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FocalTech Interim / Quarterly Report 2017

Dec 29, 2017

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

Interim / Quarterly Report

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FocalTech Systems Co., Ltd. and Subsidiaries

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)

Financial assets at fair value through profit or loss - current (Notes 7 and 31)
Available-for-sale financial assets - current (Note 8)
Trade receivables, net (Note 10)
Inventories (Note 11)
Other financial assets (Note 12)
Other current assets

Total current assets

NON-CURRENT ASSETS
Available-for-sale financial assets - non-current (Note 8)
Held-to-maturity financial assets - non-current (Note 9)
Financial assets measured at cost (Note 13)
Property, plant and equipment (Note 15)
Goodwill (Notes 16)
Other intangible assets (Note 17)
Deferred tax assets
Other non-current assets (Notes 15 and 33)

Total non-current assets

TOTAL

LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note 18)

Financial liabilities at fair value through profit or loss - current (Notes 7 and 31)
Trade payables (Note 20)
Other payables (Notes 21)
Current tax liabilities (Note 4)
Current portion of bonds payable (Note 19)
Other current liabilities

Total current liabilities

NON-CURRENT LIABILITIES
Deferred tax liabilities
Net defined benefit liabilities - non-current (Note 4)
Guarantee deposits received
Other non-current liabilities

Total non-current liabilities

Total liabilities

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Note 23 and 28)
Share capital
Ordinary shares

Capital surplus
Additional paid-in capital
Treasury shares
Changes in ownership interests in subsidiaries
Employee share options
Employee restricted shares
Employee share options - expired

Total capital surplus

Retained earnings
Legal reserve
Undistributed earnings

Total retained earnings

Other equity
Exchange differences from translating the financial statements of foreign operations
Equity directly associated with non-current assets held for sale
Unearned employee compensation

Total other equity

Treasury shares

Equity attributable to owners of the company

NON-CONTROLLING INTERESTS

Total equity

TOTAL
 September 30, 2017
Amount
%
$ 2,137,765
14
-
-
21,197
-
1,496,364
10
3,344,917
22
2,646,981
17

221,319

1


9,868,543
64

266,729
2
-
-
75,650
-
1,364,462
9
3,237,268
21
229,808
2
126,111
1

138,096

1


5,438,124
36

$ 15,306,667
100

$ 907,800
6
-
-
2,085,713
14
768,872
5
8,017
-
-
-

77,949

-


3,848,351
25

175,595
1
46,210
1
183,901
1

10,400

-


416,106

3


4,264,457
28


2,981,576
19

6,534,066
43
40,868
-
1,269
-
24,131
-
55,123
1

16,386

-


6,671,843
44

186,154
1

1,294,265

9


1,480,419
10

113,570
-
(1,193)
-

(29,617)

-


82,760

-


(191,998)

(1)

11,024,600
72


17,610

-

11,042,210
72

$ 15,306,667
100
 December 31, 2016
Amount
%
$ 3,265,779
22

-
-

-
-

1,334,499
9

2,537,657
17

2,304,897
15

123,117

1


9,565,949
64


175,839
1

-
-

80,625
-

112,096
1

3,237,268
22

202,982
1

136,369
1

1,446,203
10


5,391,382
36

$ 14,957,331
100

$ 645,000
4

-
-

1,540,640
10

905,327
6

8,858
-

-
-

63,080

1


3,162,905
21


185,983
1

46,386
1

113,275
1

10,400

-


356,044

3


3,518,949
24

2,965,344
20


6,468,819
43

40,305
-

582
-

27,578
-

73,797
1

14,765

-


6,625,846
44


165,045
1

1,335,160

9


1,500,205
10


433,584
3

(1,498)
-

(36,040)

-


396,046

3


(62,992)

(1)

11,424,449
76


13,933

-

11,438,382
76

$ 14,957,331
100
 September 30, 2016





























































































































Amount
%
$ 1,808,230
13

123,863
1

-
-

1,430,625
11

2,667,194
19

2,311,664
17

176,313

1

8,517,889
62

28,292
-

15,816
-

47,040
-

114,785
1

3,237,268
23

210,229
2

145,595
1

1,458,892
11

5,257,917
38
$ 13,775,806
100
$ 313,600
3

1,408
-

954,587
7

952,470
7

6,238
-

33,642
-

129,421

1

2,391,366
18

183,005
1

47,889
-

77,722
1

10,400

-

319,016

2

2,710,382
20

2,961,416
21

6,438,354
47

236
-

-
-

65,858
-

94,833
1

13,730

-

6,613,011
48

165,045
1

1,188,092

9

1,353,137
10

315,860
2

(102)
-

(45,291)

-

270,467

2

(132,607)

(1)
11,065,424
80

-

-
11,065,424
80
$ 13,775,806
100

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

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

REVENUE (Note 24)

COSTS OF SALES (Note 11
and 25)

GROSS PROFIT

OPERATING EXPENSES
(Note 22, 25, 28 and 33)
Selling and marketing
expenses
General and administrative
expenses
Research and development
Total operating
expenses

