FocalTech - Annual Report 2018 | FinancialReports.eu

FocalTech Systems Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Par Value)

ASSETS CURRENT ASSETS Cash and cash equivalents (Note 4 and 6) Financial asset 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 4, 5 and 13) Other financial assets (Note 4 and 11) Other current assets (Note 24) Total current assets NON-CURRENT ASSETS Financial asset at fair value through profit or loss - non-current (Note 4 and 7 ) Financial asset 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 4 and 15) Goodwill (Notes 4 , 5 and 16) Other intangible assets (Notes 4 and 17) Deferred income tax assets (Notes 4 and 24) Other non-current assets (Note 32) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Trade payables (Note 18) Other payables (Note 19) Current tax liabilities (Notes 4 and 24) Other current liabilities(Note 22) Total current liabilities NON-CURRENT LIABILITIES Deferred income tax liabilities (Notes 4 , 5 and 24) Net defined benefit liabilities - non-current (Notes 4 and 20) Guarantee deposits received Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 , 21 and 26) Share capital Ordinary shares Capital surplus Additional paid-in capital Treasury shares Changes in ownership interests in subsidiaries Employee share options Employee share options - expired Total capital surplus 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 Total other equity Treasury shares Equity attributable to owners of the company NON-CONTROLLING INTERESTS Total equity TOTAL		2018	% 21 1 - 9 19 20 1 71 1 2 - - 12 11 1 1 1 29 100 14 7 3 1 25 - - 3 - 3 29 26 58 - - - - 58 2 (13) (11) 1 - - 1 (3) 71 - 71 100		2017
		Amount $ 2,355,926 130,716 - 983,496 2,120,600 2,283,900 158,385 8,033,023 112,063 183,253 - - 1,394,372 1,237,268 148,998 134,858 56,286 3,267,098 $ 11,300,121 1,625,756 794,104 394,493 64,875 2,879,228 30,998 26,096 275,784 10,400 343,278 3,222,506 2,987,432 6,422,355 40,868 20,448 47,476 20,334 6,551,481 186,154 (1,434,755) (1,248,601) 149,454 (2,290) - 147,164 (393,203) 8,044,273 33,342 8,077,615 $ 11,300,121			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

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

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

REVENUE (Note 4 and 22) COSTS OF SALES (Notes 4,13 and 23) GROSS PROFIT OPERATING EXPENSES (Notes 23, 26 and 31) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses OPERATIONS INCOME NON-OPERATING INCOME AND EXPENSES Finance costs (Note 23) Interest income (Note 4) Gain on foreign currency exchange(Note 4) Gain on financial assets and liabilities at fair value through profit or loss (Notes 4) Impairment losses of goodwill (Note 4,5 and 16) Other gains and losses, net Total non-operating income and expenses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 24) NET INCOME OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Notes 4 and 20) Income tax related to items that will not be reclassified subsequently to profit or loss (Notes 4 and 24)		2018	% 100 (84) 16 (4) (3) (15) (22) (7) - - - - (20) 1 (18) (25) - (25) - - -		2017
		Amount $ 9,919,368 (8,357,068) 1,562,300 (429,499) (326,676) (1,481,181) (2,237,356) (675,065) (786) 96,737 17,422 (1,415) (2,000,000) 59,449 (1,828,593) (2,503,649) 15,531 (2,488,118) 3,275 (733) 2,542			Amount % $ 10,798,334 100 (8,528,149) (79) 2,270,185 21 (468,590) (4) (314,478) (3) (1,324,902) (12) (2,107,970) (19) 162,215 2 (9,676) - 65,475 - (42,443) - - - - - 28,162 - 41,518 - 203,733 2 (306,943) (3) (103,210) (1) 16,581 - (1,990) - 14,591 -

(Continued)

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange differences from translating the financial statements of foreign operations (Notes 4) Unrealized gains from debt instrument investments measured at fair value through other comprehensive income (Notes 4) Unrealized loss on available-for-sale financial assets (Notes 4) Total other comprehensive loss (net of income tax) TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET PROFIT ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interests EARNINGS PER SHARE (Note 25) Basic Diluted		2018	% 2 - - 2 1 (24) (25) - (25) (24) - (24)		2017
		Amount $ 104,532 501 - 105,033 107,575 $ (2,380,543) $ (2,451,642) (36,476) $ (2,488,118) $ (2,346,299) (34,244) $ (2,380,543 ) $(8.66) $(8.66)			Amount $ (386,430) - (1,293) (387,723) (373,132) $ (476,342) $ (79,680) (23,530) $ (103,210) $ (452,812) (23,530) $ (476,342 ) $(0.28) $(0.28)	% (3) - (3) (3) (4) (1) - (1) (4) - (4)

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

(Concluded)

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

			Equity Attribut	a	ble to Owners of the Company			Total Equity $ 11,438,382 - (189,985) (103,210) (373,132)
Capital Surplus $ 6,625,846 - - - - - - - 687 36,339 20,762 (28,972) - 214 - - 6,654,876 - 6,654,876 (150,000) - - - - - 19,179 26,474 952 - $ 6,551,481	Retained Earnings				Other Equity	nearned Employee Compensation $ (36,040) - - - - - - - - - - 28,972 7,068 - - - - - - - - - - - - - - - - $ -	Treasury Shares $ (62,992) - - - - - (245,812) (116,806) - - - - - - - - (191,998) - (191,998) - - - - (384,906) 183,701 - - - - $ (393,203)
			Exchange Differences from Translating Financial Statement of Foreign Operations $ 433,584 - - - (386,430) (386,430) - - - - - - - - - - 47,154 - 47,154 - - 102,300 102,300 - - - - - - $ 149,454	N	Equity Directly Associated with on-current Assets Unrealized gains(losses) from financial assets measured at fair value through other comprehensive U Held for Sale income $ (1,498) $ - - - - - - - (1,293) - (1,293) - - - - - - - - - - - - - - - - - - - - - (2,791) - 2,791 (2,791) - (2,791) - - - - - 501 - 501 - - - - - - - - - - - - $ - $ (2,290)
	Legal Reserve $ 165,045 21,109 - - - - - - - - - - - - - - 186,154 - 186,154 - - - - - - - - - - $ 186,154	Undistributed Earnings $ 1,335,160 (21,109) (189,985) (79,680) 14,591 (65,089) - - - - - - - - 8 - 1,058,985 (44,640) 1,014,345 - (2,451,642) 2,542 (2,449,100) - - - - - - $ (1,434,755)
								(476,342)
								(245,812) 116,806 - 36,339 39,381 - 7,068 (49) 8 17,568 10,743,364 (44,640) 10,698,724 (150,000) (2,488,118) 107,575 (2,380,543) (384,906) 183,701 - 26,474 4,684 79,481 $ 8,077,615

