HTC - Interim / Quarterly Report 2019

HTC Corporation and Subsidiaries

Consolidated Financial Statements for the Nine Months Ended September 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 September 30, 2019 and 2018, the related consolidated statements of comprehensive income for the three months ended September 30, 2019 and 2018 and the nine months ended September 30, 2019 and 2018, the consolidated statements of changes in equity and cash flows for the nine months ended September 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 Taiwan, 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 September 30, 2019 and 2018, its consolidated financial performance for the three months ended September 30, 2019 and 2018 and the nine months ended September 30, 2019 and 2018 and its consolidated cash flows for the nine months ended September 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 Taiwan, 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

November 11, 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		September 30, 2019 (Reviewed) Amount % $ 29,897,977 52 18,983 - 849,584 2 1,386,700 2 123,259 - 235,377 - 2,739,313 5 467,803 1 3,940,016 7 1,670 - 39,660,682 69 362,711 1 1,925,874 3 525,063 1 7,972,932 14 406,911 1 2,087,267 4 308,968 - 3,783,904 7 111,624 - 274,391 - 155,178 - 45,343 - 17,960,166 31 $ 57,620,848 100 $ 176,531 - 8,445,193 15 7,583,770 13 202,785 - 1,910,642 3 129,082 - 880,981 2 19,328,984 33 45,511 - 295,013 1 165,578 - 506,102 1 19,835,086 34 8,188,119 14 15,539,972 27 18,895,136 33 3,080,480 5 (4,829,751) (8) (3,254,199) (5) 37,619,757 66 166,005 - 37,785,762 66 $ 57,620,848 100		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		September 30, 2018 (Reviewed)
						Amount % $ 25,767,839 35 72,777 - 477,412 1 2,182,543 3 343,654 - 125,007 - 4,370,403 6 1,335,274 2 17,554,928 24 3,220 - 52,233,057 71 225,885 - 2,643,362 4 441,284 1 8,501,060 11 - - 2,093,933 3 1,478,179 2 3,906,684 5 127,267 - 28,285 - 152,718 - 2,220,924 3 21,819,581 29 $ 74,052,638 100 $ 160,816 - 9,984,557 14 9,822,626 13 285,766 1 2,447,012 3 - - 1,475,069 2 24,175,846 33 33,857 - - - 110,072 - 143,929 - 24,319,775 33 8,190,792 11 15,638,617 21 18,297,655 25 - - 10,387,038 14 (2,844,865) (4) 49,669,237 67 63,626 - 49,732,863 67 $ 74,052,638 100

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 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 income or 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 OTHER COMPREHENSIVE INCOME AND LOSS, NET OF INCOME TAX Items that will not be reclassified subsequently to profit or loss: Unrealized (loss) gain on investments in equity instruments designated as at fair value through other comprehensive income		For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30		For the Nine Months	Ended September 30	Ended September 30
		2019		2018		2019		2018
		Amount % $ 2,450,258 100 1,889,616 77 560,642 23 666,994 27 867,753 35 1,441,055 59 2,975,802 121 (2,415,160) (98) 327,091 13 (283,708 ) (12 ) (3,515 ) - 17,536 1 57,404 2 (2,357,756 ) (96 ) 523 - (2,357,233) (96) (388,908 ) (16 )		Amount % $ 4,044,278 100 3,852,950 95 191,328 5 771,998 19 789,561 20 1,416,158 35 2,977,717 74 (2,786,389) (69) 301,046 7 (102,294 ) (3 ) (698 ) - (14,784) - 183,270 4 (2,603,119 ) (65 ) (12,882) - (2,616,001) (65) (112,351 ) (3 )		Amount % $ 8,200,989 100 6,638,632 81 1,562,357 19 2,152,954 26 2,697,234 33 4,346,825 53 9,197,013 112 (7,634,656) (93) 961,724 11 (344,872 ) (4 ) (15,298 ) - (11,167) - 590,387 7 (7,044,269 ) (86 ) 2,506 - (7,041,763) (86) 3,048 -		Amount % $ 19,607,481 100 19,421,635 99 185,846 1 2,985,513 15 2,664,788 14 5,661,591 29 11,311,892 58 (11,126,046) (57) 888,429 4 31,999,423 163 (1,390 ) - (38,280) - 32,848,182 167 21,722,136 110 (5,333,718) (27) 16,388,418 83 (452,641 ) (2 ) (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 September 30	For the Three Months Ended September 30	For the Nine Months	Ended September 30
2019	2018	2019	2018
Amount % $ (497,443) (20) (886,351) (36) $ (3,243,584) (132) $ (2,343,490 ) (96 ) (13,743) - $ (2,357,233) (96) $ (3,227,542 ) (132 ) (16,042) - $ (3,243,584) (132) $ (2.86) $ (2.86)	Amount % $ (368,228) (9) (480,579) (12) $ (3,096,580) (77) $ (2,603,000 ) (65 ) (13,001) - $ (2,616,001) (65) $ (3,083,073 ) (76 ) (13,507) (1) $ (3,096,580) (77) $ (3.18) $ (3.18)	Amount % $ (178,529) (2) (175,481) (2) $ (7,217,244) (88) $ (7,004,517 ) (85 ) (37,246) (1) $ (7,041,763) (86) $ (7,178,236 ) (88 ) (39,008) - $ (7,217,244) (88) $ (8.55) $ (8.55)	Amount % $ (12,007) - (464,648) (2) $ 15,923,770 81 $ 16,418,775 84 (30,357) - $ 16,388,418 84 $ 15,952,216 81 (28,446) - $ 15,923,770 81 $ 20.03 $ 19.65

