HTC — Annual Report 2019

Nov 13, 2019

HTC Corporation

Financial Statements for the Years Ended December 31, 2019 and 2018 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders HTC Corporation

Opinion

We have audited the accompanying parent company only financial statements of HTC Corporation, which comprise the parent company only balance sheets as of December 31, 2019 and 2018, and the parent company only statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the financial position of HTC Corporation as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in Taiwan, the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of HTC Corporation in accordance with The Norm of Professional Ethics for Certified Public Accountant of Taiwan, the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements for the year ended December 31, 2019. These matters were addressed in the context of our audit of the parent company only financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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The descriptions of the key audit matters of the parent company only financial statements for the year ended December 31, 2019 are as follows:

Revenue Recognition

According to the accounting policy stated in Note 4, revenue from the sale of goods is recognized when the control and risks are transferred to the buyers. The revenue recognition turns to be difficult due to the conditions of part of the customers accounts for 48% of operating revenues are more complicated than those applied to the general sale transactions. Because of the significance of sales revenue, revenue recognition was deemed to be a key audit matter.

We have obtained understanding and have verified the accounting policy and the design and implementation of internal controls with respect to HTC Corporation’s revenue recognition. We checked the compliance with the accounting policy on revenue recognition by reviewing the relevant contracts. For ensuring HTC Corporation’s compliance with IFRS 15, samples from the recognized revenue have been selected to test if the conditions of revenue recognition were met.

Responsibilities of Management and those Charged with Governance for the Parent Company Only Financial Statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free of material misstatement, whether due to fraud or error.

In preparing the parent company only financial statements, management is responsible for assessing HTC Corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate HTC Corporation or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing HTC Corporation’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Parent Company Only Financial Statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in Taiwan, the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company only financial statements.

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As part of an audit in accordance with the auditing standards generally accepted in Taiwan, the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of HTC Corporation’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on HTC Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause HTC Corporation to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within HTC Corporation to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements for the year ended December 31, 2019 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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The engagement partners on the audit resulting in this independent auditors’ report are Wen-Yea, Shyu and Kwan-Chung, Lai.

Deloitte & Touche Taipei, Taiwan Republic of China

March 2, 2020

Notice to Readers

The accompanying parent company only financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in Taiwan, the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such parent company only financial statements are those generally applied in Taiwan, the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying parent company only financial statements have been translated into English from the original Chinese version prepared and used in Taiwan, the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and parent company only financial statements shall prevail. Also, as stated in Note 4 to the parent company only financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.

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HTC CORPORATION

PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss - current (Notes 7 and 29) Trade receivables, net (Note 10) Trade receivables - related parties, net (Notes 10 and 30) Other receivables (Note 10) Current tax assets (Note 25) Inventories (Note 11) Prepayments (Notes 12 and 30) Other current financial assets (Notes 9 and 31) Other current assets Total current assets NON-CURRENT ASSETS Financial assets at fair value through other comprehensive income - non-current (Note 8) Investments accounted for using equity method (Note 13) Property, plant and equipment (Notes 14 and 30) Right-of-use assets (Notes 3 and 15) Investment properties, net (Note 16) Intangible assets (Note 17) Deferred tax assets (Note 25) Refundable deposits Net defined benefit asset - non-current (Note 21) Other non-current financial assets (Notes 9 and 31) Other non-current assets (Note 12) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Financial liabilities at fair value through profit or loss - current (Notes 7 and 29) Note and trade payables (Notes 18 and 30) Other payables (Notes 19 and 30) Current tax liabilities (Note 25) Provisions - current (Note 20) Lease liabilities - current (Notes 3 and 15) Other current liabilities (Note 19) Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities (Note 25) Lease liabilities - non-current (Notes 3 and 15) Guarantee deposits received (Note 29) Total non-current liabilities Total liabilities EQUITY (Note 22) Share capital - ordinary shares Capital surplus Retained earnings Legal reserve Special reserve (Accumulated deficits) unappropriated earnings Other equity Total equity TOTAL		2019 Amount % $ 10,452,400 19 69,055 - 189,937 1 106,950 - 64,754 - 37,197 - 1,744,345 3 271,340 1 1,786,889 3 2 - 14,722,869 27 4,242 - 26,955,097 49 7,171,857 13 8,321 - 2,068,531 4 27,068 - 3,468,482 6 78,065 - 289,464 1 150,505 - 25,294 - 40,246,926 73 $ 54,969,795 100 $ 119,755 - 10,197,831 18 7,544,835 14 11,403 - 1,438,149 3 4,131 - 599,569 1 19,915,673 36 59,323 - 4,213 - 136,816 1 200,352 1 20,116,025 37 8,188,086 15 15,594,766 28 18,895,136 34 3,080,480 6 (7,169,626) (13) (3,735,072) (7) 34,853,770 63 $ 54,969,795 100		2018
				Amount % $ 13,445,203 19 83,411 - 75,940 - 377,736 1 87,323 - 33,312 - 2,784,808 4 536,332 1 10,642,639 15 568 - 28,067,272 40 290,109 1 27,399,557 39 7,638,244 11 - - 2,090,226 3 33,668 - 3,827,502 6 89,358 - 270,358 - 153,638 - 31,572 - 41,824,232 60 $ 69,891,504 100 $ 82,156 - 12,121,891 17 9,506,714 14 11,634 - 1,865,066 3 - - 979,467 1 24,566,928 35 32,685 - - - 123,053 - 155,738 - 24,722,666 35 8,188,135 12 15,576,268 22 18,297,655 26 - - 6,194,337 9 (3,087,557) (4) 45,168,838 65 $ 69,891,504 100

The accompanying notes are an integral part of the parent company only financial statements.

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HTC CORPORATION

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)

OPERATING REVENUE (Notes 23 and 30) OPERATING COST (Notes 11, 24 and 30) GROSS PROFIT (LOSS) UNREALIZED LOSS (GAIN) REALIZED GAIN REALIZED GROSS GAIN (LOSS) OPERATING EXPENSES (Notes 24 and 30) Selling and marketing General and administrative Research and development Total operating expenses OPERATING LOSS NON-OPERATING INCOME AND EXPENSES Other income (Note 24) Other gains and losses (Notes 12, 14, 17 and 24) Finance costs (Note 24) Share of the loss of subsidiaries (Note 13) Total non-operating income and expenses (LOSS) PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Note 25) (LOSS) PROFIT FOR THE YEAR		2019	% 100 95 5 1 2 8 20 33 53 106 (98) 11 (5) - (15) (9) (107) (2) (109)		2018
		Amount $ 8,550,208 8,116,253 433,955 31,956 178,837 644,748 1,691,524 2,862,669 4,493,220 9,047,413 (8,402,665) 923,784 (459,806) (7,249) (1,257,293) (800,564) (9,203,229) (154,849) (9,358,078)			Amount % $ 22,205,824 100 22,956,468 103 (750,644) (3) (178,837) (1) 194,475 1 (735,006) (3) 2,901,809 13 2,886,634 13 5,914,498 27 11,702,941 53 (12,437,947) (56) 926,592 4 28,908,025 130 (1,912) - (395,337) (2) 29,437,368 132 16,999,421 76 (4,931,219) (22) 12,068,202 54 (Continued)

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HTC CORPORATION

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)

OTHER COMPREHENSIVE INCOME AND LOSS, NET OF INCOME TAX Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 21) Unrealized loss on investments in equity instruments designated as at fair value through other comprehensive income Share of the comprehensive income (loss) of subsidiaries - items that will not be reclassified to profit or loss Income tax relating to items that will not be reclassified to profit or loss (Note 25) Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Other comprehensive loss for the year, net of income tax TOTAL COMPREHENSIVE (LOSS) INCOME FOR THE YEAR (LOSS) EARNINGS PER SHARE (Note 26) Basic Diluted		2019	% - (4) 4 - - (8) (8) (117)		2018
		Amount $ 15,552 (285,867) 318,113 (1,866) 45,932 (686,838) (640,906) $ (9,998,984) $ (11.43) $ (11.43)			Amount % $ 179,401 1 (185,240) (1) (671,867) (3) (21,529) - (699,235) (3) 131,129 1 (568,106) (2) $ 11,500,096 52 $ 14.72 $ 14.50

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

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HTC CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

BALANCE, JANUARY 1, 2018 Effect of retrospective application of accounting standards BALANCE, JANUARY 1, 2018 AS RESTATED Net profit for the year ended December 31, 2018 Other comprehensive income and loss for the year ended December 31, 2018 Changes in capital surplus from investments in associates accounted for using the equity method Issuance of shares from exercise of employee share options Changes in percentage of ownership interests in subsidiaries Share-based payments BALANCE, DECEMBER 31, 2018 Appropriation of 2018 earnings Legal reserve Special reserve Cash dividends Net loss for the year ended December 31, 2019 Other comprehensive income and loss for the year ended December 31, 2019 Changes in capital surplus from investments in associates accounted for using the equity method Changes in percentage of ownership interests in subsidiaries Share-based payments BALANCE, DECEMBER 31, 2019	Share Capital Ordinary Shares Capital Surplus $ 8,208,261 $ 15,551,491 - - 8,208,261 15,551,491 - - - - - 60,873 1,490 6,631 - - (21,616) (42,727) 8,188,135 15,576,268 - - - - - - - - - - - (34,121) - - (49) 52,619 $ 8,188,086 $ 15,594,766	Retain Earnings (Accumulated Deficits) Unappropriated Legal Reserve Special Reserve Earnings $ 18,297,655 $ - $ (6,093,403) - - 104,732 18,297,655 - (5,988,671) - - 12,068,202 - - 157,872 - - - - - - - - (43,066) - - - 18,297,655 - 6,194,337 597,481 - (597,481) - 3,080,480 (3,080,480) - - (311,148) - - (9,358,078) - - 13,686 - - (21,702) - - (8,760) - - - $ 18,895,136 $ 3,080,480 $ (7,169,626)	Other Equity Unrealized Losses on Exchange Financial Assets at Differences on Fair Value Unrealized Translating Through Other Losses on Foreign Comprehensive Available-for-sale Unearned Operations Income Financial Assets Employee Benefit $ (2,183,148) $ - $ (35,690) $ (49,590) - (171,354) 35,690 - (2,183,148) (171,354) - (49,590) - - - - 131,129 (857,107) - - - - - - - - - - - - - - - - - 42,513 (2,052,019) (1,028,461) - (7,077) - - - - - - - - - - - - - - - - (686,838) 32,246 - - - - - - - - - - - - - 7,077 $ (2,738,857) $ (996,215) $ - $ -	Total Equity $ 33,695,576 (30,932) 33,664,644 12,068,202 (568,106) 60,873 8,121 (43,066) (21,830) 45,168,838 - - (311,148) (9,358,078) (640,906) (55,823) (8,760) 59,647 $ 34,853,770

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

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HTC CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) profit before income tax Adjustments for: Depreciation expenses Amortization expenses Expected credit (reversed gain) loss recognized on trade receivables Finance costs Interests income Compensation costs of employee share-based payments (reversed) Share of the loss of subsidiaries Net gain on disposal of property, plant and equipment Net gain on disposal of assets and licensing income (Note 24) Net gain on disposal of subsidiary Impairment loss on non-financial assets Unrealized (loss) gain on sales Realized gain on sales Gain from lease modification Changes in operating assets and liabilities Decrease (increase) in financial assets mandatorily classified as at fair value through profit or loss (Increase) decrease in trade receivables Decrease in trade receivables - related parties Decrease (increase) in other receivables Decrease in inventories Decrease in prepayments Decrease in other current assets Decrease (increase) in other non-current assets Decrease in note and trade payables Decrease in other payables Decrease in provisions (Decrease) increase in other current liabilities Cash used in operations Interest received Interest paid Income tax return Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Net cash inflow on disposal of subsidiary Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in refundable deposits Decrease in refundable deposits Payments for intangible assets	2019 $ (9,203,229) 486,823 13,069 (30,000) 7,249 (166,541) 53,003 1,257,293 (83,963) - - 242,709 (31,956) (178,837) (441) 51,955 (83,997) 270,786 14,088 865,487 264,992 566 15,399 (1,724,060) (1,949,708) (426,917) (379,898) (10,716,128) 175,022 (7,249) 24,827 (10,523,528) - (96,740) 101,982 - 11,293 (6,536)	2018 $ 16,999,421 444,813 59,143 82,964 1,912 (304,487) (20,812) 395,337 (162,272) (31,285,385) (15,396) 3,226,337 178,837 (194,475) - (11,240) 1,088,719 568,362 (34,966) 2,915,139 499,169 132,535 (126,535) (3,174,517) (2,370,891) (1,321,954) 161,511 (12,268,731) 290,543 (1,912) 95,122 (11,884,978) 410,857 (542,923) 250,199 (1,631) - (29,384) (Continued)

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HTC CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

Proceeds from disposal of intangible assets Increase in other financial assets Decrease in other financial assets Proceeds from disposal of assets and licensing income (Note 24) Net cash generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from guarantee deposits received Repayment of the principal portion of lease liabilities Dividends paid to owners of the Company Proceeds from exercise of employee share options Net cash outflow on acquisition of subsidiaries Capital reduction of subsidiaries Net cash used in financing activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS, END OF THE YEAR	2019 $ 5,048 - 8,858,883 - 8,873,930 13,763 (17,116) (311,148) - (1,028,704) - (1,343,205) (2,992,803) 13,445,203 $ 10,452,400	2018 $ - (10,647,082) - 31,285,385 20,725,421 121,788 - - 8,121 (1,257,159) 267,131 (860,119) 7,980,324 5,464,879 $ 13,445,203

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

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NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

HTC CORPORATION

1. GENERAL INFORMATION

HTC Corporation (the “Company”) was incorporated on May 15, 1997 under the Company Law of Taiwan, the Republic of China. The Company is engaged in designing, manufacturing, assembling, processing, and selling smart mobile and virtual reality devices and after-sales service.

