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FocalTech Interim / Quarterly Report 2018

Dec 10, 2018

52342_rns_2018-12-10_33785567-f2d1-4867-83ae-48f60d8a7c20.pdf

Interim / Quarterly Report

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FocalTech Systems Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Nine Months Ended September 30, 2018 and 2017

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6)

Financial assets at fair value through other comprehensive income - current (Note 4 and
8)
Available-for-sale financial assets - current (Note 4 and 9)
Trade receivables, net (Note 4 and 12)
Inventories (Note 13)
Other financial assets (Note 4 and 11)
Other current assets

Total current assets

NON-CURRENT ASSETS
Financial assets at fair value through profit or loss - non-current (Note 4 and 7)
Financial assets at fair value through other comprehensive income - non-current
(Note 4 and 8)
Available-for-sale financial assets - non-current (Note 4 and 9)
Financial assets measured at cost (Note 4 and 10)
Property, plant and equipment (Note 15)
Goodwill (Note 16)
Other intangible assets (Note 17)
Deferred tax assets
Other non-current assets (Note 32)

Total non-current assets

TOTAL

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

Trade payables (Note 19)
Other payables (Note 20)
Current tax liabilities (Note 4)
Other current liabilities (Note 23)

Total current liabilities

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

Total non-current liabilities

Total liabilities

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Note 22 and 27)
Share capital
Ordinary shares

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

Total capital surplus

Retained earnings
Legal reserve
Undistributed earnings

Total retained earnings

Other equity
Exchange differences from translating the financial statements of foreign operations
Unrealized loss on financial assets at fair value through other comprehensive income
Equity directly associated with non-current assets held for sale
Unearned employee compensation

Total other equity

Treasury shares

Equity attributable to owners of the company

NON-CONTROLLING INTERESTS

Total equity

TOTAL
 September 30, 2018
Amount
%
$ 2,954,236
21
72,339
-
-
-
1,177,178
8
2,384,774
17
2,196,333
15

215,609

2


9,000,469
63

77,496
-
252,897
2
-
-
-
-
1,395,734
10
3,237,268
22
162,228
1
117,979
1

87,207

1


5,330,809
37

$ 14,331,278
100

$ 100,000
1
1,859,493
13
831,673
6
414,941
3

71,392

-


3,277,499
23

40,454
-
29,431
-
244,863
2

10,400

-


325,148

2


3,602,647
25


2,986,407
21

6,420,329
45
40,868
-
20,491
-
45,658
1
-
-

19,718

-


6,547,064
46

186,154
1

1,203,944

9


1,390,098
10

117,807
1

(4,321)
-
-
-

-

-


113,486

1


(353,718)

(3)


10,683,337
75


45,294

-

10,728,631
75

$ 14,331,278
100
 December 31, 2017
Amount
%
$ 2,596,128
19

-
-

35,814
-

1,257,525
9

2,685,765
20

1,385,904
10

212,037

2


8,173,173
60


-
-

-
-

245,640
2

74,400
-

1,408,474
10

3,237,268
24

210,714
2

104,501
1

89,898

1


5,370,895
40

$13,544,068
100

$ -
-

1,310,390
10

738,870
5

411,977
3

82,620

1


2,543,857
19


15,876
-

29,620
-

200,951
2

10,400

-


256,847

2


2,800,704
21


2,983,700
22


6,565,204
49

40,868

-

1,269
-

30,179
-

-
-

17,356

-


6,654,876
49


186,154
1

1,058,985

8


1,245,139

9


47,154
-

-
-

(2,791)
-

-

-


44,363

-


(191,998)

(1)


10,736,080
79


7,284

-

10,743,364
79

$ 13,544,068
100
 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

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 (Losses) Per Share)

REVENUE (Note 4 and 23)

COSTS OF SALES (Note 13
and 24)

GROSS MARGIN

OPERATING EXPENSES
(Note 21, 24, 29 and 31)
Selling and marketing
expenses
General and administrative
expenses
Research and development
expenses

Total operating
expenses

OPERATING INCOME
(LOSS)

NON-OPERATING INCOME
AND EXPENSES
Finance costs (Note 24)
Other gains and losses - net
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 25)

NET INCOME (LOSS)

OTHER COMPREHENSIVE
INCOME
Items that will not be
reclassified to profit or
loss:
Income tax relating to
those items not to be
reclassified to profit or
loss(Note 4 and 25)

Items that may be
reclassified subsequently
to profit or loss:
Exchange differences
from translating the
financial statements of
foreign operations		 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
2018 2017 2018 2017











Amount
%
$ 2,530,459
100
(1,912,057)

(76)


618,402

24

(111,077)
(4 )
(79,963 )
(3 )

(395,135)

(16)


(586,175)

(23)


32,227

1

(120)
-

19,150
1
-
-
(9,845)
-

29,289

1


38,474

2

70,701
3

5,514

-


76,215

3


-

-

(38,013)
(1 )

















Amount
%
$ 3,264,928
100
(2,592,359)

(79)


672,569

21


(130,475)
(4)

(84,014 )
(3 )

(328,626)

(10)


(543,115)
(17)


129,454

4


(281)
-

4,378
-

-
-

3,890
-

13,589

1


21,576

1


151,030
5

(17,037)

(1)


133,993

4


-

-


(5,183 )
-

















Amount
$ 7,875,850

(6,143,002)


1,732,848


(319,039)

(249,219)
(1,090,709)

(1,658,967)


73,881


(690)

45,920

-

11,125

69,429


125,784


199,665

(33,928)


165,737


(276)


72,542		 %
100

(78)


22


(4 )

(3 )

(14)


(21)


1


-
-
-
-

1


1

2

-


2


-

1

















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

-

-

(320,014 )
(4 )
(Continued)

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)

Unrealized gains from
debt instrument
investments measured
at fair value through
other comprehensive
loss(Note 4)
Unrealized loss on
available-for-sale
financial assets(Note
4)

Items that may be
reclassified
subsequently to
profit or loss

Total other
comprehensive loss
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 26)

Basic

Diluted
 For the Three Months EndedJune 30 For the Three Months EndedJune 30 For the Three Months EndedJune 30 For the Nine Months EndedSeptember 30 EndedSeptember 30 EndedSeptember 30
2018 2017 2018 2017












Amount
%
(249 )
-

-

-


(38,262)

(1)


(38,262)

(1)

$ 37,953

2

$ 85,284
3

(9,069)

-

$ 76,215

3

$ 46,891
2

(8,938)

-

$ 37,953

2


$ 0.30

$ 0.30












Amount
%

-
-

232

-


(4,951)

-


(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
%

(1,530 )
-

-

-


71,012

1


70,736

1

$ 236,473

3

$ 189,875
2

(24,138)

-

$ 165,737

2

$ 258,722
3
(22,249)

-

$ 236,473

3


$ 0.66

$ 0.66












Amount

-

305


(319,709)