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

(Concluded)

(Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

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

	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 - - - - - 60,873 1,490 6,631 - - (18,959) 19,622 $ 8,190,792 $ 15,638,617 $ 8,188,135 $ 15,576,268 - - - - - - - - - - - - - (60,873) (16) 24,577 $ 8,188,119 $ 15,539,972	Retained Earnings (Accumulated Deficits) Unappro- priated Legal Reserve Special Reserve Earnings $ 18,297,655 $ - $ (6,093,403) - - 104,732 18,297,655 - (5,988,671) - - 16,418,775 - - - - - - - - - - - (43,066) - - - $ 18,297,655 $ - $ 10,387,038 $ 18,297,655 $ - $ 6,194,337 597,481 - (597,481) - 3,080,480 (3,080,480) - - (311,148) - - (7,004,517) - - - - - (8,760) - - (21,702) - - - $ 18,895,136 $ 3,080,480 $ (4,829,751)	Other Equity	Unearned Employee Benefit $ (49,590) - (49,590) - - - - - 25,786 $ (23,804) $ (7,077) - - - - - - - 7,077 $ -
		Unrealized Losses on Exchange Financial Assets Unrealized Differences on at Fair Value Losses on Translating Through Other Available-for- Foreign Comprehensive sale Financial Operations Income Assets $ (2,183,148) $ - $ (35,690) - (171,354) 35,690 (2,183,148) (171,354) - - - - (13,918) (452,641) - - - - - - - - - - - - - $ (2,197,066) $ (623,995) $ - $ (2,052,019) $ (1,028,461) $ - - - - - - - - - - - - - (176,767) 3,048 - - - - - - - - - - $ (2,228,786) $ (1,025,413) $ -

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 expense Amortization expense Finance costs Interests income Dividend income Compensation cost of employee share-based payments Share of the loss of associates Net gain on disposal of property, plant and equipment Net gain on disposal of assets and licensing income (Note 24) Net gain on disposal of non-current assets held for sale Net gain on disposal of subsidiary Impairment loss on non-financial assets Changes in operating assets and liabilities Decrease 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 in other current assets Decrease (increase) in other non-current assets Decrease in note and trade payables Decrease in other payables Decrease in provisions (Decrease) increase in other current liabilities Cash used in operations Interest received Interest paid Income taxes refund (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 Acquisition of investments accounted for using the equity method		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ (7,044,269) 549,270 892,474 15,298 (363,151) (98) 31,638 11,167 (81,947) - - - 170,011 158,803 296,450 17,683 447,109 692,496 11,142 6,096 (1,367,654) (1,619,565) (93,548) (72,466) (7,343,061) 443,916 (15,298) 126,685 (6,787,758) (153,254) 137,736 (124,762) (171,767)	2018 $ 21,722,136 421,841 895,486 1,390 (425,049) - 26,449 38,280 (80,493) (31,285,385) (1,077,246) (15,396) 646,811 78,054 6,350,967 (177,232) 2,364,212 401,824 132,601 (20,892) (4,584,665) (1,802,391) (930,189) 877 (7,318,010) 362,124 (1,390) (220,155) (7,177,431) (160,775) - (97,822) - (Continued)