In March 2002, the Company had its stock listed on the Taiwan Stock Exchange. On November 19, 2003, the Company listed some of its shares of stock on the Luxembourg Stock Exchange in the form of global depositary receipts.

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

2. APPROVAL OF FINANCIAL STATEMENTS

The parent company only financial statements were approved by the Company’s board of directors and authorized for issue on March 2, 2020.

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), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Company’s accounting policies:

IFRS 16 “Leases”

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessee and lessor. It supersedes IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, and a number of related interpretations. Refer to Note 4 for information relating to the relevant accounting policies.

Definition of a lease

The Company elects to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 are not reassessed and are accounted for in accordance with the transitional provisions under IFRS 16.

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The Company as lessee

The Company recognizes right-of-use assets or investment properties if the right-of-use assets meet the definition of investment properties, and lease liabilities for all leases on the parent company only balance sheets except for those whose payments under low-value asset and short-term leases are recognized as expenses on a straight-line basis. On the parent company only statements of comprehensive income, the Company presents the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the parent company only statements of cash flows, cash payments for the principal portion of lease liabilities are classified within financing activities; cash payments for the interest portion are classified within operating activities. Prior to the application of IFRS 16, payments under operating lease contracts, including property interest qualified as investment properties, were recognized as expenses on a straight-line basis. Cash flows for operating leases were classified within operating activities on the parent company only statements of cash flows. Leased assets and finance lease payables were recognized on the parent company only balance sheets for contracts classified as finance leases.

The Company elects to apply IFRS 16 retrospectively with the cumulative effect of the initial application of this standard on January 1, 2019. Comparative information is not restated.

Lease liabilities were recognized on January 1, 2019 for leases previously classified as operating leases under IAS 17. Lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets are measured at their carrying amount as if IFRS 16 had been applied since the commencement date, but discounted using the aforementioned incremental borrowing rate. The Company applies IAS 36 to all right-of-use assets.

The Company also applies the following practical expedients:

• 1) The Company applies a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.

• 2) The Company accounts for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.

• 3) The Company excludes initial direct costs from the measurement of right-of-use assets on January 1, 2019.

• 4) The Company uses hindsight, such as in determining lease terms, to measure lease liabilities.

The lessee’s incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 was 2%. The difference between the lease liabilities recognized and operating lease commitments disclosed under IAS 17 on December 31, 2018 is explained as follows:

The future minimum lease payments of operating lease commitments on December 31, 2018 Less: Recognition exemption for short-term leases Undiscounted amounts on January 1, 2019 Discounted amounts using the incremental borrowing rate on January 1, 2019 Add: Adjustments as a result of a different treatment of extension and termination options Lease liabilities recognized on January 1, 2019	$ 70,429 - $ 70,429 $ 69,445 6,783 $ 76,228

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The Company as lessor

The Company does not make any adjustments for leases in which it is a lessor, and it accounts for those leases with the application of IFRS 16 starting from January 1, 2019.

The impact on assets, liabilities and equity as of January 1, 2019 from the initial application of IFRS 16 is set out as follows:

			Adjustments
	As Originally		Arising from
	Stated	on	Initial	Restated on
	January 1, 2019		Application	January 1, 2019
Right-of-use assets	$	-	$ 76,228	$ 76,228
Total effect on assets	$	-	$ 76,228	$ 76,228
Lease liabilities - current	$	-	$ 20,400	$ 20,400
Lease liabilities - non-current		-	55,828	55,828
Total effect on liabilities	$	-	$ 76,228	$ 76,228

• b. The IFRSs endorsed by the Financial Supervisory Commission (FSC) for application starting from 2020

New IFRSs Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform” Amendments to IAS 1 and IAS 8 “Definition of Material”	Effective Date Announced by IASB
	January 1, 2020 (Note 1) January 1, 2020 (Note 2) January 1, 2020 (Note 3)

• Note 1: The Company shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

• Note 2: The Company shall apply these amendments retrospectively for annual reporting periods 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.

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

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

New IFRSs Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 “Classification of Liabilities as Current or Non-current”	Effective Date Announced by IASB (Note)
	To be determined by IASB January 1, 2021 January 1, 2022

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

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

The parent company only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

Basis of Preparation

The parent company only financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value, and net defined benefit assets which are measured at the fair value of plan assets less the present value of the defined benefit obligation.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

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

• b. 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

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

When preparing its parent company only financial statements, the Company used equity method to account for its investment in subsidiaries and associates. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owner of the Company in its parent company only financial statements, adjustments arising from the differences in accounting treatment between parent company only basis and parent company only basis were made to investments accounted for by equity method, share of profit or loss of subsidiaries and associates, share of other comprehensive income of subsidiaries and associates and unappropriated earnings (accumulated deficits), as appropriate, in the parent company only financial statements.

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For readers’ convenience, the accompanying parent company only financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the parent company only financial statements shall prevail. However, the accompanying parent company only financial statements do not include the English translation of the additional footnote disclosures that are not required under accounting principles and practices generally applied in the Republic of China but are required by the Securities and Futures Bureau for their oversight purposes.

Classification of Current and Non-current Assets and Liabilities

Current assets include:

• a. Assets held primarily for the purpose of trading;

• b. Assets expected to be realized within twelve months after the reporting period; and

• c. 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.

Current liabilities are:

• a. Liabilities held primarily for the purpose of trading;

• b. Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and

• c. Liabilities for which the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

The aforementioned assets and liabilities that are not classified as current are classified as non-current.

Business Combinations

Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as incurred.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree, the excess is recognized immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that present the ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets.

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Foreign Currencies

In preparing the parent company only financial statements, transactions in currencies other than the entity’s functional currency (i.e., 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 in which they arise except for:

• a. Exchange differences on transactions entered into in order to hedge certain foreign currency risks; and

• b. Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investments.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income; in which case, the exchange differences are also recognized directly in other comprehensive income.

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

For the purpose of presenting the parent company only financial statements, the assets and liabilities of the Company’s foreign operations are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

On the disposal of a foreign operation (i.e. a disposal of the Company’s entire interest in a foreign operation, or a disposal involving the loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences are recognized in other comprehensive income.

Inventories

Inventories consist of raw materials, 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 the weighted-average cost on the balance sheet date.

Investments in Subsidiaries

The Company uses the equity method to account for its investments in subsidiaries.

Subsidiaries are the entities controlled by the Company.

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Under the equity method, investments in a subsidiary are initially recognized in the parent company only balance sheet at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiaries. The Company also recognizes the changes in the equity of subsidiaries attributable to the Company.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s loss of control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amounts of the investment and the fair value of the consideration paid or received is recognized directly in equity.

When the Company’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary (which includes any carrying amount of the investment in subsidiary accounted for by the equity method and long-term interests that, in substance, form part of the Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized immediately in profit or loss.

The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the entire financial statements of the invested company. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes the reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period.

When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of the previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits and losses from upstream with a subsidiary and side stream transactions between subsidiaries are recognized in the Company’ parent company only financial statements only to the extent of interests in the subsidiary that are not related to the Company.

Property, Plant and Equipment

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

Properties, plant and equipment in the course of construction are carried at cost, less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such properties are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for intended use.

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.

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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.

Investment Properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties also include land held for a currently undetermined future use.

Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

For a transfer from the property, plant and equipment classification to investment properties, the deemed cost of the property for subsequent accounting is its carrying amount.

On derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount of the asset is included in profit or loss.

Intangible Assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. 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. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

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.

Derecognition of intangible assets

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

Impairment of Tangible and Intangible Assets Other Than Goodwill

At the end of each reporting period, the Company 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 Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified. Corporate assets are allocated to the individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units on a reasonable and consistent basis of allocation.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

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The 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.

Before the Company recognizes an impairment loss from assets related to contract costs, any impairment loss on inventories, property, plant and equipment and intangible assets related to the contract applicable under IFRS 15 shall be recognized in accordance with applicable standards. Then, impairment loss from the assets related to the contract costs is recognized to the extent that the carrying amount of the assets exceeds the remaining amount of consideration that the Company expects to receive in exchange for related goods or services less the costs which relate directly to providing those goods or services and which have not been recognized as expenses. The assets related to the contract costs are then included in the carrying amount of the cash-generating unit to which they belong for the purpose of evaluating impairment of that cash-generating unit.

When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset, cash-generating unit or assets related to contract costs 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, cash-generating unit or assets related to contract costs in prior years. A reversal of an impairment loss is recognized in profit or loss.

Financial Instruments

Financial assets and financial liabilities are recognized when the Company 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 (other than financial assets and financial liabilities at FVTPL) 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 FVTPL are recognized immediately in profit or loss.

a. Financial assets

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

• 1) Measurement category

Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost, and investments in equity instruments at FVTOCI.

a) Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is mandatorily classified as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

Financial assets at FVTPL are subsequently measured at fair value, and any dividends or interest earned on such financial assets are recognized in other income; any remeasurement gains or losses on such financial assets are recognized in other gains or losses. Fair value is determined in the manner described in Note 29.

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• b) Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

• i. The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• ii. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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

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

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

• ii. Financial assets that are not credit impaired on purchase or origination but have subsequently become credit impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

A financial asset is credit impaired when one or more of the following events have occurred:

• i) Significant financial difficulty of the issuer or the borrower;

• ii) Breach of contract, such as a default;

• iii) It is becoming probable that the borrower will enter bankruptcy or undergo a financial reorganization; or

• iv) The disappearance of an active market for that financial asset because of financial difficulties.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• c) Investments in equity instruments at FVTOCI

On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is in contingent consideration recognized by an acquirer in a business combination.

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Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, instead, they will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2) Impairment of financial assets

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables), investments in debt instruments that are measured at FVTOCI and lease receivables.

The Company always recognizes lifetime Expected Credit Losses (ECLs) for trade receivables and operating lease receivables. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECLs represents the expected credit losses that will result from all possible default events over the expected life of the financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

For internal credit risk management purposes, the Company determines that the following situations indicate that a financial asset is in default (without taking into account any collateral held by the Company):

• i) Internal or external information show that the debtor is unlikely to pay its creditors.

• ii) When a financial asset is more than 90 days past due unless the Company has reasonable and corroborative information to support a more lagged default criterion.

The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amounts through a loss 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.

• 3) Derecognition of financial assets

The Company 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.

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Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. From 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss that had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

• b. Equity instruments

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

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

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

• c. Financial liabilities

• 1) Subsequent measurement

Except the following situation, all financial liabilities are measured at amortized cost using the effective interest method:

• Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or is designated as at FVTPL.

