (33%) and (38%).

Qualified Conclusion

Based on our reviews, except for the adjustments, if any, as might have been determined to be necessary had the financial statements of the non-significant subsidiaries and as described in the preceding paragraph been reviewed, nothing has come to our attention that caused us to believe that the accompanying consolidated financial statements do not give a true and fair view of the consolidated financial position of the Group as of March 31, 2020 and 2019, its consolidated financial performance and its consolidated cash flows for the three months ended March 31, 2020 and 2019 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 "Interim Financial Reporting" endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

The engagement partners on the reviews resulting in this independent auditors' review report are Shiow-Ming Shue and Chih-Ming Shao.

Deloitte & Touche Taipei, Taiwan Republic of China

May 12, 2020

This is the translation of the financial statements. CPAs do not audit or review on this translation.

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 8) Trade receivables, net (Note 10) Inventories (Note 11) Other financial assets (Note 9) Other current assets Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss - non-current (Note 7) Financial assets at fair value through other comprehensive income - non-current (Note 8) Property, plant and equipment (Note 13) Goodwill (Notes 14) Other intangible assets (Note 15) Deferred tax assets Other non-current assets (Note 28) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Trade payables (Note 16) Other payables (Note 17) Current tax liabilities (Notes 4) Other current liabilities (Notes 20) 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 19 and 24) Share capital Ordinary shares Capital surplus Additional paid-in capital Treasury shares Changes in ownership interests in subsidiaries Employee share options Employee share options - expired Total capital surplus Accumulated deficits Legal reserve Deficits to be offset Total Accumulated deficits Other equity Exchange differences from translating the financial statements of foreign operations Unrealized loss on financial assets at fair value through other comprehensive income Total other equity Treasury shares Equity attributable to owners of the company NON-CONTROLLING INTERESTS Total equity TOTAL		March 31, 2020 Amount % $ 3,559,430 29 112,347 1 1,527,095 13 2,347,041 19 1,281,055 11 261,628 2 9,088,596 75 54,182 - 62,560 - 1,337,986 11 1,237,268 10 76,406 1 107,145 1 131,631 2 3,007,178 25 $12,095,774 100 $ 2,212,002 19 828,816 7 395,188 3 180,040 1 3,616,046 30 32,331 - 23,976 - 375,637 4 10,400 - 442,344 4 4,058,390 34 2,999,069 25 5,045,484 42 48,662 - - - 24,096 - 33,534 - 5,151,776 42 - - (117,121) (1) (117,121) (1) 19,292 - 2,915 - 22,207 - (43,074) - 8,012,857 66 24,527 - 8,037,384 66 $ 12,095,774 100		December 31, 2019 Amount % $ 3,461,503 30 120,475 1 1,420,459 12 1,570,753 14 1,596,292 14 361,925 3 8,531,407 74 56,354 - 60,898 1 1,361,478 11 1,237,268 11 99,189 1 120,782 1 135,593 1 3,071,562 26 $11,602,969 100 $ 1,986,219 17 954,449 8 363,172 3 108,584 1 3,412,424 29 33,537 - 24,078 - 394,360 4 10,400 - 462,375 4 3,874,799 33 2,996,759 26 5,037,671 44 48,662 1 - - 25,510 - 33,534 - 5,145,377 45 - - (183,307) (2) (183,307) (2) 4,057 - 1,750 - 5,807 - (267,158) (2) 7,697,478 67 30,692 - 7,728,170 67 $ 11,602,969 100		March 31, 2019
				Amount $ 3,461,503 120,475 1,420,459 1,570,753 1,596,292 361,925 8,531,407 56,354 60,898 1,361,478 1,237,268 99,189 120,782 135,593 3,071,562 $11,602,969 $ 1,986,219 954,449 363,172 108,584 3,412,424 33,537 24,078 394,360 10,400 462,375 3,874,799 2,996,759 5,037,671 48,662 - 25,510 33,534 5,145,377 - (183,307) (183,307) 4,057 1,750 5,807 (267,158) 7,697,478 30,692 7,728,170 $ 11,602,969		Amount % $ 2,416,264 24 140,911 1 678,286 6 2,413,696 23 1,533,892 14 155,099 1 7,338,148 69 114,216 1 175,945 2 1,495,532 14 1,237,268 12 134,293 1 136,858 1 53,047 - 3,347,159 31 $10,685,307 100 $ 1,323,691 12 701,467 7 394,869 4 139,049 1 2,559,076 24 30,799 - 26,008 - 124,362 2 10,400 - 191,569 2 2,750,645 26 2,987,924 28 6,423,295 61 40,868 - 20,448 - 49,135 - 20,731 - 6,554,477 61 186,154 2 (1,618,106) (15) (1,431,952) (13) 194,812 2 (461) - 194,351 2 (393,203) (4) 7,911,597 74 23,065 - 7,934,662 74 $ 10,685,307 100

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

This is the translation of the financial statements. CPAs do not audit or review on this translation.