(319,709)

$ (162,723)

$ 170,191

(13,205)

$ 156,986

$ (149,518)

(13,205)

$ (162,723)

$ 0.59
$ 0.58		 %
-

-

(4)

(4)

(2)
2

-

2

(2 )

-

(2)

$		 $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $





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)


(In Thousands of New Taiwan Dollars)
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 22)
Treasury stock transferred to employees (Note 22 and 27)
Changes in ownership interests in subsidiaries (Note 22 and
28)
Compensation cost of employee share options (Note 22 and 27)
Issue of ordinary shares under employee share options (Notes
22 and 27)
Compensation cost of employee restricted shares (Notes 27)
Cancellation of employee restricted shares (Notes 22)
Dividend returned for unvested employee restricted shares
Increase in non-controlling interests

BALANCE AT SEPTEMBER 30, 2017

BALANCE, JANUARY 1, 2018

Effects of retrospective application and restatement

Restated balance as of January 1, 2018
Cash distribution from additional paid-in capital
Net income for the nine months ended September 30, 2018
Other comprehensive loss for the nine months ended
September 30, 2018, net of income tax
Total comprehensive income (loss) for the nine months ended
September 30, 2018
Buy-back of ordinary shares (Note 22)
Treasury stock transferred to employees (Note 22 and 27)
Changes in ownership interests in subsidiaries
Compensation cost of employee share options (Note 22 and 27)		 Equity Attributable toOwners of theCompany Non-controlling
Total
Interests
$ 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

$ 10,736,080
$ 7,284

(44,640)

-


10,691,440
7,284
(150,000)
-
189,875
(24,138)
68,847

1,889

258,722

(22,249)


(345,421)
183,701
-
19,222
(19,222)
22,305
-		 Total Equity
$ 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
$ 10,743,364
(44,640)
10,698,724
(150,000)

165,737
70,736
236,473
(345,421)
183,701

-
22,305
(Continued)
Share Capital
Ordinary Shares
Capital Surplus
$ 2,965,344
$ 6,625,846

-
-
-
-
-
-

-

-


-

-

-
-
-
-
687

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

-

-

$ 2,981,576
$ 6,671,843

$ 2,983,700
$ 6,654,876


-

-

2,983,700
6,654,876
-
(150,000)
-
-

-

-


-

-

-
-
-
19,222

-
22,305		 Retained Earnings
Undistributed
Legal Reserve
Earnings

$ 165,045
$ 1,335,160

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

-

-

170,191

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

-

$ 186,154
$ 1,294,265

$ 186,154
$ 1,058,985

-

(44,640)

186,154
1,014,345

-
-
-
189,875
-

(276)

-

189,599

-
-
-
-
-
-		 Other Equity Unearned
Employee
Compensation
Treasury Shares
$ (36,040) $ (62,992)
-
-
-
-
-
-
-

-

-

-

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

-

$ (29,617)
$ (191,998)

$ -
$ (191,998)
-

-

-
(191,998)
-
-
-
-
-

-

-

-

(345,421)
-
183,701
-
-
-
-
Unrealized gains
(losses) from
Exchange
financial asset
Differences from
measured at fair
Translating
Financial
Statement of
value through
other
comprehensive
Equity Directly
Associated with
Non-current Assets
Foreign Operations
income
Held for Sale
$ 433,584
$ -
$ (1,498)


-
-
-

-
-
-
-
-
-

(320,014)

-

305


(320,014)

-

305

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

-

-

-

$ 113,570
$ -
$ (1,193)

$ 47,154
$ -
$ (2,791)

-

(2,791)

2,791

47,154
(2,791)
-
-
-
-
-
-
-

70,653

(1,530)

-


70,653

(1,530)

-

-
-
-
-
-
-
-
-
-









Legal Reserve
$ 165,045

21,109
-
-

-

-
-
-
-
-
-
-

$ 186,154

$ 186,154

-

186,154

-
-
-

-

-
-
-
Issue of ordinary shares under employee share options
(Note 22 and 27)
Increase in non-controlling interests

BALANCE AT SEPTEMBER 30, 2018
 2,707
-

$ 2,986,407
 661
-

$ 6,547,064
 -
-

$ 186,154
 -
-

$ 1,203,944
 -
-

$ 117,807
 -
-

$ (4,321)
 -
-

$-
-
-

$-
-
-

$ (353,718)
 3,368
-

$ 10,683,337
 -
79,481

$ 45,294
 3,368
79,481

$ 10,728,631

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

(Concluded)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

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

Adjustments for:
Depreciation expenses
Amortization expenses
Gains from reversal of impairment loss on expected credit
Loss 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 (gain) on foreign currency exchange
Changes in operating assets and liabilities
Increase in financial assets mandatorily classified as at fair value
through profit or loss
Trade receivables
Inventories
Other current assets
Trade payables
Other payables
Other current liabilities
Net defined benefit liabilities

Cash generated from operations
Interest paid
Income tax paid

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of financial asset at fair value through other comprehensive
income
Proceeds from disposal of financial asset at fair value through other
comprehensive income
Purchase of available-for-sale financial assets
Purchase for property, plant and equipment
Purchase of intangible assets
(Increase) decrease in other financial assets
(Increase) decrease 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





2018
$ 199,665

48,425
52,372
(6,084)
2,236
690
(69,429)
22,305
-
-
119,789
14,205
(48,644)
94,402
216,064
19,341
520,208
78,961
(10,614)

(189)

1,253,703
(677)

(30,238)


1,222,788

(58,671)
20,981
-
(70,935)
(2,198)
(765,369)
946

47,511


(827,735)
 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)
(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
Increase in guarantee deposits
Cash dividends
Issue of ordinary shares under employee share options
Buy-back of ordinary shares
Treasury stock transferred to employees
Increase in non-controlling interests
Proceeds from dividend returned by unvested employee restricted
shares
Payment for cancellation of 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




2018
100,000
40,835
(150,000)
3,368
(345,421)
183,701
79,481
-

-


(88,036)


51,091

358,108


2,596,128

$ 2,954,236
 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

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, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

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

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

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 26, 2018.

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

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

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

1) IFRS 9 “Financial Instruments” and related amendment

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

Classification, measurement and impairment of financial assets

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

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

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

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

Add: Reclassification from
available for sale (IAS 39)
Financial assets measured at cost -
remeasurement (IAS 39)


FVTOCI
Add: Reclassification from
available for sale financial
assets (IAS 39)


Total
 IAS 39
Carrying
Amount as of
January 1,
2018
Reclassification
Remeasuremen
t
$ -
-
$ 74,400
-

-
$ (44,640)
-

74,400
(44,640)

-
281,454

-
-
281,454

-

$ -
$ 355,854
$ (44,640)
 IFRS 9
Carrying
Amount as of
January 1,
2018
$ 29,760

281,454

$ 311,214
 Retained
Earnings
Effect on
January 1,
2018
Note
(b)
(b)
$ (44,640 )
(c)
-
$ (44,640)

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

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

respect of unlisted stock investments, the adjustments would result in a decrease in carrying amount and retained earnings of NT$44,640 thousand on first application date.

