HTC - Interim / Quarterly Report 2019

HTC Corporation and Subsidiaries

Consolidated Financial Statements for the Six Months Ended June 30, 2019 and 2018 and Independent Auditors’ Review Report

INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Shareholders HTC Corporation

Introduction

We have reviewed the accompanying consolidated balance sheets of HTC Corporation and its subsidiaries (collectively referred to as the Company) as of June 30, 2019 and 2018, consolidated statements of comprehensive income for the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018, consolidated statements of changes in equity and cash flows for the six months ended June 30, 2019 and 2018 and the related notes, including a summary of significant accounting policies (collectively referred to as the consolidated financial statements). Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews.

Scope of Review

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

Conclusion

Based on our reviews, nothing has come to our attention that caused us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, its consolidated financial performance for the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018 and its consolidated cash flows for the six months ended June 30, 2019 and 2018, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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

Deloitte & Touche Taipei, Taiwan Republic of China

August 2, 2019

Notice to Readers

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

For the convenience of readers, the independent auditors’ review report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in 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’ review report and consolidated financial statements shall prevail. Also, as stated in Note 4 to the consolidated financial statements, the additional footnote disclosures that are not required under accounting principles and practices generally applied in the Republic of China were not translated into English.

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss - current (Note 7) Financial assets at fair value through other comprehensive income - current (Note 8) Trade receivables, net (Notes 10 and 31) Other receivables (Note 10) Current tax assets Inventories (Note 11) Prepayments (Note 12) Other current financial assets (Notes 9 and 32) Other current assets Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss - non-current (Note 7) Financial assets at fair value through other comprehensive income - non-current (Note 8) Investments accounted for using the equity method (Note 14) Property, plant and equipment (Note 15) Right-of-use assets (Note 16) Investment properties, net (Note 17) Intangible assets (Note 18) Deferred tax assets Refundable deposits (Note 30) Net defined benefit asset - non-current Other non-current financial assets (Notes 9 and 32) 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 (Note 7) Note and trade payables (Notes 19 and 31) Other payables (Notes 20 and 31) Current tax liabilities Provisions - current (Note 21) Lease liabilities - current (Notes 16 and 31) Other current liabilities (Note 20) Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities Lease liabilities - non-current (Notes 16 and 31) Guarantee deposits received (Note 30) 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 attributable to owners of the parent NON-CONTROLLING INTERESTS Total equity TOTAL		June 30, 2019 (Reviewed) Amount % $ 28,051,098 46 109,519 - 827,135 1 1,333,454 2 139,283 - 232,956 1 3,114,753 5 531,295 1 7,984,820 13 2,313 - 42,326,626 69 269,891 - 2,359,600 4 512,094 1 8,226,190 13 451,962 1 2,039,874 3 603,583 1 3,967,204 7 121,164 - 274,871 1 155,343 - 44,930 - 19,026,706 31 $ 61,353,332 100 $ 168,733 - 8,543,447 14 7,900,903 13 269,955 - 2,037,307 3 143,796 - 890,751 2 19,954,892 32 45,969 - 326,242 1 166,967 - 539,178 1 20,494,070 33 8,188,119 14 15,515,328 25 18,895,136 31 3,080,480 5 (2,477,499) (4) (2,370,366) (4) 40,831,198 67 28,064 - 40,859,262 67 $ 61,353,332 100		December 31, 2018 (Audited) Amount % $ 24,449,548 36 83,411 - 409,412 1 1,683,150 3 221,707 - 222,387 - 3,301,645 5 1,160,299 2 16,915,835 25 12,812 - 48,460,206 72 236,464 - 2,325,020 3 446,133 1 8,425,886 13 - - 2,090,226 3 1,181,256 2 3,957,060 6 124,962 - 270,358 - 153,638 - 39,610 - 19,250,613 28 $ 67,710,819 100 $ 82,156 - 9,812,847 15 9,223,293 14 241,167 - 2,004,190 3 - - 953,447 1 22,317,100 33 43,451 - - - 130,400 - 173,851 - 22,490,951 33 8,188,135 12 15,576,268 23 18,297,655 27 - - 6,194,337 9 (3,087,557) (4) 45,168,838 67 51,030 - 45,219,868 67 $ 67,710,819 100		June 30, 2018 (Reviewed)
						Amount % $ 29,311,099 37 541,782 1 442,106 1 3,526,821 4 256,226 - 131,245 - 5,006,623 6 1,444,846 2 16,722,067 21 161,703 - 57,544,518 72 156,900 - 2,770,536 3 397,903 1 8,503,733 11 - - 2,117,598 3 1,751,780 2 3,937,116 5 132,937 - 25,955 - 152,463 - 2,186,457 3 22,133,378 28 $ 79,677,896 100 $ 334,147 - 11,584,331 15 10,395,111 13 372,805 1 2,697,269 3 - - 1,367,468 2 26,751,131 34 56,232 - - - 110,541 - 166,773 - 26,917,904 34 8,192,617 10 15,575,798 20 18,297,655 23 - - 12,990,038 16 (2,373,249) (3) 52,682,859 66 77,133 - 52,759,992 66 $ 79,677,896 100

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

HTC CORPORATION AND SUBSIDIARIES

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

OPERATING REVENUE (Notes 23 and 31) OPERATING COST (Notes 11, 24 and 31) GROSS PROFIT (LOSS) OPERATING EXPENSES (Notes 24 and 31) 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, 18 and 24) Finance costs (Note 24) Share of the loss of associates (Note 14) Total non-operating income and expenses (LOSS) PROFIT BEFORE INCOME TAX INCOME TAX BENEFIT (EXPENSE) (Note 25) (LOSS) PROFIT FOR THE PERIOD		For the Three Months Ended June 30	For the Three Months Ended June 30	For the Three Months Ended June 30		For the Six Months	For the Six Months	Ended June 30
		2019		2018		2019		2018
		Amount % $ 2,807,105 100 2,236,819 80 570,286 20 718,165 26 886,565 31 1,450,840 52 3,055,570 109 (2,485,284) (88) 306,284 11 (16,322 ) (1 ) (8,063 ) - (26,641) (1) 255,258 9 (2,230,026 ) (79 ) 1,001 - (2,229,025) (79)		Amount % $ 6,774,460 100 6,594,478 97 179,982 3 955,875 14 1,007,436 15 1,652,484 25 3,615,795 54 (3,435,813) (51) 302,572 4 1,074,564 16 (691 ) - (10,157) - 1,366,288 20 (2,069,525 ) (31 ) (15,620) - (2,085,145) (31)		Amount % $ 5,750,731 100 4,749,016 83 1,001,715 17 1,485,960 26 1,829,481 32 2,905,770 50 6,221,211 108 (5,219,496) (91) 634,633 11 (61,164 ) (1 ) (11,783 ) - (28,703) - 532,983 10 (4,686,513 ) (81 ) 1,983 - (4,684,530) (81)		Amount % $ 15,563,203 100 15,568,685 100 (5,482) - 2,213,515 14 1,875,227 12 4,245,433 28 8,334,175 54 (8,339,657) (54) 587,383 4 32,101,717 206 (692 ) - (23,496) - 32,664,912 210 24,325,255 156 (5,320,836) (34) 19,004,419 122 (Continued)

HTC CORPORATION AND SUBSIDIARIES

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

For the Three Months Ended June 30	For the Three Months Ended June 30	For the Six Months	Ended June 30
2019	2018	2019	2018
Amount % $ 117,442 4 (22,009) (1) 95,433 3 $ (2,133,592) (76) $ (2,217,052 ) (79 ) (11,973) - $ (2,229,025) (79) $ (2,121,984 ) (76 ) (11,608) - $ (2,133,592) (76) $ (2.71) $ (2.71)	Amount % $ (362,536 ) (5 ) 543,339 8 180,803 3 $ (1,904,342) (28) $ (2,074,417 ) (31 ) (10,728) - $ (2,085,145) (31) $ (1,896,750 ) (28 ) (7,592) - $ (1,904,342) (28) $ (2.53) $ (2.53)	Amount % $ 391,956 7 318,914 5 710,870 12 $ (3,973,660) (69) $ (4,661,027 ) (81 ) (23,503) - $ (4,684,530) (81) $ (3,950,694 ) (69 ) (22,966) - $ (3,973,660) (69) $ (5.69) $ (5.69)	Amount % $ (340,290 ) (2 ) 356,221 2 15,931 - $ 19,020,350 122 $ 19,021,775 122 (17,356) - $ 19,004,419 122 $ 19,035,289 122 (14,939) - $ 19,020,350 122 $ 23.19 $ 22.82

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

(Concluded)

HTC CORPORATION AND SUBSIDIARIES

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

(Reviewed, Not Audited)

	Equity Attributable to	Owners of the Parent
Share Capital Ordinary Shares Capital Surplus $ 8,208,261 $ 15,551,491 - - 8,208,261 15,551,491 - - - - 1,490 6,631 - - (17,134) 17,676 $ 8,192,617 $ 15,575,798 $ 8,188,135 $ 15,576,268 - - - - - - - - - - - (60,873) (16) (67) $ 8,188,119 $ 15,515,328	Retained Earnings (Accumulated Deficits) Unappro- Legal Reserve Special Reserve priated Earnings $ 18,297,655 $ - $ (6,093,403) - - 104,732 18,297,655 - (5,988,671) - - 19,021,775 - - - - - - - - (43,066) - - - $ 18,297,655 $ - $ 12,990,038 $ 18,297,655 $ - $ 6,194,337 597,481 - (597,481) - 3,080,480 (3,080,480) - - (311,148) - - (4,661,027) - - - - - (21,700) - - - $ 18,895,136 $ 3,080,480 $ (2,477,499)	Other Equity	Unearned Employee Benefit $ (49,590) - (49,590) - - - - 17,329 $ (32,261) $ (7,077) - - - - - - 6,858 $ (219)
		Unrealized Losses on Exchange Financial Assets Unrealized Differences on Translating at Fair Value Through Other Losses on Available-for- Foreign Operations Comprehensive Income sale Financial Assets $ (2,183,148) $ - $ (35,690) - (171,354) 35,690 (2,183,148) (171,354) - - - - 353,804 (340,290) - - - - - - - - - - $ (1,829,344) $ (511,644) $ - $ (2,052,019) $ (1,028,461) $ - - - - - - - - - - - - - 318,377 391,956 - - - - - - - $ (1,733,642) $ (636,505) $ -