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

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

REVENUE (Note 20) COSTS OF SALES (Notes 11 and 21) GROSS MARGIN OPERATING EXPENSES (Notes 18, 21, 25 and 27) 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 Interest income Loss on financial assets and liabilities at fair value through profit or loss Other gains and losses - net Gain on foreign currency exchange Total non-operating income and expenses INCOME (LOSS) BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 22) NET INCOME (LOSS) OTHER COMPREHENSIVE INCOME Items that may be reclassified subsequently to profit or loss: Exchange differences from translating the financial statements of foreign operations Unrealized gain from debt instrument investments measured at fair value through other comprehensive loss		**For the Three Months **	**For the Three Months **	**Ended March 31 **
		2020 Amount % $ 2,909,637 100 (2,269,808) (78) 639,829 22 (94,154) (4) (87,317) (3) (387,653) (13) (569,124) (20) 70,705 2 (1,078) - 19,520 1 (2,762) - 13,652 - 2,771 - 32,103 1 102,808 3 (43,410) (1) 59,398 2 15,858 1 1,165 -		2019
				Amount % $ 1,639,942 100 (1,296,244) (79) 343,698 21 (97,594) (6) (82,504) (5) (388,407) (24) (568,505) (35) (224,807) (14) (1,150) - 27,007 1 (110) - (5,627) - 9,541 1 29,661 2 (195,146) (12) 1,312 - (193,834) (12) 45,564 3 1,829 -

(Continued)

This is the translation of the financial statements. CPAs do not audit or review on this translation.

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In Thousands of New Taiwan Dollars, Except Earnings (Losses) Per Share) (Reviewed, Not Audited)

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 (LOSS) ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interests EARNINGS (LOSS) PER SHARE (Note 23) Basic Diluted		For the Three Months	For the Three Months	Ended March 31
		2020 Amount % $ 17,023 1 17,023 1 $ 76,421 3 $ 66,186 2 (6,788) - $ 59,398 2 $ 82,586 3 (6,165) - $ 76,421 3 $ 0.24 $ 0.23		2019
				Amount % $ 47,393 3 47,393 3 $ (146,441) (9) $ (183,351) (11) (10,483) (1) $ (193,834) (12) $ (136,164) (8) (10,277) (1) $ (146,441) (9) $ (0.67)
		$		$
		$		$
		$		$
		$		$
		$		$

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

(Concluded)

This is the translation of the financial statements. CPAs do not audit or review on this translation.

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars)

BALANCE, JANUARY 1, 2019 Net loss for the three months ended March 31, 2019 Other comprehensive income for the three months ended March 31, 2019, net of income tax Total comprehensive income (loss) for the three months ended March 31, 2019 Compensation cost of employee share options (Note 19 and 24) Issue of ordinary shares under employee share options (Note 19 and 24) BALANCE AT MARCH 31, 2019 BALANCE, JANUARY 1, 2020 Net income for the three months ended March 31, 2020 Other comprehensive income for the three months ended March 31, 2020, net of income tax Total comprehensive income (loss) for the three months ended March 31, 2020 Compensation cost of employee share options (Note 19 and 24) Treasury stock transferred to employees (Note 19 and 24) Issue of ordinary shares under employee share options (Note 19 and 24) BALANCE AT MARCH 31, 2020					Equity Attributable toOwners of theCompany	Equity Attributable toOwners of theCompany			Non-controlling Interests $ 33,342 (10,483) 206 (10,277) - - $ 23,065 $ 30,692 (6,788) 623 (6,165) - - - $ 24,527	Total Equity $ 8,077,615 (193,834) 47,393 (146,441) 2,856 632 $ 7,934,662 $ 7,728,170 59,398 17,023 76,421 2,978 224,084 5,731 $ 8,037,384
	Share Capital Ordinary Shares $ 2,987,432 - - - - 492 $ 2,987,924 $ 2,996,759 - - - - - 2,310 $ 2,999,069	Capital Surplus $ 6,551,481 - - - 2,856 140 $ 6,554,477 $ 5,145,377 - - - 2,978 - 3,421 $ 5,151,776		**Accumulated **	deficits Deficits to be offset $ (1,434,755) (183,351) - (183,351) - - $ (1,618,106) $ (183,307) 66,186 - 66,186 - - - $ (117,121)	Other Equity Unrealized gain (loss) from Differences from financial asset Translating measured at fair Financial value through Statement of other Foreign comprehensive Operations income $ 149,454 $ (2,290) - - 45,358 1,829 45,358 1,829 - - - - $ 194,812 $ (461) $ 4,057 $ 1,750 - - 15,235 1,165 15,235 1,165 - - - - - - $ 19,292 $ 2,915	Treasury Shares $ (393,203) - - - - - $ (393,203) $ (267,158) - - - - 224,084 - $ (43,074)	Total $ 8,044,273 (183,351) 47,187 (136,164) 2,856 632 $ 7,911,597 $ 7,697,478 66,186 16,400 82,586 2,978 224,084 5,731 $ 8,012,857
				Legal Reserve $ 186,154 - - - - - $ 186,154 $ - - - - - - - $ -

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

(Concluded)

This is the translation of the financial statements. CPAs do not audit or review on this translation.

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 Loss on financial assets and liabilities at fair value through profit or loss Finance costs Interest income Compensation cost of employee share options Loss on disposal of investments 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 usedfrom operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of financial asset at fair value through other comprehensive income Purchase for property, plant and equipment Purchase of intangible assets Decrease in other financial assets Decrease 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 **
		2020 $ 102,808 19,659 22,991 2,762 1,078 (19,520) 2,978 40,928 5,216 (41,290) (102,534) (770,588) 101,592 219,745 (130,782) 71,277 (102) (473,782) (1,078) (1,913) (476,773) 9,032 (4,620) (149) 324,028 3,901 18,539 350,731	2019 $ (195,146) 18,848 14,984 110 1,150 (27,007) 2,856 - (4,713) (1,955) 306,514 (287,201) 7,028 (309,196) (95,995) 73,212 (88) (496,599) (1,150) (1,689) (499,438) - (89,805) - 761,217 4,070 24,585 700,067 (Continued)

This is the translation of the financial statements. CPAs do not audit or review on this translation.