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

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

IFRS 15 specifies the recognition principle of income generated from the customer contracts; also, the guidelines will replace IAS 18 “Income,” IAS 11 “Construction Contracts,” and related interpretations. The relevant accounting policies could be found in Note 4.

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

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

  • b. The IFRSs recognized by FSC and the Regulations Governing the Preparation of Financial Reports by Securities Issuers with effective date starting from 2019.

Securities Issuers with effective date starting from 2019.
New, Revised or Amended Standards and Interpretations
"Annual Improvements to IFRSs 2015-2017 Cycle"

Amendments for IFRS 9 “Prepayments Features with Negative
Compensation”

IFRS 16 “Leases”

Amendments for IFRS 19 “Employee Benefits - Plan Amendment,
Curtailment or Settlement”

Amendments for IFRS 28 “Long-term Equity for Associated or Joint
Venture Companies ”

IFRIC 23 “Treatment of Income Tax Uncertainty”
 Effective Date
Announced by IASB (Note 1)
January 1, 2019
January 1, 2019 (Note 2)
January 1, 2019
January 1, 2019 (Note 3)
January 1, 2019
January 1, 2019

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

  • Note 2: The FSC allows the Group to select earlier adoption of the amendments from January 1, 2018.

  • Note 3: This amendment applies to the amendment, curtailment or settlement of employee benefit plans that occurred after January 1, 2019.

  • 1) IFRS 16 “Leases”

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

Definition for leases

When IFRS 16 first time is applied, the Company decides only to include the contracts signed or

changed after January 1, 2019 to use IFRS 16 evaluation. The contracts currently considered to be judged as leases based on IAS 17 and IFRIC 4 will not be re-evaluated and will be processed in accordance with the transitional provisions of IFRS 16.

The Company is lessee

When IFRS 16 first time is applied, the Company will recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value asset lease and short-term leases recognized as expenses on a straight line basis. On the consolidated statements of comprehensive income, the Company will 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 will be classified within financing activities. The interest portion will be classified within operating activities. Before IFRS 16 is applied, payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the consolidated statements of cash flows.

For the current agreements judged and processed as operating leases based on IAS 17, the measurement of the lease liability on January 1, 2019 will be discounted by the remaining lease payments at the incremental borrowing rate of the lessee at that date. All right-of-use assets will be measured by the amount of the lease liability on that date, which will be subject to IAS 36 impairment assessment.

  • 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.

When IFRIC23 first time is applied, the Company plans to retrospectively recognize the cumulative effect initially in retained earnings on Jan. 1[st] , 2019.

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

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

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

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

Effective Date New, Revised or Amended Standards and Interpretations Announced by IASB (Note 1) Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Materiality” January 1, 2020 (Note 3)

  • 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 Company shall apply these amendments to the business combination and the asset acquisition for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020.

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  • a. Statement of compliance

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

  • b. Basis of Preparation

The consolidated financial statements are prepared on the historical cost basis, except for the financial instruments measured at fair value and the net defined benefit liabilities recognised in the fair value of the estimated assets, and explained in the accounting policies below.

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

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

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

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

  • c. Basis of consolidation

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

  • d. Other significant accounting policies

Except for accounting policies of financial instruments and revenue recognition and the following, the accounting policies applied in the consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2017.

  • 1) Financial instruments

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

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

a) Financial assets

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

  • i) Measurement category

2018

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

  • A. Financial asset at FVTPL

The equity instruments that are not specified as FVTOCI and debt instruments that do not meet the criteria of amortized cost or FVTOCI are mandatorily required to be measured at FVTPL. Any gain or loss arising from the remeasurement is recognized in profit or loss at fair value, excluding any interest or dividend earned from the financial asset. The determination methodology of fair value of financial instruments states in Note 30.

  • B. Financial assets at amortized cost

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

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

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

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

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for the credit-impaired financial asset which interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset.

Cash equivalents include time deposits with original maturities within 3 months from obtaining date, high liquidation level, readily convertible to a known amount of cash at any

time, and low risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

  • C. Investments in debt instruments at FVTOCI

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

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

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

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

2017

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

  • a. Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as 1) loans and receivables, 2) held-to-maturity financial assets or 3) financial assets at fair value through profit or loss. Available-for-sale financial assets are measured at fair value. Foreign exchange gains or losses from available-for-sale financial assets, interest incomes from the monetary available-for-sale financial assets by effective interest method and dividends from available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

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

  • b. Loans and receivables

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

Cash equivalent includes time deposits with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and be

subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

ii) Impairment of financial assets

2018

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

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

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

2017

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

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

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

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

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

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses

previously recognized in other comprehensive income are reclassified to profit or loss in the period.

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

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

iii) Derecognition of financial assets

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

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

b) Equity instruments

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

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

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

c) Financial liabilities

  • i) Subsequent measurement

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

  • ii) Derecognition of financial liabilities

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

  • 2) Revenue recognition

  • a) Sale of goods

2018

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

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

2017

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

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

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

  • iii) The amount of revenue can be measured reliably;

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

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

b)Interest income

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

  • 3) Retirement benefit costs

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

  • 4) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period income taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax income the tax rate that would be applicable to expected total annual earnings. The effect of a change in tax rate resulting from the amendment in the tax law is recognized consistent with the accounting treatment of the corresponding transaction itself, and is recognized in profit or loss or other comprehensive income in full in the occurring period.

5. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATIONS AND ASSUMPTIONS

Except for the following, the uncertainty of critical accounting judgments, estimations and assumptions applied are consistent with those in the consolidated financial statements for the year ended December 31, 2017.

Income taxes

As of September 30, 2018, December 31, 2017, and September 30, 2017, the deferred tax liabilities on earnings of the subsidiaries, FocalTech Corporation, Ltd. and FocalTech Electronics, Ltd., reporting at $3,336,707 thousand, $3,385,197 thousand, and $4,001,097 thousand, are not recognized respectively, due to the dividend policy of the subsidiaries and the reversal of temporary differences of earnings being able to be controlled by the Company. It’s probable that the temporary differences will not be reversed in the foreseeable future.

6. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
September 30, December 31, September 30,
2018 2017 2017
Cash on hand $ 2,564
 $ 1,870
 $ 1,383
Checking accounts and demand deposits 1,434,648 762,436 923,979
Cash equivalent (fixed deposit with original
maturities less than three months) 1,517,024
 1,831,822
 1,212,403
$ 2,954,236
 $ 2,596,128
 $ 2,137,765

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

September 30, December 31, September 30,
2018 2017 2017
Demand deposits 0.001%-0.43%
0.001%-0.4%		 0.001%-0.35%
Fixed deposits 0.9%-3.08% 0.6%-2.4% 0.13%-1.68

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

September 30 December December 31, September 30 September 30 September 30
2018 2017 2017
Mandatorily at fair value through profit or loss
(FVTPL)
Listed preferred shares $ 10,370 $ - $ -
Private Funds 37,593 - -
Structured Investments
29,533		 - -
$ 77,496 $ - $ -

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

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

September 30, 2018 September 30, 2018
Investments in debt instruments
Current
Foreign investments
Fixed income bonds $
72,339
Non–Current
Foreign investments
Fixed income bonds $ 252,897
Yield rates 1.963%-4.117%

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

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

December 31, 2017 September 30, 2017 September 30, 2017
Current
Foreign investments
Fixed income bonds $ 35,814 $
21,197
Non-Current
Foreign investments
Fixed income bonds $ 245,640 $ 266,729
Yield rates 1.708%-3.0168% 1.708%-3.0168%

10. FINANCIAL ASSETS MEASURED AT COST- NON-CURRENT - 2017

FINANCIAL ASSETS MEASURED AT COST- NON-CURRENT - 2017
December 31, 2017 September 30, 2017
Foreign unlisted preferred shares $ 44,640 $ 45,390
Private Funds 29,760 30,260
$ 74,400 $ 75,650

11. OTHER FINANCIAL ASSETS

OTHER FINANCIAL ASSETS
September 30, December 31, September 30,
2018 2017 2017
Time deposits with original maturities more than
three months
 $ 2,196,333
 $ 1,385,904
 $ 2,646,981
Market rate intervals 1.55%-3.90% 1.045%-3.74%
0.90%-2.70%

12. TRADE RECEIVABLES, NET

September 30, December 31, September 30,
2018 2017 2017
Trade receivables $ 1,274,858
 $ 1,358,709
 $ 1,599,248
Less: Allowance for doubtful accounts
(97,680)
(101,184)
(102,884)
Trade receivables, net $ 1,177,178
 $ 1,257,525
 $ 1,496,364

For the Nine Months Ended September 30, 2018

The average credit period on sales of goods was 60-120 days. In order to minimize credit risk, management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowances are made for irrecoverable amounts. In this regard, management believes the Group’s credit risk was significantly reduced.

The Company applies the simplified approach prescribed by IFRS 9, which permits the use of allowances of expected credit losses over the lifetime for all trade receivables. The expected credit losses on trade receivables are estimated by using an allowance matrix with references to past customer default records, customer’s current financial position, and general economic conditions of the industry. Due to the past experiences, there is no significant difference in the loss patterns of different customer groups. Therefore, the allowance matrix does not further distinguish the customer base, and only sets the expected credit loss rate based on the overdue days of trade receivable.

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

September 30, 2018

matrix.
September 30, 2018

Expected credit loss
rate
Gross carrying amount
Loss allowance
(Lifetime ECL)

Amortized cost
 Non Past Due
-
$1,070,361


-

$1,070,361
Overdue 1-60
Days
-
$ 88,127

-

$ 88,127
 Overdue 61-180
Days
-
$ -


-

$ -
 Overdue Over
181 Days
84%
$ 116,370

(97,680)
$ 18,690
 Total










84%
$ 1,274,858
(97,680)
$ 1,177,178

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

Beginning balance
Less: Impairment loss reversed
Difference from foreign exchange translation
Ending balance		 For the Nine Months
Ended September 30,
2018		 For the Nine Months
Ended September 30,
2018

(

 $ 101,184

6,084 )
2,580
$ 97,680

Wintek Corporation announced the following material information on October 13, 2014. Due to loss of continuous operation, the board of directors of Wintek Corporation approved to apply for court’s ratification for reorganization and emergency disposal in accordance with the relevant rules of the Company Act. As of September 30, 2018, the Group recognized allowance of doubtful trade receivables against Wintek Corporation of 97,680 thousand.

2017

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

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

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

December 31, December 31, September 30, September 30,
2017 2017
Less than 60 days $
5,049		 $
983
61-180 days - 165
More than 180 days 13,292 13,521
$ 18,341 $ 14,669

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

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

Individually
Assessed for
Impairment
Balance at January 1, 2017 $ 109,650
Foreign exchange translation
(6,766)
Balance at September 30, 2017 $ 102,884

13. INVENTORIES

INVENTORIES
September 30, December 31, September 30,
2018 2017 2017
Finished goods $ 642,829
 $ 993,694
 $ 1,206,452
Work in progress 1,064,093 916,087 1,161,511
Raw materials and supplies 677,852
 775,984
976,954
$ 2,384,774
 $ 2,685,765
 $ 3,344,917

The cost of goods sold included inventory write-downs for the three months ended September 30, 2018 and for the nine months ended September 30, 2018 and 2017 was $63,206 thousand, $119,789 thousand, $26,927 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.

14. SUBSIDIARIES

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

Investor
Investee
Main Businesses		 Proportion ofOwnership
September
30, 2018
December 31,
2017
September
30, 2017
FocalTech Systems
Co., Ltd.
FocalTech Corporation,
Ltd.
Investment activity
FocalTech Electronics,
Ltd.
Research, development,
manufacturing and sale of
integrated circuits		 100%
100%
100%
100%
100%
100%
FocalTech Systems
Co., Ltd. And
FocalTech
Electronics Co.,
Ltd.(a)
FocalTech Smart Sensors
Co., Ltd.
Research, development,
manufacturing and sale of
integrated circuits
FocalTech Smart Sensors,
Ltd.
Research, development,
manufacturing and sale of
integrated circuits		 -
67.11%
67.11%
61.88%
100%
-
FocalTech Smart
Sensors,Ltd. (a)
FocalTech Smart Sensors
Co.,Ltd.
Research of integrated circuits		 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 and sale of integrated
circuits		 100%
100%
100%
100%
100%
100%
100%
100%
100%

a. FocalTech Smart Sensors, Ltd. was set up in December 2017 and 100% owned by the Company. The Group’s reorganization of the investment structure, and capital injection and exercise of employee stock in FocalTech Smart Sensors, Ltd. in 2018 resulted in FocalTech Systems Co., Ltd and FocalTech Electronics Co., Ltd. directly to own FocalTech Smart Sensors, Ltd. and indirect to hold FocalTech Smart Sensors Co., Ltd.

As of September 30, 2018 and 2017, the immaterial subsidiaries of the Group included FocalTech Smart Sensors Co., Ltd., FocalTech Electronics Co., Ltd., FocalTech Electronics (Shenzhen) Co., Ltd., FocalTech Electronics (Shanghai) Co., Ltd., Hefei PineTech Electronics Co., Ltd. and FocalTech Smart Sensors, Ltd. The financial statements of the immaterial subsidiaries had not been reviewed by the auditors.