OPERATIONS INCOME
(LOSS)

NON-OPERATING INCOME
AND EXPENSES
Finance costs (Note 25)
Net gain(loss) of fair value
change of financial assets
and liabilities at fair
value through profit or
loss (Note 31)
Other gains and losses - net
(Note 19)
Loss on disposal of
property, plant and
equipment
Loss on foreign currency
exchange
Interest income

Total non-operating
income and
expenses

INCOME (LOSS) BEFORE
INCOME TAX
INCOME TAX (EXPENSE)
BENEFIT (Note 4 and 26)

NET INCOME (LOSS)

OTHER COMPREHENSIVE
INCOME
Items that may be
reclassified subsequently
to profit or loss:		 For the Three Months EndedSeptember 30 For the Three Months EndedSeptember 30 For the Three Months EndedSeptember 30 For the Three Months EndedSeptember 30 For the Nine Months EndedSeptember 30 EndedSeptember 30
2017 2016 2017 2016









Amount
$ 3,264,928

(2,592,359)


672,569

(130,475 )
(84,014 )

(328,626)


(543,115)


129,454

(281 )
-
4,378
-
3,890

13,589


21,576

151,030

(17,037)


133,993
 %
100

(79)


21


(4 )

(3 )

(10)


(17)


4


-
-
-
-
-

1


1

5

(1)


4
















Amount
%
$ 3,056,139
100
(2,428,595)

(80)


627,544

20


(114,728 )
(4 )

(77,764 )
(2 )

(332,077)

(11)


(524,569)

(17)


102,975

3


(844 )
-

(24 )
-

4,355
-

-
-

(12,573 )
-

10,797

-


1,711

-


104,686
3

(11,736)

-


92,950

3
















Amount
%
$ 8,023,430
100
(6,320,513)

(79)


1,702,917

21


(353,283 )
(4 )

(230,626 )
(3 )

(966,923)

(12)

(1,550,832)

(19)


152,085

2


(5,275 )
-

-
-

12,262
-

(27 )
-

(29,904 )
-

46,682

-


23,738

-


175,823
2

(18,837)

-


156,986

2
















Amount
%
$ 8,324,695
100
(6,685,176)

(80)

1,639,519

20

(335,376 )
(4 )

(224,619 )
(3 )

(983,962)

(12)
(1,543,957)

(19)

95,562

1

(8,098 )
-

17,858
-

(24,681 )
-

(1,986 )
-

(40,655 )
(1 )

45,402

1

(12,160)

-

83,402
1

(18,329)

-

65,073

1

(Continued)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

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

Exchange differences
from translating
financial statement of
foreign operations
Unrealized loss on
available-for-sale
financial assets

Total other
comprehensive loss
(net of income tax)

TOTAL COMPREHENSIVE
INCOME (LOSS) FOR
THE PERIOD

NET PROFIT
ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interests


TOTAL COMPREHENSIVE
INCOME (LOSS)
ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interests


EARNINGS (LOSSES) PER
SHARE (Note 27)

Basic

Diluted
 For the Three Months EndedSeptember 30 For the Three Months EndedSeptember 30 For the Three Months EndedSeptember 30 For the Three Months EndedSeptember 30 For the Nine Months For the Nine Months EndedSeptember 30 EndedSeptember 30 EndedSeptember 30
2017 2016 2017 %

(4 )

-


(4)


(2)

2

-


2


(2 )

-


(2)



 2016









Amount
%
(5,183 )
-

232

-


(4,951)

-

$ 129,042

4

139,131
4

(5,138)

-

$ 133,993

4

134,180
4

(5,138)

-

$ 129,042

4


$ 0.49

$ 0.48











Amount

(178,107 )

(102)


(178,209)

$ (85,259)


92,950

-

$ 92,950


(85,259 )

-

$ (85,259)

$ 0.32
$ 0.32		 %

(6 )

-


(6)


(3)

3

-


3


(3 )

-


(3)











Amount

(320,014 )

305


(319,709)

$ (162,723)


170,191

(13,205)

$ 156,986


(149,518 )

(13,205)

$ (162,723)

$ 0.59
$ 0.58




Amount

(293,663 )

(102)


(293,765)

$ (228,692)


65,073
-

$ 65,073


(228,692 )

-

$ (228,692)

$ 0.22
$ 0.22		 %

(4 )

-

(4)

(3)
1

-

1

(3 )

-

(3)
$ $ $ $


$ $ $





$



$ $ $ $




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

(Concluded)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In Thousands of New Taiwan Dollars)
BALANCE, JANUARY 1, 2016

Appropriation of 2015 earnings
Legal reserve
Cash dividends distributed by the Company
Net income for the nine months ended September 30, 2016
Other comprehensive loss for the nine months ended
September 30, 2016, net of income tax
Total comprehensive income (loss) for the nine months ended
September 30, 2016
Buy-back of ordinary shares (Note 23)
Compensation cost of employee share options (Notes 23 and
28)
Issue of ordinary shares under employee share options (Notes
23 and 28)
Compensation cost of employee restricted shares (Notes 28)
Cancellation of employee restricted shares (Notes 23)
Dividend returned for unvested employee restricted shares