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

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CASH FLOWS FROM OPERATING ACTIVITIES (Loss) profit before income tax Adjustments for: Depreciation expenses Amortization expenses Finance costs Interest income Dividend income Compensation costs of employee share-based payments Share of the loss of associates Net (gain) loss on disposal of property, plant and equipment Net gain on disposal of assets and licensing income (Note 24) Net gain on disposal of non-current assets held for sale Net gain on disposal of subsidiary Impairment loss on non-financial assets Reversals of impairment loss on non-financial assets Changes in operating assets and liabilities Decrease (increase) in financial assets mandatorily classified as at fair value through profit or loss Decrease in trade receivables Decrease (increase) in other receivables Decrease in inventories Decrease in prepayments Decrease (increase) in other current assets (Increase) decrease in other non-current assets Decrease in note and trade payables Decrease in other payables Increase (decrease) in provisions Decrease in other current liabilities Cash used in operating activities Interest received Interest paid Income taxes refunded (paid) Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at fair value through other comprehensive income Return of investments accounted for fair value through other comprehensive income Purchase of financial assets at fair value through profit or loss		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ (4,686,513) 367,041 596,908 11,783 (234,363) (33) 6,775 28,703 (83,621) - - - 83,218 (8,958) 60,469 349,696 26,916 103,674 629,004 10,499 (3,947) (1,269,400) (1,607,456) 33,117 (62,696) (5,649,184) 289,871 (11,783) 14,453 (5,356,643) (153,254) 119,006 (30,565)	2018 $ 24,325,255 276,032 594,348 692 (311,543) - 17,871 23,496 2,491 (31,285,385) (1,077,246) (15,396) 590,490 - (217,620) 5,006,689 (128,042) 1,784,313 292,252 (25,882) 18,259 (2,984,891) (1,250,120) (679,932) (106,724) (5,150,593) 286,856 (692) (133,055) (4,997,484) (144,463) - (28,926) (Continued)

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

Acquisition of investments accounted for using the equity method Net cash inflow on disposal of subsidiary Proceeds from disposal of non-current assets held for sale Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease in advance receipts - disposal of property Decrease in refundable deposits Payments for intangible assets Proceeds from disposal of intangible assets Increase in other financial assets Decrease in other financial assets Dividends received 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 Proceeds from exercise of employee share options Change in non-controlling interests Net cash (used in) generated from financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ (171,767) - - (75,089) 87,639 - 3,798 (4,201) 4,732 - 8,929,310 33 - 8,709,642 36,567 (53,334) - - (16,767) 265,318 3,601,550 24,449,548 $ 28,051,098	2018 $ - 106,918 2,748,931 (283,379) 81,649 (1,374,465) 6,079 - - (8,886,167) - - 31,285,385 23,511,562 104,860 - 8,121 19,454 132,435 221,359 18,867,872 10,443,227 $ 29,311,099

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

(Concluded)

HTC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited)

1. GENERAL INFORMATION

HTC Corporation (HTC) was incorporated on May 15, 1997 under the Company Law of Taiwan, the Republic of China. HTC and its subsidiaries (collectively referred to as the “Company”) are engaged in designing, manufacturing, assembling, processing, and selling smart mobile and virtual reality devices and provide after-sales service.

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

The functional currency of HTC is New Taiwan dollars. The consolidated financial statements are presented in New Taiwan dollars since HTC is the ultimate parent of the Company.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by HTC’s Board of Directors and authorized for issue on August 2, 2019.

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

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), 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, whenever applied, 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.

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 consolidated 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 consolidated 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 consolidated 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 consolidated statements of cash flows. Leased assets and finance lease payables were recognized on the consolidated 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 range of lessee’s incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 was between 0.5% - 10%. 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	$ 396,862 (21,753) $ 375,109 $ 361,868 18,649 $ 380,517

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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	$	-	$ 380,517	$ 380,517
Total effect on assets	$	-	$ 380,517	$ 380,517
Lease liabilities - current	$	-	$ 133,686	$ 133,686
Lease liabilities - non-current		-	246,831	246,831
Total effect on liabilities	$	-	$ 380,517	$ 380,517

b. New IFRSs endorsed and issued into effect in 2019 by the FSC

New IFRSs Amendments to IFRS 3 “Definition of a Business” 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)

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 prospectively for annual reporting periods beginning on or after January 1, 2020.

As of the date the consolidated 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.

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”	Effective Date Announced by IASB (Note)
	To be determined by IASB January 1, 2021

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

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

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

Basis of Preparation

These consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value.

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

For readers’ convenience, the accompanying consolidated 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 consolidated financial statements shall prevail. However, the accompanying consolidated 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 trading purposes;
b. Assets 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.
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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.

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

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the HTC and the entities controlled by the HTC (i.e. its subsidiaries). Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

When the Company loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and any investment retained in the former subsidiary at its fair value at the date when control is lost and (ii) the assets (including any goodwill) and liabilities and any non-controlling interests of the former subsidiary at their carrying amounts at the date when control is lost. The Company accounts for all amounts 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.

See Note 13 for the detailed information of subsidiaries (including the percentage of ownership and main business).

Business Combinations

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

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Non-controlling interests are initially measured either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets.

Foreign Currencies

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

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period 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 on 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 purposes of presenting consolidated 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, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to the owners of the Company and non-controlling interests as appropriate).

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 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 on 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 arising 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 weighted-average cost on the balance sheet date.

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Investments in Associates

An associate is an entity over which the Company has significant influence and that is not a subsidiary.

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

Under the equity method, investments in an associate are initially recognized in the consolidated balance sheet at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate. The Company also recognizes the changes in the equity of associates attributable to the Company.

When the Company subscribes for additional new shares of the associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate. The Company records such a difference as an adjustment to investments accounted for by the equity method, with a corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings.

When the Company’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized 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, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

The entire carrying amount of an investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Company’ consolidated financial statements only to the extent of interests in the associate 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.

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

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

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 measured initially 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.

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

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

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

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

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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. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset before the end of its economic life. 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, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Derecognition of intangible assets

Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

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, if any. 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 also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis.

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.

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.

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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 a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (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 30.

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.
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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 the financial asset; and
ii. Financial assets that have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset.

Cash equivalents include time deposits with original maturities within 3 months from 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.

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, operating lease receivables, as well as contract assets.

The Company always recognizes lifetime Expected Credit Losses (i.e. 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.

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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.

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.

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 30.

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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.

Derivatives are initially recognized at fair value at the date 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.

Before 2018, derivatives embedded in non-derivative host contracts were treated as separate derivatives when they met the definition of a derivative; their risks and characteristics were not closely related to those of the host contracts; and the contracts were not measured at FVTPL. From 2018, 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.

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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.

The Company does not recognize revenue on materials delivered to subcontractors because this delivery does not involve a transfer of control.

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.

c. Licensing revenue

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

Leasing

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.

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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.

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

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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 an expense when employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and net interest on the net defined benefit liability (asset) 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.

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

- 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.

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Restricted shares for employees are recognized as an 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 of 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.

b. Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated 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, and interests in joint ventures, 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.

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c. Current and deferred tax

Current and deferred tax 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 tax 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.

d. Interim period tax

Interim period income taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax income and the tax rate that would be applicable to expected total annual earnings.

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.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

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

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

a. Impairment of 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 reversed NT$8,958 thousand for the six months ended June 30, 2019.

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 June 30, 2019, December 31, 2018 and June 30, 2018, the carrying amounts of inventories were NT$3,114,753 thousand, NT$3,301,645 thousand and NT$5,006,623 thousand, respectively.

26 -

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 June 30, 2019, December 31, 2018 and June 30, 2018, the carrying amounts of deferred tax assets were NT$3,967,204 thousand, NT$3,957,060 thousand and NT$3,937,116 thousand, respectively.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Time deposits (with original maturities of less than three months) FINANCIAL INSTRUMENTS AT FAIR VALUE Financial assets Financial assets held for trading Derivative financial assets (not under hedge accounting) Foreign exchange contracts Financial assets mandatorily classified as at FVTPL Derivative financial assets (not under hedge accounting) Convertible bonds Warrants Current Non-current	June 30, 2019 December 31, 2018 $ 1,171 $ 1,559 12,803,062 10,557,535 15,246,865 13,890,454 $ 28,051,098 $ 24,449,548 June 30, 2019 December 31, 2018 $ 109,519 $ 83,411 245,658 214,340 24,233 22,124 $ 379,410 $ 319,875 $ 109,519 $ 83,411 269,891 236,464 $ 379,410 $ 319,875	June 30, 2018 $ 1,715 10,474,366 18,835,018 $ 29,311,099 June 30, 2018 $ 541,782 141,044 15,856 $ 698,682 $ 541,782 156,900 $ 698,682 (Continued)

7. FINANCIAL INSTRUMENTS AT FAIR VALUE

27 -

Financial liabilities-current Financial liabilities held for trading Derivative financial liabilities (not under hedge accounting) Foreign exchange contracts	June 30, 2019 December 31, 2018 $ 168,733 $ 82,156	June 30, 2018 $ 334,147 (Concluded)

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 are as follows:

Forward Exchange Contracts

				Notional Amount	Notional Amount
	Buy/Sell	Currency	Maturity Date	(In Thousands)
June 30, 2019
Foreign exchange contracts	Sell	USD/NTD	2019.7.5-2019.7.12	USD	200,000
Foreign exchange contracts	Sell	JPY/USD	2019.7.24-2019.8.21	JPY	5,100,000
Foreign exchange contracts	Sell	GBP/USD	2019.7.26-2019.8.16	GBP	6,000
Foreign exchange contracts	Sell	AUD/USD	2019.7.5	AUD	1,000
Foreign exchange contracts	Sell	CAD/USD	2019.7.12	CAD	6,000
Foreign exchange contracts	Sell	EUR/USD	2019.7.10-2019.7.26	EUR	18,000
Foreign exchange contracts	Sell	RMB/USD	2019.7.5-2019.7.26	RMB	163,225
Foreign exchange contracts	Buy	RMB/USD	2019.7.5-2019.8.21	RMB	850,405
Foreign exchange contracts	Buy	USD/NTD	2019.7.5-2019.8.16	USD	544,500
Foreign exchange contracts	Buy	JPY/USD	2019.7.17-2019.8.21	JPY	1,818,335
Foreign exchange contracts	Buy	EUR/USD	2019.7.10-2019.7.26	EUR	34,000
Foreign exchange contracts	Buy	AUD/USD	2019.7.5-2019.7.24	AUD	9,000
Foreign exchange contracts	Buy	GBP/USD	2019.7.10-2019.8.14	GBP	14,000
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
					(Continued)

28 -

				Notional Amount	Notional Amount
	Buy/Sell	Currency	Maturity Date	(In Thousands)
June 30, 2018
Foreign exchange contracts	Sell	USD/NTD	2018.07.06-2018.07.13	USD	218,048
Foreign exchange contracts	Sell	JPY/USD	2018.07.06-2018.08.08	JPY 2,800,000
Foreign exchange contracts	Sell	GBP/USD	2018.07.13-2018.08.29	GBP	4,000
Foreign exchange contracts	Sell	AUD/USD	2018.07.06	AUD	1,000
Foreign exchange contracts	Sell	CAD/USD	2018.07.13	CAD	6,000
Foreign exchange contracts	Sell	RMB/USD	2018.07.06-2018.08.10	RMB	367,200
Foreign exchange contracts	Buy	RMB/USD	2018.07.06-2018.08.29	RMB 1,229,168
Foreign exchange contracts	Buy	USD/NTD	2018.07.06-2018.08.29	USD	654,500
Foreign exchange contracts	Buy	JPY/USD	2018.07.18-2018.07.27	JPY 2,418,335
Foreign exchange contracts	Buy	EUR/USD	2018.07.06-2018.07.27	EUR	34,000
Foreign exchange contracts	Buy	AUD/USD	2018.07.06-2018.07.25	AUD	9,000
Foreign exchange contracts	Buy	GBP/USD	2018.07.06-2018.08.10	GBP	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 Foreign investments Listed shares Unlisted shares Unlisted beneficiary certificate Current Non-current	June 30, 2019 December 31, 2018 $ 84,608 $ 83,383 423,277 388,700 507,885 472,083 827,135 409,412 1,077,605 1,103,891 774,110 749,046 2,678,850 2,262,349 $ 3,186,735 $ 2,734,432 $ 827,135 $ 409,412 2,359,600 2,325,020 $ 3,186,735 $ 2,734,432	June 30, 2018 $ 97,943 559,497 657,440 442,106 1,389,484 723,612 2,555,202 $ 3,212,642 $ 442,106 2,770,536 $ 3,212,642

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.