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES Decrease in guarantee deposits Issue of ordinary shares under employee share options Treasury stock transferred to employees Net cash generated (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 Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2020 $ (20,123) 5,731 224,084 209,692 14,277 97,927 3,461,503 $ 3,559,430	2019 $ (152,088) 632 - (151,456) 11,165 60,338 2,355,926 $ 2,416,264

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

(Concluded)

This is the translation of the financial statements. CPAs do not audit or review on this translation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (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”), formerly named as Orise Technology Co., Ltd., was incorporated in the Republic of China (“ROC”) in January 2006 and moved to Hsinchu Science Park in April in the same year. The Company’s shares have been listed on the Taiwan Stock Exchange (“TSE”) since July 2007. On January 2, 2015, the Company acquired FocalTech Corporation, Ltd. through a share swap and renamed on January 17, 2015. This acquisition was comprehensively considered as a reverse merger, where FocalTech Corporation, Ltd. was treated as the acquirer in the financial statements. The Company is mainly engaged in research, development, design, manufacturing, and sales of solutions regarding to human and machine interface devices, such as Display Driver IC, Touch Control IC and so on.

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 May 8, 2020.

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

• a. Initial application of the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) (collectively, “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC).

The initial application of the amendments to the IFRSs endorsed and issued in to effect by the FSC did not have a significant impact on the Group’s accounting policies.

• b. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New, Revised or Amended Standards and Interpretations Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 “Definition of Materiality”	Effective Date Announced by IASB (Note 1)
	To be determined January 1, 2021 January 1, 2022

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

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations

This is the translation of the financial statements. CPAs do not audit or review on this translation.

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 the financial instruments measured at fair value and the net defined benefit liabilities recognized in the fair value of the estimated assets, and explained in the accounting policies below.

The evaluation of fair value could be classified into Level 1 to Level 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

The detail information, holding percentages, and main business of the subsidiaries could be found in Note 12.

• 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, 2019.

• 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, and 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 and the tax rate that would be applicable to expected total annual earnings.

5. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATIONS AND ASSUMPTIONS

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, 2019.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

6. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
			December 31,
	March 31, 2020			2019	March 31, 2019
Cash on hand	$	11,562	$	4,381	$	3,498
Checking accounts and demand deposits		2,198,323		2,103,526		827,044
Cash equivalent (fixed deposit with original
maturities less than three months)		1,349,545		1,353,596		1,585,722
	$	3,559,430	$	3,461,503	$	2,416,264

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

		December 31,
	March 31, 2020	2019	March 31, 2019
Demand deposits	0.001%-0.35%	0.001%-0.35%	0.001%-0.5%
Fixed deposits	0.7%-2.5%	1.56%-2.32%	1.1%-3%
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS-NON-CURRENT
		December 31,
	March 31, 2020	2019	March 31, 2019
Mandatorily at fair value through profit or loss
(FVTPL)
Listed preferred shares	$ 10,336	$ 10,931	$ 10,710
Private Funds	43,846	45,423	42,414
Structured Investments	-	-	61,092
	$ 54,182	$ 56,354	$ 114,216
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
		December 31,
	March 31, 2020	2019	March 31, 2019
Investments in debt instruments
Current
Foreign investments
Fixed income bonds	$ 112,347	$ 120,475	$ 140,911
Non–Current
Foreign investments
Fixed income bonds	$ 62,560	$ 60,898	$ 175,945
Yield rates	2.307%-4.117%	2.307%-4.117%	1.963%-4.117%

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

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

This is the translation of the financial statements. CPAs do not audit or review on this translation.

9. OTHER FINANCIAL ASSETS

		December 31,
	March 31, 2020	2019	March 31, 2019
Time deposits with original maturities more than
three months	$ 1,281,055	$ 1,596,292	$	1,533,892
Market rate intervals	1.5%-4.18%	1.5%-4.18%	0.8%-4.18%
TRADE RECEIVABLES, NET
		December 31,
	March 31, 2020	2019	March 31, 2019
Trade receivables	$ 1,527,095	$ 1,420,459	$	678,286

10. TRADE RECEIVABLES, NET

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

The Group 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 Group’s allowance matrix.

March 31, 2020

Expected credit loss rate Gross carrying amount and Amortized cost December 31, 2019 Expected credit loss rate Gross carrying amount and Amortized cost March 31, 2019 Expected credit loss rate Gross carrying amount and Amortized cost	Non Past Due 0% $1,292,282 Non Past Due 0% $1,420,085 Non Past Due 0% $ 665,432		Overdue 1-60 Days 0% $ 233,934 Overdue 1-60 Days 0% $ 374 Overdue 1-60 Days 0% $ 12,854	Overdue 61-180 Days 0% $ 879 Overdue 61-180 Days 0% $ - Overdue 61-180 Days 0% $ -	Overdue Over 181 Days 0% $ - Overdue Over 181 Days 0% $ - Overdue Over 181 Days 0% $ -		Total
							0% $ 1,527,095 Total
							0% $ 1,420,459 Total
							0% $ 678,286

This is the translation of the financial statements. CPAs do not audit or review on this translation.

11. INVENTORIES

			December 31,	December 31,
	March 31, 2020			2019	March 31, 2019
Finished goods	$	790,604	$	476,430	$	391,799
Work in progress		1,054,133		775,899		1,276,618
Raw materials and supplies		502,304		318,424		745,279
	$	2,347,041	$	1,570,753	$	2,413,696

The cost of goods sold for the three months ended March 31, 2020 and 2019 was $2,269,808 thousand and $1,296,244 thousand.