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income 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 Impairment losses of goodwill 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 Decrease in other financial assets Decrease (increases) in other non-current assets Interest received Net cash generated from investing activities	2018 $(2,503,649) 64,564 67,402 (6,084) 1,415 786 (96,737) 26,474 - - 750,433 2,000,000 15,856 (81,672) 290,765 (134,052) 65,080 286,289 41,828 (17,680) (249) 770,769 (786) (30,348) 739,635 (59,090) 36,179 - (73,996) (3,512) (846,904) 33,026 86,828 (827,469)	2017 $ 203,733 46,616 70,096 - - 9,676 (65,475) 36,339 7,068 27 51,120 - (13,905) - 46,223 (322,093) (87,563) (169,037) (128,262) 22,305 (185) (293,317) (9,721) (24,635) (327,673) - - (123,620) (75,208) (84,203) 768,087 58,273 60,945 604,274

(Continued)

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

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increases in short-term borrowings Increase in guarantee deposits received Cash dividends Proceeds from issuance 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 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR		2018 $ - 70,539 (150,000) 4,684 (384,906) 183,701 79,481 - - (196,501) 44,133 (240,202) 2,596,128 $ 2,355,926	2017 $ (608,630) 89,858 (189,985) 39,381 (245,812) 116,806 17,568 8 (77) (780,883) (165,369) (669,651) 3,265,779 $ 2,596,128

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

(Concluded)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

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

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

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on February 22, 2019.

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 2018 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.

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

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.

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

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.

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

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 “ Leases”, IFRIC 4 “ Determining whether an Arrangement contains a Lease”, 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

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

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.

The Company is expected to apply the expedient method and account those leases which lease term ends on or before December 31, 2019 as short-term leases.

There is no impact on the assets, liabilities and equity on January 1, 2019 by this application.

2) IFRIC 23 “Uncertainty over Income Tax Treatments”

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

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 amendments of other standards and interpretations do not have significant impacts on the Company’s financial position and financial performance.

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

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 present Consolidated Financial Report has been duly worked out in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and Financial Supervisory Commission approved IFRSs.

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 recognized in the fair value of the estimated assets, and explained in the accounting policies below.

The evaluation of fair value could be classified into 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. Standards in differentiating current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;
2) Assets expected to be realized within twelve months after the reporting period; and
3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

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

Current liabilities include:

1) Assets held primarily for the purposes of transactions
2) Assets expected to be realized within 12 months after the reporting period; and
3) Cash and cash equivalents (excluding those restricted for exchanging or liquidating liabilities over 12 months after the balance sheet date)

Noncurrent assets include:

1) Liabilities held primarily for the purposes of transactions
2) The liabilities to be liquidated upon due within 12 months after the balance sheet date (those with long-term refinancing or payment term rearrangement completed from the balance sheet date to the financial reports approved and published date are also classified as current liabilities), and
3) Liabilities that cannot be with the liquidation date deferred unconditionally for at least 12 months after the balance sheet date

Those not as aforementioned current assets or current liabilities are classified into non- current assets or non-current liabilities.

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Applicable adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Total comprehensive income of the subsidiaries is attributed both to the shareholders of the parent and the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing controlling over the subsidiaries are accounted as equity transactions. The carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect the changes in their interests in the subsidiaries respectively. The amount adjusted for the non-controlling interests and the difference between fair value and the consideration paid or received are recognized directly in equity and attributed to shareholders of the parent.

See Note 14 for the detailed information of the subsidiaries (including the percentage of ownership and main business).

e. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the Group entities (including subsidiaries in other countries that use currency different

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

from the currency of the Company) are translated into the presentation currency - New Taiwan dollars as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income.

f. Inventories

Inventories consist of raw materials, supplies, finished goods and work-in-process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at weighted-average cost on the balance sheet date.

g. Property, plant and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation.

Depreciation on property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

h. Goodwill

Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units or groups of cash-generating units (referred to as cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal, and is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.

i. Intangible assets
1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost

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

and subsequently measured at cost less accumulated amortization. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

2) Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately.

3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset are recognized in profit or loss.

j. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

k. 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.

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

1) 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:

(1) The objective of the business model to hold the financial asset is to collect contractual cash flows; and
(2) 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:

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

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

(2) 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.

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

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

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

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.

2) 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.

3) 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.

l. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

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

m. Revenue recognition

1) 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.

2) 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.

n. Leasing

When the Group is a lessee of an operation lease, the lease payments are recognized as an expense on a straight-line basis over the lease term.

o. Government Grants

Government grants are not recognized until it is assured reasonably that the Company will be able to comply with the conditions attaching to the subsidies and the grants will be received possibly.

Government grants used as the compensation for expenses or losses already incurred are recognized in profit or loss in the period in which they become receivable and are not necessary to return.

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

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost, including current service cost and net interest on the net defined benefit liability (asset,) is recognized as employee benefits expense in the period it occurs. Remeasurement, comprising actuarial gains and losses and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which they occur and will not be reclassified to profit or loss.

Net defined benefit liability represents the actual deficit in the Company’s defined benefit plan.

q. Share-based payment arrangements

1) Equity-settled share-based payment arrangements granted to employee

The fair value at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s best estimates of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options.

When the Group issues employee restricted shares, other equity - unearned employee compensation are recognized on the grant date, with a corresponding increase in capital surplus - employee restricted shares. If employee restricted shares are granted for consideration, and should be returned, they are recognized as payables. Dividends paid to employees on the restricted shares that do not need to be returned if employees resign in the vesting period, are recognized as expenses when the dividends are declared with a corresponding adjustment in capital surplus - employee restricted shares.

At the end of each reporting period, the Group revises its estimate of the number of employee share options and employee restricted shares expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the capital surplus - employee share options and capital surplus - employee restricted shares.