Financial liabilities held for trading are stated at fair value, with any gain or loss arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest or dividends paid on the financial liability. Fair value is determined in the manner described in Note 29.

• 2) 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.

• d. Derivative financial instruments

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts and interest rate swaps.

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Derivatives are initially recognized at fair value at the date on which the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedged relationship. When the fair value of a derivative financial instrument is positive, the derivative is recognized as a financial asset; when the fair value of a derivative financial instrument is negative, the derivative is recognized as a financial liability.

Derivatives embedded in hybrid contracts that contain financial asset hosts within the scope of IFRS 9 are not separated; instead, the classification is determined in accordance with the entire hybrid contract. Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of IFRS 9 (e.g. financial liabilities) are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

Provisions

Provisions, including those arising from contractual obligation specified in service concession arrangement to maintain or restore infrastructure before it is handed over to the grantor, 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.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

• a. Warranty provisions

The Company provides warranty service for one year to two years. The warranty liability is estimated on the basis of evaluation of the products under warranty, past warranty experience, and pertinent factors.

• b. Onerous contracts

Onerous contracts are those in which the Company’s unavoidable costs of meeting the contractual obligations exceed the economic benefits expected to be received from the contract. The present obligations arising under onerous contracts are recognized and measured as provisions.

Revenue Recognition

The Company identifies the contract with the customers, allocates the transaction price to the performance obligations, and recognizes revenue when performance obligations are satisfied.

• a. Revenue from the sale of goods

Revenue from the sale of goods comes from sales of electronic equipment. Sales of electronic equipment are recognized as revenue when the goods are delivered to the customer’s specific location because it is the time when the customer has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility for sales to future customers, and bears the risks of obsolescence. Trade receivables are recognized concurrently.

• b. Revenue from the rendering of services

Revenue from the rendering of services comes from product design, online subscription content service, device examinations, and extended warranty services.

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c. Licensing revenue

The Company does not promise to undertake activities that will change the functionality of software in software licensing transaction. Furthermore, such software remains functional without the updates and the technical support. Therefore, the upfront royalty is recognized as revenue when the patents subsequent usage occurs.

Leases

2019

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease.

• a. The Company as lessor

Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The current lease contract of the Company are all operating leases.

Lease payments (less any lease incentives payable) from operating leases are recognized as income on a straight-line basis over the terms of the relevant leases.

When a lease includes both land and building elements, the Company assesses the classification of each element separately as a finance or an operating lease based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Company. The lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of a contract. If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with its lease classification. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases; in which case, the entire lease is classified as an operating lease.

b. The Company as lessee

The Company recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs needed to restore the underlying assets, and less any lease incentives received. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented on a separate line in the consolidated balance sheets.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments, in-substance fixed payments, variable lease payments which depend on an index or a rate. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the Company uses the lessee’s incremental borrowing rate.

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Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Company remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line in the consolidated balance sheets.

Variable lease payments that do not depend on an index or a rate are recognized as expenses in the periods in which they are incurred.

2018

Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

• a. The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

• b. The Company as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

c. Leasehold land for own use

When a lease includes both land and building elements, the Company assesses the classification of each element separately as a finance or an operating lease based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Company. The minimum lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with its lease classification. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases; in which case, the entire lease is classified as an operating lease.

Employee Benefits

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.

Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered services entitling them to the contributions.

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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) are recognized as employee benefits expense in the period they occur. 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. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

- Other long term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for defined benefit plans except that remeasurement is recognized in profit or loss.

Termination benefits

A liability for a termination benefit is recognized at the earlier of when the Company can no longer withdraw the offer of the termination benefit and when the Company recognizes any related restructuring costs.

Share-based Payment Arrangements

Share-based payment transactions of the Company

The fair value determined 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 Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value determined at the grant date of the equity-settled share-based payments is recognized as an expense in full at the grant date when the share options granted vest immediately.

Restricted shares for employees are recognized as other equity - unearned employ’s bonus on the date of grant, with a corresponding increase in capital surplus - restricted shares for employees.

At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, 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 - restricted shares for employees.

Taxation

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

• a. Current tax

According to the Income Tax Law, an additional tax on unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

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b. Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the parent company only financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company 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 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 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 Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

c. Current and deferred tax

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity; in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Accrued Marketing Expenses

The Company accrues marketing expenses on the basis of agreements and any known factors that would significantly affect the accruals. In addition, depending on the nature of relevant events, the accrued marketing expenses are accounted for as an increase in marketing expenses or as a decrease in revenues.

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5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, the 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.

Key Sources of Estimation Uncertainty

• a. Impairment of tangible and intangible assets other than goodwill

The Company measures the useful life of individual assets and the probable future economic benefits in a specific asset group, which depends on subjective judgment, asset characteristics and industry, during the impairment testing process. Any change in accounting estimates due to economic circumstances and business strategies might cause material impairment in the future.

Impairment loss on tangible and intangible assets other than goodwill recognized were NT$67,733 thousand and NT$2,252,899 thousand for the years ended December 31, 2019 and 2018, respectively.

• b. Valuation of inventories

Inventories are measured at the lower of cost or net realizable value. Judgment and estimation are applied in the determination of net realizable value at the end of reporting period.

Inventories are usually written down to net realizable value item by item if those inventories are damaged, have become wholly or partially obsolete, or if their selling prices have declined.

As of December 31, 2019 and 2018, the carrying amounts of inventories were NT$1,744,345 thousand and NT$2,784,808 thousand, respectively.

• c. Realization of deferred tax assets

Deferred tax assets should be recognized only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available. The management applies judgment and accounting estimates to evaluate the realization of deferred tax assets. The management takes expected sales growth, profit rate, duration of exemption, tax credits, tax planning and etc. into account to make judgment and accounting estimates. Any change in global economy, industry environment and regulations might cause material adjustments to deferred tax assets.

As of December 31, 2019 and 2018, the carrying amounts of deferred tax assets were NT$3,468,482 thousand and NT$3,827,502 thousand, respectively.

• 28 -

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Time deposits (with original maturities less than three months)		December 31	December 31
		2019 $ 640 2,204,920 8,246,840 $ 10,452,400	2018 $ 1,035 990,072 12,454,096 $ 13,445,203

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

Bank balance	December 31
	2019 2018 0.01%-0.66% 0.01%-0.62%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets-current Financial assets held for trading Derivative financial assets (not under hedge accounting) Foreign exchange contracts Financial liabilities-current Financial liabilities held for trading Derivative financial liabilities (not under hedge accounting) Foreign exchange contracts		December 31	December 31
		2019 $ 69,055 $ 119,755	2018 $ 83,411 $ 82,156

The Company entered into forward exchange contracts to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities. At the end of the reporting period, outstanding forward exchange contracts not under hedge accounting were as follows:

Forward Exchange Contracts

				Notional Amount	Notional Amount
	Buy/Sell	Currency	Maturity Date	(In Thousands)
December 31, 2019
Foreign exchange contracts	Sell	EUR/USD	2020.1.8-2020.3.6	EUR	14,000
Foreign exchange contracts	Sell	JPY/USD	2020.1.10-2020.3.6	JPY	3,300,000
Foreign exchange contracts	Sell	GBP/USD	2020.1.8-2020.2.26	GBP	18,000
Foreign exchange contracts	Sell	CAD/USD	2020.2.26	CAD	6,000
Foreign exchange contracts	Sell	AUD/USD	2020.2.21	AUD	1,000
Foreign exchange contracts	Sell	RMB/USD	2020.1.8-2020.2.26	RMB	384,150
					(Continued)

• 29 -

				Notional Amount	Notional Amount
	Buy/Sell	Currency	Maturity Date	(In Thousands)
Foreign exchange contracts	Buy	RMB/USD	2020.1.8-2020.3.6	RMB	727,465
Foreign exchange contracts	Buy	JPY/USD	2020.1.8-2020.3.6	JPY	3,918,335
Foreign exchange contracts	Buy	USD/NTD	2020.1.8-2020.3.6	USD	369,500
Foreign exchange contracts	Buy	EUR/USD	2020.1.8-2020.3.6	EUR	30,000
Foreign exchange contracts	Buy	GBP/USD	2020.1.8-2020.2.21	GBP	17,000
Foreign exchange contracts	Buy	AUD/USD	2020.1.10-2020.2.21	AUD	9,000
Foreign exchange contracts	Buy	HKD/USD	2020.1.17	HKD	626,440
December 31, 2018
Foreign exchange contracts	Sell	USD/NTD	2019.1.9	USD	120,000
Foreign exchange contracts	Sell	EUR/USD	2019.1.23-2019.3.6	EUR	16,000
Foreign exchange contracts	Sell	JPY/USD	2019.1.9-2019.3.8	JPY	3,200,000
Foreign exchange contracts	Sell	GBP/USD	2019.1.9-2019.3.6	GBP	28,000
Foreign exchange contracts	Sell	CAD/USD	2019.1.23	CAD	6,000
Foreign exchange contracts	Sell	AUD/USD	2019.1.16	AUD	1,000
Foreign exchange contracts	Sell	RMB/USD	2019.1.11-2019.3.6	RMB	404,984
Foreign exchange contracts	Buy	RMB/USD	2019.1.9-2019.3.6	RMB	1,317,332
Foreign exchange contracts	Buy	JPY/USD	2019.1.9-2019.2.15	JPY	1,718,335
Foreign exchange contracts	Buy	USD/NTD	2019.1.9-2019.3.8	USD	594,500
Foreign exchange contracts	Buy	EUR/USD	2019.1.9-2019.3.6	EUR	40,000
Foreign exchange contracts	Buy	GBP/USD	2019.1.9-2019.2.22	GBP	30,000
Foreign exchange contracts	Buy	AUD/USD	2019.1.16-2019.2.22	AUD	9,000
					(Concluded)

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments at FVTOCI

Domestic investments Listed shares and emerging market shares Unlisted shares		December 31	December 31
		2019 $ 306 3,936 $ 4,242	2018 $ 225 289,884 $ 290,109

These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term business development strategic purposes. Accordingly, the Company’s management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Company’s strategy of holding these investments for long-term purposes.

• 30 -

9. OTHER FINANCIAL ASSETS

Time deposits with original maturities of more than three months Restricted demand deposits Current Non-current		December 31	December 31
		2019 $ 1,936,394 1,000 $ 1,937,394 $ 1,786,889 150,505 $ 1,937,394	2018 $ 10,796,277 - $ 10,796,277 $ 10,642,639 153,638 $ 10,796,277

For details of pledged other financial assets, refer to Note 31.

10. TRADE RECEIVABLES AND OTHER RECEIVABLES

Trade and overdue receivables At amortized cost Trade receivables Trade receivables - related parties Overdue receivables Less: Allowances for impairment loss Less: Allowances for impairment loss - overdue receivables Other receivables VAT refund receivables Interest receivables Others		December 31	December 31
		2019 $ 320,015 106,950 2,053,491 (130,078) (2,053,491) $ 296,887 $ 32,389 6,442 25,923 $ 64,754	2018 $ 448,562 377,736 1,840,947 (372,622) (1,840,947) $ 453,676 $ 57,209 14,923 15,191 $ 87,323

a. Trade receivables at amortized cost

The average credit period of the sale of goods was 30-75 days. No interest was charged on trade receivables for the first 75 days from the date of the invoice. Thereafter, interest was charged at 1-18% per annum on the outstanding balance. The Company adopted a policy of only dealing with entities that are rated the equivalent of investment grade or higher and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. Credit rating information is obtained from independent rating agencies where available or, if not available, the Company uses other publicly available financial information or its own trading records to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits annually.

• 31 -

In order to minimize credit risk, the Company’s management 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 receivables. In addition, the Company reviews the recoverable amount of each individual trade receivable at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the Company’s management believes the Company’s credit risk was significantly reduced.

The Company applies the simplified approach to allowing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss allowances for all trade receivables. The expected credit losses on trade receivables are estimated using an allowance matrix with reference to past default experiences of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecasted direction of economic conditions at the reporting date.