12. SUBSIDIARIES

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

Investor Investee Main Businesses	Proportion of Ownership
	March 31, 2020 December 31, 2019 March 31, 2019
FocalTech Systems Co., Ltd. FocalTech Corporation, Ltd. Investment activity FocalTech Electronics, Ltd. Investment activity	100% 100% 100% 100% 100% 100%
FocalTech Systems Co., Ltd. And FocalTech Electronics Co., Ltd. (a) FocalTech Smart Sensors, Ltd. Investment activity	67.15% 67.15% 61.88%
FocalTech Smart Sensors, Ltd.(a) FocalTech Smart Sensors Co., Ltd. Research, development, manufacturing and sale of integrated circuits	100% 100% 100%
FocalTech Corporation,Ltd. FocalTech Systems, Inc. Investment activity	100% 100% 100%
FocalTech Systems, Inc. FocalTech Systems, Ltd. Research, development, manufacturing and sale of integrated circuits	100% 100% 100%
FocalTech Systems, Ltd. FocalTech Systems (Shenzhen) Co., Ltd. Design and research of integrated circuits FocalTech Electronics Co.,Ltd. Import and export of integrated circuits	100% 100% 100% 100% 100% 100%
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 and sale of integrated circuits	100% 100% 100% 100% 100% 100% 100% 100% 100%

• a. FocalTech Smart Sensors, Ltd. issued its ordinary shares but the Group did not subscribe according to the shareholding ratio causing changes in the shareholding ratio.

As of March 31, 2020 and 2019, 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., 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, 2020 and 2019, the total amounts of assets of the immaterial subsidiaries were $588,619 thousand, and $394,441 thousand, 5% and 4% of total consolidated assets, respectively. The total amounts of liabilities were $98,299 thousand, and $42,116 thousand, 2% and 2% of total consolidated liabilities, respectively.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

For the three months ended March 31, 2020 and 2019, the total immaterial subsidiaries comprehensive loss has been recognized $(25,489) thousand, $(55,298) thousand, that held (33%), and(38%) in the consolidated statements of comprehensive loss, respectively.

13. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2019 Additions Effect of foreign currency exchange differences Balance at March 31, 2019 Accumulated depreciation Balance at January 1, 2019 Depreciation Effect of foreign currency exchange differences Balance at March 31, 2019 Carrying amounts at March 31, 2019 Cost Balance at January 1, 2020 Additions Reclassification Effect of foreign currency exchange differences Balance at March 31, 2020 Accumulated depreciation Balance at January 1, 2020 Depreciation Effect of foreign currency exchange differences Balance at March 31, 2020 Carrying amounts at December 31, 2019 and January 1, 2020 Carrying amounts at March 31, 2020	Buildings Development Equipment $ 1,375,563 $ 192,558 - 89,271 30,435 1,373 $ 1,405,998 $ 283,202 $ 51,610 $ 138,166 9,303 7,760 1,105 848 $ 62,018 $ 146,774 $ 1,343,980 $ 136,428 $ 1,322,961 $ 285,660 - 4,442 - (261) ( 9,422) 718 $ 1,313,539 $ 290,559 $ 84,761 $ 174,368 8,824 9,936 ( 689) 354 $ 92,896 $ 184,658 $ 1,238,200 $ 111,292 $ 1,220,643 $ 105,901	Office Equipment $ 15,970 - 272 $ 16,242 $ 11,635 332 175 $ 12,142 $ 4,100 $ 15,548 - - ( 84) $ 15,464 $ 12,431 232 ( 63) $ 12,600 $ 3,117 $ 2,864	Information Equipment $ 42,675 534 866 $ 44,075 $ 31,508 927 616 $ 33,051 $ 11,024 $ 42,621 178 261 ( 284) $ 42,776 $ 33,752 667 ( 221) $ 34,198 $ 8,869 $ 8,578	Leasehold Improve- ments $ 38,956 - 326 $ 39,282 $ 38,431 526 325 $ 39,282 $ - $ 38,388 - - ( 100) $ 38,288 $ 38,388 - ( 100) $ 38,288 $ - $ -	Total $ 1,665,722 89,805 33,272
					$ 1,788,799
					$ 271,350 18,848 3,069
					$ 293,267
					$ 1,495,532
					$ 1,705,178 4,620 - ( 9,172) $ 1,700,626
					$ 343,700 19,659 ( 719) $ 362,640
					$ 1,361,478
					$ 1,337,986

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

Buildings 45-50 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.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

14. GOODWILL

Ending balance

	December 31,
March 31, 2020	2019	March 31, 2019
$ 1,237,268	$ 1,237,268	$ 1,237,268

Considering the synergy of integration of LCD driver and touch controller under the industry trend, the reverse merger was triggered by FocalTech Corporation, Ltd. on January 2, 2015, generating the goodwill of $3,237,268 thousand. In 2018, the impacts of market improper competition and the shortage of wafer supply made the company a serious market share decline, which is expected to influence the market shares and gross margins in the future. Therefore, the recoverable amount from IDC (Integrated Driver Controller) less than the carrying value so the Company recognized the impairment loss of $2,000,000 thousand. In 2019, based on the market growth and market share gain in smartphone market, the Group estimated cash flows from sales of IDC (Integrated Driver Controller), and the recoverable amount exceeded the carrying value. Therefore, the Group did not recognize any impairment on goodwill.

The recoverable amount is calculated by IDC projected net cash flows, discounted at 10.66% and 9.95% for the years ended December 31, 2019 and 2018, under the assumptions of management team judgments and historical experiences with regard to future growth rates and gross margin .