BALANCE AT SEPTEMBER 30, 2016

BALANCE, JANUARY 1, 2017

Appropriation of 2016 earnings
Legal reserve
Cash dividends distributed by the Company
Net income for the nine months ended September 30, 2017
Other comprehensive loss for the nine months ended
September 30, 2017, net of income tax
Total comprehensive income (loss) for the nine months ended
September 30, 2017
Buy-back of ordinary shares (Note 23)
Treasury stock transferred to employees (Note 23 and 28)
Changes in ownership interests in subsidiaries (Note 29)
Compensation cost of employee share options (Note 23 and 28)
Issue of ordinary shares under employee share options
(Note 23 and 28)
Compensation cost of employee restricted shares (Note 28)
Cancellation of employee restricted shares (Note 23)
Dividend return on unvested employee restricted stock
Increase in non-controlling interests

BALANCE ATSEPTEMBER30, 2017
 Equity Attributable to Owners of the Company Non-controlling
Total
Interests
$ 11,572,767
$ -

-
-
(212,240)
-
65,073
-
(293,765)

-

(228,692)

-


(132,607)
-
9,281
-
41,757
-
15,209
-
(77)
-
26

-

$ 11,065,424
$ -

$ 11,424,449
$ 13,933

-
-
(189,985)
-
170,191
(13,205)
(319,709)

-

(149,518)

(13,205)

(245,812)
-
116,806
-
687
(687)
26,594
-
34,987
-
6,423
-
(39)
-
8
-
-

17,569

$ 11,024,600
$ 17,610
 Total Equity
$ 11,572,767
-
(212,240)
65,073
(293,765)
(228,692)
(132,607)
9,281
41,757
15,209
(77)
26
$ 11,065,424
$ 11,438,382
-
(189,985)

156,986
(319,709)
(162,723)
(245,812)
116,806
-
26,594
34,987
6,423
(39)
8
17,569
$ 11,042,210
ShareCapital
Ordinary Shares
Capital Surplus
$ 2,933,299
$ 6,592,641

-
-
-
-
-
-

-

-


-

-

-
-
-
9,281
29,593
12,164
-
-
(1,476)
(1,075)

-

-

$ 2,961,416
$ 6,613,011

$ 2,965,344
$ 6,625,846

-
-
-
-
-
-

-

-


-

-

-
-
-
-
-
687

-
26,594
16,484
18,503
-
-
(252)
213
-
-

-

-

$ 2,981,576
$ 6,671,843
 Retained Earnings
Undistributed
Legal Reserve
Earnings

$ 141,463
$ 1,358,815

23,582
(23,582)
(212,240)
-
65,073
-

-

-

65,073

-
-
-
-
-
-
-
-
-
-
-

26

$ 165,045
$ 1,188,092

$ 165,045
$ 1,335,160

21,109
(21,109)
(189,985)
-
170,191
-

-

-

170,191

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
-

-

$ 186,154
$ 1,294,265
 Other Equity Unearned
Employee
Compensation
Treasury Shares
$ (62,974) $ -

-
-
-
-
-
-
-

-

-

-

-
(132,607)
-
-
-
-
15,209
-
2,474
-
-

-

$ (45,291)
$ (132,607)

$ (36,040) $ (62,992)
-
-
-
-
-
-
-

-

-

-

-
(245,812)
-
116,806
-
-
-
-
-
-
6,423
-
-
-
-
-
-

-

$ (29,617)
$ (191,998)
Exchange
Differences from
Translating
Financial
Statement of
Equity Directly
Associated with
Non-current Assets
Foreign Operations
Held for Sale
$ 609,523
$ -


-
-

-
-
-
-

(293,663)

(102)


(293,663)

(102)

-
-
-
-
-
-
-
-
-
-

-

-

$ 315,860
$ (102)

$ 433,584
$ (1,498)


-
-

-
-
-
-

(320,014)

305


(320,014)

305

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

-

-

$ 113,570
$ (1,193)









Legal Reserve
$ 141,463

23,582
-
-

-

-
-
-
-
-
-

$ 165,045

$ 165,045

21,109
-
-

-

-
-
-
-
-
-
-
-
-

$ 186,154

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax from continuing operation

Adjustments for:
Depreciation expenses
Amortization expenses
Gain on financial assets and liabilities at fair value through profit or
loss
Finance costs
Interest income
Compensation cost of employee share options
Compensation cost of employee restricted shares
Loss on disposal of property, plant and equipment
Write-down of inventories
Unrealized loss on foreign currency exchange
Loss on buy-back of bonds payable
Changes in operating assets and liabilities
Trade receivables
Inventories
Other current assets
Trade payables
Other payables
Other current liabilities
Net defined benefit liabilities