HTC CORPORATION AND SUBSIDIARIES

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

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 Dividends paid to owners of the Company 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 Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ - - (110,021) 92,843 - 13,338 (4,354) 4,898 - 12,974,279 98 - 12,659,034 35,178 (91,434) (311,148) - 145,223 (222,181) (200,666) 5,448,429 24,449,548 $ 29,897,977	2018 $ 106,918 2,748,931 (501,925) 235,281 (1,374,465) 11,749 (24,341) - (9,719,283) - - 31,285,385 22,509,653 104,391 - - 8,121 19,454 131,966 (139,576) 15,324,612 10,443,227 $ 25,767,839

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

(Concluded)

HTC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 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 with after-sales services.

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 the New Taiwan dollars. The consolidated financial statements are presented in the 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 November 11, 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, 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

10 -

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

Effective Date New IFRSs Announced by IASB (Note) Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark January 1, 2020 Reform” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined by IASB between an Investor and its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021

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

11 -

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

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

a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
c. Level 3 inputs are unobservable inputs for the asset or liability.

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 the purpose of trading;
b. Assets expected to be realized within twelve months after the reporting period; and
c. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
12 -

Current liabilities are:

a. Liabilities held primarily for the purpose of trading;
b. Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and
c. Liabilities for which the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

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

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of HTC and the entities controlled by 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 the 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 had the Company directly disposed of the related assets or liabilities.

See Note 13 for the detailed information on 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.

13 -

Non-controlling interests are initially measured either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquirees’ 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 (i.e., foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

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

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

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

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

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations are translated into the 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 the loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

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

Inventories

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

14 -

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, which 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.

15 -

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 their intended use.

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

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 from the 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 whenever there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. Any 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.

16 -

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 lives, residual values, and amortization methods 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, they are measured 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 assets 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.

17 -

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 on 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 categories

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.

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.

18 -

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

i. Purchased or originated credit-impaired financial asset, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of such a 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 as at FVTOCI is not permitted if the equity investment is held for trading or if it is 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, it 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 represent 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.

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.

19 -

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 such 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 such financial liability. Fair value is determined in the manner described in Note 30.

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.

20 -

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

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

Provisions

Provisions, including those arising from contractual obligation specified in service concession arrangement to maintain or restore infrastructure before it is handed over to the grantor, are measured at the best estimate of the discounted cash flows of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

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

a. Warranty provisions

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

b. Onerous contracts

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

Revenue Recognition

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

21 -
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 software in software licensing transaction. Furthermore, such software remains functional without the updates and the technical support. Therefore, the upfront royalty is recognized as revenue when the patents subsequent usage occurs.

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.

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.

22 -

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

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.

23 -

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 services.

Retirement benefits

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

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

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

24 -

Taxation

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

a. Current tax

According to the Income Tax Law, an additional tax on unappropriated earnings is provided for as income tax in the year the shareholders approve to retain 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, 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 is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

c. Current and deferred taxes

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

25 -

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 NT$54,788 thousand for the nine months ended September 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 September 30, 2019, December 31, 2018 and September 30, 2018, the carrying amounts of inventories were NT$2,739,313 thousand, NT$3,301,645 thousand and NT$4,370,403 thousand, respectively.

c. Realization of deferred tax assets

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

26 -

As of September 30, 2019, December 31, 2018 and September 30, 2018, the carrying amounts of deferred tax assets were NT$3,783,904 thousand, NT$3,957,060 thousand and NT$3,906,684 thousand, respectively.