15. OTHER INTANGIBLE ASSETS

Cost Balance at January 1, 2019 Effect of foreign currency exchange differences Balance at March 31, 2019 Accumulated amortization Balance at January 1, 2019 Amortization expense Effect of foreign currency exchange differences Balance at March 31, 2019 Carrying amounts at March 31, 2019 Cost Balance at January 1, 2020 Additions Effect of foreign currency exchange differences Balance at March 31, 2020	Licenses and Franchises $ 130,393 382 $ 130,775 $ 95,724 4,132 267 $ 100,123 $ 30,652 $ 127,719 - 891 $ 128,610	Software $ 157,801 608 $ 158,409 $ 133,210 7,056 444 $ 140,710 $ 17,699 $ 154,970 149 1,093 $ 156,212	Patents Trademark $ 76,714 $ 74,000 5 - $ 76,719 $ 74,000 $ 31,376 $ 29,600 1,946 1,850 5 - $ 33,327 $ 31,450 $ 43,392 $ 42,550 $ 76,704 $ 74,000 - - ( 1) - $ 76,703 $ 74,000	Total $ 438,908 995
				$ 439,903
				$ 289,910 14,984 716
				$ 305,610
				$ 134,293
				$ 433,393 149 1,983
				$ 435,525

This is the translation of the financial statements. CPAs do not audit or review on this translation.

Accumulated amortization Balance at January 1, 2020 Amortization expense Effect of foreign currency exchange differences Balance at March 31, 2020 Carrying amounts at December 31, 2019and January 1, 2020 Carrying amounts at March 31, 2020	$ 109,676 17,690 817 $ 128,183 $ 18,043 $ 427	$ 148,376 1,505 1,108 $ 150,989 $ 6,594 $ 5,223	$ 39,152 1,946 ( 1) $ 41,097 $ 37,552 $ 35,606	$ 37,000 1,850 - $ 38,850 $ 37,000 $ 35,150	$ 334,204 22,991 1,924
					$ 359,119
					$ 99,189
					$ 76,406

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
TRADE PAYABLES
		December 31,
	March 31, 2020		2019	March 31, 2019
Trade payables	$ 2,212,002	$ 1,986,219		$ 1,323,691

16. TRADE PAYABLES

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.

17. OTHER PAYABLES

			December 31,
		March 31, 2020	2019	March 31, 2019
Payable	for rebates	$ 406,112	$ 408,291	$ 267,003
Payable	for salaries and bonus	285,137	411,236	308,173
Payable	for labor, health and social insurance	25,901	12,367	15,158
Reserve	for litigations	50,514	50,105	52,280
Payable	for professional services and others	61,152	72,450	58,853
		$ 828,816	$ 954,449	$ 701,467

18. RETIREMENT BENEFIT

Employee benefit expenses in respect of the Company’s defined benefit retirement plans were $91 thousand and $112 thousand for the three months ended March 31, 2020 and 2019, respectively, and were calculated using the actuarially determined pension cost discount rate as of December 31, 2019 and 2018.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

19. EQUITY

a. Share capital

Ordinary shares (NT$10 par value per share)

		December 31,
	March 31, 2020	2019	March 31, 2019
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)	299,907	299,676	298,792
Shares issued	$ 2,999,069	$ 2,996,759	$ 2,987,924

b. Capital surplus

BALANCE, JANUARY 1, 2019 Compensation cost of employee share options Issue of ordinary shares under employee share options Employee share options expired BALANCE AT MARCH 31, 2019 BALANCE, JANUARY 1, 2020 Compensation cost of employee share options Issue of ordinary shares under employee share options BALANCE AT MARCH 31, 2020	A Pai	dditional d-in Capital (1) $6,422,355 - 940 - $ 6,423,295 $5,037,671 - 7,813 $ 5,045,484	Treasury Shares (1) $ 40,868 - - - $ 40,868 $ 48,662 - - $ 48,662	Changes in ownership interests in subsidiaries (2) $ 20,448 - - - $ 20,448 $ - - - $ -	Employee Share Options (3) $ 47,476 2,856 (800 ) (397) $ 49,135 $ 25,510 2,978 (4,392) $ 24,096	Employee Share Options -Expired (2) $ 20,334 - - 397 $ 20,731 $ 33,534 - - $ 33,534		Total
								$6,551,481 2,856 140 -
								$ 6,554,477
								$5,145,377 2,978 3,421
								$5,151,776

• 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

The amendments to the Company’s Articles of Incorporation had been approved by the Company’s shareholders in its meeting held on June 20, 2019, which stipulate that earnings distribution may be made on a quarterly basis after the close of each quarter.

The Company’s amended Articles of Incorporation provide that, when distributing earnings belonging to the first three quarter, the Company shall first estimate and reserve taxes to be paid, offset its deficits, estimate and reserve employees’ compensation and remuneration to directors, then set aside a legal capital reserve at 10% of the remaining earnings and set aside or reversing special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings at the beginning shall be used by the Company’s board of directors as the basis for proposing a distribution plan after the Company’s board of directors consider operational situation and retain proper amount. By way of stock dividends, it shall be approved by the Company’s shareholders in its meeting; by way of cash dividends, it shall be approved by the Company’s board of directors.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

When distributing annual earnings, the Company shall pay taxes, offset its losses, set aside 10% as legal reserve, then set aside or reverse a special reserve in accordance with relevant laws or regulations. The Board of Directors shall prepare a distribution proposal for the remaining earnings plus the unappropriated retained earnings of previous years. Earnings distribution may be made in the form of shares after an approved resolution made by the shareholders’ meeting. Pursuant to the Company Act, the distributable dividends and bonuses or the legal reserve and the capital reserve (stipulated in Article 241, Paragraph 1 of the Company Act) in whole or in part may be paid in cash after a resolution has been adopted by a majority vote at a meeting of the board of directors attended by two-thirds of the total number of directors; and in addition to a report of such distribution shall be submitted to the shareholders’ meeting.