2) Share-based payment arrangements of the acquiree in a business combination

When the share-based payment awards held by the employees of an acquiree (acquiree awards) are replaced by the Group’s share-based payment awards (replacement awards), both the acquiree awards and the replacement awards are measured in accordance with the market-based measure at the acquisition date. The portion of the replacement awards that is included in measuring the consideration transferred in a business combination equals the market-based measure of the acquiree awards multiplied by the ratio of the portion of the vesting period completed to the greater of the total vesting period or the original vesting period of the acquiree award. The excess of the market-based measure of the replacement awards over the market-based measure of the acquiree awards included in measuring the consideration transferred is recognized as remuneration cost for

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

post-combination service.

3) Modifications to the acquirer’s equity-settled share-based payment arrangements

When the terms and conditions on which equity instruments were granted are modified, the Group recognizes, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition. In addition, the Group recognizes the effects of modifications that increase the total fair value of the share-based payment arrangement or are otherwise beneficial to the employees; if the Group modifies the terms or conditions of the equity instrument in a manner that reduces the total fair value of the share-based payment arrangement, or is not otherwise beneficial to the employees, the Group nevertheless continues to account for the services received as consideration for the equity instruments granted as if that modification had not occurred.

If the modification increases the fair value of the equity instruments granted or increases the number of equity instruments granted, the Group includes the incremental fair value granted or the fair value of the additional equity instruments granted, measured at the date of the modification, in the measurement of the amount recognized for services received.

The incremental fair value granted or the fair value of the additional equity instruments granted is difference between the fair value of the modified equity and that of the original instrument, both estimated as at the date of modification. If the modification occurs during the vesting period, the incremental fair value granted or the fair value of the additional equity instruments granted is included in the measurement of the amount recognized for services received over the period from the modification date until the date when the modified equity instruments vest, in addition to the amount based on the grant date fair value of the original equity instruments, which is recognized over the remainder of the original vesting period.

r. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

The tax levied on the unappropriated earnings according to the Income Tax Law should be accrued in the year when the resolution regarding to the appropriated earnings is made in the shareholder meeting.

Any adjustment of prior years’ tax liability is counted in the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. In addition, a deferred tax liability is not recognized on taxable temporary difference arising from initial recognition of goodwill.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and

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

interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income, in which case, the deferred tax are recognized in other comprehensive income.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

a. Impairment of Goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

b. Write-down of inventory

Net realizable value of inventory is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The estimation of net realizable value was based on current market conditions and the historical experience of selling products of a similar nature. Changes in market conditions may have a material impact on the estimation of net realizable value.

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

6. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
Cash on hand Checking accounts and demand deposits Cash equivalent (investments with original maturities less than three months)		December 31
		2018 $ 2,344 840,827 1,512,755 $ 2,355,926	2017 $ 1,870 762,436 1,831,822 $ 2,596,128

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

		December 31	December 31
		2018	2017
	Demand deposits	0.001%-0.48%	0.001%-0.4%
	Time deposits	0.6%-3.37%	0.6%-2.4%
7.	FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS-NON-CURRENT
		December 31	December	31
		2018	2017
	Mandatorily at fair value through profit or loss
	(FVTPL)
	Listed preferred shares	$ 10,540	$	-
	Private Funds	41,023		-
	Structured Investments	60,500		-
		$ 112,063	$	-

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

	December 31, 2018
Investments in debt instruments
Current
Foreign investments
Fixed income bonds	$ 130,716
Non–Current
Foreign investments
Fixed income bonds	$ 183,253
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.

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

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - NON-CURRENT-2017

AVAILABLE-FOR-SALE FINANCIAL ASSETS - NON-CURRENT-2017
Current Foreign investments Fixed income bonds Non-current Foreign investments Fixed income bonds	December 31
	2017 $ 35,814 $ 245,640 1.708%~3.0168%

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

NANCIAL ASSETS MEASURED AT COST- NON-CURRENT-2017
Foreign unlisted preferred shares Private Funds	December 31
		2017 $ 44,640 29,760 $ 74,400

11. OTHER FINANCIAL ASSETS

Time deposits with original maturities more than three months Market rate intervals		December 31	December 31
		2018 $ 2,283,900 1.75%～4.18%	2017 $ 1,385,904 1.045%～3.74%

12. TRADE RECEIVABLES, NET

TRADE RECEIVABLES, NET
Trade receivables Less: Allowance for doubtful accounts Trade receivables, net From January 1 ,2018 to December 31, 2018		December 31
		2018 $ 983,496 - $ 983,496	2017 $ 1,358,709 (101,184) $ 1,257,525

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

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

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.

December 31, 2018

matrix. December 31, 2018
Expected credit loss rate Gross carrying amount and Amortized cost	Non Past Due 0% $884,692		Overdue 1-60 Days 0% $ 77,795	Overdue 61-180 Days 0% $ 1,937	Overdue Over 181 Days 0% $ 19,072		Total
							0% $ 983,496

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

Beginning balance Less: Impairment loss reversed Less: Write-off Difference from foreign exchange translation Ending balance	December 31, 2018
	$ 101,184 ( 6,084 ) ( 97,344) 2,244 $ -

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. Until December 31, 2018, the reorganization plan had been approved and executed. The Group wrote off the allowance for doubtful accounts of 97,344 thousand and reversed it for 6,084 thousand NT in 2018, and received of 19,072 thousand NT in January, 2019.

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:

Less than 60 days 61-180 days More than 180 days	December 31	December 31
		2017 $ 5,049 - 13,292 $ 18,341

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

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

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

		Individually
		Assessed for
		Impairment
Balance	at January 1, 2017	$ 109,605
Foreign	exchange translation	(8,466)
Balance	at December 31, 2017	$ 101,184

13. INVENTORIES

INVENTORIES
Finished goods Work in progress Raw materials and supplies		December 31
		2018 $ 537,585 921,944 661,071 $ 2,120,600	2017 $ 993,694 916,087 775,984 $ 2,685,765

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 was $8,357,068 thousand and $8,528,149 thousand, included the write-downs of inventories of $750,433 thousand and $51,120 thousand for the years ended December 31, 2018 and 2017, respectively.