6. CASH AND CASH EQUIVALENTS

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2019		2018		2018
Cash on hand	$	1,170	$	1,559	$	1,555
Checking accounts and demand deposits		13,651,621		10,557,535		11,501,342
Time deposits (with original maturities of less
than three months)		16,245,186		13,890,454		14,264,942
	$	29,897,977	$	24,449,548	$	25,767,839
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
	September 30,		December 31,		September 30,
		2019		2018		2018
Financial assets
Financial assets held for trading
Derivatives financial assets (not under hedge
accounting)
Foreign exchange contracts	$	18,983	$	83,411	$	72,777
Financial assets mandatorily classified as at
FVTPL
Derivatives financial assets (not under hedge
accounting)
Convertible bonds		338,503		214,340		210,002
Warrants		24,208		22,124		15,883
	$	381,694	$	319,875	$	298,662
Current	$	18,983	$	83,411	$	72,777
Non-current		362,711		236,464		225,885
	$	381,694	$	319,875	$	298,662
Financial liabilities-current
Financial liabilities held for trading
Derivatives financial liabilities (not under
hedge accounting)
Foreign exchange contracts	$	176,531	$	82,156	$	160,816

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

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:

27 -

Forward Exchange Contracts

				Notional Amount	Notional Amount
	Buy/Sell	Currency	Maturity Date	(In Thousands)
September 30, 2019
Foreign exchange contracts	Sell	USD/NTD	2019.10.4-2019.10.18	USD	130,000
Foreign exchange contracts	Sell	JPY/USD	2019.10.4-2019.11.22	JPY 2,700,000
Foreign exchange contracts	Sell	GBP/USD	2019.10.16-2019.11.20	GBP	16,000
Foreign exchange contracts	Sell	AUD/USD	2019.10.23	AUD	1,000
Foreign exchange contracts	Sell	CAD/USD	2019.10.30	CAD	6,000
Foreign exchange contracts	Sell	RMB/USD	2019.10.23	RMB	30,000
Foreign exchange contracts	Sell	EUR/USD	2019.10.30	EUR	2,000
Foreign exchange contracts	Buy	RMB/USD	2019.10.16-2019.11.22	RMB	993,378
Foreign exchange contracts	Buy	USD/NTD	2019.10.4-2019.11.22	USD	544,500
Foreign exchange contracts	Buy	JPY/USD	2019.10.16-2019.11.13	JPY 2,718,335
Foreign exchange contracts	Buy	EUR/USD	2019.10.18-2019.11.20	EUR	32,000
Foreign exchange contracts	Buy	AUD/USD	2019.10.23-2019.11.15	AUD	9,000
Foreign exchange contracts	Buy	GBP/USD	2019.10.4-2019.11.20	GBP	19,000
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
September 30, 2018
Foreign exchange contracts	Sell	USD/NTD	2018.10.05-2018.10.17	USD	77,130
Foreign exchange contracts	Sell	JPY/USD	2018.10.17-2018.12.07	JPY 3,100,000
Foreign exchange contracts	Sell	GBP/USD	2018.10.26-2018.11.28	GBP	12,000
Foreign exchange contracts	Sell	AUD/USD	2018.11.16	AUD	1,000
Foreign exchange contracts	Sell	CAD/USD	2018.11.23	CAD	6,000
Foreign exchange contracts	Sell	RMB/USD	2018.10.17-2018.11.28	RMB	659,962
Foreign exchange contracts	Sell	EUR/USD	2018.10.05-2018.11.28	EUR	24,000
Foreign exchange contracts	Buy	RMB/USD	2018.10.17-2018.12.12	RMB 1,542,132
Foreign exchange contracts	Buy	USD/NTD	2018.10.05-2018.12.07	USD	614,500
Foreign exchange contracts	Buy	JPY/USD	2018.10.17-2018.11.21	JPY 2,818,335
Foreign exchange contracts	Buy	EUR/USD	2018.10.05-2018.12.07	EUR	32,000
Foreign exchange contracts	Buy	AUD/USD	2018.10.05-2018.11.16	AUD	9,000
Foreign exchange contracts	Buy	GBP/USD	2018.10.17-2018.11.28	GBP	16,000

28 -

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments at FVTOCI

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2019		2018		2018
Domestic investments
Listed shares and emerging market shares	$	85,853	$	83,383	$	116,768
Unlisted shares		96,637		388,700		526,333
		182,490		472,083		643,101
Foreign investments
Listed shares		849,584		409,412		477,412
Unlisted shares		1,003,919		1,103,891		1,247,749
Unlisted beneficiary certificate		739,465		749,046		752,512
		2,592,968		2,262,349		2,477,673
	$	2,775,458	$	2,734,432	$	3,120,774
Current	$	849,584	$	409,412	$	477,412
Non-current		1,925,874		2,325,020		2,643,362
	$	2,775,458	$	2,734,432	$	3,120,774

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.