Before the amendment of the Company’s Articles of Incorporation on shareholders’ meeting on June 20, 2019, the earing distribution is only allowed after yearly closing by the approval of the shareholders’ meeting. The rest retained earnings and dividends policy are consistent.

On May 8, 2020, the board of directors proposed that the Company’s Articles of Incorporation amended on June 20, 2019 will be revised back to the previous version.

See Note 21(c) for policy stipulated in the Articles of Incorporation regarding compensation and remuneration for employees and directors.

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.

NT$183,307 thousand from capital surplus for loss offsetting as well as the cash distribution of NT$150,000 thousand, i.e. approximately NT$0.5 per share, from additional paid-in capital had been proposed in the board of directors meeting on May 8, 2020.

The proposals for 2019 deficit compensation and cash distribution from additional paid-in capital are subject to the resolution of the shareholders’ meeting to be held in June 2020.

NT$186,154 thousand from legal reserve and NT$1,248,601 thousand from capital surplus for loss offsetting as well as the cash distribution of NT$150,000 thousand, NT$0.52010840 per share, from additional paid-in capital had been approved in the Company’s shareholders’ meeting on June 20, 2019.

• d. Treasury stock

	Shares
	(In Thousands)
Number of shares on January 1 and March 31, 2019	15,970
Number of shares at January 1, 2020	10,978
Decrease during the period	(9,247)
Number of shares on March 31, 2020	1,731

The detailed information for other Shares Buy Back Programs could be found in Note 24 (b).

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.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

20. REVENUE

REVENUE
IC for portable devices Contract balances March 31, 2020 Contract liabilities Sales of goods $ 128,154 NET INCOME a. Depreciation and amortization Property, plant and equipment Intangible assets An analysis of deprecation by function Operating costs Operating expenses		For the Three Months Ended March 31
		2020 2019 $ 2,909,637 $ 1,639,942 December 31, 2019 March 31, 2019 $ 53,847 $ 98,766 For the Three Months Ended March 31
			2020 $ 19,659 22,991 $ 42,650 $ 196 42,454 $ 42,650	2019 $ 18,848 14,984 $ 33,832 $ 382 33,450 $ 33,832

21. NET INCOME

• b. Employee benefits expense

Post-employment benefits Defined contribution plans Defined benefit plans (Note 18) Share-based payments (Note 24) Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses		For the Three Months Ended March 31	For the Three Months Ended March 31
		2020 2019 $ 7,013 $ 7,171 91 112 2,978 2,856 356,565 377,916 $ 366,647 $ 388,055 For the Three Months Ended March 31
		2020 $ 29,245 337,402 $ 366,647	2019 $ 27,048 361,007 $ 388,055

This is the translation of the financial statements. CPAs do not audit or review on this translation.

• c. 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 the profit before income tax, employees’ compensation, and remuneration to directors. When the company still has accumulated losses, it shall reserve the compensation amount in advance, and then allocate the employees’ compensation and remuneration to directors in proportion to the preceding paragraph. The Company’s did not accrue employees’ compensation and remuneration to directors resulting from the loss offsetting not approved by the shareholders’ meeting yet. ; due to the net loss before tax from January 1 to March 31, 2019, there was no accrual for remuneration to employees and 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.

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

22. INCOME TAXES

• a. Major components of tax expense (benefit) recognized in profit or loss:

Current tax In respect of the current year Deferred tax In respect of the current year Income tax expense (benefit) recognized in profit or loss		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2020 $ 31,081 12,329 $ 43,410	2019 $ 556 (1,868) ($ 1,312)

b. Income tax assessments

The Company’s tax returns up to 2017, and FocalTech Electronics Co., Ltd. FocalTech Smart Sensors Co., Ltd.’s tax returns up to 2018 have been assessed by the tax authorities.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

23. EARNINGS PER SHARE

Unit: NT$ Per Share

Basic earnings per share 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
		2020 $ 0.24 $ 0.23	2019 $ (0.67)

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

Net profit (loss) for the year

Earnings used in the computation of basic earnings per share	F	or the Three Months Ended March 31	or the Three Months Ended March 31
		2020 $ 66,186	2019 $(183,351)

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) 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
		2020 278,833 10,921 484 290,238	2019 274,456 - - -

Note ： The Company has a net loss after tax, so there is no dilution effect in the calculation of earnings of shares for the three months ended March 31, 2019.

24. SHARE-BASED PAYMENT ARRANGEMENTS

The Company did not have new share option plan issued for employees for the three months ended March 31, 2020 and 2019. The detailed information could be found in Note 24 of the consolidated financial statements of the year ended December 31, 2019.

a. Employee stock option plan

Information about outstanding options for the three months ended March 31, 2020 and 2019 is as following:

This is the translation of the financial statements. CPAs do not audit or review on this translation.