29 -

9. OTHER FINANCIAL ASSETS

Time deposits with original maturities more than three months Current Non-current	June 30, 2019 $ 8,140,163 $ 7,984,820 155,343 $ 8,140,163	December 31, 2018 $ 17,069,473 $ 16,915,835 153,638 $ 17,069,473	June 30, 2018 $ 16,874,530 $ 16,722,067 152,463 $ 16,874,530

For details of pledged other financial assets, refer to Note 32.

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 Current Non-current Other receivables Receivables from the disposal of investments Interest receivables VAT refund receivables Others Less: Allowances for impairment loss Current - other receivables Non-current - other receivables	June 30, 2019 December 31, 2018 $ 1,706,044 $ 2,055,256 32 516 1,840,947 1,840,947 (372,622) (372,622) (1,840,947) (1,840,947) $ 1,333,454 $ 1,683,150 $ 1,333,454 $ 1,683,150 - - $ 1,333,454 $ 1,683,150 $ 1,315,474 $ 1,307,435 290,808 344,949 36,307 77,375 35,799 21,647 (1,539,105) (1,529,699) $ 139,283 $ 221,707 $ 139,283 $ 221,707 - - $ 139,283 $ 221,707	June 30, 2018 $ 4,035,596 277 1,840,947 (509,052) (1,840,947) $ 3,526,821 $ 3,526,821 - $ 3,526,821 $ 1,317,844 272,069 56,863 151,328 (1,541,878) $ 256,226 $ 256,226 - $ 256,226

30 -

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.

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.

June 30, 2019

Non Past Due Expected credit loss rate 0%-7% Gross carrying amount $ 1,405,734 Loss allowance (Lifetime ECL) (91,421) Amortized cost $ 1,314,313 December 31, 2018 Non Past Due Expected credit loss rate 0%-4% Gross carrying amount $ 1,533,337 Loss allowance (Lifetime ECL) (41,858) Amortized cost $ 1,491,479	1-90 Days 4%-50% $ 34,146 (15,005) $ 19,141 1-90 Days 4%-40% $ 79,247 (3,697) $ 75,550	91-180 Days Over 181 Days 10%-100% 100% $ - $ 266,196 - (266,196) $ - $ - 91-180 Days Over 181 Days 10%-100% 100% $ 136,367 $ 306,821 (20,246) (306,821) $ 116,121 $ -	Total $ 1,706,076 (372,622) $ 1,333,454 Total $ 2,055,772 (372,622) $ 1,683,150

31 -

June 30, 2018

Non Past Due Expected credit loss rate 0%-4% Gross carrying amount $ 3,294,056 Loss allowance (Lifetime ECL) - Amortized cost $ 3,294,056	1-90 Days 4%-40% $ 258,597 (51,903) $ 206,694	91-180 Days Over 181 Days 10%-100% 100% $ 142,036 $ 341,184 (115,965) (341,184) $ 26,071 $ -	Total $ 4,035,873 (509,052) $ 3,526,821

No difference in the allowances for impairment loss on June 30, 2019 and 2018 compared to January 1, 2019 and 2018.

b. Other receivables

Receivables from disposal of investments are derived from the sale of shares of Saffron Media Group Ltd. in 2013. While the receivables had not been collected yet, the loss allowance was recognized based on the credit risk as of June 30, 2019.

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

The movements of the loss allowance of other receivables are as follows:

Balance at January 1 Foreign exchange gains and losses Balance at June 30		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 1,529,699 9,406 $ 1,539,105	2018 $ 1,551,542 (9,664) $ 1,541,878

11. INVENTORIES

Finished goods Work-in-process Semi-finished goods Raw materials Inventory in transit	June 30, 2019 December 31, 2018 $ 996,048 $ 917,762 24,769 38,522 578,037 446,472 1,511,681 1,865,266 4,218 33,623 $ 3,114,753 $ 3,301,645	June 30, 2018 $ 1,187,595 41,077 806,149 2,842,653 129,149 $ 5,006,623

The cost of inventories recognized as operating costs for the six months ended June 30, 2019 and 2018 were NT$83,218 thousand and NT$590,490 thousand, respectively.

32 -

12. PREPAYMENTS

Prepaid software Prepayments to suppliers Net input VAT Royalties Prepaid equipment Others Current Non-current	June 30, 2019 December 31, 2018 $ 155,114 $ 162,132 68,971 171,601 24,380 522,315 21,322 28,429 18,774 12,888 287,664 302,544 $ 576,225 $ 1,199,909 $ 531,295 $ 1,160,299 44,930 39,610 $ 576,225 $ 1,199,909	June 30, 2018 $ 203,240 45,434 558,307 2,426,681 32,916 364,725 $ 3,631,303 $ 1,444,846 2,186,457 $ 3,631,303

Prepayments for royalties were primarily for the procurement of royalty rights and were classified as current or non-current in accordance with their nature. For the year ended December 31, 2018, the Company determined that the carrying amount of some of the prepayments for software and royalties were expected to be unrecoverable, and thus recognized an impairment loss of NT$2,248,030 thousand classified as other gains and losses. Refer to the consolidated financial statements for the year ended December 31, 2018. For details of content of contracts, refer to Note 35.

13. SUBSIDIARIES

a. Subsidiaries included in the consolidated financial statements

The consolidated entities as of June 30, 2019, December 31, 2018 and June 30, 2018 are as follows:

Investor
Investee
Main Businesses
HTC Corporation
H.T.C. (B.V.I.) Corp.
International holding company
and general investing
activities
High Tech Computer Asia
Pacific Pte. Ltd.
International holding company;
marketing, repair and
after-sales services
HTC Investment Corporation
General investing activities
PT. High Tech Computer
Indonesia
Marketing, repair and
after-sales services
HTC Holding Cooperatief U.A. International holding company
HTC Investment One (BVI)
Corporation
Holding S3 Graphics Co., Ltd.
and general investing
activities
HTC Investment (BVI)
Corporation
General investing activities
HTC VIVE Holding (BVI)
Corp.
International holding company
HTC VIVE Investment (BVI)
Corp.
General investing activities
DeepQ Holding (BVI) Corp.
International holding company
HTC VR Content (BVI) Corp.
〃
HTC Smartphone (BVI) Corp.
〃
H.T.C. (B.V.I.) Corp.
High Tech Computer Corp.
(Suzhou)
Manufacture and sale of smart
mobile devices
High Tech Computer
Asia Pacific Pte.
HTC (Australia and New
Zealand) PTY. Ltd.
Marketing, repair and
after-sales services
Ltd.
HTC Philippines Corporation
〃
PT. High Tech Computer
Indonesia
〃 % of Ownership
June 30,
2019
December 31,
2018
June 30,
2018
Remark
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
1.00
1.00
1.00
-
0.01
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
100.00
-
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
2)
100.00
100.00
100.00
-
99.99
99.99
99.99
-
99.00
99.00
99.00
-

(Continued)

33 -

Investor
Investee
Main Businesses
HTC (Thailand) Limited
〃
HTC India Private Ltd.
〃
HTC Malaysia Sdn. Bhd.
〃
HTC Communication Co., Ltd. Manufacture and sale of smart
mobile devices and
after-sales services
HTC HK, Limited
International holding company;
marketing, repair and
after-sales services
HTC Holding Cooperatief U.A. International holding company
HTC Communication
Technologies (SH)
Design, research and
development of application
software
HTC Vietnam Services One
Member Limited Liability
Company
Marketing, repair and
after-sales services
HTC Myanmar Company
Limited
〃
HTC Investment One
(BVI) Corporation
S3 Graphics Co., Ltd.
Design, research and
development of graphics
technology
HTC Communication
Technologies (SH)
HTC Communication (BJ) Tech
Co.
Design, research and
development of application
software
HTC HK, Limited
HTC Corporation (Shanghai
WGQ)
Smart mobile devices
examination and after-sale
services and technique
consultations
HTC Electronics (Shanghai)
Co., Ltd.
Manufacture and sale of smart
mobile devices
HTC Myanmar Company
Limited
Marketing, repair and
after-sales services
HTC Holding
Cooperatief U.A.
HTC Netherlands B.V.
International holding company;
marketing, repair and
after-sales services
HTC India Private Ltd.
Marketing, repair and
after-sales services
HTC South Eastern Europe
Limited Liability Company
〃
HTC Communication Solutions
Mexico, S.A DE C.V.
〃
HTC Servicios DE Operacion
Mexico, S.A DE C.V.
Human resources management
HTC Netherlands B.V. HTC EUROPE CO., LTD.
International holding company
marketing, repair and
after-sales services
HTC BRASIL
Marketing, repair and
after-sales services
HTC Belgium BVBA/SPRL
〃
HTC NIPPON Corporation
Sale of smart mobile devices
HTC FRANCE
CORPORATION
International holding company;
marketing, repair and
after-sales services
HTC South Eastern Europe
Limited liability Company
Marketing, repair and
after-sales services
HTC Nordic ApS.
〃
HTC Italia SRL
〃
HTC Germany GmbH
〃
HTC Iberia, S.L.
〃
HTC Poland sp. z.o.o.
〃
HTC Communication Canada,
Ltd.
〃
HTC Communication Sweden
AB
〃
HTC Luxembourg S.a.r.l.
Online/download media
services
HTC Middle East FZ-LLC
Marketing, repair and
after-sales services
HTC Communication Solutions
Mexico, S.A DE C.V.
Marketing, repair and
after-sales services
HTC Servicios DE Operacion
Mexico, S.A DE C.V.
Human resources management
HTC Czech RC s.r.o.
Smart mobile devices
examination and after-sale
services and technique
consultations % of Ownership
June 30,
2019
December 31,
2018
June 30,
2018
Remark
100.00
100.00
100.00
-
99.00
99.00
99.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
99.99
99.99
99.99
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
99.00
99.00
99.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
1.00
1.00
1.00
-
100.00
100.00
100.00
-
1.00
1.00
1.00
-
0.67
0.67
0.67
-
1.00
1.00
1.00
-
1.00
1.00
1.00
-
100.00
100.00
100.00
-
99.99
99.99
99.99
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
99.33
99.33
99.33
-
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
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
-
99.00
99.00
99.00
-
99.00
99.00
99.00
-
-
-
100.00
1)
(Continued)