As of September 30, 2018 and 2017, the total amounts of assets of the immaterial subsidiaries were $588,627 thousand, and $364,315 thousand, 4% and 2% of total consolidated assets, respectively. The total amounts of liabilities were $157,311 thousand, and $98,655 thousand, 4% and 2% of total consolidated liabilities, respectively. For the three months ended September 30, 2018 and 2017, and for the nine months ended September 30, 2018 and 2017, the total immaterial subsidiaries comprehensive loss has been recognized $35,829 thousand, $12,783 thousand, $59,293 thousand, and $66,467 thousand, that held (94%), (10%), (25%), and 41% in the consolidated statements of comprehensive income (loss), respectively.

15. PROPERTY, PLANT AND EQUIPMENT


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 September
30, 2017

Cost


Balance at January 1, 2018

Additions

Disposals

Effect of foreign currency
exchange differences


Balance at September 30, 2018

Accumulated depreciation


Balance at January 1, 2018

Depreciation

Disposals

Effect of foreign currency
exchange differences


Balance at September 30, 2018

Carrying amounts at December
31, 2017 and January 1,
2018

Carrying amounts at September
30, 2018
 Buildings
Development
Equipment
$ 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

$ 1,298,138
$ 42,989

$ 1,358,019 $ 165,491

41,325
27,801
-
(3,841)
(35,396)

(75)

$ 1,363,948
$ 189,376

$ 16,029 $ 121,011

27,405
14,544
-
(3,841)
(1,258)

646

$ 42,176
$ 132,360

$ 1,341,990
$ 44,480

$ 1,321,772
$ 57,016
 Office
Equipment
$ 14,180

152

(29)
(190)
-

$ 14,113

$ 8,839

1,439

(5)
(95)

$ 10,178

$ 3,935


$ 14,479

1,226

-
(311)

$ 15,394

$ 10,236

1,186

-
(203)

$ 11,219

$ 4,243

$ 4,175
 Information
Equipment
$ 38,730

3,841

-
(598)
-

$ 41,973

$ 22,142

4,101

-
(312)

$ 25,931

$ 16,042


$ 42,437

583
-
(994)

$ 42,026

$ 27,331

3,688
-
(712)

$ 30,307

$ 15,106

$ 11,719
 Leasehold
Improve-
ments
$ 35,956

3,555
-
(286)
-

$ 39,225

$ 32,205

3,938
-
(276)

$ 35,867

$ 3,358

$ 39,209

-
-
(374)

$ 38,835

$ 36,554

1,602
-
(373)

$ 37,783

$ 2,655

$ 1,052
 Total
$ 286,358
16,739
(3,274)
14,154
1,250,071
$ 1,564,048
$ 174,262
32,815
(3,247)
(4,244)
$ 199,586
$ 1,364,462
$ 1,619,635
70,935
(3,841)
(37,150)
$ 1,649,579
$ 211,161
48,425
(3,841)
(1,900)
$ 253,845
$ 1,408,474
$ 1,395,734

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

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

Buildings 45-50 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.

16. GOODWILL

GOODWILL
September 30, December 31, September 30,
2018 2017 2017
Cost $ 3,237,268
 $ 3,237,268
 $ 3,237,268

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

The recoverable amount is calculated by IDC projected net cash flows, discounted at 10%, under the assumptions of management team judgments and historical experiences with regard to future growth rates and market shares of smartphone, gross margins and forecasted operating expenses.

17. OTHER INTANGIBLE ASSETS

Cost
Balance at January 1, 2017

Additions
Effect of foreign currency
exchange differences

Balance at September 30,
2017

Accumulated amortization
Balance at January 1, 2017

Amortization expense
Effect of foreign currency
exchange differences

Balance at September 30,
2017

Carrying amounts at
September 30, 2017

Cost
Balance at January 1, 2018

Additions
Effect of foreign currency
exchange differences

Balance at September 30,
2018

Accumulated amortization
Balance at January 1, 2018

Amortization expense
Effect of foreign currency
exchange differences

Balance at September 30,
2018

Carrying amounts at
December 31, 2017 and
January 1, 2018

Carrying amounts at
September 30, 2018
 Licenses
and
Franchises
$ 66,668
65,888

(3,819)

$ 128,737

$ 60,058
12,207

(3,280)

$ 68,985

$ 59,752

$ 126,919
-

2,782

$ 129,701

$ 72,394
16,950

1,799

$ 91,143

$ 54,525

$ 38,558
 Software
$ 141,943

18,589

(8,257)

$ 152,275

$ 65,679

29,090

(3,830)

$ 90,939

$ 61,336

$ 149,951

2,198

3,431

$ 155,580

$ 98,685

24,033

2,726

$ 125,444

$ 51,266

$ 30,136
 Patents
Trademark
$ 76,723 $ 74,000

-
-

(4)

-

$ 76,719
$ 74,000

$ 15,815 $ 14,800

5,839
5,550

(5)

-

$ 21,649
$ 20,350

$ 55,070
$ 53,650

$ 76,718 $ 74,000

-
-

(6)

-

$ 76,712
$ 74,000

$ 23,595 $ 22,200

5,839
5,550

(6)

-

$ 29,428
$ 27,750

$ 53,123
$ 51,800

$ 47,284
$ 46,250
 Total
$ 359,334

84,477

(12,080)
$ 431,731
$ 156,352

52,686

(7,115)
$ 201,923
$ 229,808
$ 427,588

2,198

6,207
$ 435,993
$ 216,874

52,372

4,519
$ 273,765
$ 210,714
$ 162,228

Other intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:

Licenses and franchises 3-5 years Software 1-5 years Patents 7-10 years Trademark 10 years

18. BORROWINGS

BORROWINGS
September 30, December 31, September 30,
2018 2017 2017
Unsecured bank loans
Amount $ 100,000
 $ -
 $ 907,800
Annual interest rate 1.25% - 2.05%-2.10%
TRADE PAYABLES
September 30, December 31, September 30,
2018 2017 2017
Trade payables $ 1,859,493
 $ 1,310,390
 $ 2,085,713

19. 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.

20. OTHER PAYABLES

September 30, December 31, September 30,
2018 2017 2017
Payable for rebates $ 462,796
 $ 236,574
 $ 329,491
Payable for salaries and bonus 244,562 349,166 297,203
Payable for labor, health and social insurance 14,626 15,463 14,907
Reserve for litigations 54,931 62,800 63,855
Payable for professional services and others
54,758
74,867
63,416
$ 831,673
 $ 738,870
 $ 768,872

21. RETIREMENT BENEFIT

Employee benefit expenses in respect of the Group’s defined benefit retirement plans were $139 thousand and $218 thousand, $419 thousand and $655 thousand for the three months ended September 30, 2018 and 2017, and nine months ended September 30, 2018 and 2017, respectively, and were calculated using the actuarially determined pension cost discount rate as of December 31, 2017 and 2016.