9. OTHER FINANCIAL ASSETS

September 30, 2019 Time deposits with original maturities of more than three months $ 4,095,194 Current $ 3,940,016 Non-current 155,178 $ 4,095,194	December 31, 2018 September 30, 2018 $ 17,069,473 $ 17,707,646 $ 16,915,835 $ 17,554,928 153,638 152,718 $ 17,069,473 $ 17,707,646

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

29 -

10. TRADE RECEIVABLES AND OTHER RECEIVABLES

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2019		2018		2018
Trade and overdue receivables
At amortized cost
Trade receivables	$	1,759,112	$	2,055,256	$	2,687,160
Trade receivables - related parties		210		516		4,435
Overdue receivables		1,840,947		1,840,947		1,840,947
Less: Allowances for impairment loss		(372,622)		(372,622)		(509,052)
Less: Allowances for impairment loss -
overdue receivables		(1,840,947)		(1,840,947)		(1,840,947)
	$	1,386,700	$	1,683,150	$	2,182,543
Current	$	1,386,700	$	1,683,150	$	2,182,543
Non-current		-		-		-
	$	1,386,700	$	1,683,150	$	2,182,543
Other receivables
Receivables from disposal of investments	$	1,261,915	$	1,307,435	$	1,319,594
Interest receivables		256,446		344,949		310,604
VAT refund receivables		50,149		77,375		59,501
Others		31,190		21,647		197,880
Less: Allowances for impairment loss		(1,476,441)		(1,529,699)		(1,543,925)
	$	123,259	$	221,707	$	343,654
Current	$	123,259	$	221,707	$	343,654
Non-current		-		-		-
	$	123,259	$	221,707	$	343,654

a. Trade receivables at amortized cost

The average credit period of the sales 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.

30 -

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.

September 30, 2019

Non Past Due Expected credit loss rate 0%-4% Gross carrying amount $ 1,395,174 Loss allowance (Lifetime ECL) (42,021) Amortized cost $ 1,353,153 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 September 30, 2018 Non Past Due Expected credit loss rate 0%-4% Gross carrying amount $ 2,099,958 Loss allowance (Lifetime ECL) (11,576) Amortized cost $ 2,088,382	1-90 Days 4%-40% $ 35,767 (2,220) $ 33,547 1-90 Days 4%-40% $ 79,247 (3,697) $ 75,550 1-90 Days 4%-40% $ 80,321 (24,884) $ 55,437	91-180 Days Over 181 Days 10%-100% 100% $ - $ 328,381 - (328,381) $ - $ - 91-180 Days Over 181 Days 10%-100% 100% $ 136,367 $ 306,821 (20,246) (306,821) $ 116,121 $ - 91-180 Days Over 181 Days 10%-100% 100% $ 82,697 $ 428,619 (43,973) (428,619) $ 38,724 $ -	Total $ 1,759,322 (372,622) $ 1,386,700 Total $ 2,055,772 (372,622) $ 1,683,150 Total $ 2,691,595 (509,052) $ 2,182,543

No difference in the allowances for impairment loss on September 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 September 30, 2019.

31 -

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

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

Balance at January 1 Foreign exchange gains and losses Balance at September 30		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 1,529,699 (53,258) $ 1,476,441	2018 $ 1,551,542 (7,617) $ 1,543,925

11. INVENTORIES

	September 30,	September 30,	December 31,	December 31,	September 30,
		2019		2018	2018
Finished goods	$	910,652	$	917,762	$ 1,160,184
Work-in-process		144,441		38,522	252,470
Semi-finished goods		363,466		446,472	640,071
Raw materials		1,302,254		1,865,266	2,221,880
Inventory in transit		18,500		33,623	95,798
	$	2,739,313	$	3,301,645	$ 4,370,403

The cost of inventories recognized as operating costs for the nine months ended September 30, 2019 and 2018 were NT$115,223 thousand and NT$646,811 thousand, respectively.

12. PREPAYMENTS

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2019		2018		2018
Prepaid software	$	141,171	$	162,132	$	-
Prepaid equipment		28,750		12,888		30,562
Royalty		17,768		28,429		2,331,790
Prepayments to suppliers		15,832		171,601		131,953
Net input VAT		2,349		522,315		512,437
Others		307,276		302,544		549,456
	$	513,146	$	1,199,909	$	3,556,198
Current	$	467,803	$	1,160,299	$	1,335,274
Non-current		45,343		39,610		2,220,924
	$	513,146	$	1,199,909	$	3,556,198

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.