34 -

Investor
Investee
Main Businesses
HTC EUROPE CO.,
LTD.
HTC America Holding Inc.
International holding company
HTC America Holding HTC America Inc.
Sale of smart mobile devices
Inc.
One & Company Design, Inc.
Design, research and
development of application
software
HTC America Innovation Inc.
〃
HTC America Content
Services, Inc.
Online/download media
services
Dashwire, Inc.
Design and management of
cloud synchronization
technology
Inquisitive Minds, Inc.
Development and sale of digital
education platform
HTC VIVE Holding
(BVI) Corp.
HTC VIVE TECH (BVI) Corp. International holding company
HTC VIVE TECH
(BVI) Corp.
HTC VIVE TECH Corp.
Research, development and sale
of virtual reality devices
HTC VIVE TECH (HK)
Limited
〃
HTC VIVE TECH
(HK) Limited
HTC VIVE TECH (UK)
Limited
Research, development and sale
of virtual reality devices
HTC VIVE TECH (Beijing)
〃
DeepQ Holding (BVI)
Corp.
DeepQ (BVI) Corp.
International holding company
DeepQ (BVI) Corp.
DeepQ Technology Corp.
Medical technology and health
care
DeepQ Technology (Beijing)
Development and marketing of
softwares technology
HTC Investment
(BVI) Corporation
VRChat, Inc.
Development of virtual reality
contents
VRChat, Inc.
VRChat Ca. Development Inc.
Development of virtual reality
contents
HTC VR Content
(BVI) Corp.
Uomo Vitruviano Corp.
Development of virtual reality
contents % of Ownership
June 30,
2019
December 31,
2018
June 30,
2018
Remark
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
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
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
-
100.00
100.00
100.00
51.26
51.26
51.26
100.00
100.00
100.00
100.00
100.00
100.00
(Concluded)

Remark:

1) The liquidation process of HTC Czech RC s.r.o. has been completed on December 18, 2018.
2) The dissolution of High Tech Computer Corp. (Suzhou) was approved in its shareholders’ meeting held on November 20, 2017 and liquidation processes had been completed on July 5, 2019.
b. Subsidiaries excluded from consolidated financial statements: None.
c. Details of subsidiaries that have material non-controlling interests: None.

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investment in associates	June 30, 2019 December 31, 2018 $ 512,094 $ 446,133	June 30, 2018 $ 397,903

35 -

Investments in Associates - Associates That Are Not Individually Material

Unlisted equity investment East West Artists, LLC Steel Wool Games, Inc. Surgical Theater, LLC MOR Museum Inc. Gui Zhou Wei Ai Educational Technology Co., Ltd.	June 30, 2019 December 31, 2018 $ 24,277 $ 25,778 87,044 89,641 246,604 265,546 48,476 - 105,693 65,168 $ 512,094 $ 446,133	June 30, 2018 $ 25,840 91,558 273,597 - 6,908 $ 397,903

At the end of the reporting periods, the percentages of ownership and voting rights in associates held by the Company are as follows:

	June 30,	December 31,	June 30,
Name of Associate	2019	2018	2018
East West Artists, LLC	30.00%	30.00%	30.00%
Steel Wool Games, Inc.	49.00%	49.00%	49.00%
Surgical Theater, LLC	16.68%	16.68%	16.68%
MOR Museum Inc.	25.00%	-	-
Gui Zhou Wei Ai Educational Technology Co.,
Ltd.	26.05%	23.20%	25.00%

Aggregate information of associates that are not individually material:

The Company’s share of: Loss from continuing operations Other comprehensive income Total comprehensive loss for the period	For the Three Months Ended June 30 2019 2018 $ (26,641) $ (10,157) - - $ (26,641) $ (10,157)	For the Three Months Ended June 30 2019 2018 $ (26,641) $ (10,157) - - $ (26,641) $ (10,157)		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ (26,641) - $ (26,641)		2019 $ (28,703) - $ (28,703)	2018 $ (23,496) - $ (23,496)

Investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements that have not been reviewed. The Company’s management believes there is no material impact arising from applying the equity method accounting or the calculation of the share of profit or loss and other comprehensive income, due to the investee entities’ financial statement were not been reviewed.

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15. PROPERTY, PLANT AND EQUIPMENT

Carrying amounts Land Buildings Machinery and equipment Other equipment	June 30, 2019 December 31, 2018 $ 4,674,086 $ 4,673,376 2,870,434 2,949,910 399,147 492,239 282,523 310,361 $ 8,226,190 $ 8,425,886	June 30, 2018 $ 4,676,054 3,037,167 397,279 393,233 $ 8,503,733

Movement of property, plant and equipment for the six months ended June 30, 2019 and 2018 were as follows:

Cost Balance, beginning of period Additions Disposals Effect of foreign currency exchange differences Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expenses Disposals Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Disposals Balance, end of period Net book value, end of period Cost Balance, beginning of period Additions Disposals Reclassified as non-current assets held for sale Reclassified as investment properties Disposal of subsidiary Effect of foreign currency exchange differences Balance, end of period			2019
		Land $ 4,673,376 - - 710 4,674,086 - - - - - - - - $ 4,674,086	Buildings Machinery and Equipment $ 4,529,692 $ 5,401,732 5,278 13,559 - (1,656,632) 2,639 4,892 4,537,609 3,763,551 1,579,782 4,659,017 87,064 105,146 - (1,536,558) 329 3,496 1,667,175 3,231,101 - 250,476 - (117,173) - 133,303 $ 2,870,434 $ 399,147 2018	Other Equipment $ 1,802,278 24,284 (293,568) 7,386 1,540,380 1,481,157 52,892 (287,606) 5,499 1,251,942 10,760 (4,845) 5,915 $ 282,523	Total $ 16,407,078 43,121 (1,950,200) 15,627 14,515,626 7,719,956 245,102 (1,824,164) 9,324 6,150,218 261,236 (122,018) 139,218 $ 8,226,190
		Land $ 4,676,726 - - - - - (672) 4,676,054	Buildings Machinery and Equipment $ 7,383,032 $ 12,901,808 45,816 188,925 (48,259) (2,053,268) - (2,619) (2,805,786) - - (824,206) (2,556) 11,370 4,572,247 10,222,010	Other Equipment $ 2,219,343 53,625 (128,833) - - (48,758) 9,159 2,104,536	Total $ 27,180,909 288,366 (2,230,360) (2,619) (2,805,786) (872,964) 17,301 21,574,847 (Continued)

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Accumulated depreciation Balance, beginning of period Depreciation expenses Disposals Reclassified as non-current assets held for sale Reclassified as investment properties Disposal of subsidiary Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Disposals Effect of foreign currency exchange differences Balance, end of period Net book value, end of period			2018
		Land $ - - - - - - - - - - - - $ 4,676,054	Buildings Machinery and Equipment $ 2,122,305 $ 11,640,682 97,338 64,294 (37,376) (1,981,548) - (1,885) (646,766) - - (750,842) (421) 9,654 1,535,080 8,980,355 - 843,747 - - - 629 - 844,376 $ 3,037,167 $ 397,279	Other Equipment $ 1,757,876 72,978 (118,873) - - (16,952) 6,893 1,701,922 17,686 (8,423) 118 9,381 $ 393,233	Total $ 15,520,863 234,610 (2,137,797) (1,885) (646,766) (767,794) 16,126 12,217,357 861,433 (8,423) 747 853,757 $ 8,503,733 (Concluded)

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 2018 and November 2018. 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 17.

There were no capitalized interests for the six months ended June 30, 2019 and 2018.

16. LEASE ARRANGEMENTS

a. Right-of-use assets - 2019

June 30, 2019

Carrying amounts

Buildings $ 451,962

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	For the Three	For the Three	For the Six
	Months Ended		Months Ended
	June 30, 2019		June 30, 2019
Additions to right-of-use assets	$ 139,038		$ 140,350
Depreciation charge for right-of-use assets
Buildings	$	36,705	$ 71,587
Lease liabilities - 2019
			June 30, 2019
Carrying amounts
Current			$ 143,796
Non-current			$ 326,242
Range of discount rate for lease liabilities was as follows:
			June 30, 2019
Buildings			0.5%-10%

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 10 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 17.

2019

	For the Three	For the Six
	Months Ended	Months Ended
	June 30, 2019	June 30, 2019
Expenses relating to short-term leases	$ 8,195	$ 19,788
Total cash outflow for leases	$ (38,332)	$ (79,891)

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.

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2018

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

December 31, 2018 Not later than 1 year $ 118,916 Later than 1 year and not later than 5 years 248,997 Later than 5 years 28,949 $ 396,862	June 30, 2018 $ 131,428 247,327 44,705 $ 423,460

17. INVESTMENT PROPERTIES, NET

Movement of investment properties, net for the six months ended June 30, 2019 and 2018 were as follows:

Cost Balance, beginning of period Reclassification Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expense Reclassification Balance, end of period Net book value, end of period	2019 $ 2,872,143 - 2,872,143 781,917 50,352 - 832,269 $ 2,039,874	2018 $ - 2,805,786 2,805,786 - 41,422 646,766 688,188 $ 2,117,598

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 June 30, 2019 was as follows:

		June	30, 2019
Year	1	$	585,869
Year	2		598,761
Year	3		566,902
Year	4		40,917
		$ 1,792,449

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The future minimum lease payments under operating lease commitments as of December 31, 2018 and June 30, 2018 were as follows:

December 31, 2018 Not later than 1 year $ 528,825 Later than 1 year and not later than 5 years 1,370,236 Later than 5 years - $ 1,899,061	June 30, 2018 $ 463,484 38,624 - $ 502,108

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 in December 31, 2018 and 2017 was performed by dependent qualified professional appraisers and the fair value was measured by using Level 3 inputs, respectively. There was no significant change in the fair value of June 30, 2019 and 2018 compared to December 31, 2018 and 2017. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. The fair value as of December 31, 2018 and 2017 were NT$2,743,226 thousand and NT$2,467,267 thousand, respectively.