Cash generated from operations
Interest paid
Income tax paid

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale financial assets
Purchase of held-to-muturity financial assets
Purchase for property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Decrease in other financial assets
Increase in other non-current assets
Interest received

Net cash generated from investing activities
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30





2017
$ 175,823

32,815
52,686
-
5,275
(46,682)
26,594
6,423
27
26,927
(14,164)
-
(189,377)
(934,514)
(95,412)
601,408
(106,885)
16,683

(176)

(442,549)
(5,199)

(9,499)


(457,247)

(124,057)
-
(16,643)
-
(81,220)
(480,145)
10,703


42,128


(649,234)
 2016
$ 83,402
40,497
40,477
(17,858)
8,098

(45,402)
9,281
15,209
1,986
141,631

1,932
32,021

145,809

(324,308)

(50,318)
2,803

14,934
65,991

(279)

165,906

(1,987)

(7,108)

156,811

(29,359)
(16,355)

(12,786)
500

(80,877)

2,831,283
(1,474,441)

53,844

1,271,809
(Continued)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings
Repayment of bonds payable
Decrease in guarantee deposits
Cash dividends
Proceeds form issue on ordinary shares under employee share options
Buy-back of ordinary shares
Treasury stock transferred to employees
Increase in non-controlling interests
Payment for cancellation of employee restricted stock
Proceeds from dividend returned by unvested employee restricted
shares

Net cash used in financing activities

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF
CASH HELD IN FOREIGN CURRENCIES

NET INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30






2017
305,392
-
71,342
(189,985)

34,987
(245,812)
116,806
17,569
8

(75)


110,232


(131,765)

(1,128,014)

3,265,779

$ 2,137,765
 2016
57,289
(990,617)
(10,128)

(212,240)
41,757

(132,607)
-
-
26

(376)
(1,246,896)

(63,935)

117,789

1,690,441
$ 1,808,230

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

(Concluded)

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

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

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

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

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

2. APPROVAL OF FINANCIAL STATEMENTS

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

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

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

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

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

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

  • 2) Annual Improvements to IFRSs: 2010-2012 Cycle

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

  • 1) IFRS 9 “Financial Instruments” and related amendments

Recognition, measurement and impairment of financial assets

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

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

  • a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method;

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

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

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

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

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

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

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

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

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

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

  • Identify the contract with the customer;

  • Identify the performance obligations in the contract;

  • Determine the transaction price;

  • Allocate the transaction price to the performance obligations in the contracts; and

  • Recognize revenue when the entity satisfies a performance obligation.

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

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

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

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

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

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

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

  • c. New IFRSs in issue but not yet endorsed by the FSC
New, Revised or Amended Standards and Interpretations
Amendments to IFRS 9 “Prepayments Features with Negative
Compensation”

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

IFRS 16 “Leases”

IFRS 17 “Insurance Contracts”

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

IFRIC 23 “Uncertainty over Income Tax Treatments”
 Effective Date
Announced by IASB (Note 1)
January 1, 2019
To be determined by IASB
January 1, 2019
January 1, 2021
January 1, 2019
January 1, 2019

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

  • 1) IFRS 16 “Leases”

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

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

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

Company as lessor.

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

  • 2) IFRIC 23 “Uncertainty over Income Tax Treatments”

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

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

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  • a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (“the Regulations”) and IAS 34 “Interim Financial Reporting” as endorsed by the FSC. Disclosure information included in these interim consolidated financial statements is less than the disclosure information required in a complete set of annual financial statements.

  • b. Basis of Preparation

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

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

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

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

  • 3) Level 3 inputs are unobservable inputs for the asset or liability.

c. Basis of consolidation

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

  • d. Other significant accounting policies

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

  • 1) Retirement benefit costs

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

  • 2) Taxation

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

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

Income taxes

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

6. CASH AND CASH EQUIVALENTS

7.
8.		 September 30,
2017
December 31,
2016
September 30,
2016
Cash on hand
$ 1,383
$ 4,321
$ 2,147
Checking accounts and demand deposits
923,979
1,343,883
1,339,209
Cash equivalent (fixed deposit with original
maturities less than three months)

1,212,403

1,917,575

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

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

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

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

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

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

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

10. TRADE RECEIVABLES, NET

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

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

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

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

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

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

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

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

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

12. OTHER FINANCIAL ASSETS

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

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

13. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT

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

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

Financial assets measured at cost were not pledged as collateral.

14. SUBSIDIARIES

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

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

  • a. FocalTech Smart Sensors Co., Ltd. was incorporated in July 2016, 100% owned by the Group. The Group’s holding diluted to 69% and 67.11% after the capital injection in November 2016 and September 2017, respectively due to employee stock option plan and/or no pro rata subscription in new share.

  • b. The Group has the power to appoint and remove the majority of the board of directors and has the power to control the activities of Hefei PineTech Electronics Co., Ltd.; therefore, Hefei PineTech Electronics Co., Ltd. is identified as a subsidiary of the Group. Hefei PineTech Electronics Co., Ltd. was 100% owned by the Group after share acquisition in 2017.