32 -

13. SUBSIDIARIES

a. Subsidiary included in consolidated financial statements

The consolidated entities as of September 30, 2019, December 31, 2018 and September 30, 2018 were 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
〃
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 % of Ownership
September 30,
2019
December 31,
2018
September 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
2)
100.00
100.00
100.00
-
99.99
99.99
99.99
-
99.00
99.00
99.00
-
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
-
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
-
(Continued)

33 -

Investor
Investee
Main Businesses
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 Netherlands B.V. 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
HTC EUROPE
HTC America Holding Inc.
International holding company
CO., LTD.
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
software 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
September 30,
2019
December 31,
2018
September 30,
2018
Remark
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)
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
-
50.37
51.26
51.26
3)
100.00
100.00
100.00
-
100.00
100.00
100.00
-
(Concluded)

34 -

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.
3) The equity interest in VRChat Inc. decreased after the investee company’s capital increase in the current period, for which the Company did not proportionally participate in making the capital contribution.
b. Subsidiary 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

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2019		2018		2018
Investment in associates	$	525,063	$	446,133	$	441,284
Investments in Associate - Associates that Are	Not Individually Material
	September 30,		December 31,		September 30,
		2019		2018		2018
Unlisted equity investment
East West Artists, LLC	$	22,704	$	25,778	$	26,158
Steel Wool Games, Inc.		121,166		89,641		88,867
Surgical Theater, LLC		232,334		265,546		263,875
MOR Museum Inc.		47,284		-		-
Gui Zhou Wei Ai Educational Technology Co.,
Ltd.		101,575		65,168		62,384
	$	525,063	$	446,133	$	441,284

As the end of the reporting periods, the percentage of ownership and voting rights in associates held by the Company were as follows:

	September 30,	December 31,	September 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%	23.20%

35 -

Aggregate information of associates that are not individually material:

The Company’s share of: Income (loss) from continuing operations Other comprehensive income Total comprehensive income (loss) for the period	For the Three Months Ended September 30 2019 2018 $ 17,536 $ (14,784) - - $ 17,536 $ (14,784)	For the Three Months Ended September 30 2019 2018 $ 17,536 $ (14,784) - - $ 17,536 $ (14,784)	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 17,536 - $ 17,536		2019 $ (11,167) - $ (11,167)	2018 $ (38,280) - $ (38,280)

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.

15. PROPERTY, PLANT AND EQUIPMENT

	September 30,	December 31,	September 30,
	2019	2018	2018
Carrying amounts
Land	$ 4,670,178	$ 4,673,376	$ 4,675,750
Buildings	2,748,564	2,949,910	3,002,751
Machinery and equipment	355,072	492,239	507,246
Other equipment	199,118	310,361	315,313
	$ 7,972,932	$ 8,425,886	$ 8,501,060

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

Cost Balance, beginning of period Additions Disposals Reclassified as investment properties Effect of foreign currency exchange differences Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expenses Disposals Reclassified as investment properties Effect of foreign currency exchange differences Balance, end of period			2019
		Land $ 4,673,376 - - - (3,198) 4,670,178 - - - - - -	Buildings Machinery and Equipment $ 4,529,692 $ 5,401,732 11,231 23,624 - (1,699,858) (230,466) - (11,873) (9,370) 4,298,584 3,716,128 1,579,782 4,659,017 129,875 156,744 - (1,579,784) (157,537) - (2,100) (8,224) 1,550,020 3,227,753	Other Equipment $ 1,802,278 39,346 (334,175) - (4,402) 1,503,047 1,481,157 77,375 (321,335) - (2,929) 1,234,268	Total $ 16,407,078 74,201 (2,034,033) (230,466) (28,843) 14,187,937 7,719,956 363,994 (1,901,119) (157,537) (13,253) 6,012,041

(Continued)