14. SUBSIDIARIES

Subsidiaries included in the consolidated financial statement were as follows:

Subsidiaries included in the consolidated financial statement were as follows:
Investor Investee Nature of Activities	Proportion of Ownership
	December 31 2018 2017
FocalTech Systems FocalTech Corporation, Ltd. Investment activity Co., Ltd. FocalTech Electronics, Ltd. Research, development, manufacturing and sale of integrated circuits	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	- 67.11%
FocalTech Systems Co., Ltd. and FocalTech Electronics Co., Ltd.(a) FocalTech Smart Sensors,Ltd. Research, development, manufacturing and sale of integrated circuits	61.88% 100%
FocalTech Smart Sensors,Ltd.(a) FocalTech Smart Sensors Co., Ltd. Research, development, manufacturing	100% -
FocalTech Corporation,Ltd. FocalTech Systems, Inc. Investment activity	100% 100%
FocalTech Systems, Inc. FocalTech Systems, Ltd. Research, development, manufacturing and sale of integrated circuits	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%
FocalTech Electronics, Ltd. FocalTech Electronics (Shanghai) Co., Ltd. Sales support and post-sales service for affiliates’ IC products FocalTech Electronics Design and research of integrated circuits	100% 100% 100% 100%

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

(Shenzhen) Co., Ltd. Hefei PineTech Electronics Co., Research, development, manufacturing 100% 100% Ltd. and sale of integrated circuits

a. 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.

15. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2017 Additions Disposals Effect of foreign currency exchange differences Reclassification Balance at December 31, 2017 Accumulated depreciation Balance at January 1, 2017 Depreciation Disposals Effect of foreign currency exchange differences Balance at December 31, 2017 Carrying amounts at December 31, 2017 Cost Balance at January 1, 2018 Additions Disposals Effect of foreign currency exchange differences Balance at December 31, 2018 Accumulated depreciation Balance at January 1, 2018 Depreciation Disposals Effect of foreign currency exchange differences Balance at December 31, 2018 Carrying amounts at December 31, 2018	Buildings $ 37,600 51,548 - 14,283 1,254,588 $ 1,358,019 $ 2,020 13,866 - 143 $ 16,029 $ 1,341,990 $ 1,358,019 41,271 - (23,727) $ 1,375,563 $ 16,029 36,472 - (891) $ 51,610 $ 1,323,953	Development Equipment $ 159,892 15,040 (4,179 ) (5,262 ) - $ 165,491 $ 109,056 20,714 (4,176 ) (4,583) $ 121,011 $ 44,480 $ 165,491 30,108 (3,841 ) 800 $ 192,558 $ 121,011 19,767 (3,841 ) 1,229 $ 138,166 $ 54,392		Office Equipment $ 14,180 888 (398 ) (191 ) - $ 14,479 $ 8,839 1,872 (374 ) (101) $ 10,236 $ 4,243 $ 14,479 1,704 - (213)	Information Equipment $ 38,730 4,353 - (646 ) - $ 42,437 $ 22,142 5,522 - (333) $ 27,331 $ 15,106 $ 42,437 913 - (675) $ 42,675 $ 27,331 4,660 - (483) $ 31,508 $ 11,167		Leasehold Improve- ments $ 35,956 3,555 - (302 ) - $ 39,209 $ 32,205 4,642 - (293) $ 36,554 $ 2,655 $ 39,209 - - (253) $ 38,956 $ 36,554 2,129 - (252) $ 38,431 $ 525	Total $ 286,358 75,384 (4,577 ) 7,882 1,254,588 $ 1,619,635 $ 174,262 46,616 (4,550 ) (5,167) $ 211,161 $ 1,408,474 $ 1,619,635 73,996 (3,841 ) (24,068)
				$ 15,970 $ 10,236 1,536 - (137) $ 11,635 $ 4,335				$ 1,665,772 $ 211,161 64,564 (3,841 ) (534) $ 271,350 $ 1,394,372

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.

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

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
Beginning balance Impairment loss Ending balance	For the Year Ended December 31
	$	2018 3,237,268 $ (2,000,000) $ 1,237,268	2017 3,237,268 - $ 3,237,268

Considering the synergy of integration of LCD driver and touch controller under the industry trend, the reverse merger was triggered by FocalTech Corporation, Ltd. on January 2, 2015, resulting the goodwill of 3,237,268 thousand. In 2017, 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,. But the recoverable amount from IDC (Integrated Driver Controller) still exceeded the carrying value so the Company did not recognize any impairment for the goodwill. In 2018, the impacts of market improper competition and the shortage of wafer supply made the company a serious market share decline, which is expected to influence the market shares and gross margins in the future. Therefore, the recoverable amount from IDC (Integrated Driver Controller) less than the carrying value so the Company recognized the impairment loss of NT2,000,000 thousand.

The recoverable amount is calculated by IDC projected net cash flows, discounted at 9.95% and 10% for the years ended December 31, 2018 and 2017, 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 December 31, 2017 Accumulated amortization Balance at January 1, 2017 Amortization expense Effect of foreign currency exchange differences	Licenses and Franchises $ 66,668 65,673 (5,422) $ 126,919 $ 60,058 16,628 (4,292)	Software $ 141,943 18,530 (10,522) $ 149,951 $ 65,679 38,283 (5,277)	Patents Trademark $ 76,723 $ 74,000 - - (5) - $ 76,718 $ 74,000 $ 15,815 $ 14,800 7,785 7,400 (5) -	Total $ 359,334 84,203 (15,949) $ 427,588 $ 156,352 70,096 (9,574)

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

Balance at December 31, 2017 Carrying amounts at December 31, 2017 Cost Balance at January 1, 2018 Additions Effect of foreign currency exchange differences Balance at December 31, 2018 Accumulated amortization Balance at January 1, 2018 Amortization expense Effect of foreign currency exchange differences Balance at December 31, 2018 Carrying amounts at December 31, 2018	$ 72,394 $ 54,525 $ 126,919 - 3,474 $ 130,393 $ 72,394 21,085 2,245 $ 95,724 $ 34,669	$ 98,685 $ 51,266 $ 149,951 3,512 4,338 $ 157,801 $ 98,685 31,132 3,393 $ 133,210 $ 24,591	$ 23,595 $ 53,123 $ 76,718 - (4) $ 76,714 $ 23,595 7,785 (4) $ 31,376 $ 45,338	$ 22,200 $ 51,800 $ 74,000 - - $ 74,000 $ 22,200 7,400 - $ 29,600 $ 44,400	$ 216,874 $ 210,714 $ 427,588 3,512 7,808 $ 438,908 $ 216,874 67,402 5,634 $ 289,910 $ 148,998

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. TRADE PAYABLES

TRADE PAYABLES
Trade payables		December 31
		2018 $1,625,756	2017 $1,310,390

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.