18. INTANGIBLE ASSETS

Carrying amounts Patents Goodwill Other intangible assets	June 30, 2019 December 31, 2018 $ 486,424 $ 1,060,183 69,787 69,021 47,372 52,052 $ 603,583 $ 1,181,256	June 30, 2018 $ 1,626,785 68,422 56,573 $ 1,751,780

Movements of intangible assets for the six months ended June 30, 2019 and 2018 were as follows:

Cost Balance, beginning of period Additions Disposals Effect of foreign currency exchange differences Balance, end of period			2019	2019
		Patents $ 11,734,540 - - 102,300 11,836,840	Goodwill $ 729,299 - - 6,160 735,459	Other Intangible Assets $ 1,819,813 4,201 (4,732) 6,744 1,826,026	Total $ 14,283,652 4,201 (4,732) 115,204 14,398,325 (Continued)

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2019

			2019	2019
Accumulated amortization Balance, beginning of period Amortization expenses Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Reversed Effect of foreign currency exchange differences Balance, end of period Net book value, end of period Cost Balance, beginning of period Effect of foreign currency exchange differences Balance, end of period Accumulated amortization Balance, beginning of period Amortization expenses Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Effect of foreign currency exchange differences Balance, end of period Net book value, end of period		Patents $ 10,563,272 583,801 92,258 11,239,331 111,085 - - 111,085 $ 486,424	Goodwill Other Intangible Assets $ - $ 1,567,249 - 13,107 - 4,588 - 1,584,944 660,278 200,512 - (8,958) 5,394 2,156 665,672 193,710 $ 69,787 $ 47,372 2018		Total $ 12,130,521 596,908 96,846 12,824,275 971,875 (8,958) 7,550 970,467 $ 603,583 (Concluded)
		Patents $ 11,467,990 196,050 11,664,040 9,201,918 557,320 166,932 9,926,170 111,085 - 111,085 $ 1,626,785	Goodwill $ 713,250 11,733 724,983 - - - - 646,225 10,336 656,561 $ 68,422	Other Intangible Assets $ 1,753,620 11,243 1,764,863 1,497,864 37,028 7,516 1,542,408 162,327 3,555 165,882 $ 56,573	Total $ 13,934,860 219,026 14,153,886 10,699,782 594,348 174,448 11,468,578 919,637 13,891 933,528 $ 1,751,780

The Company owns patents of graphics technologies. As of June 30, 2019, December 31, 2018 and June 30, 2018, the carrying amounts of such patents were NT$485,445 thousand, NT$1,056,258 thousand and NT$1,619,914 thousand, respectively. The patents will be fully amortized over their remaining economic lives.

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19. NOTE AND TRADE PAYABLES

Notes payable Trade payables Trade payables - related parties	June 30, 2019 $ 552 8,539,828 3,067 $ 8,543,447	December 31, 2018 $ 560 9,808,128 4,159 $ 9,812,847	June 30, 2018 $ 3,542 11,577,715 3,074 $ 11,584,331

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.

20. OTHER LIABILITIES

Other payables Accrued expenses Cash dividend payable Payables for purchase of equipment Other liabilities Advance receipts Agency receipts Others Accrued Expenses Marketing Salaries, bonuses and compensation Services Materials and molding expenses Import, export and freight Insurance Repairs, maintenance and sundry purchase Others	June 30, 2019 $ 7,582,502 311,148 7,253 $ 7,900,903 $ 642,928 77,448 170,375 $ 890,751 June 30, 2019 $ 2,999,820 1,727,695 1,099,318 1,051,786 96,994 70,369 50,699 485,821 $ 7,582,502	December 31, 2018 $ 9,189,958 - 33,335 $ 9,223,293 $ 638,340 102,714 212,393 $ 953,447 December 31, 2018 $ 4,071,201 2,173,295 958,328 1,073,179 188,684 72,465 46,872 605,934 $ 9,189,958	June 30, 2018 $ 10,353,049 - 42,062 $ 10,395,111 $ 837,961 76,213 453,294 $ 1,367,468 June 30, 2018 $ 4,837,010 2,210,457 1,076,179 1,192,893 147,271 98,019 71,809 719,411 $ 10,353,049

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

21. PROVISIONS

June 30, 2019 December 31, 2018 Warranties $ 1,696,462 $ 1,943,976 Others 340,845 60,214 $ 2,037,307 $ 2,004,190 Movement of provisions for the six months ended June 30, 2019 and 2018 are as follows: 2019 Warranty Provision Others Balance, beginning of period $ 1,943,976 $ 60,214 Provisions recognized 105,385 320,074 Usage (355,627) (39,304) Effect of foreign currency exchange differences 2,728 (139) Balance, end of period $ 1,696,462 $ 340,845 2018 Warranty Provision Others Balance, beginning of period $ 2,795,933 $ 581,268 Provisions recognized (reversed) 673,301 (310,510) Usage (969,290) (76,375) Effect of foreign currency exchange differences 2,942 - Balance, end of period $ 2,502,886 $ 194,383	June 30, 2019 December 31, 2018 Warranties $ 1,696,462 $ 1,943,976 Others 340,845 60,214 $ 2,037,307 $ 2,004,190 Movement of provisions for the six months ended June 30, 2019 and 2018 are as follows: 2019 Warranty Provision Others Balance, beginning of period $ 1,943,976 $ 60,214 Provisions recognized 105,385 320,074 Usage (355,627) (39,304) Effect of foreign currency exchange differences 2,728 (139) Balance, end of period $ 1,696,462 $ 340,845 2018 Warranty Provision Others Balance, beginning of period $ 2,795,933 $ 581,268 Provisions recognized (reversed) 673,301 (310,510) Usage (969,290) (76,375) Effect of foreign currency exchange differences 2,942 - Balance, end of period $ 2,502,886 $ 194,383	June 30, 2019 December 31, 2018 Warranties $ 1,696,462 $ 1,943,976 Others 340,845 60,214 $ 2,037,307 $ 2,004,190 Movement of provisions for the six months ended June 30, 2019 and 2018 are as follows: 2019 Warranty Provision Others Balance, beginning of period $ 1,943,976 $ 60,214 Provisions recognized 105,385 320,074 Usage (355,627) (39,304) Effect of foreign currency exchange differences 2,728 (139) Balance, end of period $ 1,696,462 $ 340,845 2018 Warranty Provision Others Balance, beginning of period $ 2,795,933 $ 581,268 Provisions recognized (reversed) 673,301 (310,510) Usage (969,290) (76,375) Effect of foreign currency exchange differences 2,942 - Balance, end of period $ 2,502,886 $ 194,383	June 30, 2019 December 31, 2018 Warranties $ 1,696,462 $ 1,943,976 Others 340,845 60,214 $ 2,037,307 $ 2,004,190 Movement of provisions for the six months ended June 30, 2019 and 2018 are as follows: 2019 Warranty Provision Others Balance, beginning of period $ 1,943,976 $ 60,214 Provisions recognized 105,385 320,074 Usage (355,627) (39,304) Effect of foreign currency exchange differences 2,728 (139) Balance, end of period $ 1,696,462 $ 340,845 2018 Warranty Provision Others Balance, beginning of period $ 2,795,933 $ 581,268 Provisions recognized (reversed) 673,301 (310,510) Usage (969,290) (76,375) Effect of foreign currency exchange differences 2,942 - Balance, end of period $ 2,502,886 $ 194,383	June 30, 2018 $ 2,502,886 194,383 $ 2,697,269
		Warranty Provision $ 1,943,976 105,385 (355,627) 2,728 $ 1,696,462	Others $ 60,214 320,074 (39,304) (139) $ 340,845 2018	Total $ 2,004,190 425,459 (394,931) 2,589 $ 2,037,307
		Warranty Provision $ 2,795,933 673,301 (969,290) 2,942 $ 2,502,886	Others $ 581,268 (310,510) (76,375) - $ 194,383	Total $ 3,377,201 362,791 (1,045,665) 2,942 $ 2,697,269

The Company provides warranty service for 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.

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22. EQUITY

Share Capital

a. Ordinary shares

Numbers of shares authorized (in thousands of shares) Shares authorized Number of shares issued and fully paid (in thousands of shares) Shares issued	June 30, 2019 1,000,000 $ 10,000,000 818,812 $ 8,188,119	December 31, 2018 1,000,000 $ 10,000,000 818,814 $ 8,188,135	June 30, 2018 1,000,000 $ 10,000,000 819,262 $ 8,192,617

In March and May 2018, HTC retired 16 thousand and 1,697 thousand restricted shares for employees, totaling NT$162 thousand and NT$16,972 thousand, respectively. In January and February 2018, the employee share options have been exercised by the issuance of 129 thousand and 20 thousand shares amounting to NT$1,290 thousand and NT$200 thousand, respectively. As a result, HTC’s issued and outstanding common shares as of June 30, 2018 decreased to NT$8,192,617 thousand, divided into 819,262 thousand ordinary shares at a par value of NT$10. Every ordinary share carries one vote per share and a right to dividends.

In January 2019, HTC retired 2 thousand restricted shares for employees, totaling NT$16 thousand. As a result, HTC’s issued and outstanding common stock as of June 30, 2019 decreased to NT$8,188,119 thousand, divided into 818,812 thousand ordinary shares at NT$10 par value. Every ordinary share carries one vote per share and a right to dividends.

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

b. Global depositary receipts

In November 2003, HTC issued 14,400 thousand ordinary shares corresponding to 3,600 thousand units of Global Depositary Receipts (“GDRs”). For this GDR issuance, HTC’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 HTC to redeem the GDRs to get HTC’s ordinary shares. As of June 30, 2019, there were 8,430.3 thousand units of GDRs redeemed, representing 33,721.1 thousand ordinary shares, and the outstanding GDRs represented 2,339.4 thousand ordinary shares or 0.29% of HTC’s outstanding ordinary shares.

Capital Surplus

	June 30,	December 31,	June 30,
	2019	2018	2018
May be used to offset a deficit, distributed as cash
dividends, or transferred to share capital
Arising from issuance of ordinary shares	$ 14,714,126	$ 14,714,126	$ 14,669,455
Arising from consolidation excess	23,288	23,288	23,288
Arising from expired share options	517,953	506,611	455,021
			(Continued)

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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	June 30, 2019 $ - 248,271 11,690 $ 15,515,328	December 31, 2018 $ 60,873 247,944 23,426 $ 15,576,268	June 30, 2018 $ - 301,742 126,292 $ 15,575,798 (Concluded)

The capital surplus arising from shares issued in excess of par (including share premiums 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 28.

Retained Earnings and Dividend Policy

Under HTC’s Articles of Incorporation, HTC 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% as legal reserve unless the total legal reserve accumulated has already reached the amount of HTC’s authorized capital.
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 1 to 4 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, HTC 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. HTC’s dividend policy stipulates that at least 50% of total dividends may be distributed as cash dividends.

Appropriation of earnings to a legal reserve shall be made until the legal reserve equals HTC’s capital. Legal reserve may be used to offset deficit. If HTC has no accumulated deficit and the legal reserve has exceeded 25% of its issued and outstanding capital stock, the excess may be transferred to capital stock 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.

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The appropriation of earnings for 2018 and loss off-setting for 2017 had 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 HTC’s Board of Directors and approved by the HTC’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 (the New Taiwan dollar) 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.

c. Unearned employee benefit

In the shareholders’ meetings held on June 2, 2015 and June 19, 2014, the shareholders approved a restricted share plan for employees. Refer to Note 28 for the information of restricted shares issued.