36 -

Accumulated impairment Balance, beginning of period Impairment losses recognized 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 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			2019
		Land $ - - - - $ 4,670,178	Buildings Machinery and Equipment $ - $ 250,476 - - - (117,173) - 133,303 $ 2,748,564 $ 355,072 2018	Other Equipment $ 10,760 63,746 (4,845) 69,661 $ 199,118	Total $ 261,236 63,746 (122,018) 202,964 $ 7,972,932
		Land $ 4,676,726 - - - - - (976) 4,675,750 $ - - - - - - - - - - - - $ 4,675,750	Buildings Machinery and Equipment $ 7,383,032 $ 12,901,808 58,921 348,464 (48,259) (3,395,408) - (2,619) (2,807,020) - - (824,206) (3,644) (63,696) 4,583,030 8,964,343 $ 2,122,305 $ 11,640,682 142,674 106,524 (37,376) (3,091,591) - (1,885) (646,734) - - (750,842) (590) (55,088) 1,580,279 7,847,800 - 843,747 - (230,512) - (3,938) - 609,297 $ 3,002,751 $ 507,246	Other Equipment $ 2,219,343 81,667 (347,711) - - (48,758) (2,593) 1,901,948 $ 1,757,876 106,290 (268,688) - - (16,952) (1,261) 1,577,265 17,686 (8,423) 107 9,370 $ 315,313	Total $ 27,180,909 489,052 (3,791,378) (2,619) (2,807,020) (872,964) (70,909) 20,125,071 $ 15,520,863 355,488 (3,397,655) (1,885) (646,734) (767,794) (56,939) 11,005,344 861,433 (238,935) (3,831) 618,667 $ 8,501,060

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.

37 -

The Company leased part of the buildings in February 2018, November 2018 and July 2019. The leased assets were reclassified as investment properties because the standards related to investment properties are applied on leased assets. For the details, refer to Note 17.

There were no capitalized interests for the nine months ended September 30, 2019 and 2018.

16. LEASE ARRANGEMENTS

a. Right-of-use assets - 2019

				September 30,
				2019
Carrying amounts
Buildings				$ 406,911
	For	the Three		For the Nine
	Months Ended			Months Ended
	September		30,	September 30,
		2019		2019
Additions to right-of-use assets	$		-	$ 138,780
Depreciation charge for right-of-use assets
Buildings	$	37,837		$ 109,388
Lease liabilities - 2019
				September 30,
				2019
Carrying amounts
Current				$ 129,082
Non-current				$ 295,013
Range of discount rate for lease liabilities was as follows:
				September 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.

38 -

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 Nine
	Months Ended		Months Ended
	September 30,		September 30,
		2019	2019
Expenses relating to short-term leases	$	929	$ 20,717
Total cash outflow for leases	$	(42,547)	$ (122,362)

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.

2018

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

	December 31,	September 30,
	2018	2018
Not later than 1 year	$ 118,916	$ 130,349
Later than 1 year and not later than 5 years	248,997	266,951
Later than 5 years	28,949	35,954
	$ 396,862	$ 433,254

17. INVESTMENT PROPERTIES, NET

Movement of investment properties, net for the nine months ended September 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 $ 2,872,143 230,466 3,102,609 781,917 75,888 157,537 1,015,342 $ 2,087,267	2018 $ - 2,807,020 2,807,020 - 66,353 646,734 713,087 $ 2,093,933

39 -

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 September 30, 2019 was as follows:

		September 30,	September 30,
			2019
Year	1	$	592,849
Year	2		600,758
Year	3		456,624
		$	1,650,231

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

	December 31,	December 31,	September 30,	September 30,
		2018		2018
Not later than 1 year	$	528,825	$	386,237
Later than 1 year and not later than 5 years		1,370,236		-
	$	1,899,061	$	386,237

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 on December 31, 2018 and 2017 was performed by independent 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 September 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

	September 30,	September 30,	December 31,	September 30,
		2019	2018	2018
Carrying amounts
Patents	$	193,972	$ 1,060,183	$ 1,341,676
Goodwill		69,713	69,021	68,608
Other intangible assets		45,283	52,052	67,895
	$	308,968	$ 1,181,256	$ 1,478,179