19. OTHER PAYABLES

OTHER PAYABLES
Payable for rebates Payable for salaries and bonus Payable for labor, health and social insurance Reserve for litigations Payable for professional services and others		December 31
		2018 $ 337,581 336,145 15,475 52,101 52,802 $ 794,104	2017 $ 236,574 349,166 15,463 62,800 74,867 $ 738,870

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

20. RETIREMENT BENEFIT

a. Defined contribution plans

、 The Company FocalTech Smart Sensors Co., Ltd. and FocalTech Electronics Co., Ltd. adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

b. Defined benefit plans

The defined benefit plan adopted by the Company in accordance with the Labor Standards Law is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contribute amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy.

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability Movements in net defined benefit liability were as follows: Present Value of the Defined Benefit Obligation Balance at January 1, 2017 $ 63,114 Service cost Current service cost 119 Net interest expense (income) 1,042 Recognized in profit or loss 1,161 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial loss - changes in financial assumptions 1,000 Actuarial loss - experience adjustments (17,749) Recognized in other comprehensive income (16,749) Contributions from the employer - Balance at December 31, 2017 47,526		December	31
	2018 2017 $ 45,590 $ 47,526 (19,494) (17,906) $ 26,096 $ 29,620 Fair Value of the Plan Assets Net Defined Benefit Liability (Asset) $ (16,728) $ 46,386 - 119 (286) 756 (286) 875 168 168 - 1,000 - (17,749) 168 (16,581) (1,060) (1,060) (17,906) 29,620

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

Service cost Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial loss - changes in financial assumptions Actuarial loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Balance at December 31, 2018	122 713 835 - 1,565 (4,336) (2,771) - $ 45,590	- (276) (276) (504) - - (504) (808) $ (19,494)	122 437 559 (504) 1,565 (4,336) (3,275) (808) $ 26,096

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic/and foreign/equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.
2) Interest risk: A decrease in the government bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

as follows:
Discount rate Expected rate of salary increase	December 31
	2018 2017 1.25% 1.50% 4.50% 4.50%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

Discount rate 0.25% increase 0.25% decrease Expected rate of salary increase 1% increase 1% decrease		December	31
		2018 $ (1,564) $ 1,633 $ 6,763 $ (5,817)	2017 $ (1,640) $ 1,713 $ 7,082 $ (6,092)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in

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

isolation of one another as some of the assumptions may be correlated.

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		December	31
		2018 $ 690 16 years	2017 $ 950 16 years

21. EQUITY

a. Share capital

Ordinary shares (NT$10 par value per share)

Ordinary shares (NT$10 par value per share)
Numbers of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		December 31
		2018 500,000 $ 5,000,000 298,743 $ 2,987,432	2017 500,000 $ 5,000,000 298,370 $ 2,983,700

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 DECEMBER 31, 2017 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 DECEMBER 31, 2018		Additional Paid-in Capital (1) $ 6,468,819 - - - 51,346 - 44,741 298 6,565,204 (150,000) - - 7,151 - $6,422,355		Treasury Shares (1)	Changes in ownership interests in subsidiaries (2)	Changes in ownership interests in subsidiaries (2)		Employee Share Options (3) $ 27,578 - (563 ) 36,339 (30,584 ) (2,591 ) - - 30,179 - - 26,474 (6,199 ) (2,978 ) $ 47,476	Employee Restricted Shares (3) $ 73,797 - - - - - (73,713 ) (84) - - - - - - $ -		Employee Share Options -Expired (2)		Total
				$ 40,305 - 563 - - - - - 40,868 - - - - - $ 40,868		$ 582 687 - - - - - - 1,269 - 19,179 - - - $ 20,448					$ 14,765 - - - - 2,591 - - 17,356 - - - - 2,978 $ 20,334		$ 6,625,846 687 - 36,339 20,762 - (28,972) (214) 6,654,876 (150,000) 19,179 26,474 952 - $ 6,551,481

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.

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

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 23.

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 2016having been 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 $0.51 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 December 31, 2017	5,936
Number of shares at January 1, 2018	5,936
Increase during the period	15,689
Decrease during the period	(5,655)
Number of shares at December 31, 2018	15,970

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, and bought back 7,689 thousand shares for transferring to employees. The transferring price to employees would be

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

the average purchase price.

The detailed information for other Shares Buy Back Programs could be found in Note 26 (f) and (g).

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.

e. Non - controlling interests

Balance at the beginning of the year Non - controlling interests: net income for the year Exchange differences from translating the financial statements of foreign operations Non - controlling interests: capital injection to FocalTech Smart Sensors Co., Ltd. Non - controlling interests: capital injection to FocalTech Smart Sensors, Ltd. Changes in ownership interests of subsidiaries (Note 27) Balance at the end of the year	December 31	December 31
	2018 $ 7,284 (36,476) 2,232 - 79,481 (19,179) $33,342	2017 $ 13,933 (23,530) - 17,568 (687)
		$7,284

22. REVENUE

REVENUE
IC for portable devices Contract balances Contract liabilities Sales of goods	For the Year Ended December 31
		2018 2017 $ 9,919,368 $ 10,798,334 December 31
		2018 $ 13,895	2017 $ 29,341

23. NET INCOME

a. Finance costs

Interest on bank loans Interest on deposits Others Depreciation and amortization Property, plant and equipment Intangible assets	For the Year Ended	For the Year Ended	December 31
	2018 $ 222 471 93 $ 786 For the Year Ended		2017 $ 7,566 355 1,755 $ 9,676 December 31
		2018 $ 64,564 67,402 $ 131,966	2017 $ 46,616 70,096 $ 116,712

b. Depreciation and amortization

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

An analysis of deprecation and amortization by function Operating expenses Operating costs c. Employee benefits expense Post-employment benefits Defined contribution plans Defined benefit plans (see Note 20) Share-based payments (see Note 26) Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating expenses Operating costs	$ 130,080 1,916 $ 131,996 For the Year Ended	$ 130,080 1,916 $ 131,996 For the Year Ended	$ 130,080 1,916 $ 131,996 For the Year Ended	$ 108,794 7,918 $ 116,712 December 31
		2018 $ 28,493 559 26,474 1,502,267 $ 1,557,793 $ 1,446,107 111,686 $ 1,557,793	2017 $ 27,394 875 43,406 1,426,877 $ 1,498,552 $ 1,384,761 113,791 $ 1,498,552

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. In 2017 and 2018, due to the net loss before tax, there was no accrual for any remuneration to employees and directors.