Balance, beginning of period Share-based payment expenses recognized Balance, end of period		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ (7,077) 6,858 $ (219)	2018 $ (49,590) 17,329 $ (32,261)

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23. OPERATING REVENUE

Sale of goods Other operating income		For the Three Months Ended June 30 2019 2018 $ 2,587,239 $ 6,647,406 219,866 127,054 $ 2,807,105 $ 6,774,460		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 2,587,239 219,866 $ 2,807,105		2019 $ 5,271,701 479,030 $ 5,750,731	2018 $ 15,178,260 384,943 $ 15,563,203

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

a. Other income

Interest income Bank deposits Others Rental income Dividends Others b. Other gains and losses Net gain on disposal of assets and licensing income Net gain on disposal of non-current assets held for sale Net gain (loss) on the disposal of property, plant and equipment Net gain on disposal of subsidiary (Note 27) Net foreign exchange gain (loss) Net (loss) gain on valuation of financial instruments at fair value Impairment loss reversed Other loss		For the Three Months Ended June 30 2019 2018 $ 119,407 $ 154,715 - 111 119,407 154,826 152,450 115,953 - - 34,427 31,793 $ 306,284 $ 302,572 For the Three Months Ended June 30 2019 2018 $ - $ - - 1,077,246 82,738 (2,219) - - 151,930 (114,654) (68,077) 184,763 6,408 - (189,321) (70,572) $ (16,322) $ 1,074,564			For the Six Months Ended June 30	For the Six Months Ended June 30
					2019 2018 $ 234,363 $ 311,223 - 320 234,363 311,543 297,891 196,430 33 - 102,346 79,410 $ 634,633 $ 587,383 For the Six Months Ended June 30
		2019 $ - - 82,738 - 151,930 (68,077) 6,408 (189,321) $ (16,322)		2019 $ - - 83,621 - 290,430 (59,214) 8,958 (384,959) $ (61,164)		2018 $ 31,285,385 1,077,246 (2,491) 15,396 (72,139) 207,635 - (409,315) $ 32,101,717

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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 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 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.

On March 15, 2017, HTCs’ Board of Directors passed a resolution to sell land and factories in Shanghai to Shanghai Xingbao Information Technology Co., Ltd. in the amount of RMB630,000 thousand. The transfer process was completed in April 2018. The amount of net gains for the disposal of non-current assets held for sale was NT$1,077,246 thousand.

c. Finance costs

Interest on lease liabilities Others	For the Three Months Ended June 30 2019 2018 $ 3,470 $ - 4,593 691 $ 8,063 $ 691	For the Three Months Ended June 30 2019 2018 $ 3,470 $ - 4,593 691 $ 8,063 $ 691		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 3,470 4,593 $ 8,063		2019 $ 6,769 5,014 $ 11,783	2018 $ - 692 $ 692

d. 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 Three Months Ended June 30 2019 2018 $ 120,622 $ 114,394 25,149 24,903 295,465 290,760 36,705 - $ 477,941 $ 430,057 $ 13,712 $ 20,674 143,615 93,720 25,149 24,903 $ 182,476 $ 139,297 $ - $ - 295,465 290,760 $ 295,465 $ 290,760	For the Three Months Ended June 30 2019 2018 $ 120,622 $ 114,394 25,149 24,903 295,465 290,760 36,705 - $ 477,941 $ 430,057 $ 13,712 $ 20,674 143,615 93,720 25,149 24,903 $ 182,476 $ 139,297 $ - $ - 295,465 290,760 $ 295,465 $ 290,760		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 120,622 25,149 295,465 36,705 $ 477,941 $ 13,712 143,615 25,149 $ 182,476 $ - 295,465 $ 295,465		2019 $ 245,102 50,352 596,908 71,587 $ 963,949 $ 27,168 289,521 50,352 $ 367,041 $ - 596,908 $ 596,908	2018 $ 234,610 41,422 594,348 - $ 870,380 $ 46,131 188,479 41,422 $ 276,032 $ - 594,348 $ 594,348

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e. Employee benefits expense

Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans Share-based payments (Note 28) 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 Three Months Ended June 30 2019 2018 $ 1,503,673 $ 1,881,607 61,998 75,286 480 2,766 62,478 78,052 12,838 8,984 20,710 24,223 $ 1,599,699 $ 1,992,866 $ 219,516 $ 621,807 1,380,183 1,346,836 - 24,223 $ 1,599,699 $ 1,992,866		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 1,503,673 61,998 480 62,478 12,838 20,710 $ 1,599,699 $ 219,516 1,380,183 - $ 1,599,699		2019 $ 3,063,835 126,337 959 127,296 6,775 71,311 $ 3,269,217 $ 500,950 2,768,267 - $ 3,269,217	2018 $ 4,872,437 161,327 5,532 166,859 17,871 299,343 $ 5,356,510 $ 992,003 4,065,164 299,343 $ 5,356,510

f. Employees’ compensation and remuneration of directors and supervisors

In compliance with HTC’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 six months ended June 30, 2019 and 2018, the accrual rates and amount of employees’ compensation are as follows:

Accrual rate

Employees’ compensation Amount	For the Six Months Ended June 30
	2019 2018 4% 4%

Employees’ compensation	For the Three Months Ended June 30 2019 2018 $ - $ (95,278)	For the Three Months Ended June 30 2019 2018 $ - $ (95,278)		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ -		2019 $ -	2018 $ 753,954

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The appropriations of employees’ compensation for 2018 that were resolved by the board of directors on May 10, 2019, are as 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 consolidated financial statements for the years ended December 31, 2018.

For any further information of the employees’ compensation and remuneration to directors and supervisors approved in the meeting of Board of Directors in 2019 and 2018, see disclosures in the “Market Observation Post System”.

g. Impairment loss on non-financial assets (reversed)

Inventories (included in operating costs) Intangible asset (included in other gains and losses)	For the Three Months Ended June 30 2019 2018 $ 28,382 $ 505,304 (6,408) - $ 21,974 $ 505,304	For the Three Months Ended June 30 2019 2018 $ 28,382 $ 505,304 (6,408) - $ 21,974 $ 505,304		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 28,382 (6,408) $ 21,974		2019 $ 83,218 (8,958) $ 74,260	2018 $ 590,490 - $ 590,490

h. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses Valuation (loss) gain arising from financial instruments classified as held for trading		For the Three Months Ended June 30 2019 2018 $ 417,666 $ 512,237 (265,736) (626,891) (68,077) 184,763 $ 83,853 $ 70,109		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 417,666 (265,736) (68,077) $ 83,853		2019 $ 744,839 (454,409) (59,214) $ 231,216	2018 $ 1,371,275 (1,443,414) 207,635 $ 135,496

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25. INCOME TAXES RELATING TO CONTINUING OPERATIONS

a. Income tax (benefit) expense recognized in profit or loss

Current tax In respect of the current period Land value increment tax Deferred tax In respect of the current period Income tax (benefit) expense recognized in profit or loss		For the Three Months Ended June 30 2019 2018 $ 3,769 $ 144,000 - 84,027 3,769 228,027 (4,770) (212,407) $ (1,001) $ 15,620		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 3,769 - 3,769 (4,770) $ (1,001)		2019 $ 3,766 - 3,766 (5,749) $ (1,983)	2018 $ 170,161 84,027 254,188 5,066,648 $ 5,320,836

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 assessments

HTC’s tax returns through 2016 had been assessed by the tax authorities.

The income tax returns of HTC Investment Corporation and HTC VIVE TECH Corp. for the years through 2017 have been examined and approved by the tax authorities.

26. (LOSS) EARNINGS PER SHARE

Unit: NT$ Per Share

Basic (loss) earnings per share Diluted (loss) earnings per share	For the Three Months Ended June 30 2019 2018 $ (2.71) $ (2.53) $ (2.71) $ (2.53)	For the Three Months Ended June 30 2019 2018 $ (2.71) $ (2.53) $ (2.71) $ (2.53)	For the Six Months Ended June 30	For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ (2.71) $ (2.71)		2019 $ (5.69) $ (5.69)	2018 $ 23.19 $ 22.82

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

Net (Loss) Profit for the Period

(Loss) profit for the period attributable to owners of the parent		For the Three Months Ended June 30 2019 2018 $ (2,217,052) $ (2,074,417)		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ (2,217,052)		2019 $ (4,661,027)	2018 $ 19,021,775

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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: Employee share options Employees’ compensation issued Weighted average number of ordinary shares in computation of diluted (loss) earnings per share	For the Three Months Ended June 30 2019 2018 818,812 819,616 - 2 - - 818,812 819,618	For the Three Months Ended June 30 2019 2018 818,812 819,616 - 2 - - 818,812 819,618		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 818,812 - - 818,812		2019 818,812 - - 818,812	2018 820,272 12 13,251 833,535

If the Company offered to settle the compensation or bonuses paid to employees in cash or shares, the Company assumed 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 (loss) earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted (loss) earnings 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 beneath the average market price of the shares during the six months ended June 30, 2019 which is included in the computation of diluted earnings per share.

27. DISPOSAL OF SUBSIDIARIES

On September 21, 2017, the Company entered into a sale agreement with Google Inc. (“Google”) to dispose 100% equity interest of Communication Global Certification Inc. (“CGC”). CGC is engaged in providing import of controlled telecommunications radio-frequency devices and software services. The transaction was completed at January 30, 2018, and thereafter the Company lost its control on CGC.

a. Consideration received from the disposal

Consideration received in cash

CGC $ 410,857

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b. Analysis of assets and liabilities on the date control was lost

Current assets
Cash and cash equivalents

Others
Non-current assets
Property, plant and equipment
Others
Current liabilities
Non-current liabilities

Net assets disposed of

c. Gain on disposal of subsidiary
Consideration received

Less: Net assets disposed of

Gain on disposal

d. Net cash inflow on disposal of subsidiary
Consideration received in cash and cash equivalents

Less: Cash and cash equivalent balances disposed of

CGC
$ 303,939
9,474
105,170
1,662
(23,091)

(1,693)
$ 395,461
CGC
$ 410,857
(395,461)
$ 15,396
CGC
$ 410,857
(303,939)
$ 106,918

28. SHARE-BASED PAYMENT ARRANGEMENTS

Employee Share Option Plan of the Company

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

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

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

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

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

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Information on employee share options are as follows:

Balance, beginning of period Shares granted Shares exercised Shares forfeited Balance, end of period Shares exercisable, end of period Weighted-average fair value of shares granted (NT$)	For the Six Months Ended June 30	For the Six Months Ended June 30
	2019 Number of Shares (In Thousands) Weighted- average Exercise Price (NT$) 6,909 $138.19 20,000 35.50 - (324) 26,585 61.00 6,565 $ 15.45	2018
		Number of Shares (In Thousands) Weighted- average Exercise Price (NT$) 16,068 $137.45 - (149) (7,400) 8,519 136.55 8,285 $ -

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

	June 30,	December 31,	June 30,
	2019	2018	2018
Range of exercise prices (NT$)	$35.5-$149	$54.5-$149	$54.5-$149
Weighted-average remaining contractual life (years)	8.36 years	4.21 years	4.80 years

Options granted in 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:

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

Expected volatility was based on the historical share price volatility over the past 1-6 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, HTC’s Board of Directors passed a resolution to issue 5,000 thousand and 7,500 thousand shares, respectively.