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

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

15. PROPERTY, PLANT AND EQUIPMENT


Cost


Balance at January 1, 2016

Additions

Disposals

Effect of foreign currency
exchange differences


Balance at September 30, 2016

Accumulated depreciation


Balance at January 1, 2016

Depreciation

Disposals

Effect of foreign currency
exchange differences


Balance at September 30, 2016

Carrying amounts at September
30, 2016

Cost


Balance at January 1, 2017

Additions

Disposals

Effect of foreign currency
exchange differences
Reclassification


Balance at September 30, 2017

Accumulated depreciation


Balance at January 1, 2017

Depreciation

Disposals

Effect of foreign currency
exchange differences


Balance at September 30, 2017

Carrying amounts at December
31, 2016 and January 1,
2017


Carrying amounts at September
30, 2017
 Buildings
Development
Equipment
$ 37,600 $ 195,807

-
8,552
-
(7,992)
-

(6,987)

$ 37,600
$ 189,380

$ 1,184 $ 124,836

627
27,915
-
(7,992)
-

(5,379)

$ 1,811
$ 139,380

$ 35,789
$ 50,000

$ 37,600 $ 159,892

-
9,191
-
(3,245)
19,589
(4,361)
1,250,071

-

$ 1,307,260
$ 161,477

$ 2,020 $ 109,056

7,002
16,335
-
(3,242)
100

(3,661)

$ 9,122
$ 118,488

$ 35,580
$ 50,836

$ 1,298,138
$ 42,989
 Office
Equipment
$ 14,258

634

(71)
(725)

$ 14,096

$ 7,243

1,543

(24)
(385)

$ 8,377

$ 5,719


$ 14,180

152

(29)
(190)
-

$ 14,113

$ 8,839

1,439

(5)
(95)

$ 10,178

$ 5,341

$ 3,935
 Information
Equipment
$ 37,443

3,600

-
(2,502)

$ 38,541

$ 18,205

4,047

-
(1,290)

$ 20,962

$ 17,579


$ 38,730

3,841

-
(598)
-

$ 41,973

$ 22,142

4,101

-
(312)

$ 25,931

$ 16,588

$ 16,042
 Leasehold
Improve-
ments
$ 42,362

-
(5,109)
(1,145)

$ 36,108

$ 27,814

6,365
(2,670)
(1,099)

$ 30,410

$ 5,698

$ 35,956

3,555
-
(286)
-

$ 39,225

$ 32,205

3,938
-
(276)

$ 35,867

$ 3,751

$ 3,358
 Total
$ 327,470
12,786

(13,172)
(11,359)
$ 315,725
$ 179,282
40,497

(10,686)
(8,153)
$ 200,940
$ 114,785
$ 286,358
16,739
(3,274)
14,154
1,250,071
$ 1,564,048
$ 174,262
32,815
(3,247)
(4,244)
$ 199,586
$ 112,096
$ 1,364,462

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

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

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

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

16. GOODWILL

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

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

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

17. OTHER INTANGIBLE ASSETS

Cost
Balance at January 1, 2016

Additions
Effect of foreign currency
exchange differences

Balance at September 30,
2016

Accumulated amortization
Balance at January 1, 2016

Amortization expense
Effect of foreign currency
exchange differences

Balance at September 30,
2016

Carrying amounts at
September 30, 2016

Cost
Balance at January 1, 2017

Additions
Effect of foreign currency
exchange differences

Balance at September 30,
2017
 Licenses
and
Franchises
$ 62,741
4,047

(2,368)

$ 64,420

$ 50,675
8,462

(2,241)

$ 56,896

$ 7,524

$ 66,668
65,888
(3,819)

$ 128,737
 Software
$ 60,367

76,830

(4,841)

$ 132,356

$ 34,907

20,626

(1,978)

$ 53,555

$ 78,801

$ 141,943

18,589
(8,257)

$ 152,275
 Patents
Trademark
$ 76,744 $ 74,000

-
-

(19)

-

$ 76,725
$ 74,000

$ 8,051 $ 7,400

5,839
5,550

(19)

-

$ 13,871
$ 12,950

$ 62,854
$ 61,050

$ 76,723 $ 74,000

-
-
(4)

-

$ 76,719
$ 74,000
 Total
$ 273,852

80,877

(7,228)
$ 347,501
$ 101,033

40,477

(4,238)
$ 137,272
$ 210,229
$ 359,334

84,477
(12,080)
$ 431,731
18.
19.		 Accumulated amortization
Balance at January 1, 2017
$ 60,058 $ 65,679 $ 15,815 $ 14,800 $ 156,352
Amortization expense
12,207
29,090
5,839
5,550
52,686
Effect of foreign currency
exchange differences

(3,280)

(3,830)

(5)

-

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

-

-

(33,642)
$ -
$ -
$ -

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

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

20. TRADE PAYABLES

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

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

21. OTHER PAYABLES

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

22. RETIREMENT BENEFIT

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

23. EQUITY

  • a. Share capital

Ordinary shares (NT$10 par value per share)