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

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

24. INCOME TAXES

a. Income tax recognized in profit or loss

Current tax In respect of the current year Adjustments for prior years Deferred tax In respect of the current year Adjustments for prior years Income tax expense (income) recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 7,585 (6,890) 695 (19,740) 3,514 (16,226) $(15,531)	2017 $ 264,210 14,899 279,109 27,834 - 27,834 $ 306,943

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

A reconciliation of accounting profit and income tax expense is as follows:

Profit before tax from continuing operations Income tax expense calculated at the statutory rate and the effective tax rate Nondeductible expenses in determining taxable income Tax-exempt income Tax effect of earnings to be distributed by subsidiaries Accumulated overseas undistributed surplus income tax Unrecognized temporary differences Tax credit from R&D incentive Unrecognized loss carryforwards Adjustments for prior years’ tax Effect of tax rate changes Others Income tax expense recognized in profit or loss	For the Year Ended	For the Year Ended	December 31
		2018 $(2,503,649) $(313,796) 282,030 (3,623) 18,650 - (852) - 18,513 (3,376) (12,137) (940) $ (15,531)	2017 $ 203,733 $ 38,329 3,860 - - 246,151 - (9,211) 12,696 14,899 - 219 $ 306,943

In 2017, the Group applied a tax rate of 17% for entities (including the Company, FocalTech Electronics Co., Ltd. and FocalTech Smart Sensors Co., Ltd.) subject to the R.O.C. Income Tax Law. In February 2018, the Income Tax Law in the R.O.C. was amended to adjust the corporate income tax rate from 17% to 20%, and become effective from 2018. In addition, the applicable tax rate for undistributed earnings was reduced from 10% to 5%. The company’s research and development expenditure is expected to offset the corporate income tax by 30%, so the effective tax rate is 14% and 12% respectively after considering the deduction effect in 2018 and 2017. For other jurisdictions, taxes are calculated using the applicable tax rate for each individual jurisdiction.

b. Current tax assets and liabilities

Current tax assets and liabilities
Current tax assets( recorded as other current assets) Tax refund receivable Current tax liabilities Income tax levied on accumulated overseas undistributed earnings (i) Income tax payable Total	For the Year Ended December 31
	2018 2017 $ 859 $ 1,331 For the Year Ended December 31
		2018 $386,137 8,356 $ 394,493	2017 $396,064 15,913 $ 411,977

(i) The estimated income tax from accumulated overseas undistributed earnings determined at the end of 2017 for FocalTech Systems, Inc. could be paid in installments for eight years under the US tax law.

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

c. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:

2018

Deferred tax assets Temporary differences Obsolete of inventory Allowance for receivables Employee share option Others Tax losses Deferred tax liabilities Temporary differences Investment income recognized from foreign investees Intangible assets	Opening Balance Recognized in Profit or Loss Recognized in Other Compre- hensive Income Exchange Differences Closing Balance $ 70,87 $ 38,692 $ - $ - $ 109,571 11,13 (11,138) - - - 3,14 (1,069) - - 2,078 1,30 698 (733) - 1,272 86,47 27,183 (733) - 112,921 18,03 4,165 - (258) 21,937 $ 104,501 $ 31,348 $ (733) $ (258) $ 134,858 $ $ 18,650 $ - $ - $ 18,650 15,87 (3,528) - - 12,348 $ 15,87 $ 15,122 $ - $ - $ 30,998	Closing Balance $ 109,571 - 2,078 1,272
		112,921 21,937
		$ 134,858

		$ 30,998

2017

17
				Recognized in
				Other
				Compre-
	Opening	Recognized in		hensive			Reclassificati		Exchange			Closing
	Balance	Profit or Loss		Income			on		Differences			Balance
Deferred tax assets
Temporary differences
Obsolete of inventory	$ 67,220	$	3,659	$		-	$	-	$		-	$	70,879
Allowance for receivables	11,190		(52)			-		-			-		11,138
Employee share option	3,147		-			-		-			-		3,147
Others	6,247		(2,950)		(1,990)			-			-		1,307
	87,804		657		(1,990)			-			-		86,471
Tax losses	48,565		(30,255)			-		-		(280)			18,030
	$136,369	$	(29,598)	$	(1,990)		$	-	$	(280)		$	104,501
Deferred tax liabilities
Temporary differences
Investment income recognized
from foreign investees	$ 168,343	$	-	$		-	$ (158,850)		$	(9,493)		$	-
Intangible assets	17,640		(1,764)			-		-			-		15,876
	$ 185,983	$	(1,764)	$		-	$(158,850)		$	(9,493)		$	15,876

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

d. Information about unused loss carry-forward and tax-exemption.

Loss carryforwards as of December 31, 2018 comprised of:

Unused Amount	Unused Amount	Expiry Year
$	28,771	2020
	9,660	2021
	6,555	2022
	8,845	2023
	50,114	2026
	73,861	2027
	92,564	2028
$	270,370

e. The aggregate amount of temporary difference associated with investments for which deferred tax liabilities have not been recognized

As of December 31, 2018 and 2017, the taxable temporary differences associated with investment in subsidiaries for which no deferred tax liabilities have been recognized were $3,037,751 thousand and $3,385,197 thousand, respectively.

f. Income tax assessments

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

25. LOSS PER SHARE

LOSS PER SHARE
Basic earnings per share	Unit: NT$ Per Share For the Year Ended December 31
		2018 $ (8.66)	2017 $ (0.28)

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

per share were as follows:
	For the Year Ended	December 31
	2018	2017
Earnings used in the computation of basic earnings per share	$(2,451,642)	$(79,680)
Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares):

Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 283,205	2017 288,839

Note: The Group has a net loss after tax, so there is no dilution effect in 2018 and 2017.

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

26. SHARE-BASED PAYMENT ARRANGEMENTS

a. Employee stock option plan

As of December 31, 2018, the valid and outstanding employee stock option plans are as following:

Plan 2006 employee stock option plan 2013 employee stock option plan 2015 employee stock option plan	Issuer FocalTech Systems, Inc.(Note) The company The company	Number of Options 12,600,000 2,000,000 2,800,000	Valid Period 10 years 6 years 10 years	Vesting Terms
				(1) certain percentages of the options defined in the plan are vested and exercisable after the first anniversary, or (2) according to the achievement level of the performance target defined in advance. (1) a certain percentage of the options defined in the plan are vested and exercisable after the second anniversary. (1) a certain percentage of the options defined in the plan are vested and exercisable after the second anniversary.