22. EQUITY

a. Share capital

Ordinary shares (NT$10 par value per share)

September 30, December 31, September 30,
2018 2017 2017
Numbers of shares authorized (in thousands)
500,000
500,000
500,000
Shares authorized
 $ 5,000,000
 $ 5,000,000
 $ 5,000,000
Number of shares issued and fully paid (in
thousands)
298,641
298,370
298,158
Shares issued
 $ 2,986,407
 $ 2,983,700
 $ 2,981,576

b. Capital surplus

b. Capital surplus
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
BALANCE, JANUARY 1, 2018

cash distribution from additional
paid-in capital
Changes in ownership interests in
subsidiaries
Compensation cost of employee share
options
Issue of ordinary shares under
employee share options
Employee share options expired

BALANCE AT SEPTEMBER 30, 2018		 Additional
Paid-in
Capital
(1)		 Treasury
Shares
(1)		 Changes in
ownership
interests in
subsidiaries
(2)		 Employee
Share Options
(3)		 Employee
Restricted
Shares
(3)		 Employee
Share Options
-Expired
(2)		 Total





$6,468,819

-
-
-
46,360
-
18,602

285

$ 6,534,066

$6,565,204

(150,000 )
-
-
5,125

-

$ 6,420,329














$ 40,305

-

563

-

-

-

-

$ 40,868

$ 40,868

-

-

-

-

-

$ 40,868













$ 582

687

-

-

-

-

-

$ 1,269

$ 1,269

-

19,222

-

-

-

$ 20,491














$ 27,578

-

(563 )

26,594

(27,857 )

(1,621)


-

$ 24,131


$ 30,179

-

-

22,305

(4,464 )

(2,362)

$ 45,658
















$ 73,797
-
-
-
-
-

(18,602 )

(72)

$ 55,123

$ -
-
-
-
-

-

$ -














$ 14,765

-

-

-

-

1,621

-

$ 16,386

$ 17,356

-

-

-

-

2,362

$ 19,718













$6,625,846

687

-

26,594

18,503

-

213
$ 6,671,843
$6,654,876

(150,000 )

19,222

22,305

661

-
$ 6,547,064

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

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

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

  • c. Retained earnings and dividend policy

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

Any balance, the distribution of earnings is proposed by the board of directors for approval at the

stockholders’ meeting. For the comparison of the original and amended of the “Articles of Incorporation” about the accrual basis of the employees’ compensation and remuneration to directors, please refer to Note 24(d).

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

Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

The appropriations of earnings for 2017 and 2016 had approved in the shareholders’ meetings on June 15, 2018 and June 14, 2017, respectively, were as follows:

Legal reserve

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

In the shareholders’ meeting on June 15, 2018, the Company approved the cash distribution from additional paid-in capital of $150,000 thousand which comes from the premium over the par value when issuing, approximately $0.5 per share.

  • d. Treasury stock
Treasury stock
Shares
(In Thousands)
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
Number of shares at January 1, 2018 5,936
Increase during the period 13,953
Decrease during the period
(5,655)
Number of shares at September 30, 2018
14,234

On July 26, 2018, the board of directors approved The 4[th ] Shares Buy Back Program no more than 8,000 thousand shares for transferring to employees. The transferring price to employees would be the average purchase price.

On August 23, 2018, the board of directors approved The 5[th ] Shares Buy Back Program no more than 8,000 thousand shares for transferring to employees. As of September 30, 2018, the Company bought back 5,953 thousand shares. The transferring price to employees would be the average purchase price.

The detailed information for other Shares Buy Back Programs could be found in Note 27 (d) and (e).

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

23. REVENUE

IC for portable devices

Contract balances
Contract liabilities
Sales of goods		 For the Three Months Ended
September 30
For the Nine Months Ended
September 30
2018
2017
2018
2017
$2,530,459
$3,264,928
$7,875,850
$8,023,430
September 30,
2018
December 31,
2017
September 30,
2017
$ 17,429
$ 29,341
$ 19,070		 For the Nine Months Ended
September 30

24. NET INCOME

a. Finance costs

Interest on bank loans

Interest on deposits
Others


b. Depreciation and amortization		 For the Three Months Ended
September 30
2018
2017
$ 120
$ 281

-
-

-

-

$ 120
$ 281
 For the Three Months Ended
September 30
2018
2017
$ 120
$ 281

-
-

-

-

$ 120
$ 281
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30


2018
$ 120

-

-

$ 120

2018
$ 126

471

93

$ 690
 2017
$ 4,920
355
-
$ 5,275
Property, plant and equipment

Intangible assets


An analysis of depreciation and
amortization by function
Operating costs

Operating expenses

 For the Three Months Ended
September 30
2018
2017
$ 16,017
$ 14,020


15,446

17,728

$ 31,463
$ 31,748

$ 581
$ 1,710


30,882

30,038

$ 31,463
$ 31,748
 For the Three Months Ended
September 30
2018
2017
$ 16,017
$ 14,020


15,446

17,728

$ 31,463
$ 31,748

$ 581
$ 1,710


30,882

30,038

$ 31,463
$ 31,748
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30





2018
$ 16,017


15,446

$ 31,463

$ 581


30,882

$ 31,463




2018
$ 48,425


52,372

$ 100,797

$ 1,745


99,052

$ 100,797
 2017
$ 32,815
52,686
$ 85,501
$ 6,734
78,767
$ 85,501

c. Employee benefits expense

Post-employment benefits
Defined contribution plans

Defined benefit plans
(Note 21)
Share-based payments
(Note 27)
Other employee benefits

Total employee benefits
expense

An analysis of employee
benefits expense by function
Operating costs

Operating expenses

 For the Three Months Ended
September 30
2018
2017
$ 7,097
$ 6,379

139
218
6,940
12,409

412,420

391,075

$ 426,596
$ 410,081


$ 28,156
$ 28,336


398,440

381,745

$ 426,596
$ 410,081
 For the Three Months Ended
September 30
2018
2017
$ 7,097
$ 6,379

139
218
6,940
12,409

412,420

391,075

$ 426,596
$ 410,081


$ 28,156
$ 28,336


398,440

381,745

$ 426,596
$ 410,081
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30






2018
$ 7,097

139
6,940

412,420

$ 426,596

$ 28,156


398,440

$ 426,596




2018
$ 21,262

419
22,305
1,105,304

$1,149,290

$ 81,537

1,067,753

$1,149,290
 2017
$ 19,365
655
33,017
1,053,177
$1,106,214
$ 85,034
1,021,180
$1,106,214
  • d. The remuneration to employees and directors

The Company stipulates to distribute employees’ compensation and remuneration to directors at the rates no less than 1% and no higher than 1.5%, respectively, of net profit before income tax, employees’ compensation, and remuneration to directors. The estimated employees’ compensation and remuneration to directors from periods July 1 to September 30, 2018 and from January 1 to September 30, 2018 are as following:

Accrual rate

For the Nine Months Ended September 30,2018 Employees’ compensation 19.82% Remuneration of directors 0.18% Amount

Amount
Employees’ compensation
Remuneration of directors		 For the Three
Months Ended
September 30,2018
Cash
$ 17,522
$ 154		 For the Nine
Months Ended
September 30,2018
Cash
$ 49,468
$ 449

Cash
$ 49,468
$ 449

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

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

Employees’ compensation
Remuneration of directors		 For the Year
Ended December
31,2016		 For the Year
Ended December
31,2016

Cash
$ 60,075
$ 645

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

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

25. INCOME TAXES

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

Current tax
In respect of the current
period

Adjustments for prior periods

Deferred tax
In respect of the current
period

Effect of tax rate changes


Income tax expense (income)
recognized in profit or loss
 For the Three Months Ended
September 30
2018
2017
$ 2,444
$ 4,334


(3,371)

613


927

4,947


(4,587)
12,090

-

-


(4,587)

12,090

$ (5,514)
$ 17,037
 For the Three Months Ended
September 30
2018
2017
$ 2,444
$ 4,334


(3,371)

613


927

4,947


(4,587)
12,090

-

-


(4,587)

12,090

$ (5,514)
$ 17,037
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30






2018
$ 2,444


(3,371)


927


(4,587)

-


(4,587)

$ (5,514)





2018
$ 26,788


(3,299)


23,489


21,876

(11,437)


10,439

$ 33,928
 2017
$ 7,977

862

8,839

9,998

-

9,998
$ 18,837

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

  • b. Income tax expense recognized in other comprehensive income
Deferred income tax
Effect of tax rate change
 For the Three Months Ended
September 30
2018
2017
$ -
$ -
 For the Three Months Ended
September 30
2018
2017
$ -
$ -
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30
2018
$ -
 2018
$ 276
 2017
$ -

c. Income tax assessments

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

26. EARNINGS PER SHARE

EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share		 For the Three Months Ended
September 30
2018
2017
$ 0.30
$ 0.49
$ 0.30
$ 0.48		 Unit: NT$ Per Share
For the Nine Months Ended
September 30
2018
$ 0.30
$ 0.30		 2018
$ 0.66
$ 0.66		 2017
$ 0.59
$ 0.58

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

Net Profit for the Year

Net Profit for the Year
For the Three Months Ended
September 30
For the Nine Months Ended
September 30
2018
2017
2018
2017
Earnings used in the computation
of basic earnings per share
$ 85,284
$ 139,131
$ 189,875
$ 170,191
Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares)
For the Three Months Ended
September 30
For the Nine Months Ended
September 30
2018
2017
2018
2017
Weighted average number of
ordinary shares in computation
of basic earnings per share
286,279
285,839
286,217
289,339
Effect of potentially dilutive
ordinary shares:
Employee share option
976
2,313
1,033
2,574
Employee restricted shares
-
607
-
611
Employees’ compensation or
bonus issue to employees

975

1,205

1,944

1,491
Weighted average number of
ordinary shares used in the
computation of diluted earnings
per share
288,230
289,964
289,194
294,015		 For the Nine Months Ended
September 30


2018
286,217

1,033
-

1,944

289,194
 2017
289,339
2,574
611
1,491
294,015

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

27. SHARE-BASED PAYMENT ARRANGEMENTS

The Company did not have new share option plan or restricted stock plan issued for employees for the nine months ended September 30, 2018 and 2017, except for The 2[nd ] and 3[rd] Shares Buy Back Program stated below. The detailed information of the employee share option plans and employee restricted shares plans could be found in Note 25 of the consolidated financial statements of the year ended December 31, 2017.

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

Balance at September 30

Options exercisable, end of period
 For the Three Months
Ended
September 30
Number of
Options
Weighted-
average
Exercise
Price
(NT$)
1,476,500 $ 12.2
(116,500)
12.2
(257,750)
12.2

(15,000)
12.2


1,087,250
12.2


634,500
12.2
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30




Number of
Options
Weighted-
average
Exercise
Price
(NT$)
2,506,000 $ 12.4
(412,000)
12.4
(535,000)
12.2

-
-

1,559,000
12.2

512,250
12.2
  • b. 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 Three Months
Ended
September 30		 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30


Number of
Options
Weighted-
average
Exercise
Price
(NT$)
768,750 $ 37.9
-
-
-
-

(125,500)
37.9


643,250
37.9


643,250
37.9

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

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 Three Months
Ended
September 30
Number of
Options
Weighted-
average
Exercise
Price
(NT$)
1,637,199 $ 19.84
(9,000)
17.24

(13,000)
17.24


1,615,199
19.88


1,615,199
19.88
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30




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

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

、 、 The Company's employee subscription base dates were February 8, 2018 April 24, 2018 July 26, 2018 and February 24, 2017. The eligible employees subscribed 120 thousand shares 、 255 thousand shares 、 1,765 thousand shares and 50 thousand shares at the price of 26.53 with the total proceeds as 、 、 3,183 thousand 6,766 thousand 46,825 thousand and 1,327 thousand respectively. The fair value of the transfer date of the share purchase option is 4.3 、 0 、 0 and 11.26.

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

The Company's employee subscription base dates were July 26, 2018 and February 24, 2017. The eligible employees subscribed 3,515 thousand shares and 3,198 thousand shares at the price of 36.11 with the total proceeds as 126,927 thousand and 115,479 thousand respectively. The fair value of the transfer date of the share purchase option is 0 and 12.85.

Compensation cost recognized for share-based payments above and employee restricted share plans in 2014 for the nine months ended September 30, 2018 and 2017 were as follows:

Employee share option plans
Shares buy back and transfer to employee program
Employee restricted share plans
Capital surplus - employee share options
Other equity - unearned employee compensation		 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30
2018
2017
$ 1,778
$ 6,281
20,527
20,313
-
6,423
$ 22,305
$ 33,017
For the Nine Months Ended
September 30
2018
$ 22,305
-
$ 22,305		 2017
$ 26,594
6,423
$ 33,017

28. 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
Sensors Co., Ltd.
September30,2017		 FocalTech Smart
Sensors Co., Ltd.
September30,2017
$ 17,569
(
16,882)
$ 687
FocalTech Smart
Sensors Co.,Ltd.
$ 687

The Group reorganized the investment structure in 2018 and the holding percentages after reorganization could be found in Note 14.