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

b. Capital surplus

b. Capital surplus
BALANCE, JANUARY 1, 2016

Compensation cost of employee share
options
Issue of ordinary shares under
employee share options
Employee Share Options -Expired
Vested employee restricted shares
Cancellation of employee restricted
stock

BALANCE AT SEPTEMBER 30, 2016
BALANCE, JANUARY 1, 2017

Changes in ownership interests in
subsidiaries
Treasury Stock transferred to
Employees
Compensation cost of employee share
options
Issue of ordinary shares under
employee share options
Employee share options expired
Employee restricted shares vested
Cancellation of employee restricted
stock

BALANCE AT SEPTEMBER 30, 2017		 Additional
Paid-in
Capital
(1)		 Treasury
Shares
(1)		 Changes in
ownership
interests in
subsidiaries
(2)		 Employee
Share Options
(3)		 Employee
Restricted
Shares
(3)		 Employee
Share Options
-Expired
(2)		 Total





$6,362,250

-
56,013
-
18,940

1,151

$6,438,354

$6,468,819

-
-
-
46,360
-
18,602

285

$ 6,534,066














$ 236

-

-

-

-

-

$ 236

$ 40,305

-

563

-

-

-

-

-

$ 40,868














$ -

-

-

-

-

-

$ -

$ 582

687

-

-

-

-

-

-

$ 1,269















$ 103,350

9,281

(43,849)

(2,924)

-

-

$ 65,858


$ 27,578

-

(563 )

26,594

(27,857 )



(1,621)

-

-

$ 24,131



















$ 115,999
-
-
-

(18,940)

(2,226)

$ 94,833

$ 73,797
-
-
-
-
-
(18,602)

(72)

$ 55,123














$ 10,806

-

-

2,924

-

-

$ 13,730

$ 14,765

-

-

-

-

1,621

-

-

$ 16,386

 $6,592,641

9,281

12,164

-

-

(1,075)
$ 6,613,011
$6,625,846

687

-

26,594

18,503
(Continued)

-

-

213
$ 6,671,843
(Concluded)

  • 1) This type of capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or converted to share capital (at a certain percentage of the Company’s capital surplus annually).

  • 2) This type of capital surplus may be used to offset a deficit.

  • 3) This type of capital surplus cannot be used for any purposes.

  • c. Retained earnings and dividend policy

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

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

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

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

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

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

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

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

Legal reserve

Cash dividends		 Appropriation of Earnings
For the Year Ended
December 31
2016
2015
$ 21,109
$ 23,582
189,985
212,240
 Dividends Per Share
For the Year Ended
**December 31 **
2016
2015
$ 0.64
$ 0.7222
  • d. Treasury
Treasury
Shares
(In Thousands)
Number of shares at January 1, 2016 -
Increase during the period
5,000
Number of shares at September 30, 2016
5,000
Number of shares at January 1, 2017 2,376
Increase during the period 6,808
Decrease during the period
(3,248)
Number of shares at September 30, 2017
5,936

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

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

24. REVENUE

REVENUE
IC for portable devices

Others

 For the Three Months Ended
September 30
2017
2016
$3,264,928
$3,056,139


-

-

$3,264,928
$3,056,139
 For the Nine Months Ended
September 30


2017
$3,264,928

-

$3,264,928

2017
$8,023,430

-

$8,023,430
 2016
$8,306,876
17,819
$8,324,695

25. NET INCOME

a. Finance costs

Finance costs
Interest on bank loans

Interest on deposits
Interest on convertible bonds

 For the Three Months Ended
September 30
2017
2016
$ 281
$ 706

-
-

-

138

$ 281
$ 844
 For the Nine Months Ended
September 30


2017
$ 281

-

-

$ 281

2017
$ 4,920

355

-

$ 5,275
 2016
$ 1,633
74
6,391
$ 8,098
  • b. Depreciation and amortization
Property, plant and equipment

Intangible assets


An analysis of depreciation and
amortization by function
Operating expenses

Operating costs

 For the Three Months Ended
September 30
2017
2016
$ 14,020
$ 12,631


17,728

16,428

$ 31,748
$ 29,059

$ 30,038
$ 23,706


1,710

5,353

$ 31,748
$ 29,059
 For the Three Months Ended
September 30
2017
2016
$ 14,020
$ 12,631


17,728

16,428

$ 31,748
$ 29,059

$ 30,038
$ 23,706


1,710

5,353

$ 31,748
$ 29,059
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30





2017
$ 14,020


17,728

$ 31,748

$ 30,038


1,710

$ 31,748




2017
$ 32,815


52,686

$ 85,501

$ 78,767


6,734

$ 85,501
 2016
$ 40,497
40,477
$ 80,974
$ 63,178
17,796
$ 80,974
  • c. Employee benefits expense
Post-employment benefits
Defined contribution plans