The Company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

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

December 31, 2019

Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECL) Amortized cost December 31, 2018 Expected credit loss rate Gross carrying amount Loss allowance (Lifetime ECL) Amortized cost	Non Past Due 0%-4% $ 300,360 (3,473) $ 296,887 Non Past Due 0%-4% $ 303,863 (1,595) $ 302,268	1-90 Days 91-180 Days 4%-40% 10%-100% $ - $ 3,647 - (3,647) $ - $ - 1-90 Days 91-180 Days 4%-40% 10%-100% $ 79,247 $ 136,367 (3,697) (60,509) $ 75,550 $ 75,858	Over 181 Days 100% $ 122,958 (122,958) $ - Over 181 Days 100% $ 306,821 (306,821) $ -	Total $ 426,965 (130,078) $ 296,887 Total $ 826,298 (372,622) $ 453,676

The movements of the loss allowance of trade receivables and overdue receivables were as follows:

Balance, beginning of the year Add: Loss allowance recognized Less: Loss allowance reversed Less: Amounts written off Balance, end of the year	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 2,213,569 - (30,000) - $ 2,183,569	2018 $ 2,349,999 82,964 - (219,394) $ 2,213,569

• 32 -

b. Other receivables

Others were primarily prepayments on behalf of vendors or customers and grants from suppliers.

11. INVENTORIES

Finished goods Work-in-process Semi-finished goods Raw materials Inventory in transit		December 31	December 31
		2019 $ 499,723 11,236 195,057 1,010,578 27,751 $ 1,744,345	2018 $ 578,776 36,577 381,696 1,754,137 33,622 $ 2,784,808

The cost of inventories write-downs recognized as operation costs for the years ended December 31, 2019 and 2018 were NT$174,976 thousand and NT$973,438 thousand, respectively.

12. PREPAYMENTS

Software and hardware maintenance Prepaid expense Royalty Prepaid equipment Service Prepayments to suppliers Current Non-current		December 31	December 31
		2019 $ 113,929 80,177 69,432 25,294 4,659 3,143 $ 296,634 $ 271,340 25,294 $ 296,634	2018 $ 105,605 77,207 84,899 12,619 115,973 171,601 $ 567,904 $ 536,332 31,572 $ 567,904

For the year ended December 31, 2018, the Company determined that the carrying amount of some of the prepayments for royalties were expected to be unrecoverable, and thus recognized an impairment loss of NT$2,210,749 thousand classified as other gains and losses. Refer to Note 24.

13. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investment in subsidiaries		December 31	December 31
		2019 $ 26,955,097	2018 $ 27,399,557

• 33 -

Investments in Subsidiaries

Unlisted equity investments H.T.C. (B.V.I.) Corp. High Tech Computer Asia Pacific Pte. Ltd. HTC Investment Corporation PT. High Tech Computer Indonesia HTC Holding Cooperatief U.A. HTC Investment One (BVI) Corporation HTC Investment (BVI) Corp. HTC VIVE Holding (BVI) Corp. HTC VIVE INVESTMENT (BVI) Corp. DeepQ Holding (BVI) Corp. HTC Smartphone (BVI) Corp. HTC VR Content (BVI) Corp.		December 31	December 31
		2019 $ 2,153,865 21,835,047 213,264 62 13 134,470 1,898,054 206,515 302,515 158,975 821 51,496 $ 26,955,097	2018 $ 2,584,797 21,546,647 224,352 62 13 1,194,273 1,079,959 210,452 308,078 197,488 904 52,532 $ 27,399,557

At the end of the reporting period, the proportion of ownership and voting rights in subsidiaries held by the Company were as follows:

Name of Subsidiaries H.T.C. (B.V.I.) Corp. High Tech Computer Asia Pacific Pte. Ltd. HTC Investment Corporation PT. High Tech Computer Indonesia HTC Holding Cooperatief U.A. HTC Investment One (BVI) Corporation HTC Investment (BVI) Corp. HTC VIVE Holding (BVI) Corp. HTC VIVE INVESTMENT (BVI) Corp. DeepQ Holding (BVI) Corp. HTC Smartphone (BVI) Corp. HTC VR Content (BVI) Corp.	December 31
	2019 2018 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 1.00% 1.00% 0.01% 0.01% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Refer to Note 13 to the consolidated financial statements for the year ended December 31, 2019 for the details of the subsidiaries indirectly held by the Company.

The Company and its subsidiary, High Tech Computer Asia Pacific Pte. Ltd., acquired equity interests of 1% and 99%, respectively, in PT. High Tech Computer Indonesia and acquired equity interests of 0.01% and 99.99%, respectively, in HTC Holding Cooperatief U.A. As a result, PT. High Tech Computer Indonesia and HTC Holding Cooperatief U.A. are considered as subsidiaries of the Company.

The share of net income or loss and other comprehensive income from subsidiaries under equity method were accounted for based on the audited financial statements.

• 34 -

14. PROPERTY, PLANT AND EQUIPMENT

Carrying amounts Land Buildings Machinery and equipment Other equipment		December 31	December 31
		2019 $ 4,546,099 2,324,010 242,075 59,673 $ 7,171,857	2018 $ 4,546,099 2,551,107 395,243 145,795 $ 7,638,244

Movements of property, plant and equipment for the years ended December 31, 2019 and 2018 were as follows:

Cost Balance, beginning of the year Additions Disposals Reclassified as investment properties Balance, end of the year Accumulated depreciation Balance, beginning of the year Depreciation expenses Disposals Reclassified as investment properties Balance, end of the year Accumulated impairment Balance, beginning of the year Impairment losses recognized Disposals Balance, end of the year Net book value, end of the year Cost Balance, beginning of the year Additions Disposals Reclassified as investment properties Balance, end of the year			2019
		Land $ 4,546,099 - - - 4,546,099 - - - - - - - - - $ 4,546,099	Buildings Machinery and Equipment $ 4,057,101 $ 4,991,668 15,122 31,192 (870) (1,681,640) (251,752) - 3,819,601 3,341,220 1,505,994 4,345,947 162,553 157,373 (870) (1,544,305) (172,086) - 1,495,591 2,959,015 - 250,478 - 8,968 - (119,316) - 140,130 $ 2,324,010 $ 242,075 2018	Other Equipment $ 1,084,408 25,580 (449,625) - 660,363 930,806 47,956 (383,982) - 594,780 7,807 63,746 (65,643) 5,910 $ 59,673	Total $ 14,679,276 71,894 (2,132,135) (251,752) 12,367,283 6,782,747 367,882 (1,929,157) (172,086) 5,049,386 258,285 72,714 (184,959) 146,040 $ 7,171,857
		Land $ 4,546,099 - - - 4,546,099	Buildings Machinery and Equipment $ 6,905,931 $ 9,840,705 71,700 417,694 (48,387) (5,266,731) (2,872,143) - 4,057,101 4,991,668	Other Equipment $ 1,312,434 62,940 (290,966) - 1,084,408	Total $ 22,605,169 552,334 (5,606,084) (2,872,143) 14,679,276 (Continued)

• 35 -

Accumulated depreciation Balance, beginning of the year Depreciation expenses Disposals Reclassified as investment properties Balance, end of the year Accumulated impairment Balance, beginning of the year Impairment losses recognized Disposals Balance, end of the year Net book value, end of the year			2018
		Land $ - - - - - - - - - $ 4,546,099	Buildings Machinery and Equipment $ 2,056,228 $ 8,975,570 177,973 99,429 (37,505) (4,729,052) (690,702) - 1,505,994 4,345,947 - 713,559 - 936 - (464,017) - 250,478 $ 2,551,107 $ 395,243	Other Equipment $ 1,108,697 76,196 (254,087) - 930,806 9,046 32,257 (33,496) 7,807 $ 145,795	Total $ 12,140,495 353,598 (5,020,644) (690,702) 6,782,747 722,605 33,193 (497,513) 258,285 $ 7,638,244 (Concluded)

For the years ended December 31, 2019 and 2018, the Company determined that the carrying amounts of some of equipment were expected to be unrecoverable. Thus, it recognized impairment losses of NT$72,714 thousand and NT$33,193 thousand classified as other gains and losses, respectively. Refer to Note 24 for details.

The above items of property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives as follows:

Buildings 5-50 years Machinery and equipment 3-6 years Other equipment 3-5 years

The major component parts of the buildings held by the Company included plants, electro-powering machinery and engineering systems, etc., which are depreciated over their estimated useful lives of 40 to 50 years, 20 years and 5 to 10 years, respectively.

The Company leased part of the buildings in February and November 2018 and July 2019. The leased assets were reclassified as investment properties because the standards related to investment properties are applied on leased assets. For the details, refer to Note 16.

There were no capitalized interests for the years ended December 31, 2019 and 2018.

15. LEASE ARRANGEMENTS

• a. Right-of-use assets - 2019

	December 31,	December 31,
		2019
Carrying amounts
Buildings	$	8,321

• 36 -

	For the Year	For the Year
		Ended
	December 31,
		2019
Additions to right-of-use assets	$	8,911
Depreciation charge for right-of-use assets
Buildings	$	17,580
Lease liabilities - 2019
	December 31,
		2019
Carrying amounts
Current	$	4,131
Non-current	$	4,213
Discount rate for lease liabilities was as follows:
	December 31,
		2019
Buildings		2%

• b. Lease liabilities - 2019

• c. Material lease-in activities and terms

The Company leases certain buildings for the use of plants and offices with original lease terms of 2 to 4 years. The Company does not have bargain purchase options to acquire the buildings at the end of the lease terms. In addition, the Company is prohibited from subleasing or transferring all or any portion of the underlying assets without the lessor’s consent.

d. Other lease information

Lease arrangements under operating leases for the leasing out of investment properties are set out in Note 16.

2019
	For the Year
		Ended
	December 31,
		2019
Expenses relating to short-term leases	$	8,467
Total cash outflow for leases	$	(26,695)

The Company leases certain office equipment and other equipment which qualify as short-term leases and low-value asset leases. The Company has elected to apply the recognition exemption and thus, did not recognize right-of-use assets and lease liabilities for these leases.

• 37 -

2018

The future minimum lease payments of operating lease commitments are as follows:

	December 31,
	2018
Not later than 1 year	$ 15,946
Later than 1 year and not later than 5 years	54,483
	$ 70,429

16. INVESTMENT PROPERTIES, NET

Movement of investment properties, net for the years ended December 31, 2019 and 2018 were as follows:

Cost Balance, beginning of the year Reclassification Balance, end of the year Accumulated depreciation Balance, beginning of the year Depreciation expense Reclassification Balance, end of the year Net book value, end of the year	2019 $ 2,872,143 251,752 3,123,895 781,917 101,361 172,086 1,055,364 $ 2,068,531	2018 $ - 2,872,143
		2,872,143
		- 91,215 690,702
		781,917
		$ 2,090,226

The abovementioned investment properties were leased out for 3 to 5 years. The lease contracts contain market review clauses in the event that the lessees exercise their options to extend. The lessees do not have bargain purchase options to acquire the investment properties at the expiry of the lease periods.

The maturity analysis of lease payments receivable under operating leases of investment properties as of December 31, 2019 was as follows:

		December 31,	December 31,
			2019
Year	1	$	594,820
Year	2		594,649
Year	3		312,878
		$	1,502,347

• 38 -

The future minimum lease payments under operating lease commitments as of December 31, 2018 are as follows:

	December 31,	December 31,
		2018
Not later than 1 year	$	528,825
Later than 1 year and not later than 5 years		1,370,236
	$	1,899,061

The investment properties are depreciated using the straight-line method over their estimated useful lives as follows:

Main buildings 40-50 years Electricity distribution system 20 years Air-conditioning 5-10 years Others 3-5 years

The determination of fair value for the investment properties leased in December 31, 2019 and 2018 were performed by independent qualified professional appraisers and the fair values were measured by using Level 3 inputs, respectively. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. The fair values as of December 31, 2019 and 2018 were NT$3,005,890 thousand and NT$2,743,226 thousand, respectively.