Note ： Due to restructure of the Group, FocalTech Systems, Inc. transferred all the rights and obligations of the stock options to FocalTech Corporation, Ltd. in 2013.

Information about outstanding options in 2018 and 2017 is as following:

Employee Stock Option Plan	2018 Beginning Quantity of Options 1,637,199 768,750 1,476,500 2017 Beginning Quantity of Options 2,662,359 1,220,500 2,506,000	Balance	Options unvested	Options unvested	Options exercised	Options exercised	Options	expired	EndingBalance	EndingBalance

	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options		Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options	Weighted- average Exercise Price (NT$)
2006 2013 2015 Employee Stock Option Plan		$ 19.84 37.90 12.2 Balance					( 16,200) (141,500) ( 27,000) Options	$ 22.16 37.90 12.2 expired Weighted- average Exercise Price (NT$) $ - 38.10 -

	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options	Weighted- average Exercise Price (NT$)	Quantity of Options		Quantity of Options - (155,750) -		Quantity of Options 1,637,199 768,750 1,476,500	Weighted- average Exercise Price (NT$)
2006 2013 2015	2,662,359 1,220,500 2,506,000	$ 21.01 38.50 12.40	- ( 51,750) (437,000)	$ - 38.50 12.3	(1,025,160) (244,250) (592,500)					$ 19.84 37.90 12.2

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

Information about vested options of 2018 and 2017 are as following:

Employee Stock Option Plan 2006 2013 2015	December	31,2018 Weighted-aver age remaining contractual life (years) 2.32~4.48 0.5 6.67	December	31,2017
	Range of exercise price (NT$) $2.13~32.10 37.9 12.2		Range of exercise price (NT$) $2.13~32.10 37.9 12.2	Weighted-aver age remaining contractual life (years)
				3.32~5.48 1.5 7.67

For the subsequent changes in the Company’s ordinary share capital, such as issuance of shares in cash, from earnings and capital surplus, consolidation, spin-off, share split, and issuance of global depositary receipts, the exercise price and the conversion ratio would be considered to adjust accordingly based on the plans.

b. Shares Buy Back Program

Based on the 2nd and the 3rd Shares Buy Back Program for transferring to employees approved by The board of directors on April 28, 2016 and May 12, 2017, the Company bought back 5,000 thousand and 6,808 thousand shares respectively. The transferred price to employees would be the average purchase price which is respectively $26.53 and $36.11 per share.

Information about Shares Buy Back Programs is as follows:

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

Employee subscription base date 2016/10/28 2017/02/24 2018/02/08 2018/04/24 2018/07/26 Total	Shares transferred (In Thousands) 2,624 50 120 255 1,765 4,814	The fair value of the right to subscribe (NT$) $ 11.26 11.26 4.3 - -	Employee subscription base date 106/7/24 107/7/26 Total	Shares transferred (In Thousands) 3,198 3,515 6,713	The fair value of the right to subscribe (NT$)
					$ 12.85 -

The limitations and rights on the unvested shares were as follows;

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

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

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

c. Options of the share transfer plan granted were measured by using the Black-Scholes pricing model

Compensation cost recognized for share-based payments above in 2018 and 2017 were as follows:

Employee share option plans Employee restricted share plans Capital surplus - employee share options Other equity - unearned employee compensation	For the Year Ended	For the Year Ended	December 31
	2018 $ 26,474 - $ 26,474 For the Year Ended		2017 $ 36,339 7,068 $ 43,407 December 31
		2018 $ 26,474 - $ 26,474	2017 $ 36,339 7,068 $ 43,407

27. 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 Group reorganized the investment structure in 2018. More information could be found in Note 14 for the proportion of ownership after reorganization.

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

28. OPERATING LEASE ARRANGEMENTS

The Company is Lessee

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

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

lease payment	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 36,243	2017 $ 53,177

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

Not later than 1 year Later than 1 year and not later than 5 years		December	31
		2018 $ 22,573 240 $ 22,813	2017 $ 29,819 12,021 $ 41,840

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

29. CAPITAL MANAGEMENT

The capital structure of the Group is consisted by debt and equity .The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stockholders through the optimization of the debt and equity balance.

To define the strategy of the Group’s capital structure, the Group first sets its target market share according to the industry scale, the growth of the industry and the product roadmap. Based on the projected market position, the Group plans the research and development investment and capital expenditure. Furthermore, the Group calculates working capitals and cash demands based on the long-term development plan considering the industry characteristics to build up the overall operating model. Finally, the Group evaluates not only the possible contribution margin, operating profit ratio and cash flows according to the product competitiveness but also risk factors such as the fluctuation of the business circle and the life circle of the product to decide the suitable capital structure. The management reviews capital structures periodically and considers the possible costs and risks of different capital structures. Generally, the Group adopted prudent capital management strategy.

The Group was not restricted to other external capital requirements.

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

December 31, 2018 Financial asset 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 Fixed income bonds	Level 1 $10,540 - - $10,540 $- Level 1 $ -		Level 2 $ - - 60,500 $60,500 $313,969 Level 2 $ 281,454	Level 3 $ - 41,023 - $41,023 $- Level 3 $ -		Total $10,540 41,023 60,500 $112,063 $313,969 Total $ 281,454

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

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

2) Reconciliation of financial instruments measured by Level 3 fair value 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 December 31, 2018	Equity Investments $ 29,760 11,173 (841) 931 $ 41,023

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
Financial assets Fair value through profit or loss (FVTPL) Mandatorily at FVTPL Available-for-sale financial assets (Note 2) Loans and receivables (Note 1) Amortized cost (Note 3) Financial assets at FVTOCI Investments in debt instruments Financial liabilities Amortized cost (Note 4)	December 31
	2018 2017 $ 112,063 $ - - $ 355,854 - 5,280,160 5,661,319 - 313,969 - 2,695,644 2,250,211

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.

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

4) The balances included financial liabilities measured at amortized cost, which comprise 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, 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 i) and interest rate risk referred to ii).

i) Foreign currency risk

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

Sensitivity analysis

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

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

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

below would be negative.