Defined benefit plans
Share-based payments
Other employee benefits

Total employee benefits
expense

An analysis of employee
benefits expense by function
Operating costs

Operating expenses

 For the Three Months Ended
September 30
2017
2016
$ 6,379
$ 6,569

218
237
12,409
10,907

391,075

328,148

$ 410,081
$ 345,861


$ 28,336
$ 22,098


381,745

323,763

$ 410,081
$ 345,861
 For the Three Months Ended
September 30
2017
2016
$ 6,379
$ 6,569

218
237
12,409
10,907

391,075

328,148

$ 410,081
$ 345,861


$ 28,336
$ 22,098


381,745

323,763

$ 410,081
$ 345,861
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30






2017
$ 6,379

218
12,409

391,075

$ 410,081

$ 28,336


381,745

$ 410,081




2017
$ 19,365
655
33,017
1,053,177

$1,106,214

$ 85,034
1,021,180

$1,106,214
 2016
$ 19,908

710

24,490

990,126
$1,035,234
$ 62,103

973,131
$1,035,234

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

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

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

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

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

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

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

26. INCOME TAXES

  • a. Income tax recognized in profit or loss

The major components of tax expense were as follows:

Current tax
In respect of the current
period

Adjustments for prior periods

Deferred tax
In respect of the current
period

Income tax expense
recognized in profit or loss
 For the Three Months Ended
September 30
2017
2016
$ 4,334
$ 5,129


613

-


4,947

5,129


12,090

6,607

$ 17,037
$ 11,736
 For the Three Months Ended
September 30
2017
2016
$ 4,334
$ 5,129


613

-


4,947

5,129


12,090

6,607

$ 17,037
$ 11,736
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30




2017
$ 4,334


613


4,947


12,090

$ 17,037



2017
$ 7,977


862


8,839


9,998

$ 18,837
 2016
$ 11,838

-

11,838

6,491
$ 18,329
  • b. The Company’s integrated income tax
The Company’s integrated income tax
September 30,
2017
Imputation credit accounts
$ 51,955

Creditable ratio for distribution of earnings		 December 31,
2016
September 30,
2016
$ 51,706
$ 51,708
For the Year Ended December 31
2016
2015
3.89%
4.68%

c. Income tax assessments

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

27. EARNINGS PER SHARE

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

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

Net Income for the Period

Net Income for the Period
Earnings used in the computation
of basic earnings per share

Effect of potentially dilutive
ordinary shares after tax:
Convertible bonds

Earnings (loss) used in the
computation of diluted earnings
per share
 For the Three Months Ended
September 30
2017
2016
$ 139,131
$ 92,950


-

-

$ 139,131
$ 92,950
 For the Nine Months Ended
September 30


2017
$ 139,131


-

$ 139,131

2017
$ 170,191


-

$ 170,191
 2016
$ 65,073
-
$ 65,073

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

Weighted average number of
ordinary shares in computation
of basic earnings per share

Effect of potentially dilutive
ordinary shares:
Convertible bonds
Employee share option
Employee restricted shares
Employees’ compensation or
bonus issue to employees

Weighted average number of
ordinary shares used in the
computation of diluted earnings
per share
 For the Three Months Ended
September 30
2017
2016
285,839
288,612

-
-
2,313
2,503
607
816

1,205

-

289,964
291,931
 For the Three Months Ended
September 30
2017
2016
285,839
288,612

-
-
2,313
2,503
607
816

1,205

-

289,964
291,931
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30


2017
285,839

-
2,313
607

1,205

289,964

2017
289,339

-
2,574
611

1,491

294,015
 2016
290,733
-
2,838
852
344
294,767

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

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

28. SHARE-BASED PAYMENT ARRANGEMENTS

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

  • a. Employee share option plan in 2015
Balance at January 1
Option exercised
Options forfeited

Balance at September 30
 For the Nine Months Ended
September 30, 2017		 For the Nine Months Ended
September 30, 2017		 For the Nine Months Ended
September 30, 2016
Number of
Options
Weighted-
average
Exercise
Price
(NT$)
2,688,000 $ 12.7
-
-

(182,000)
12.6

2,506,000
12.4		 For the Nine Months Ended
September 30, 2016
Number of
Options
Weighted-
average
Exercise
Price
(NT$)
2,688,000 $ 12.7
-
-

(182,000)
12.6

2,506,000
12.4

Number of
Options
Weighted-
average
Exercise
Price
(NT$)
2,506,000 $ 12.4
(535,000)
12.2

(412,000)
12.4


1,559,000
12.2
 Number of
Options
Weighted-
average
Exercise
Price
(NT$)
2,688,000 $ 12.7
-
-

(182,000)
12.6

2,506,000
12.4

b. Employee share option plan in 2013

Employee share option plan in 2013
Balance at January 1
Options forfeited
Options exercised
Options expired

Balance at September 30

Options exercisable, end of period
 For the Nine Months Ended
September 30, 2017
Number of
Options
Weighted-
average
Exercise
Price
(NT$)
1,220,500 $ 38.5
(51,750)
38.5
(244,250)
38.4