March 31, 2020

Employee Stock Option Plan	Beginning	Balance	Options unvested	Options unvested	Options exercised	Options exercised	Options	expired Weighted- average Exercise Price (NT$) $ - -	EndingBalance	EndingBalance
	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options - -	Weighted- average Exercise Price (NT$)	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options		Quantity of Options	Weighted- average Exercise Price (NT$)
2006 2015	805,599 677,500	$ 23.49 12.20		$ - -	(196,000) (35,000)	$ 27.06 12.20	- -		609,599 642,500	$ 22.35 12.20

March 31, 2019

Employee Stock Option Plan	Beginning	Balance	Options unvested	Options unvested	Options exercised	Options exercised	Options	expired Weighted- average Exercise Price (NT$) $ 28.30 37.90 -	EndingBalance	EndingBalance
	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options - - (22,250)	Weighted- average Exercise Price (NT$)	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options		Quantity of Options	Weighted- average Exercise Price (NT$)
2006 2013 2015	1,594,999 627,250 985,750	$ 19.86 37.90 12.20		$ - - 12.20	( 6,200) - (43,000)	$ 17.24 - 12.20	( 14,400) (7,000) -		1,574,399 620,250 920,500	$ 19.79 37.90 12.20

b. Shares Buy Back Program

The Company's employee subscription base date was March 20, 2020.The eligible employees subscribed 7,848 thousand shares and 1,399 thousand shares at the price of 24.1 and 24.98 respectively, with total proceeds as 224,084 thousand NT dollars.

Information about Shares Buy Back Programs for the three months ended March 31, 2020 is as follows:

The 2nd Shares Buy Back Program The 3rd Shares Buy Back Program

The 2ndShares BuyBack Program	The 2ndShares BuyBack Program	The3rdShares BuyBack Program	The3rdShares BuyBack Program	The3rdShares BuyBack Program
Employee subscription base date Shares transferred (In Thousands) The fair value of the right to subscribe (NT$) 2016/10/28 2,624 $ 11.26 2017/02/24 50 11.26 2018/02/08 120 4.20 2018/04/24 255 4.30 2018/07/26 1,765 - 2019/05/07 186 - Total 5,000 The 4th Shares BuyBack Program Employee subscription base date Shares transferred (In Thousands) The fair value of the right to subscribe (NT$) 2020/03/20 7,848 $ 3.30 Total 7,848		Employee subscription base date Shares transferred (In Thousands) The fair value of the right to subscribe (NT$) 2017/07/24 3,198 $ 12.85 2018/07/26 3,515 - 2019/05/07 95 - Total 6,808 The 5th Shares BuyBack Program
Employee subscription base date 2020/03/20 Total	Shares transferred (In Thousands)	Employee subscription base date 2019/05/07 2019/11/08 2020/03/20 Total	Shares transferred (In Thousands)	The fair value of the right to subscribe (NT$) $ - - 3.70
	7,848		4,651 60 1,399
	7,848		6,110

The 4th Shares Buy Back Pro gram The 5th Shares Buy Back Pro gram

This is the translation of the financial statements. CPAs do not audit or review on this translation.

Compensation cost recognized for share-based payments above for the three months ended March 31, 2020 and 2019 were as follows:

Employee share option plans Shares buy back and transfer to employee program Capital surplus - employee share options		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2020 2019 $ - $ 141 2,978 2,715 $ 2,978 $ 2,856 For the Three Months Ended March 31
		2020 $ 2,978	2019 $ 2,856

25. OPERATING LEASE ARRANGEMENTS

The Group is Lessee

The Company and its subsidiaries have lease contracts relate to office, plant and part of office equipment, and they would be expired around March 2021. Those agreements are short-term leases and qualified for the recognition exemption to leases so the Group does not recognize right-of-use assets and lease liabilities for these leases. The committed payments for the short-term leases were $17,060 and $17,466 thousand on March 31, 2020 and 2019.

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

lease payment		For the Three Months Ended **March 31 **	For the Three Months Ended **March 31 **
		2020 $ 8,743	2019 $ 9,333

26. 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.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

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

• 1) Fair value hierarchy

March 31, 2020 Financial assets at FVTPL Listed preferred shares Private funds Total Financial assets at FVTOCI assets Investments in debt instruments Fixed income bonds December 31, 2019 Financial assets at FVTPL Listed preferred shares Private funds Total Financial assets at FVTOCI assets Investments in debt instruments Fixed income bonds March 31, 2019 Financial assets at FVTPL Listed preferred shares Private funds Structured Investments Total Financial assets at FVTOCI assets Investments in debt instruments Fixed income bonds	Level 1 $ 10,336 - $ 10,336 $ - Level 1 $ 10,931 - $ 10,931 $ - Level 1 $ 10,710 - - $ 10,710 $ -	Level 2 $ - - $ - $ 174,907 Level 2 $ - - $ - $ 181,373 Level 2 $ - - 61,092 $ 61,092 $ 316,856	Level 3 $ - 43,846 $ 43,846 $ - Level 3 $ - 45,423 $ 45,423 $ - Level 3 $ - 42,414 - $ 42,414 $ -	Total $ 10,336 43,846
				$ 54,182
				$ 174,907
				Total $ 10,931 45,423
				$ 56,354
				$ 181,373
				Total $ 10,710 42,414 61,092
				$ 114,216
				$ 316,856

There was no type transfer between Level 1 and Level 2 for the three months ended March 31, 2020 and 2019.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

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

For the three months ended March 31, 2020

For the three months ended March 31, 2020
Financial assets at FVTPL Balance, beginning of period Purchases Recognized in profit or loss(other income or loss) Effect of foreign currency exchange differences Balance, end of period		For the Three Months Ended **March 31 **
		2020 $ 45,423 362 (2,166) 227 $ 43,846	2019 $ 41,023 1,955 (665) 101 $ 42,414

• 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. The fair values of structured investments are determined by quoted prices provided by the seller.