17. INTANGIBLE ASSETS

Carrying amounts Patents Other intangible assets		December	31
		2019 $ - 27,068 $ 27,068	2018 $ 3,925 29,743 $ 33,668

Movements of intangible assets for the years ended December 31, 2019 and 2018 were as follows:

Cost Balance, beginning of the year Additions Disposals Eliminations Balance, end of the year			2019
		Patents $ 2,516,290 - - - 2,516,290	Other Intangible Assets $ 1,197,681 6,536 (5,048) (283,328) 915,841	Total $ 3,713,971 6,536 (5,048) (283,328) 3,432,131 (Continued)

• 39 -

Accumulated amortization Balance, beginning of the year Amortization expenses Eliminations Balance, end of the year Accumulated impairment Balance, beginning of the year Reversed Balance, end of the year Net book value, end of the year Cost Balance, beginning of the year Additions Balance, end of the year Accumulated amortization Balance, beginning of the year Amortization expenses Balance, end of the year Accumulated impairment Balance, beginning of the year Impairment losses Balance, end of the year Net book value, end of the year			2019
		Patents $ 2,401,280 3,925 - 2,405,205 111,085 - 111,085 $ -	Other Intangible Assets $ 1,158,981 9,144 (283,328) 884,797 8,957 (4,981) 3,976 $ 27,068 2018	Total $ 3,560,261 13,069 (283,328) 3,290,002 120,042 (4,981) 115,061 $ 27,068 (Concluded)
		Patents $ 2,516,290 - 2,516,290 2,394,896 6,384 2,401,280 111,085 - 111,085 $ 3,925	Other Intangible Assets $ 1,168,297 29,384 1,197,681 1,106,222 52,759 1,158,981 - 8,957 8,957 $ 29,743	Total $ 3,684,587 29,384 3,713,971 3,501,118 59,143 3,560,261 111,085 8,957 120,042 $ 33,668

• 40 -

18. NOTE AND TRADE PAYABLES

Note payables Trade payables Trade payables - related parties		December 31	December 31
		2019 $ - 10,195,535 2,296 $ 10,197,831	2018 $ 560 12,115,761 5,570 $ 12,121,891

The average term of payment is two to four months. The Company has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. According to the payment obligations adjusted by periodical negotiation with suppliers, it was recognized as an adjustment to operating costs or expenses by its nature.

19. OTHER LIABILITIES

Other payables Accrued expenses Payables for purchase of equipment Other current liabilities Advance receipts Agency receipts Others		December 31	December 31
		2019 $ 7,530,912 13,923 $ 7,544,835 $ 177,354 43,232 378,983 $ 599,569	2018 $ 9,480,620 26,094 $ 9,506,714 $ 721,990 56,529 200,948 $ 979,467

Accrued Expenses

Services Marketing Salaries, bonuses and compensation Materials and molding expenses Import, export and freight Repairs, maintenance and sundry purchase Others		December 31	December 31
		2019 $ 2,403,807 2,172,655 1,587,509 787,176 65,871 52,057 461,837 $ 7,530,912	2018 $ 2,248,376 3,536,208 1,955,763 1,073,179 186,182 45,541 435,371 $ 9,480,620

The Company accrued marketing expenses on the basis of related agreements and other factors that would significantly affect the accruals.

• 41 -

20. PROVISIONS

Warranties Others		December 31	December 31
		2019 $ 1,409,032 29,117 $ 1,438,149	2018 $ 1,804,852 60,214 $ 1,865,066

Movement of provisions for the years ended December 31, 2019 and 2018 were as follows:

Balance, beginning of the year Provisions recognized Usage Effect of foreign currency exchange differences Balance, end of the year Balance, beginning of the year Provisions recognized (reversed) Usage Effect of foreign currency exchange differences Balance, end of the year			2019
		Warranty Provision $ 1,804,852 142,694 (536,436) (2,078) $ 1,409,032	Others $ 60,214 8,207 (39,304) - $ 29,117 2018	Total $ 1,865,066 150,901 (575,740) (2,078) $ 1,438,149
		Warranty Provision $ 2,605,752 643,394 (1,446,923) 2,629 $ 1,804,852	Others $ 581,268 (408,159) (112,895) - $ 60,214	Total $ 3,187,020 235,235 (1,559,818) 2,629 $ 1,865,066

The Company provides warranty service to its customers. The warranty period varies by product and is generally one year to two years. The warranties are estimated on the basis of evaluation of the products under warranty, historical warranty-trends, and pertinent factors.

Onerous contracts are those in which the Company’s unavoidable costs of meeting the contractual obligations exceed the economic benefits expected to be received from the contract. The present obligations arising under onerous contracts are recognized and measured as provisions.

21. RETIREMENT BENEFIT PLANS

Defined Contribution Plans

The pension plan under the Labor Pension Act (the “LPA”) is a defined contribution plan. Based on the LPA, the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

• 42 -

The total expenses recognized in the statement of comprehensive income were NT$153,420 thousand and NT$187,624 thousand, representing the contributions made and to be made to these plans by the Company at the rates specified in the plans for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, the amounts of contributions payable were NT$37,023 thousand and NT$38,415 thousand, respectively, and the amounts were paid subsequent to the end of the reporting period.

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 based on the years of services and the average monthly salaries of the six months before retirement. The Company contributes 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 following 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 Company had applied a termination of pension contributed to the pension fund monitoring committee from May 2019 to April 2020, and had been approved by the authority.

The amounts included in the balance sheets in respect of the obligation under the defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit asset		December 31	December 31
		2019 $ (325,332) 614,796 $ 289,464	2018 $ (314,090) 584,448 $ 270,358

Movements in net defined benefit asset were as follows:

	Present Value
	of Defined
	Benefit	Fair Value of	Net Defined
	Obligation	Plan Assets	Benefit Asset
Balance at January 1, 2018	$ (577,335)	$ 597,146	$	19,811
Current service cost	(11,514)	-		(11,514)
Past service cost and gain on settlements	61,760	-		61,760
Net interest (expense) income	(8,660)	9,112		452
Recognized in profit or loss	41,586	9,112		50,698
Remeasurement
Return on plan assets	-	14,720		14,720
Actuarial loss - changes in demographic
assumptions	(23,018)	-		(23,018)
Actuarial loss - changes in financial
assumptions	(6,545)	-		(6,545)
Actuarial gain - experience adjustments	194,244	-		194,244
Recognized in other comprehensive income	164,681	14,720		179,401
				(Continued)

• 43 -

	Present Value	Present Value
	of Defined
		Benefit	Fair Value of		Net Defined
	Obligation		Plan Assets		Benefit Asset
Contributions from the employer	$	-	$	20,448	$	20,448
Benefits paid		56,978		(56,978)		-
Balance at December 31, 2018		(314,090)		584,448		270,358
Current service cost		(5,728)		-		(5,728)
Net interest (expense) income		(4,319)		8,129		3,810
Recognized in profit or loss		(10,047)		8,129		(1,918)
Remeasurement
Return on plan assets		-		19,769		19,769
Actuarial loss - changes in demographic
assumptions		(22,463)		-		(22,463)
Actuarial loss - changes in financial
assumptions		(16,836)		-		(16,836)
Actuarial gain - experience adjustments		35,082		-		35,082
Recognized in other comprehensive income		(4,217)		19,769		15,552
Contributions from the employer		-		5,472		5,472
Benefits paid		3,022		(3,022)		-
Balance at December 31, 2019	$	(325,332)	$	614,796	$	289,464
						(Concluded)

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

• a. 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.

• b. Interest risk: A decrease in the government/corporate 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.

• c. 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:

Discount rate Expected rate of salary increase	December 31
	2019 2018 1.000% 1.375% 4.000% 4.000%

• 44 -

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 0.25% increase 0.25% decrease		December 31	December 31
		2019 $ 11,916 $ (12,471) $ (11,938) $ 11,477	2018 $ 11,533 $ (12,075) $ (11,601) $ 11,148

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 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	December 31
		2019 $ - 15.51years	2018 $ 13,450 15.45 years

22. EQUITY

Share Capital

• a. Ordinary shares

Number of shares authorized (in thousands of shares) Shares authorized Number of shares issued and fully paid (in thousands of shares) Shares issued		December 31	December 31
		2019 1,000,000 $ 10,000,000 818,809 $ 8,188,086	2018 1,000,000 $ 10,000,000 818,814 $ 8,188,135

For the year ended 2018, the Company retired 2,161 thousand restricted shares for employees, totaling NT$21,616 thousand. In January and February 2018, the employee share options have been exercised by the issuance of 149 thousand shares, totaling NT$1,490 thousand. As a result, the Company’s issued and outstanding ordinary shares as of December 31, 2018 decreased to NT$8,188,135 thousand, divided into 818,814 thousand ordinary shares at a par value of NT$10. Every ordinary share carries one vote per share and a right to dividends.

For the year ended 2019, the Company retired 5 thousand restricted shares for employees, totaling NT$49 thousand. As a result, the Company’s issued and outstanding ordinary shares as of December 31, 2019 decreased to NT$8,188,086 thousand, divided into 818,809 thousand ordinary shares at a par value of NT$10. Every ordinary share carries one vote per share and a right to dividends.

80,000 thousand of the Company’s ordinary shares authorized were reserved for the issuance of employee share options.

• 45 -

b. Global depositary receipts

In November 2003, the Company issued 14,400 thousand ordinary shares, corresponding to 3,600 thousand units of Global Depositary Receipts (“GDRs”). For this GDR issuance, the Company’s shareholders, including Via Technologies, Inc., also issued 12,878.4 thousand ordinary shares, corresponding to 3,219.6 thousand GDR units. Thus, the entire offering consisted of 6,819.6 thousand GDR units. Taking into account the effect of share dividends, the GDRs increased to 8,782.1 thousand units (36,060.5 thousand shares). The holders of these GDRs requested the Company to redeem the GDRs to get the Company’s ordinary shares. As of December 31, 2019, there were 8,430.3 thousand units of GDRs redeemed, representing 33,721 thousand ordinary shares, and the outstanding GDRs represented 2,339.5 thousand ordinary shares or 0.28% of the Company’s issued and outstanding ordinary shares.

Capital Surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital Arising from issuance of ordinary shares Arising from consolidation excess Arising from expired share options May be used to offset a deficit only Changes in equity-method associates capital surplus May not be used for any purpose Arising from employee share options Arising from employee restricted shares		December 31	December 31
		2019 $ 14,726,491 23,288 527,421 26,752 290,258 556 $ 15,594,766	2018 $ 14,714,126 23,288 506,611 60,873 247,944 23,426 $ 15,576,268

The capital surplus arising from shares issued in excess of par (including share premium from the issuance of ordinary shares, treasury share transactions, consolidation excess and expired share options) and donations 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 transferred to share capital (limited to a certain percentage of the Company’s capital surplus and once a year).

For details of capital surplus - employee share options and employee restricted shares, refer to Note 27.

Retained Earnings and Dividend Policy

Under the Company’s Articles of Incorporation, the Company should make appropriations from its net income in the following order:

• a. To pay taxes.

• b. To cover accumulated losses, if any.

• c. To appropriate 10% legal reserve unless the total legal reserve accumulated has already reached the amount of the Company’s authorized capital.

• 46 -

• d. To recognize or reverse special reserve return earnings.

• e. The board of directors shall propose allocation ratios for any remainder profit after withholding the amounts under subparagraphs a. to d. above plus any unappropriated retained earnings of previous years based on the dividend policy set forth in the Article and propose such allocation ratio at the shareholders’ meeting.

As part of a high-technology industry, the Company considers its operating environment, industry developments, and long-term interests of shareholders as well as its programs to maintain operating efficiency and meet its capital expenditure budget and financial goals when determining the share or cash dividends to be paid. The Company’s dividend policy stipulates that at least 50% of total dividends may be distributed as cash dividends.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s capital. Legal reserve may be used to offset deficit. If the Company has no accumulated deficit and the legal reserve has exceeded 25% of its issued and outstanding ordinary share, the excess may be transferred to ordinary share or distributed in cash.

Items referred to under Rule No. 1010012865 issued by the FSC should be appropriated to or reversed from a special reserve by the Company.

The appropriation of earnings for 2018 and loss off-setting for 2017 have been approved in the shareholders’ meeting on June 21, 2019 and June 26, 2018, respectively. The appropriations and dividends per share were as follows:

Legal reserve Special reserve Cash dividends	Appropriation of Earnings (The Loss Off-setting) For 2018 For 2017 $ 597,481 $ - 3,080,480 - 311,148 -	Dividends Per Share (NT$)
		For 2018 For 2017 $ - $ - - - 0.38 -

Information on the appropriation of earnings proposed by the Company’s board of directors and approved by the Company’s shareholders is available on the Market Observation Post System website of the Taiwan Stock Exchange.