(98,250)
38.5


826,250
37.9


826,250
37.9
 For the Nine Months Ended
September 30, 2016




Number of
Options
Weighted-
average
Exercise
Price
(NT$)
1,578,500 $ 39.4
(93,750)
39.3
-
-

(176,000)
39.2

1,308,750
38.5

980,500
38.5
  • c. Employee share option plan in 2006
Balance at January 1
Options forfeited
Options exercised

Balance at September 30

Options exercisable, end of period
 For the Nine Months Ended
September 30, 2017
Number of
Options
Weighted-
average
Exercise
Price
(NT$)
2,662,359 $ 21.01
-
-

(869,160)
21.95


1,793,199
20.18


1,793,199
20.18
 For the Nine Months Ended
September 30, 2016		 For the Nine Months Ended
September 30, 2016





Number of
Options
Weighted-
average
Exercise
Price
(NT$)
6,738,924 $ 18.61

(699,600)
26.43

(2,959,265)
14.11

3,080,059
20.55

2,306,680
18.87
  • d. The 2nd Shares Buy Back Program

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

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

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

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

The rules on the unvested shares were as follows;

  • 1) The employees cannot sell, pledge, transfer, donate, or dispose these shares.

  • 2) The Company and the employees should enter into a trust agreement with a trust and custodian institution and authorize the institution to exercise the shareholders’ rights including but not limited to attendance, proposing, speaking and voting in the shareholder meetings.

  • 3) The unvested shares are entitled to receive cash and/or share dividends and the derivatives.

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

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

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

$ 33,017		 2016
$ 9,281
15,209
$ 24,490

29. Equity transactions with non - controlling interests

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

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

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

30. OPERATING LEASE ARRANGEMENTS

The Company is Lessee

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

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

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

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

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

31. FINANCIAL INSTRUMENTS

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

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

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

  • 1) Fair value hierarchy

September 30, 2017
Available-for-sale financial
assets
Fixed income bonds

December 31, 2016
Available-for-sale financial
assets
Fixed income bonds
 Level 1
$ -

Level 1
$ -
 Level 2
$ 287,926

Level 2
$ 175,839
 Level 3
$ -

Level 3
$ -
 Total
$ 287,926
Total
$ 175,839

September 30, 2016

Financial assets at FVTPL
Structured note

Available-for-sale financial
assets
Fixed income bonds

Financial liabilities at FVTPL
Conversion option of the
convertible bonds
 Level 1
$ -

$ -

$ -
 Level 2
$ -

$ 28,292

$ -
 Level 3
$ 123,863

$ -

$ 1,408
 Total
$ 123,863
$ 28,292
$ 1,408

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

For the nine months ended September 30, 2016

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

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

  • a) Structured Note

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

  • b) Options attached to the convertible bonds

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

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

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

  • 2) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, trade receivables, other financial assets and guarantee deposits(included in other non-current assets).

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

  • d. Financial risk management objectives and policies

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

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

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

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

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

1) Market risk

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

a) Foreign currency risk

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

Sensitivity analysis

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

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

Profit or loss/
equity
 USD Impact
For the Nine Months Ended
September 30
2017
2016
$ 17,437(i)
$ 13,554(i)
 RMB Impact RMB Impact
For the Nine Months Ended
September 30
2017
$ 17,437(i)
 2017
$ 55(ii)
 2016
$ 2,429(ii)
  • i. This was mainly attributable to the exposure outstanding on USD time deposits, trade receivables, trade, other payables, other current assets and other current liability.

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

  • b) Interest rate risk

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

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

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

Sensitivity analysis

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

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

2) Credit risk

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

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

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

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

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

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

  • 3) Liquidity risk

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

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

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

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

September 30, 2017

On Demand or
Less than
1 Year
Non-derivative financial liabilities
Fixed interest rate liabilities
$ 907,800

Non-interest bearing

2,854,585

$ 3,762,385

December 31, 2016
On Demand or
Less than
1 Year
Non-derivative financial liabilities
Fixed interest rate liabilities
$ 645,000

Non-interest bearing

2,445,967

$ 3,090,967
 1-5 Years
$ -

183,901
$ 183,901
1-5 Years
$ -

113,275
$ 113,275

September 30, 2016

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

1,907,057

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

2,102,600

2,145,000

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

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

32. TRANSACTIONS WITH RELATED PARTIES

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

  • b. Compensation of key management personnel

Long-term employee benefits

Short-term employee benefits
Post-employment benefits
Share-based payments

 For the Three Months Ended
September 30
2017
2016
$ 17,172 $ -
5,113
11,966
21
151

1,003

2,005

$ 23,309
$ 14,122
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30


2017
$ 17,172
5,113
21

1,003

$ 23,309



2017
$ 18,450

24,909

202

3,316

$ 46,877
 2016
$ 4,664

38,742

454

4,866
$ 48,726

33. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

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

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

34. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

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

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

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

September 30, 2016

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

35. SEGMENT INFORMATION

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

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