Profit or loss/ equity	USD Impact For the Year Ended December 31 2018 2017 $ 19,632(1) $ 45,303(1)	USD Impact For the Year Ended December 31 2018 2017 $ 19,632(1) $ 45,303(1)	RMB Impact	RMB Impact	RMB Impact
			For the Year Ended December 31
		2018 $ 19,632(1)		2018 $ 1,752(2)	2017 $ 53(2)

(1). This was mainly attributable to the exposure outstanding on USD time deposits, trade receivables, trade, other payables, other current assets and other current liability.
(2). This was mainly attributable to the exposure to outstanding RMB time deposits.
ii) Interest rate risk

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

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

the reporting period were as follows.
Fair value interest rate risk Financial assets Cash flow interest rate risk Financial assets		December 31
		2018 $ 4,110,624 $ 901,327	2017 $ 3,499,180 $ 762,436

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 year ended December 31, 2018 and 2017 would decrease/increase by $2,253 thousand and $1,906 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.

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

As of December 31, 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 0%	Carrying Amount as of December 31, 2018	Carrying Amount as of December 31, 2018
				$ 374,469

3) Liquidity risk

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

As of December 31, 2018 and 2017, the available unutilized short-term bank loan facilities refer to (ii) Financing facilities.

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

i) 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.

December 31, 2018

ii)	On Demand or Less than 1 Year Non-interest bearing $ 2,419,860 December 31, 2017 On Demand or Less than 1 Year Non-interest bearing $ 2,049,260 Financing facilities December 31, 2018 Unsecured bank overdraft facility, reviewed annually: Amount used $ - Amount unused 1,300,000 $ 1,300,000	1-5 Years $ 275,784 1-5 Years $ 200,951 December 31, 2017 $ - 3,385,600 $ 3,385,600

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 Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 32,494 40,513 467 6,367 $ 79,841	2017 $ 34,487 32,077 282 5,397 $ 72,243

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

32. ASSETS PLEDGED AS COLLATERAL

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

Pledge deposits (classified as other non-current assets)		December	31
		2018 $ 4,000	2017 $ 35,882

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 .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:

December 31, 2018

December 31, 2018
		Foreign	Exchange Rate	Carrying
	Currencies			Amount
Financial assets
Monetary items
USD	$	39,074	30.715 (USD:NTD)	$ 1,200,151
USD		6,644	6.8632 (USD:RMB)	204,081
RMB		7,832	0.1457 (RMB:USD)	35,049
Financial liabilities
Monetary items
USD		16,911	30.715 (USD:NTD)	519,425
USD		16,024	6.8632 (USD:RMB)	492,173
December 31, 2017
		Foreign	Exchange Rate	Carrying
	Currencies			Amount
Financial assets
Monetary items
USD	$	64,113	29.76 (USD:NTD)	$ 1,908,009
USD		1,971	6.5342 (USD:RMB)	58,644
RMB		231	0.153 (RMB:USD)	1,050
Financial liabilities
Monetary items
USD		27,718	29.76 (USD:NTD)	824,887
USD		7,920	6.5342 (USD:RMB)	235,704

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

35. SEGMENT INFORMATION

a. Operating segments

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.

b. Revenue from major products and services

The following is an analysis of the Group’s revenue from continuing operations from its major products and services.

and services.
IC for portable devices	For the Year Ended December 31
		2018 $ 9,919,368	2017 $ 10,798,334

c. Geographical information

The Group operates in two principal geographical areas -China and Taiwan.

The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below.

Revenue from External

China Taiwan Others	Customers For the Year Ended December 31 2018 2017 $ 7,806,528 $ 9,007,540 961,843 791,248 1,150,997 999,546 $ 9,919,368 $ 10,798,334	Customers For the Year Ended December 31 2018 2017 $ 7,806,528 $ 9,007,540 961,843 791,248 1,150,997 999,546 $ 9,919,368 $ 10,798,334		Non-current Assets	Non-current Assets
				December 31
		2018 $ 7,806,528 961,843 1,150,997 $ 9,919,368		2018 $ 1,411,145 170,222 - $ 1,581,367	2017 $ 1,471,256 188,534 - $ 1,659,790

The Group’s revenue was classified by location of receivable. Non-current assets which comprise property, plant and equipment, other intangible assets and guarantee deposits, exclude Measured at fair value through other comprehensive income-financial assets, financial assets at fair value through profit, available-for-sale financial assets, financial asset measured at cost, goodwill, deferred tax assets and other non-current assets.

d. Information about major customers

Single customers contributed 10% or more to the Group’s revenue were as follows:

Single customers contributed 10% or more to the Group’s revenue	were as follows:
Custom A and subsidiaries Custom B and subsidiaries Custom C and subsidiaries	For the Year Ended December 31
	2018 2017 $ 1,654,742 $ 2,588,225 1,478,529 1,817,638 1,504,451 1,493,504

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

AI assistant

FocalTech — Annual Report 2018

52342_rns_2018-12-10_be1ca0da-8e2d-458c-80a0-9cae46a88bfa.pdf

FocalTech Systems Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Par Value)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

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

1) IFRS 9 “Financial Instruments” and related amendment

Classification, measurement and impairment of financial assets

Definition for leases

The Company is lessee

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

d. Basis of consolidation

e. Foreign currencies

1) Financial assets

2018

2017

B. Loans and receivables

2018

2017

iii) Derecognition of financial assets

2) Equity instruments

3) Financial liabilities

m. Revenue recognition

2018

2017

2) Interest income

p. Employee benefits

1) Short-term employee benefits

2) Retirement benefits

q. Share-based payment arrangements

1) Equity-settled share-based payment arrangements granted to employee

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

a. Impairment of Goodwill

b. Write-down of inventory

6. CASH AND CASH EQUIVALENTS

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

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - NON-CURRENT-2017

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

11. OTHER FINANCIAL ASSETS

12. TRADE RECEIVABLES, NET

December 31, 2018

2017

13. INVENTORIES

14. SUBSIDIARIES

15. PROPERTY, PLANT AND EQUIPMENT

16. GOODWILL

17. OTHER INTANGIBLE ASSETS

18. TRADE PAYABLES

19. OTHER PAYABLES

20. RETIREMENT BENEFIT

a. Defined contribution plans

b. Defined benefit plans

21. EQUITY

Ordinary shares (NT$10 par value per share)

22. REVENUE

23. NET INCOME

24. INCOME TAXES

a. Income tax recognized in profit or loss

c. Deferred tax assets and liabilities

2018

2017

25. LOSS PER SHARE

26. SHARE-BASED PAYMENT ARRANGEMENTS

a. Employee stock option plan

b. Shares Buy Back Program

27. Equity transactions with non - controlling interests

28. OPERATING LEASE ARRANGEMENTS

The Company is Lessee

FocalTech Annual Report 2018