Other Equity Items

• a. Exchange differences on translating foreign operations

Exchange differences relating to the translation of the results and net assets of the Company’s foreign operations from their functional currencies to the Company’s presentation currency (New Taiwan dollars) were recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve were reclassified to profit or loss on the disposal of the foreign operation.

• b. Unrealized gains or losses on financial assets at FVTOCI

Unrealized gains or losses on financial assets at FVTOCI represents the cumulative gains and losses arising on the revaluation of financial assets at FVTOCI that have been recognized in other comprehensive income. The cumulative unrealized gains or losses will not be reclassified to profit or loss on disposal of the equity investments.

• 47 -

c. Unearned employee benefit

In the meeting of shareholders on June 2, 2015 and June 19, 2014, the shareholders approved a restricted share plan for employees. See Note 27 for the information of restricted shares issued.

Balance, beginning of the year Adjustment of turnover rate Share-based payment expenses recognized Balance, end of the year	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ (7,077) - 7,077 $ -	2018 $ (49,590) 62,677 (20,164) $ (7,077)

23. OPERATING REVENUE

Sale of goods Other operating income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 7,938,853 611,355 $ 8,550,208	2018 $ 21,494,954 710,870 $ 22,205,824

24. NET (LOSS) INCOME FROM CONTINUING OPERATIONS AND OTHER COMPREHENSIVE INCOME AND LOSS

a. Other income

Interest income - bank deposits Rental income Others	For the Year Ended	For the Year Ended	December 31
		2019 $ 166,541 613,423 143,820 $ 923,784	2018 $ 304,487 435,925 186,180 $ 926,592

b. Other gains and losses

Net gain on disposal of assets and licensing income Net gain on disposal of property, plant and equipment Net gain on disposal of subsidiary Net foreign exchange gain Net (loss) gain on valuation of financial instruments at fair value through profit or loss Impairment loss (Notes 12, 14 and 17) Other loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ - 83,963 - 64,848 (50,700) (67,733) (490,184) $ (459,806)	2018 $ 31,285,385 162,272 15,396 239,354 1,255 (2,252,899) (542,738) $ 28,908,025

• 48 -

On September 21, 2017, the Company signed a business cooperation agreement (the “Agreement”) with Google Inc. (“Google”). According to the Agreement, a part of the Company’s employees and assets was transferred to Google for US$1,100,000 thousand and Google has received a non-exclusive license for a certain part of the Company’s intellectual properties. The aforementioned transaction was completed on January 30, 2018, and resulted in a net gain of NT$31,300,655 thousand, which was comprised of and recorded as a net gain of NT$31,285,385 thousand on the disposal of assets and licensing fee income, a net gain of NT$15,396 thousand on the disposal of a subsidiary and a net loss of NT$126 thousand on the disposal of property and equipment.

• c. Financial costs

Interest on lease liabilities Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 1,112 6,137 $ 7,249	2018 $ - 1,912 $ 1,912

• d. Impairment (reversal gain) loss on financial assets

Trade receivables (included in operating expense) Depreciation and amortization Property, plant and equipment Investment properties Intangible assets Right-of-use assets An analysis of depreciation - by function Operating costs Operating expenses Other expenses An analysis of amortization - by function Operating costs Operating expenses	For the Year Ended	For the Year Ended	December 31
	2019 $ (30,000) For the Year Ended		2018 $ 82,964 December 31
		2019 $ 367,882 101,361 13,069 17,580 $ 499,892 $ 51,986 333,476 101,361 $ 486,823 $ - 13,069 $ 13,069	2018 $ 353,598 91,215 59,143 - $ 503,956 $ 82,771 270,827 91,215 $ 444,813 $ - 59,143 $ 59,143

• e. Depreciation and amortization

• 49 -

f. Employee benefits expense

Short-term benefits Post-employment benefits (Note 21) Defined contribution plans Defined benefit plans Share-based payments (Note 27) Equity-settled share-based payments Separation benefits Total employee benefits expense An analysis of employee benefits expense - by function Operating costs Operating expenses Other losses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 3,685,320 153,420 1,918 155,338 53,003 307,777 $ 4,201,438 $ 808,560 3,194,748 198,130 $ 4,201,438	2018 $ 5,228,132 187,624 (50,698) 136,926 (20,812) 361,174 $ 5,705,420 $ 1,418,134 3,926,112 361,174 $ 5,705,420

• g. Employees’ compensation and remuneration of directors and supervisors

In compliance with the Company’s Articles of Incorporation, the amendments stipulate the distribution of employees’ compensation and remuneration to directors and supervisors at rates of no less than 4% and of no more than 0.25%, respectively, of net profit before income tax, employees’ compensation, and remuneration to directors and supervisors. For the years ended December 31, 2019 and 2018, the accrual rates and amount of employees’ compensation are as follows:

Accrual rate

Employees’ compensation Amount Employees’ compensation	For the Year Ended	For the Year Ended	December 31
	2019 4% For the Year Ended		2018 4% December 31
		2019 $ -	2018 $ 456,987

The appropriations of employees’ compensation for 2018 that were resolved by the board of directors on May 10, 2019, are shown below:

Employees’ compensation		For the Year Ended December 31, 2018	For the Year Ended December 31, 2018
		Cash $ 456,987	Shares $ -

There is no difference between the actual amounts of employees’ compensation and the amounts recognized in the parent company only financial statements for the years ended December 31, 2018.

• 50 -

For any further information on the employees’ compensation and remuneration to directors and supervisors approved in the meeting of the board of directors in 2020 and 2019, see disclosures in the Market Observation Post System.

• h. Impairment loss on non-financial assets (reversed)

Inventories (included in operating costs) Intangible assets (included in other gains and losses) Prepayments (included in other gains and losses) Property, plant and equipment (included in other gains and losses)	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 174,976 (4,981) - 72,714 $ 242,709	2018 $ 973,438 8,957 2,210,749 33,193 $ 3,226,337

• i. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses Net (loss) gain on valuation of financial instruments at fair value through profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 913,694 (848,846) (50,700) $ 14,148	2018 $ 1,730,601 (1,491,247) 1,255 $ 240,609

25. INCOME TAXES RELATING TO CONTINUING OPERATIONS

• a. Income tax expense recognized in profit or loss

In respect of the current year Current tax Deferred tax Adjustments for previous years Current tax Deferred tax Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ - 154,849 154,849 (228,943) 228,943 - $ 154,849	2018 $ 22,636 5,017,363 5,039,999 (108,780) - (108,780) $ 4,931,219

• 51 -

A reconciliation of accounting (loss) profit and income tax expense and the applicable tax rate were as follows:

(Loss) profit before income tax Income tax (benefit) expense calculated at 20% in 2019 and 2018, respectively Effect of expenses that were not deductible in determining taxable profit Share of the profit or loss of subsidiaries Effect of temporary differences and loss carryforward Adjustments for previous years’ tax Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ (9,203,229) $ (1,840,645) 1,649 251,458 1,742,387 - $ 154,849	2018 $ 16,999,421 $ 3,399,884 71,830 62,214 1,506,071 (108,780) $ 4,931,219

The Income Tax Act in the ROC was amended in 2018 and the corporate income tax rate was adjusted from 17% to 20% effective in 2018. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%.

• b. Income tax expense recognized in other comprehensive income

Deferred tax Recognized in current year Income tax expense of remeasurement on defined benefit plan	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 1,866	2018 $ 21,529

c. Current tax assets and liabilities

Current tax assets Tax refund receivable Current tax liabilities Income tax payable		December	31
		2019 $ 37,197 $ 11,403	2018 $ 33,312 $ 11,634

• 52 -

d. Deferred tax balances

Movements of deferred tax assets and deferred tax liabilities for the years ended December 31, 2019 and 2018 were as follows:

Deferred tax assets Temporary differences Allowance for loss on decline in value of inventory Unrealized profit Unrealized royalties Unrealized marketing expenses Unrealized warranty expense Unrealized contingent losses on purchase orders Financial instruments at FVTPL Others Loss carryforwards Deferred tax liabilities Temporary differences Defined benefit plans Financial instruments at FVTPL Unrealized loss Others Deferred tax assets Temporary differences Allowance for loss on decline in value of inventory Unrealized profit Unrealized royalties Unrealized marketing expenses Unrealized warranty expense Unrealized contingent losses on purchase orders Others Loss carryforwards Deferred tax liabilities Temporary differences Defined benefit plans Financial instruments at FVTPL Others	2019
	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance $ 224,650 $ (150,287) $ - $ 74,363 21,460 (21,460) - - 447,858 (25,261) - 422,597 247,535 (95,449) - 152,086 216,582 (47,499) - 169,083 7,226 (3,732) - 3,494 - 6,084 - 6,084 184,764 (55,700) - 129,064 2,477,427 34,284 - 2,511,711 $ 3,827,502 $ (359,020) $ - $ 3,468,482 $ 32,534 $ 2,506 $ 1,866 $ 36,906 151 (151) - - - 5,971 - 5,971 - 16,446 - 16,446 $ 32,685 $ 24,772 $ 1,866 $ 59,323 2018
	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance $ 560,149 $ (335,499) $ - $ 224,650 42,754 (21,294) - 21,460 404,858 43,000 - 447,858 424,733 (177,198) - 247,535 312,697 (96,115) - 216,582 69,754 (62,528) - 7,226 288,529 (103,765) - 184,764 6,763,951 (4,286,524) - 2,477,427 $ 8,867,425 $ (5,039,923) $ - $ 3,827,502 $ 2,377 $ 8,628 $ 21,529 $ 32,534 - 151 - 151 31,339 (31,339) - - $ 33,716 $ (22,560) $ 21,529 $ 32,685

• 53 -

• e. Amounts of deductible temporary differences, unused carryforward and unused tax credits for which deferred tax assets have not been recognized

Loss carryforward Deductible temporary differences		December 31	December 31
		2019 $ 65,488,191 $ 8,086,375	2018 $ 53,109,541 $ 8,625,704

• f. Information about unused loss carry-forward

Loss carryforwards as of December 31, 2019 comprised of:

	Remaining Carrying Expiry Year $ 4,068,142 2024 22,459,646 2025 22,167,741 2026 17,905,848 2027 11,445,369 2029 $ 78,046,746

• g. The aggregate amount of temporary difference associated with investments for which deferred tax assets (liabilities) have not been recognized

As of December 31, 2019 and 2018, the taxable temporary differences associated with investment in subsidiaries for which no deferred tax assets have been recognized were NT$6,621,415 thousand and NT$5,234,750 thousand, respectively.

• h. Income tax assessments

The Company’s tax returns through 2017 had been assessed by the tax authorities.

26. (LOSS) EARNINGS PER SHARE

Basic (loss) earnings per share Diluted (loss) earnings per share	Unit: NT$ Per Share For the Year Ended December 31	Unit: NT$ Per Share For the Year Ended December 31	Unit: NT$ Per Share For the Year Ended December 31
		2019 $ (11.43) $ (11.43)	2018 $ 14.72 $ 14.50

The (loss) income and weighted average number of ordinary shares outstanding for the computation of (loss) profit per share were as follows:

Net Profit (Loss) for the Years

Net (loss) profit for the year	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ (9,358,078)	2018 $ 12,068,202

• 54 -

Shares

Unit: In Thousands of Shares

Weighted average number of ordinary shares used in the computation of basic (loss) earnings per share Effect of potentially dilutive ordinary shares: Employees’ compensation or bonuses issued Weighted average number of ordinary shares used in the computation of diluted (loss) earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 818,811 - 818,811	2018 819,629 12,928 832,557

If the Company offered to settle the compensation or bonuses paid to employees in cash or shares, the Company expected that the entire amount of the compensation or bonuses will be settled in shares, and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings (loss) per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings (loss) per share until the number of shares to be distributed to employees is resolved in the following year.

The exercise price of the outstanding options issued by the Company exceeded the average market price of the shares during the years ended December 31, 2019 and 2018, which were excluded from the computation of diluted (loss) earnings per share.