29. 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 September 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
2018
2017

$ 9,548
$ 12,466
 For the Three Months Ended
September 30
2018
2017

$ 9,548
$ 12,466
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30

2018
$ 9,548
 2018
$ 27,647
 2017
$ 44,260

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

September 30, December 31, September 30,
2018 2017 2017
Not later than 1 year $ 17,089 $ 29,819 $ 22,200
Later than 1 year and not later than 5 years
2,670
12,021
10,720
$ 19,759 $ 41,840 $ 32,920

30. 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, 2018
Financial assets at FVTPL
Listed preferred shares

Private funds
Structured Investments

Total

Financial assets at FVTOCI
assets
Investments in debt instruments
Fixed income bonds

December 31, 2017
Available-for-sale financial
assets
Investments in debt instruments
Fixed income bonds

September 30, 2017
Available-for-sale financial
assets
Investments in debt instruments
Fixed income bonds
 Level 1
$ 10,370
-

-

$ 10,370

$ -

Level 1
$ -

Level 1
$ -
 Level 2
$ -

-

29,533

$ 29,533

$ 325,236

Level 2
$ 281,454

Level 2
$ 287,926
 Level 3
$ -

37,593

-

$ 37,593

$ -

Level 3
$ -

Level 3
$ -
 Total
$ 10,370

37,593

29,533
$ 77,496
$ 325,236
Total
$ 281,454
Total
$ 287,926

There was no type transfer between Level 1 and Level 2 for the nine months ended September 30, 2018 and 2017.

2) Reconciliation of financial instruments measured by Level 3 fair value For the nine months ended September 30, 2018


Financial assets at FVTPL
Balance at January 1, 2018

Purchases
Recognized in profit or loss(other income or loss)
Effect of foreign currency exchange differences

Balance at September 30, 2018
 Equity
Investments
$ 29,760
8,530
(1,434)
737
$ 37,593
  • 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
Categories of financial instruments
September 30, December 31, September 30,
2018 2017 2017
Financial assets
Fair value through profit or loss (FVTPL)
Mandatorily at FVTPL $ 77,496
 $ -
 $ -
Loans and receivables (Note 1) - 5,280,160 6,322,387
Available-for-sale financial assets (Note 2) - 355,854 363,576
Amortized cost (Note 3) 6,365,462 - -
Financial assets at FVTOCI
Investments in debt instruments 325,236 - -
Financial liabilities
Amortized cost (Note 4) 3,036,029 2,250,211 3,946,286

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

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

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

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

  • d. Financial risk management objectives and policies

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

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

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

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

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

1) Market risk

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

a) Foreign currency risk

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

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.


below would be negative.
Profit or loss/
equity
 USD Impact
For the Nine Months Ended
September 30
2018
$ 18,076(i)
 2017
$ 17,437(i)
  • i. This was mainly attributable to the exposure outstanding on USD time deposits, trade receivables, trade, other payables, other current assets and other current liability.

b) Interest rate risk

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

September 30, September 30, December December 31, September 30, September 30,
2018 2017 2017
Fair value interest rate risk
Financial assets $ 4,038,593
 $ 3,499,180 $ 4,147,310
Financial liabilities $ 100,000
 $ - $ 907,800
Cash flow interest rate risk
Financial assets $ 1,464,181
 $ 762,346 $ 923,979

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, 2018 and 2017 would decrease/increase by $2,745 thousand and $1,732 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 September 30, 2018, 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.

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 Company continuously tracks external rating information to monitor changes in credit risk of the invested debt instruments, and also examines other information such as the bond yield curve and the debtor's material information to assess whether the credit risk of the debt instrument investment has increased significantly after the original recognition.

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

Category
Performing		 Description
Basis for
Recognizing
Expected Credit
Loss

The debtor with low credit
risk and fully capable paying
off contractual cash flows
12 months expected
credit loss		 Expected
Credit Loss
Ratio		 Carrying
Amount as of
September
30, 2018
$ 354,769		 Carrying
Amount as of
September
30, 2018
$ 354,769
0% $ 354,769
  • 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, 2018, December 31, 2017, and September 30, 2017, 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 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, 2018

On Demand or
Less than
1 Year
Fixed interest rate liabilities
$ 100,014

Non-interest bearing

2,691,166

$ 2,791,180

December 31, 2017
On Demand or
Less than
1 Year
Non-interest bearing
$ 2,049,260
 1-5 Years
$ -

244,863
$ 244,863
1-5 Years
$ 200,951

September 30, 2017

On Demand or
Less than
1 Year
Fixed interest rate liabilities
$ 907,800

Non-interest bearing

2,854,585

$ 3,762,385
 1-5 Years
$ -

183,901
$ 183,901
b) Financing facilities
September 30, December 31, September 30,
2018 2017 2017
Unsecured bank overdraft
facility, reviewed annually:
Amount used $ 100,000 $ - $ 907,800
Amount unused 1,310,500
 3,385,600
 2,102,600
$ 1,410,500
 $ 3,385,600
 $ 3,010,400

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

31. 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
2018
2017
$ 21,096 $ 17,172
11,376
5,113
135
21

1,491

1,003

$ 34,098
$ 23,309
 For the Nine Months Ended
September 30		 For the Nine Months Ended
September 30


2018
$ 21,096
11,376
135

1,491

$ 34,098



2018
$ 28,320

34,113

332

4,680

$ 67,445
 2017
$ 18,450

24,909

202

3,316
$ 46,877

32. 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,
2018 2017 2017
Pledge deposits (classified as other non-current
assets) $ 35,061
 $ 35,882
 $ 35,915

33. 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 and claimed all actions regarding to the patent infringement, including self-production, outsourcing production, selling, or offering to sell, and shall

withdraw shall be stopped and all infringing products shall be destroyed. At the same time, FocalTech Electronics, Ltd. requested the compensation as $794,359 thousand, which will be adjusted based on the actual infringement findings thereafter. As of the report issue date, the result of litigation and the effect on financial statements still could not be inferred.

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, 2018

September 30, 2018
Foreign Carrying
Currencies Exchange Rate Amount
Financial assets
Monetary items
USD $
45,164		 30.525 (USD:NTD) $ 1,378,646
USD 3,081 6.8792 (USD:RMB)
94,050
Financial liabilities
Monetary items
USD 27,167 30.525 (USD:NTD)
829,277
USD 9,235 6.8792 (USD:RMB)
281,903
December 31, 2017
Foreign Carrying
Currencies Exchange Rate Amount
Financial assets
Monetary items
USD $
64,113		 29.76 (USD:NTD) $ 1,908,009
USD 1,971 6.5342 (USD:RMB)
58,644
Financial liabilities
Monetary items
USD 27,718 29.76 (USD:NTD)
824,887
USD 7,920 6.5342 (USD:RMB)
235,704

September 30, 2017

September 30, 2017
Foreign Carrying
Currencies Exchange Rate Amount
Financial assets
Monetary items
USD $
54,425		 30.26 (USD:NTD) $ 1,646,908
USD 2,172 6.6369 (USD:RMB)
65,729
Financial liabilities
Monetary items
USD 32,046 30.26 (USD:NTD)
969,718
USD 13,027 6.6369 (USD:RMB)
394,188

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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