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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, HTC will recall or buy back and cancel the restricted shares. In 2017 and the six months ended June 30, 2018, HTC retired 2,161 thousand and 2 thousand restricted shares for employees amounting to NT$21,616 thousand and NT$16 thousand, respectively. As a result, the numbers of HTC’s issued and outstanding employee restricted shares as of June 30, 2019 was 329 thousand shares. The related information is as follows:

	July 18,	December 23,	November 2,
Grant-date	2016	2015	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 costs of share-based payment arrangements recognized were NT$6,775 thousand and NT$17,871 thousand for the six months ended June 30, 2019 and 2018, respectively.

29. 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.

30. FINANCIAL INSTRUMENTS

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

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

June 30, 2019

Financial assets at FVTPL Derivative financial instruments Foreign exchange contracts Convertible bonds Warrants Financial assets at FVTOCI Investments in equity instruments Domestic listed shares and emerging market shares Domestic unlisted shares Overseas listed shares Overseas unlisted shares Overseas unlisted beneficiary certificates Financial liabilities at FVTPL Derivative financial instruments Foreign exchange contracts December 31, 2018 Financial assets at FVTPL Derivative financial instruments Foreign exchange contracts Convertible bonds Warrants	Level 1 $ - - - $ - $ 84,608 - 827,135 - - $ 911,743 $ - Level 1 $ - - - $ -	Level 2 $ 109,519 - - $ 109,519 $ - - - - - $ - $ 168,733 Level 2 $ 83,411 - - $ 83,411	Level 3 $ - 245,658 24,233 $ 269,891 $ - 423,277 - 1,077,605 774,110 $ 2,274,992 $ - Level 3 $ - 214,340 22,124 $ 236,464	Total $ 109,519 245,658 24,233 $ 379,410 $ 84,608 423,277 827,135 1,077,605 774,110 $ 3,186,735 $ 168,733 Total $ 83,411 214,340 22,124 $ 319,875 (Continued)

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Financial assets at FVTOCI Investments in equity instruments Domestic listed shares and emerging market shares Domestic unlisted shares Overseas listed shares Overseas unlisted shares Overseas unlisted beneficiary certificates Financial liabilities at FVTPL Derivative financial instruments Foreign exchange contracts June 30, 2018 Financial assets at FVTPL Derivative financial instruments Foreign exchange contracts Convertible bonds Warrants Financial assets at FVTOCI Investments in equity instruments Domestic listed shares and emerging market shares Domestic unlisted shares Overseas listed shares Overseas unlisted shares Overseas unlisted beneficiary certificates Financial liabilities at FVTPL Derivative financial instruments Foreign exchange contracts	Level 1 $ 83,383 - 409,412 - - $ 492,795 $ - Level 1 $ - - - $ - $ 97,943 - 442,106 - - $ 540,049 $ -	Level 2 $ - - - - - $ - $ 82,156 Level 2 $ 541,782 - - $ 541,782 $ - - - - - $ - $ 334,147	Level 3 $ - 388,700 - 1,103,891 749,046 $ 2,241,637 $ - Level 3 $ - 141,044 15,856 $ 156,900 $ - 559,497 - 1,389,484 723,612 $ 2,672,593 $ -	Total $ 83,383 388,700 409,412 1,103,891 749,046 $ 2,734,432 $ 82,156 (Concluded) Total $ 541,782 141,044 15,856 $ 698,682 $ 97,943 559,497 442,106 1,389,484 723,612 $ 3,212,642 $ 334,147

There were no transfers between Levels 1 and 2 for the six months ended June 30, 2019 and 2018.

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

For the six months ended June 30, 2019

Financial Assets Balance at January 1, 2019 Recognized in other comprehensive income Purchases Effect of foreign currency exchange differences Balance at June 30, 2019 For the six months ended June 30, 2018 Financial Assets Balance at January 1, 2018 Recognized in other comprehensive income Reclassification Purchases Effect of foreign currency exchange differences Balance at June 30, 2018	Financial Assets at FVTPL Derivatives $ 236,464 - 30,565 2,862 $ 269,891 Financial Assets at FVTPL Derivatives $ 131,742 - (7,378) 28,926 3,610 $ 156,900	Financial Assets at FVTOCI Equity Instruments $ 2,241,637 (22,449) 153,254 (97,450) $ 2,274,992 Financial Assets at FVTOCI Equity Instruments $ 3,024,565 (454,052) 7,378 37,209 57,493 $ 2,672,593	Total $ 2,478,101 (22,449) 183,819 (94,588) $ 2,544,883 Total $ 3,156,307 (454,052) - 66,135 61,103 $ 2,829,493

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

Financial Instruments Valuation Techniques and Inputs Derivatives - foreign currency Discounted cash flow: Future cash flows are estimated based on contracts 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 which fair value are based on valuation provided by market participants or quoted prices of the counter party. 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.

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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 adopting a self-estimated model.

Categories of Financial Instruments

		June 30,	December 31,	December 31,	June 30,
		2019		2018	2018
Financial assets
Financial assets at FVTPL
Held for trading (Note 1)	$	109,519	$	83,411 $	541,782
Mandatorily at FVTPL		269,891		236,464	156,900
Amortized cost (Note 2)		37,785,162		43,548,840	50,101,613
Financial assets at FVTOCI
Equity instruments		3,186,735		2,734,432	3,212,642
Financial liabilities
Financial liabilities at FVTPL
Held for trading		168,733		82,156	334,147
Amortized cost (Note 3)		17,158,803		19,269,254	22,166,196

Note 1: The balances included financial assets held for trading.

Note 2: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, other financial assets, trade receivables, other receivables and refundable deposits.
Note 3: The balances included financial liabilities measured at amortized cost, which comprise short-term loans, note and trade payables, other payables, lease liabilities, agency receipts and guarantee deposits received.

Financial Risk Management Objectives and Policies

The Company’s major financial instruments 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.

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The Corporate Treasury function reports quarterly to the Company’s supervisory and Board of Directors for monitoring risks and implementing policies 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.

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 exposed to foreign currency risk at the end of the reporting period are set out in Note 34.

Sensitivity analysis

The Company was mainly exposed to the currency United States dollar (“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	Profit or Loss	Equity
For the six months ended June 30, 2019
USD	$	(3,711)	$ (130,752)
EUR		(2,164)	(3,684)
RMB		(21,207)	(104,710)
JPY		3,478	(1,527)
For the six months ended June 30, 2018
USD		34,009	(140,231)
EUR		(3,360)	(3,332)
RMB		(12,191)	(106,834)
JPY		(2,444)	(1,451)

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b. Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of 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 Note 10.

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 reserve financing facilities, and also monitor liquidity risk of shortage of funds by the maturity date of financial instruments and financial assets.

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

The following table details the Company’s remaining contractual maturities 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.

June 30, 2019

Note and trade payables Other payables Lease liabilities Other current liabilities Guarantee deposits received December 31, 2018 Note and trade payables Other payables Other current liabilities Guarantee deposits received	Less Than 3 Months $ 1,671,355 4,531,674 36,519 77,448 - $ 6,316,996 Less Than 3 Months $ 2,978,647 4,930,145 102,714 - $ 8,011,506	3 Months to 1 Year $ 6,872,092 3,369,229 107,277 - - $ 10,348,598 3 Months to 1 Year $ 6,834,200 4,293,148 - - $ 11,127,348	Over 1 Year $ - - 332,069 - 166,967 $ 499,036 Over 1 Year $ - - - 130,400 $ 130,400

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June 30, 2018

Note and trade payables Other payables Other current liabilities Guarantee deposits received	Less Than 3 Months $ 4,494,261 5,293,503 76,213 - $ 9,863,977	3 Months to 1 Year $ 7,090,070 5,101,608 - - $ 12,191,678	Over 1 Year $ - - - 110,541 $ 110,541

2) Liquidity risk rate 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.

June 30, 2019

Net settled Foreign exchange contracts Gross settled Foreign exchange contracts Inflows Outflows December 31, 2018 Net settled Foreign exchange contracts Gross settled Foreign exchange contracts Inflows Outflows	Less Than 3 Months $ 55,772 $ 24,139,256 (24,235,164) $ (95,908) Less Than 3 Months $ 20,968 $ 25,899,104 (25,861,350) $ 37,754	3 Months to 1 Year $ - $ - - $ - 3 Months to 1 Year $ - $ - - $ -	Over 1 Year $ - $ - - $ - Over 1 Year $ - $ - - $ -

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June 30, 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 $ (196,964) $ 25,259,264 (24,819,060) $ 440,204 June 30, 2019 $ 186,867 18,042,286 $ 18,229,153	3 Months to 1 Year $ - $ - - $ - December 31, 2018 $ 538,680 18,128,633 $ 18,667,313	Over 1 Year $ - $ - - $ - June 30, 2018 $ 418,301 18,307,887 $ 18,726,188

3) Bank credit limit

Amount used was included guarantee for customs duties and for patent litigation.

31. RELATED-PARTY TRANSACTIONS

Balance, transactions, revenue and expenses between HTC and its subsidiaries, which are related parties of HTC, have been eliminated on consolidation and are not disclosed in this note. Besides as disclosed elsewhere in other notes, details of transactions between the Company and other related parties are disclosed below.

Names and Relationships of Related-parties

Related-party
VIA Technologies Inc.

Xander International Corp.

VIA Labs, Inc.

Way Chih Investment Co., Ltd.

HTC Education Foundation

Hung-Mao Investment Co., Ltd.

Nan Ya Plastics Corporation

Atrust Computer Corporation

Employees’ Welfare Committee

VIA Technologies (China) Co., Ltd.
Shanghai Investment Advisory
(Shanghai) Co., Ltd.

PROOF OF CAPITAL, L.P.

Relationship with the Company

Its chairman is HTC’s director in substance
Its chairman is HTC’s director in substance
Its chairman is HTC’s director in substance
Its director is HTC’s chairwoman in substance (Note)
Its chairman is HTC’s director in substance
Its significant shareholder in substance is HTC’s chairwoman
Its director in substance and HTC’s chairwoman are relatives and
other relatives
Its general manager in substance is HTC’s director
Employees’ Welfare Committee of HTC
The chairman of its parent company is HTC’s director in substance
Its chairwoman is HTC’s chairwoman in substance
It's co-founder is HTC’s management

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Note: Way Chih Investment Co., Ltd. was the supervisor of HTC. On June 21, 2019, audit committee was set in place of supervisors which was approved in the shareholders' meeting. The function of supervisors will be automatically discharged after expiration of the term of office.