27. SHARE-BASED PAYMENT ARRANGEMENTS

Employee Share Option Plan of the Company

Qualified employees of the Company and its subsidiaries were granted 15,000 thousand options in November 2013. Each option entitles the holder to subscribe for one common share of the Company. The options granted are valid for 7 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of the Company and its subsidiaries were granted 19,000 thousand options in October 2014. Each option entitles the holder to subscribe for one common share of the Company. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of the Company and its subsidiaries were granted 1,000 thousand options in August 2015. Each option entitles the holder to subscribe for one ordinary share of the Company. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of the Company and its subsidiaries were granted 20 thousand options in May 2019. Each option entitles the holder to subscribe for one thousand ordinary shares of the Company. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of the Company and its subsidiaries were granted 10,000 thousand options in November 2019. Each option entitles the holder to subscribe for one ordinary share of the Company. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

• 55 -

The exercise price equals to the closing price of the Company’s ordinary shares on the grant date. For any subsequent changes in the Company’s ordinary shares, the exercise price is adjusted accordingly.

Information on employee share options was as follows:

Balance, beginning of the year Shares granted Shares exercised Shares forfeited Balance, end of the year Options exercisable, end of the year Weighted-average fair value of option granted (NT$)	For the Year Ended December 31	For the Year Ended December 31
	2019 Number of Shares (In Thousands) Weighted- average Exercise Price (NT$) 6,909 $ 138.19 30,000 35.35 - (948) 35,961 53.41 6,307 $ 15.34	2018
		Number of Shares (In Thousands) Weighted- average Exercise Price (NT$) 16,068 $ 137.45 - - (149) (9,010) 6,909 138.19 6,889 $ -

Information about outstanding options as of the reporting date was as follows:

Range of exercise price (NT$) Weighted-average remaining contractual life (years)	December 31
	2019 2018 $35.05-$149 $54.5-$149 8.43 years 4.21 years

Options granted in November and May 2019 were priced using the Black-Scholes option pricing model. Options granted in August 2015, October 2014 and November 2013 were priced using the trinomial option pricing model. The inputs to the model are as follows:

	November 2019	May 2019	August 2015	October 2014	November 2013
Grant-date share price (NT$)	$35.05	$35.50	$54.50	$134.50	$149.00
Exercise price (NT$)	$35.05	$35.50	$54.50	$134.50	$149.00
Expected volatility	43.64%-44.09%	44.94%-45.01%	39.26%	33.46%	45.83%
Expected life (years)	10 years	10 years	10 years	10 years	7 years
Expected dividend yield	-	-	4.04%	4.40%	5.00%
Risk-free interest rate	0.6125%-0.6348%	0.6082%-0.6224%	1.3965%	1.7021%	1.63%

Expected volatility was based on the historical share price volatility over the past 1-7 year. The Company assumed that employees would exercise their options after the vesting date when the share price was 1.63 times the exercise price.

Employee Restricted Shares

In the shareholders’ meeting on June 19, 2014 and June 2, 2015, the shareholders approved a restricted share plan for employees amounting to NT$50,000 thousand and NT$75,000 thousand, consisting of 5,000 thousand and 7,500 thousand shares, respectively. In 2014 and 2015, the Company’s board of directors passed a resolution to issue 5,000 thousand and 7,500 thousand shares, respectively.

• 56 -

The restrictions on the rights of the employees who acquire the restricted shares but have not met the vesting conditions are as follows:

• a. The employees cannot sell, pledge, transfer, donate or in any other way dispose of these shares.

• b. The employees holding these shares are entitled to receive dividends in cash or shares.

• c. The employees holding these shares have no voting rights.

If an employee fails to meet the vesting conditions, the Company will recall or buy back and cancel the restricted shares. For the years ended December 31, 2018 and 2019, the Company retired 2,161 thousand and 5 thousand restricted shares for employees, totaling NT$21,616 thousand and NT$49 thousand, respectively. As a result, the number of the Company’s issued and outstanding employee restricted shares as of December 31, 2019 was 164 thousand shares. The related information is as follows

Grant-date	July 18, 2016	December 23, 2015	November 2, 2014
Grant-date fair value (NT$)	$96.90	$76.20	$134.50
Exercise price	Gratuitous	Gratuitous	Gratuitous
Numbers of shares (thousand shares)	2,657	4,006	4,600
Vesting period (years)	1-4 years	1-3 years	1-3 years

Compensation Cost of Share-based Payment Arrangements

Compensation cost of share-based payment arrangement recognized (reversed) was NT$53,003 thousand and NT$(20,812) thousand for the years ended December 31, 2019 and 2018, respectively.

28. CAPITAL RISK MANAGEMENT

The Company manages its capital to ensure its ability to continue as a going concern while maximizing the returns to shareholders. The Company periodically reviews its capital structure by taking into consideration macroeconomic conditions, prevailing interest rate, and adequacy of cash flows generated from operations; as the situation would allow, the Company pays dividends, issues new shares, repurchases shares, issues new debt, and redeems debt.

The Company is not subject to any externally imposed capital requirements.

29. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments That Are Not Measured at Fair Value

Financial instruments not carried at fair value held by the Company include financial assets measured at cost. The management considers that the carrying amounts of financial assets not measured at fair value approximate their fair value or the fair value are not measured reliably.

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Fair Value of Financial Instruments That Are Measured at Fair Value on a Recurring Basis

a. Fair value hierarchy

December 31, 2019 Financial assets at FVTPL Derivative financial instruments Foreign exchange contracts Financial assets at FVTOCI Investments in equity instruments Domestic listed shares and emerging market shares Domestic unlisted shares Financial liabilities at FVTPL Derivative financial instruments Foreign exchange contracts December 31, 2018 Financial assets at FVTPL Derivative financial instruments Foreign exchange contracts Financial assets at FVTOCI Investments in equity instruments Domestic listed shares and emerging market shares Domestic unlisted shares Financial liabilities at FVTPL Derivative financial instruments Foreign exchange contracts	Level 1 $ - $ 306 - $ 306 $ - Level 1 $ - $ 225 - $ 225 $ -	Level 2 $ 69,055 $ - - $ - $ 119,755 Level 2 $ 83,411 $ - - $ - $ 82,156	Level 3 $ - $ - 3,936 $ 3,936 $ - Level 3 $ - $ - 289,884 $ 289,884 $ -	Total $ 69,055 $ 306 3,936 $ 4,242 $ 119,755 Total $ 83,411 $ 225 289,884 $ 290,109 $ 82,156

There were no transfers between Levels 1 and 2 for the years ended December 31, 2019 and 2018.

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• b. Reconciliation of Level 3 fair value measurements of financial instruments

For the year ended December 31, 2019

Financial Assets Balance at January 1, 2019 Recognized in other comprehensive income Balance at December 31, 2019 For the year ended December 31, 2018	Financial Assets at FVTOCI
	Equity Instruments $ 289,884 (285,948) $ 3,936

Financial Assets Balance at January 1, 2018 Recognized in other comprehensive income Balance at December 31, 2018	Financial Assets at FVTOCI
	Equity Instruments $ 475,258 (185,374) $ 289,884

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

Financial Instruments Derivatives - foreign currency contracts	Valuation Techniques and Inputs
	Discounted cash flow: Future cash flows are estimated based on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

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

For fair value measurements categorized within Level 3 of the fair value hierarchy as investments in equity instruments, the lack of quoted prices in an active market categorized the financial assets into Level 3 of which fair values are based on valuations provided by market participants or quoted prices of the counterparty. Quantitative information is not disclosed since the relationship between significant unobservable inputs and the fair value cannot be fully controlled.

• e. Valuation process for the fair value measurement within Level 3

The investment department will confirm the reliability, independence and correspondence of the information sources in representative of the exercise price. Any adjustments should be made in order to ensure the rationality of the valuation presented.

• f. Sensitivity analysis of the fair value regarding reasonable and possible alternative assumption within Level 3.

No sensitive analysis of replacement assumptions need to be implemented for the valuation of financial instruments as fair value measurement within Level 3 since the valuation by the Company is reasonable without the adoption of a self-estimated model.

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Categories of Financial Instruments

Financial assets Financial assets at FVTPL Held for trading Amortized cost (Note 1) Financial assets at FVTOCI Equity instruments Financial liabilities Financial liabilities at FVTPL Held for trading Amortized cost (Note 2)	For the Year Ended December 31
	2019 2018 $ 69,055 $ 83,411 12,829,500 24,871,837 4,242 290,109 119,755 82,156 17,922,174 21,808,187

• Note 1: The balances included financial assets measured at amortized cost, which comprise cash and cash equivalents, other financial assets, trade receivables, other receivables and refundable deposits.

• Note 2: The balances included financial liabilities measured at amortized cost, which comprise, note and trade payables, other payables, agency receipts and guarantee deposits received.

Financial Risk Management Objectives and Policies

The Company’s financial instruments mainly include equity and debt investments, trade receivables, other receivables, trade payables and other payables. The Company’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 Company through internal risk reports which analyze the exposures by degree and magnitude of risks. These risks include market risk, credit risk and liquidity risk.

The Company sought to minimize the effects of these risks by using derivative financial instruments and non-derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Company’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies was reviewed by the internal auditors on a continuous basis. The Company did not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The Corporate Treasury function reports quarterly to the Company’s audit committee and board of directors for monitoring risks and policies implemented to mitigate risk exposures.

• a. Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates. The Company entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk.

There had been no change to the Company’s exposure to market risks or the manner in which these risks were managed and measured.

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Foreign currency risk

The Company undertook transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arose. Exchange rate exposures were managed within approved policy parameters utilizing forward foreign exchange contracts.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities and of the derivatives exposing to foreign currency risk at the end of the reporting period are set out in Note 33.

Sensitivity analysis

The Company was mainly exposed to the currency United Stated dollars (USD), Euro (EUR), Renminbi (RMB) and Japanese yen (JPY).

The following table details the Company’s sensitivity to a 1% increase and decrease in the New Taiwan dollars (“NTD”, the functional currency) against the relevant foreign currencies. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges. A positive number below indicates an increase in pre-tax profit (loss) or equity associated with the NTD strengthens 1% against the relevant currency. For a 1% weakening of the NTD against the relevant currency, there would be an equal and opposite impact on pre-tax profit (loss) or equity, and the balances below would be negative.

	Profit or Loss	Equity
For the year ended December 31, 2019
USD	$ (11,150)	$ (125,365)
EUR	(1,210)	(3,492)
RMB	(18,947)	(61,865)
JPY	(3,106)	(1,469)
For the year ended December 31, 2018
USD	7,963	(131,112)
EUR	2,527	(3,641)
RMB	(20,430)	(105,301)
JPY	426	(1,504)

• b. Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure of counterparties to discharge an obligation and financial guarantees provided by the Company could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets. The Company does not issue any financial guarantee involving credit risk.

The Company adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.

The credit risk information of trade receivables is disclosed in the Note 10.

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c. Liquidity risk

The Company manages liquidity risk to ensure that the Company possesses sufficient financial flexibility by maintaining adequate reserves of cash and cash equivalents and reserving financing facilities, and also monitor liquidity risk of shortage of funds by the maturity date of financial instruments and financial assets.

• 1) Liquidity risk tables for non-derivative financial liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay.

December 31, 2019

Note and trade payables Other payables Lease liabilities Other current liabilities Guarantee deposits received	Less Than 3 Months 3 to 12 Months $ 2,598,274 $ 7,599,557 4,832,834 2,712,001 1,307 2,824 43,232 - - - $ 7,475,647 $ 10,314,382	Over 1 Year $ - - 4,213 - 136,816 $ 141,029

December 31, 2018

Note and trade payables Other payables Other current liabilities Guarantee deposits received	Less Than 3 Months 3 to 12 Months $ 4,023,438 $ 8,098,453 5,213,566 4,293,148 56,529 - - - $ 9,293,533 $ 12,391,601	Over 1 Year $ - - - 123,053 $ 123,053

• 2) Liquidity risk tables for derivative financial instruments

The following table detailed the Company’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement.