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

The unlisted equity investment is measured by the market approach, which decides fair value by referring to the recent financing activities of investees or the market transaction prices and status of the similar companies. The Company had carefully evaluated and selected the suitable evaluation method, but the use of different evaluation models or fair values may result in different evaluation results.

• c. Categories of financial instruments

			December 31,	December 31,
	March 31, 2020			2019	March 31, 2019
Financial assets
Fair value through profit or loss (FVTPL)
Mandatorily at FVTPL	$	54,182	$	56,354	$	114,216
Amortized cost (Note 1)		6,487,846		6,597,902		4,658,683
Financial assets at FVTOCI
Investments in debt instruments		174,907		181,373		316,856
Financial liabilities
Amortized cost (Note 2)		3,416,455		3,335,028		2,149,520

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

• 2) The balances included financial liabilities measured at amortized cost, which comprise trade and other payables and deposits received.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

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, financial assets at FVTOCI, 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 31.

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.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

Profit or loss/ equity		USD Impact	USD Impact
		For the Three Months Ended March 31
		2020 $ 18,831(i)	2019 $ 26,192(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, and floating rate demand deposits and structured investments. 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 31,
	March 31, 2020	2019	March 31, 2019
Fair value interest rate risk
Financial assets	$ 2,805,507	$ 3,131,261	$	3,436,470
Cash flow interest rate risk
Financial assets	$ 2,198,323	$ 2,103,526	$	888,136

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 three months ended March, 2020 and 2019 would decrease/increase by $1,374 thousand and $555 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, 2020, the Group’s five largest customer took 65% of total trade receivables, the remaining transactions with a large number of unrelated customers, thus, no significant concentration of credit risk was observed.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

Credit risk management for investments in debt instruments

The Group’s investments in debt instruments are financial assets at fair value through profit or loss and 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 Group 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 Group 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 Category Performing 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 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 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% Expected Credit Loss Ratio 0% Expected Credit Loss Ratio 0%	Carrying Amount as of March 31, 2020	Carrying Amount as of March 31, 2020
			$ 174,907 Carrying Amount as of December 31, 2019	$ 174,907
			$ 181,373 Carrying Amount as of March 31, 2019	$ 181,373
				$ 377,948

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 March 31, 2020, December 31, 2019, and March 31, 2019, the available unutilized short-term bank loan facilities refer to (b) Financing facilities.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

• a) Liquidity and interest risk rate tables for non-derivative 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, 2020

b)	Non-interest bearing December 31, 2019 Non-interest bearing March 31, 2019 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 $ 3,040,818 $ 375,637 On Demand or Less than 1 Year 1-5 Years $ 2,940,668 $ 394,360 On Demand or Less than 1 Year 1-5 Years $ 2,025,158 $ 124,362 March 31, 2020 December 31, 2019 March 31, 2019 $ - $ - $ - 800,000 800,000 1,207,870 $ 800,000 $ 800,000 $ 1,207,870

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

27. 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
		2020 $ 21,870 10,774 135 777 $ 33,556	2019 $ 3,845 11,893 45 755 $ 16,538

This is the translation of the financial statements. CPAs do not audit or review on this translation.

28. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

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

				December 31,	December 31,
		March	31, 2020		2019	March	31, 2019
Pledge	deposits	$	4,000	$	4,000	$	4,000

29. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACTUAL COMMITMENTS

FocalTech Electronics, Ltd., a subsidiary of the Company, filed a litigation of patent infringement against Novatek Microelectronics Corp. in September 2018 .As of the report issue date, the result of litigation and the effect on financial statements still could not be inferred.

30. SIGNIFICANT EVENTS AFTER REPORTING PERIOD

To increase the return on equity, the board of directors approved the reduction of capital on May 8, 2020. It will reduce the Company’s share capital by $899,721 thousand NT dollars, and estimated 89,972 thousand shares of the Company. Each share will return $3 and the ratio of capital reduction is 30%. The proposal will be resolved by the shareholders’ meeting on June 20, 2020.

Except for above mentioned event, there is no other significant event after reporting period.

31. 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, 2020

		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	87,902	30.225 (USD:NTD)	$ 2,656,834
USD		5,246	7.0851 (USD:RMB)	158,562
Financial liabilities
Monetary items
USD		101,135	30.225 (USD:NTD)	3,056,805
USD		4,473	7.0851 (USD:RMB)	135,211

This is the translation of the financial statements. CPAs do not audit or review on this translation.

December 31, 2019

		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	55,218	29.98 (USD:NTD)	$ 1,655,432
USD		6,641	6.9762 (USD:RMB)	199,101
RMB		7,588	0.1433 (RMB:USD)	32,610
Financial liabilities
Monetary items
USD		38,218	29.98 (USD:NTD)	1,145,788
USD		5,644	6.9762 (USD:RMB)	169,222
March 31, 2019
		Foreign		Carrying
	Currencies		Exchange Rate	Amount
Financial assets
Monetary items
USD	$	40,227	30.82 (USD:NTD)	$ 1,239,795
USD		2,665	6.7335 (USD:RMB)	82,151
Financial liabilities
Monetary items
USD		15,759	30.82 (USD:NTD)	485,697
USD		10,137	6.7335 (USD:RMB)	312,417

32. SEGMENT INFORMATION

Segment information is provided to business decision makers to allocate resources and assesse segment performance. The Company operates the business of the sales and development of human and machine interface devices related IC under a single operation unit. Thus, the information of separate operating segments is not applicable.

This is the translation of the financial statements. CPAs do not audit or review on this translation.