Operating Sales

Other related parties	For the Three Months Ended June 30 2019 2018 $ 1,135 $ 13,865	For the Three Months Ended June 30 2019 2018 $ 1,135 $ 13,865		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 1,135		2019 $ 3,696	2018 $ 17,949

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

Other related parties	June 30, 2019 December 31, 2018 $ 32 $ 516	June 30, 2018 $ 277

Some related parties whose received products sold at prices which were no different from sales 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 bad debt risk, hence no bad debt expense had been recognized for the six months ended June 30, 2019 and 2018.

Purchase

Other related parties	For the Three Months Ended June 30 2019 2018 $ 2,277 $ 2,254	For the Three Months Ended June 30 2019 2018 $ 2,277 $ 2,254		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 2,277		2019 $ 5,430	2018 $ 4,568

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

Other related parties	June 30, 2019 December 31, 2018 $ 3,067 $ 4,159	June 30, 2018 $ 3,074

Purchase prices for related parties and third parties were similar. The outstanding balance 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 Three Months Ended June 30 2019 2018 $ 23,263 $ 21,756 175 112 1,777 2,085 $ 25,215 $ 23,953	For the Three Months Ended June 30 2019 2018 $ 23,263 $ 21,756 175 112 1,777 2,085 $ 25,215 $ 23,953		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 23,263 175 1,777 $ 25,215		2019 $ 58,328 350 (1,584) $ 57,094	2018 $ 106,127 272 4,146 $ 110,545

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

Lease Liabilities

	June 30, 2019
VIA Technologies (China) Co., Ltd.	$ 25,707
Shanghai Investment Advisory (Shanghai) Co., Ltd.	85,169
	$ 110,876

Interest Expense

VIA Technologies (China) Co., Ltd. Shanghai Investment Advisory (Shanghai) Co., Ltd.	For the Three Months Ended June 30 2019 2018 $ 188 $ - 855 - $ 1,043 $ -	For the Three Months Ended June 30 2019 2018 $ 188 $ - 855 - $ 1,043 $ -		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ 188 855 $ 1,043		2019 $ 531 1,755 $ 2,286	2018 $ - - $ -

Lease Expense

VIA Technologies (China) Co., Ltd. Other related parties	For the Three Months Ended June 30 2019 2018 $ - $ 4,771 1,054 1,826 $ 1,054 $ 6,597	For the Three Months Ended June 30 2019 2018 $ - $ 4,771 1,054 1,826 $ 1,054 $ 6,597		For the Six Months Ended June 30	For the Six Months Ended June 30
		2019 $ - 1,054 $ 1,054		2019 $ 232 1,852 $ 2,084	2018 $ 10,786 2,939 $ 13,725

The Company leased offices, staff dormitory and meeting rooms owned by VIA Technologies (China) Co., Ltd. and a related party under an operating lease agreement, respectively. The rental payment is determined at the prevailing rates in the surrounding area.

Acquisitions of Financial Assets

The Company committed to injecting US$8,000 thousand to become a limited partner of PROOF OF CAPITAL, L.P. As of June 30, 2019, US$4,000 thousand was invested and which was classified as financial assets at fair value through other comprehensive income depending on its nature.

Other Related-party Transactions

Other related parties provide consultancy service fee to the Company. The consultancy service fee was NT$5,333 thousand for the six months ended June 30, 2019.

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32. PLEDGED ASSETS

As of June 30, 2019, December 31, 2018 and June 30, 2018, the time of deposits amounting to NT$326,219 thousand, NT$476,276 thousand and NT$472,634 thousand and were classified as other financial assets were provided respectively as collateral for rental deposits, litigation, customs duties, patent, and vendors cooperation.

33. 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 declaratory judgment action for non-infringement and 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 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 the United Kingdom 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 March 2012, Washington Court granted on the Company’s summary judgment motion and ruled on non-infringement of two of patents-in-suit. As for the third patents-in-suit, the Washington Court has granted a stay on case pending appeal decision. In January 2014, the Court of Appeal for the Federal Circuit affirmed the Washington Court’s decision.

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). 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.

As of the date that the Board of Directors approved and authorized for issuing consolidated financial statements, there had been no critical Court decision been made, except for the above.

b. In December 2015, Koninklijke Philips N.V. (“Philips”) filed a lawsuit against the Company in the District Court of Mannheim, Germany and claimed infringement of certain patents owned by Philips. In October 2016, the Mannheim Court found that certain smartphone products sold by the Company in Germany infringed German’s corresponding patent based on the European Patent No. 0888687 (EP ‘687 patent), which relates to the user interface in a device, and granted an injunction against the Company. However, Philips’ attempt to enforce an injunction based on this patent was unsuccessful as the Company has already applied the design around solution, which is provided by Google, in its devices. In July 2017, the German Federal Patent Court announced that EP ‘687 patent was invalid.

Philips’ infringement hearing relating to the European Patent No. 1459165 was heard on May 16, 2018. The patent was related to the scrolling functionality. Unusually, the Court dismissed the infringement allegations at the hearing rather than waiting for an issuance of a written verdict. The other infringement case regarding Philips’ patents is expected to take place in the second quarter of 2018. This case is based on the European Patent No. 1356367, which relates to dimming control of a device screen. The infringement trial was held on June 22, 2018 and has stayed the infringement action pending the outcome of the nullity action on September 28, 2018.

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Philips’ infringement case based on No. 0888687 related to device user interface was heard by Paris court of First Instance on April 8, 2018. Philips’ infringement case based on No. 1571988 related to activity sensor was heard by Paris court of First Instance on April 9, 2018. Philips’ infringement case based on No. 1384134 related to quick search function of device user interface was heard by Paris court of First Instance on April 10, 2018. The court determined on July 11, 2019 that all three of above patents were invalid due to lack of an inventive step in view of the prior art.

Philips filed a lawsuit against the Company in the United Kingdom, alleging infringement of certain Philips SEP patents. Since in October 2017, the Court of Appeal of the United Kingdom dismissed the Company’s appeal allegation that the rights obtained by virtue of a covenant between Philips and Qualcomm Incorporated extend to Philips’ patents covering HSPA technology. As such, the covenant does not provide the Company with a defense against the patent actions in suit relating to this technology. The technical hearings of the three patents-in-suit proceeded as follows: European Patent No. (UK) 1440525 was heard in late April 2018; the Court decision shows that the Company infringed ‘525; the Company implemented workaround of EP‘525. European Patent No. (UK) 1685659 was heard in the middle of June 2018 and the Court rules that ‘659 is invalid and the Court decision showed that the Company infringed EP 1623511.

The litigations between Company and Philips are ongoing. In order to protect the interests of the Company and its customers, the Company has appealed the court’s decision. As of the date that the board of directors of HTC approved and authorized for issuing consolidated financial statements, the appeals court has not issued a ruling with respect to the abovementioned patent-in-suit.

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.

34. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company entities and the exchange rates between foreign currencies and respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

Financial assets Monetary items USD EUR JPY RMB Non-monetary items USD RMB Investments accounted for using the equity method USD RMB Financial liabilities Monetary items USD EUR JPY RMB	June 30, 2019 Foreign Currencies Exchange Rate $ 1,240,719 31.07 65,388 35.38 4,302,008 0.2886 1,415,275 4.52 93,909 31.07 6,885 4.52 13,081 31.07 23,366 4.52 773,762 31.07 51,983 35.38 5,010,695 0.2886 169,679 4.52	December 31, 2018 Foreign Currencies Exchange Rate $ 1,285,472 30.73 64,339 35.16 4,120,696 0.2787 1,395,981 4.47 80,612 30.73 4,885 4.47 15,783 30.73 14,587 4.47 835,550 30.73 54,934 35.16 3,848,890 0.2787 69,622 4.47	June 30, 2018
			Foreign Currencies Exchange Rate $ 1,354,006 30.49 73,783 35.44 4,927,366 0.2756 1,563,673 4.60 88,300 30.49 4,217 4.60 16,992 30.49 1,502 4.60 988,862 30.49 46,435 35.44 3,200,503 0.2756 229,559 4.60

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For the six months ended June 30, 2019 and 2018, realized and unrealized net foreign exchange gains were NT$231,216 thousand and NT$135,496 thousand, respectively. It is impractical to disclose net foreign exchange gains or losses by each significant foreign currency due to the variety of foreign currency transactions and functional currencies of the Company entities.

35. SIGNIFICANT CONTRACTS

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

Contractor Qualcomm Incorporated. Qualcomm Incorporated. InterDigital Technology Corporation IV International Licensing Netherlands, B.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	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.

36. SEGMENT INFORMATION

The Company is organized and managed as a single reportable business segment. The Company’s operations are mainly in the research, design, manufacture, sale of smart mobile and virtual reality devices which the operating revenue is more than 90 percent of the total revenue. The Company is considered single segment. The basis of information reported to the chief operating decision maker is the same as the financial statements. Because the basis of segment information reported to the chief operating decision maker is the same as the financial statements, the segment revenue and results for the six months ended June 30, 2019 and 2018 can be referred to in the consolidated statements of comprehensive income and the segment assets and liabilities as of June 30, 2019 and 2018 can be referred to in the consolidated balance sheets.

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AI assistant

HTC — Interim / Quarterly Report 2019

52128_rns_2019-11-13_86ef36b3-c37e-41c8-8026-48390fefb2f8.pdf

HTC Corporation and Subsidiaries

INDEPENDENT AUDITORS’ REVIEW REPORT

Introduction

Scope of Review

Conclusion

Notice to Readers

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

HTC CORPORATION AND SUBSIDIARIES

HTC CORPORATION AND SUBSIDIARIES

HTC CORPORATION AND SUBSIDIARIES

(Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

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

IFRS 16 “Leases”

Definition of a lease

The Company as lessee

The Company as lessor

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

Basis of Preparation

Classification of Current and Non-current Assets and Liabilities

Basis of Consolidation

Business Combinations

Foreign Currencies

Inventories

Investments in Associates

Property, Plant and Equipment

Investment Properties

Goodwill

Intangible Assets

Intangible assets acquired separately

Intangible assets acquired in a business combination

Derecognition of intangible assets

Impairment of Tangible and Intangible Assets Other Than Goodwill

Financial Instruments

3) Derecognition of financial assets

b. Equity instruments

2) Derecognition of financial liabilities

d. Derivative financial instruments

Provisions

a. Warranty provisions

b. Onerous contracts

Revenue Recognition

Leasing

2019

b. The Company as lessee

2018

b. The Company as lessee

Employee Benefits

Short-term employee benefits

Retirement benefits

- Other long term employee benefits

Termination benefits

Share-based Payment Arrangements

Taxation

b. Deferred tax

c. Current and deferred tax

d. Interim period tax

Accrued Marketing Expenses

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

b. Valuation of inventories

c. Realization of deferred tax assets

6. CASH AND CASH EQUIVALENTS

7. FINANCIAL INSTRUMENTS AT FAIR VALUE

Forward Exchange Contracts

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments at FVTOCI

9. OTHER FINANCIAL ASSETS

10. TRADE RECEIVABLES AND OTHER RECEIVABLES

HTC Interim / Quarterly Report 2019