December 31, 2019

Net settled Foreign exchange contracts	Less Than 3 Months $ 2,098	3 Months to 1 Year $ -	Over 1 Year $ - (Continued)

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3)	Gross settled Foreign exchange contracts Inflows Outflows December 31, 2018 Net settled Foreign exchange contracts Gross settled Foreign exchange contracts Inflows Outflows Bank credit limit Unsecured bank general credit limit Amount used Amount unused	Less Than 3 Months $ 22,493,831 (22,528,214) $ (34,383) Less Than 3 Months $ 20,968 $ 25,899,104 (25,861,350) $ 37,754		3 Months to 1 Year Over 1 Year $ - $ - - - $ - $ - (Concluded) 3 Months to 1 Year Over 1 Year $ - $ - $ - $ - - - $ - $ - December 31	3 Months to 1 Year Over 1 Year $ - $ - - - $ - $ - (Concluded) 3 Months to 1 Year Over 1 Year $ - $ - $ - $ - - - $ - $ - December 31
				2019 $ 283,455 16,574,220 $ 16,857,675	2018 $ 538,680 18,128,633 $ 18,667,313

Amount used includes guarantee for customs duties and for patent litigation.

30. RELATED-PARTY TRANSACTIONS

The Names and Relationships of Related-parties

Related-party High Tech Computer Asia Pacific Pte. Ltd. PT. High Tech Computer Indonesia HTC (Australia and New Zealand) PTY LTD. HTC (Thailand) Limited HTC India Private Limited	Relationship with the Company
	Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary

(Continued)

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Related-party

Relationship with the Company

HTC Malaysia Sdn. Bhd. Subsidiary HTC Communication Co., Ltd. Subsidiary HTC HK, Limited Subsidiary HTC Communication Technologies (SH) Subsidiary HTC Vietnam Services One Member Limited Liability Subsidiary Company HTC Communication (BJ) Tech Co. Subsidiary HTC Electronics (Shanghai) Co., Ltd. Subsidiary HTC Netherlands B.V. Subsidiary HTC EUROPE CO., LTD. Subsidiary HTC BRASIL Subsidiary HTC Belgium BVBA/SPRL Subsidiary HTC NIPPON Corporation Subsidiary HTC FRANCE CORPORATION Subsidiary HTC Germany GmbH. Subsidiary HTC Poland sp. z o.o. Subsidiary HTC Communication Canada, Ltd. Subsidiary HTC Communication Sweden AB Subsidiary HTC Middle East FZ-LLC Subsidiary HTC Communication Solutions Mexico, S.A DE C.V. Subsidiary HTC America Inc. Subsidiary HTC America Innovation Inc. Subsidiary HTC America Content Services, Inc. Subsidiary Dashwire, Inc. Subsidiary Uomo vitruviano Corp. Subsidiary DeepQ Technology Corp. Subsidiary VIA Technologies Inc. Its chairman is HTC’s director in substance Xander International Corp. Its chairman is HTC’s director in substance VIA Labs, Inc. Its chairman is HTC’s director in substance Chander Electronics Corp. Its chairman is HTC’s director in substance Way Chih Investment Co., Ltd. Its director is HTC’s chairwoman in substance (Note) HTC Education Foundation Its chairman is HTC’s director in substance Hung-Mao Investment Co., Ltd. Its significant shareholder in substance is HTC’s chairwoman Nan Ya Plastics Corporation Its director in substance and HTC’s chairwoman are relatives and other relatives Atrust Computer Corporation Its general manager in substance is HTC’s director Employees’ Welfare Committee Employees’ Welfare Committee of HTC Gui Zhou Wei Ai Educational Technology Co., Ltd. Associates Chengdu Weiai New Economic Technology Institute Subsidiary of associates HTC Social Welfare and Charity Foundation Its chairman is HTC’s director in substance (Concluded)

Note: Way Chih Investment Co., Ltd. was previously the supervisor of the Company. On June 21, 2019, an audit committee was set in replace of supervisors and was approved in the shareholders’ meeting. The function of supervisors will be automatically discharged after expiration of the term of office.

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Operating Sales

Subsidiaries HTC Communication Co., Ltd. HTC America Inc. Others Other related parties	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 933,178 772,735 207,336 4,455 $ 1,917,704	2018 $ 1,136,624 6,552,481 994,420 33,908 $ 8,717,433

The following balances of trade receivables from related parties were outstanding at the end of the reporting period:

Subsidiaries HTC America Inc. HTC Communication Inc. HTC NIPPON Corporation Others Other related parties		December 31	December 31
		2019 $ 75,475 27,079 - 3,798 598 $ 106,950	2018 $ - 80,479 293,982 2,759 516 $ 377,736

Products sold to all related parties will be lower than those sold to outsiders, except for some related parties who have no comparison with those sold to third parties. No guarantees had been given or received for trade receivables from related parties. Trade receivables from related parties were assessed to have no debt risk, hence no bad debt expense had been recognized for the years ended December 31, 2019 and 2018.

Purchase

Purchase Subsidiaries Other related parties	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ - 8,456 $ 8,456	2018 $ 1,393 11,725 $ 13,118

The following balances of trade payables from related parties were outstanding at the end of the reporting period:

Subsidiaries Other related parties		December 31	December 31
		2019 $ - 2,296 $ 2,296	2018 $ 1,411 4,159 $ 5,570

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Purchase prices for related parties and third parties were similar. The outstanding balances of trade payables to related parties are unsecured and will be settled in cash.

Compensation of Key Management Personnel

Short-term 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
		2019 $ 89,559 878 2,783 $ 93,220	2018 $ 160,456 612 (1,791) $ 159,277

The remuneration of directors and key executives was determined by the remuneration committee on the basis of the performance of individuals and market trends.

Lease Expense

Other related parties	For the Year Ended	For the Year Ended	December 31
		2019 $ 4,085	2018 $ 4,653

The Company leased meeting rooms owned by other related party under an operating lease agreement.

Property, Plant and Equipment Acquired

Other related parties	Price	Price	Price
	For the Year Ended December 31
		2019 $ -	2018 $ 675

Services, Marketing and Commission Expenses

Subsidiaries HTC Communication Technologies (SH) HTC EUROPE CO., LTD. Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 571,009 489,806 862,898 $ 1,923,713	2018 $ 537,092 619,631 1,428,414 $ 2,585,137

The following balances of other payables from related parties were outstanding at the end of the reporting period:

Subsidiaries Other related parties		December 31	December 31
		2019 $ 1,427,696 7,321 $ 1,435,017	2018 $ 1,235,987 25 $ 1,236,012

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The subsidiaries provided services such as overseas business activities, research and development, technical support, business consulting and after-sales maintenance for the Company, and all service fees, advertising fees and commission fees are taken into account.

Other related parties provide consultancy service fee to the Company. The consultancy service fee was $10,464 thousand for 2019.

Other Related-party Transactions

To enhance products diversity, the Company has entered into technology license agreement with subsidiaries. As of December 31, 2019 and 2018 the amounts of prepaid royalty were NT$55,217 thousand and NT$56,470 thousand, respectively.

31. PLEDGED ASSETS

As of December 31, 2019 and 2018, the time deposits and demand deposits amounting to NT$267,394 thousand and NT$476,276 thousand and were classified as other financial assets and were provided respectively as collateral for rental deposits, litigation, customs duties patent, vendors cooperation and performance bond.

32. COMMITMENTS, CONTINGENCIES AND SIGNIFICANT CONTRACTS

• a. In April 2008, IPCom GMBH & CO., KG (“IPCom”) filed a multi-claim lawsuit against the Company with the District Court of Mannheim, Germany, alleging that the Company infringed IPCom’s patents. In November 2008, the Company filed a declaratory judgment action for non-infringement and patent invalidity against three of IPCom’s patents with the Washington Court, District of Columbia.

In October 2010, IPCom filed a new complaint against the Company alleging patent infringement of the patent owned by IPCom in District Court of Dusseldorf, Germany.

In June 2011, IPCom filed a new complaint against the Company alleging patent infringement of patent owned by IPCom with the High Court in London, the United Kingdom. In September 2011, the Company filed declaratory judgment action for non-infringement and invalidity in Milan, Italy. Legal proceedings in above-mentioned courts in Germany and Italy are still ongoing. The Company implemented the alternative solution since 2012. The Company evaluated the lawsuits and considered the risk of patents-in-suits are low. Also, preliminary injunction and summary judgment against the alternative solution of the Company are very unlikely.

In February 2017, the court of appeal of the United Kingdom found the alternative solution of the Company did not infringed and only some old products without the alternative solution infringed the United Kingdom part of European Patent No. 1841268 (EP ‘268 patent). In December 2019, the High Court of the United Kingdom issued an injunction order against the old products without the alternative solution. The EP ‘268 patent was held to be valid by European Patent Office on July 18, 2017. The next hearing has not been scheduled by the courts yet.

In regard to the Company’s motion for summary judgement in Washington Court and invalidity proceedings in the United States Patent and Trademark Office (“USPTO”), Washington Court granted on the Company’s summary judgment motion in March 2012 and ruled on non-infringement of two of patents-in-suit. As for the third patent-in-suit, the Washington Court had granted a stay on case pending the decision of IPCom’s appeal. In January 2014, the Court of Appeal for the Federal Circuit affirmed the Washington Court’s decision. In June 2019, the Federal Circuit issued an order that affirmed the USPTO’s decision of invalidating the third patent-in-suit. In October 2019, the Washington Court dismissed the US case according to a joint stipulation of dismissal filed by both parties.

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As of the date that the board of directors approved and authorized for issuing consolidated financial statements, the courts have not issued a ruling with respect to the above-mentioned patents-in-suit.

• b. Since December 2015, Koninklijke Philips N.V. (Philips) filed several lawsuits against the Company in the District Court for the District of Delaware, United States, the District Court of Mannheim, Germany, High Court, Chancery Division, Patent Court, United Kingdom, First Instance Court of Paris, France, and District Court of The Hague, Netherlands, alleging infringement of a dozen Philips patents. On December 24, 2019, Philips and the Company has reached settlement by signing a patent license agreement. According to the patent license agreement, both sides will withdraw from all of the pending proceedings.

• c. On the basis of its past experience and consultations with its legal counsel, the Company has measured the possible effects of the contingent lawsuits on its business and financial condition.

33. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

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

Financial assets Monetary items USD EUR JPY RMB Investments accounted for using the equity method USD SGD Financial liabilities Monetary items USD EUR JPY RMB	December 31	December 31
	2019 Foreign Currencies Exchange Rate $ 859,717 30.10 57,045 33.74 2,153,431 0.2771 593,659 4.32 163,012 30.10 976,381 22.36 731,915 30.10 48,200 33.74 3,051,602 0.2771 69,605 4.32	2018
		Foreign Currencies Exchange Rate $ 806,999 30.73 45,717 35.16 3,388,315 0.2787 523,555 4.47 183,171 30.73 967,256 22.55 842,297 30.73 55,851 35.16 3,563,810 0.2787 21,580 4.47

For the years ended December 31, 2019 and 2018, realized and unrealized net foreign exchange gain were NT$14,148 thousand and NT$240,609 thousand, respectively. It is impractical to disclose net foreign exchange gains or losses by each significant foreign currency due to the variety of the foreign currency transactions.

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34. SIGNIFICANT CONTRACTS

The Company specializes in the research, design, manufacture and sale of smart mobile devices and virtual reality devices. To enhance the quality of its products and manufacturing technologies, the Company has patent agreements, which are as follows:

Contractor Qualcomm Incorporated. InterDigital Technology Corporation IV International Licensing Netherlands, B.V. KONINKLIJKE PHILIPS N.V.	Term December 20, 2000 to the following dates: a. If the Company materially breaches any agreement terms and fails to take remedial action within 30 days after Qualcomm’s issuance of a written notice, the Company will be prohibited from using Qualcomm’s property or patents. b. Any time when the Company is not using any of Qualcomm’s intellectual property, the Company may terminate this agreement upon 60 days’ prior written notice to Qualcomm. December 31, 2003 to the expiry dates of these patents stated in the agreement. November 2010 - June 2020 December 23, 2019 - December 30, 2024	Description
		Authorization to use CDMA technology to manufacture and sell units, royalty payment based on agreement. Authorization to use TDMA and CDMA technologies; royalty payment based on agreement. Authorization to use wireless technology; royalty payment based on agreement. Authorization to use UMTS/LTE patents and portable feature patents; royalty payment based on agreement.

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