40 -

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

Cost Balance, beginning of period Additions Disposals Eliminations Effect of foreign currency exchange differences Balance, end of period Accumulated amortization Balance, beginning of period Amortization expenses Eliminations 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 Additions 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			2019	2019
		Patents $ 11,734,540 - - - 92,400 11,826,940 10,563,272 877,291 - 81,320 11,521,883 111,085 - - 111,085 $ 193,972	Goodwill Other Intangible Assets $ 729,299 $ 1,819,813 - 4,354 - (4,898) - (283,328) 5,564 2,707 734,863 1,538,648 - 1,567,249 - 15,183 - (283,328) - 1,677 - 1,300,781 660,278 200,512 - (8,958) 4,872 1,030 665,150 192,584 $ 69,713 $ 45,283 2018		Total $ 14,283,652 4,354 (4,898) (283,328) 100,671 14,100,451 12,130,521 892,474 (283,328) 82,997 12,822,664 971,875 (8,958) 5,902 968,819 $ 308,968
		Patents $ 11,467,990 - 211,350 11,679,340 9,201,918 846,378 178,283 10,226,579	Goodwill $ 713,250 - 12,726 725,976 - - - -	Other Intangible Assets $ 1,753,620 24,341 8,850 1,786,811 1,497,864 49,108 5,784 1,552,756	Total $ 13,934,860 24,341 232,926 14,192,127 10,699,782 895,486 184,067 11,779,335 (Continued)

41 -

Accumulated impairment Balance, beginning of period Effect of foreign currency exchange differences Balance, end of period Net book value, end of period			2018	2018
		Patents $ 111,085 - 111,085 $ 1,341,676	Goodwill $ 646,225 11,143 657,368 $ 68,608	Other Intangible Assets $ 162,327 3,833 166,160 $ 67,895	Total $ 919,637 14,976 934,613 $ 1,478,179 (Concluded)

The Company owns patents of graphics technologies. As of September 30, 2019, December 31, 2018 and September 30, 2018, the carrying amounts of such patents were NT$193,972 thousand, NT$1,056,258 thousand and NT$1,336,278 thousand, respectively. The patents will be fully amortized over their remaining economic lives.

19. NOTE AND TRADE PAYABLES

		September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
			2019		2018		2018
Notes payable		$	546	$	560	$	152
Trade payables			8,443,336		9,808,128		9,978,920
Trade payables	- related parties		1,311		4,159		5,485
		$	8,445,193	$	9,812,847	$	9,984,557

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

	September 30,	December 31,	September 30,
	2019	2018	2018
Other payables
Accrued expenses	$ 7,570,393	$ 9,189,958	$ 9,800,778
Payables for purchase of equipment	13,377	33,335	21,848
	$ 7,583,770	$ 9,223,293	$ 9,822,626
			(Continued)

42 -

	September 30,	September 30,	December 31,	December 31,	September 30,
		2019		2018	2018
Other liabilities
Advance receipts	$	644,603	$	638,340	$ 1,091,482
Agency receipts		65,635		102,714	69,109
Others		170,743		212,393	314,478
	$	880,981	$	953,447	$ 1,475,069
					(Concluded)
Accrued Expenses
	September 30,		December 31,		September 30,
		2019		2018	2018
Marketing	$	2,576,854	$	4,071,201	$ 4,454,898
Salaries, bonuses and compensation		1,879,048		2,173,295	2,263,087
Materials and molding expenses		1,040,667		1,073,179	1,076,088
Services		997,270		958,328	1,120,987
Import, export and freight		75,371		188,684	154,183
Insurance		61,486		72,465	70,814
Repairs, maintenance and sundry purchase		51,464		46,872	57,901
Others		888,233		605,934	602,820
	$	7,570,393	$	9,189,958	$ 9,800,778

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

21. PROVISIONS

Warranties Others Movement of provisions for the nine months ended Balance, beginning of period Provisions recognized Usage Effect of foreign currency exchange differences Balance, end of period	September 30, 2019 December 31, 2018 September 30, 2018 $ 1,584,169 $ 1,943,976 $ 2,358,387 326,473 60,214 88,625 $ 1,910,642 $ 2,004,190 $ 2,447,012 September 30, 2019 and 2018 are as follows: 2019	September 30, 2019 December 31, 2018 September 30, 2018 $ 1,584,169 $ 1,943,976 $ 2,358,387 326,473 60,214 88,625 $ 1,910,642 $ 2,004,190 $ 2,447,012 September 30, 2019 and 2018 are as follows: 2019	September 30, 2019 December 31, 2018 September 30, 2018 $ 1,584,169 $ 1,943,976 $ 2,358,387 326,473 60,214 88,625 $ 1,910,642 $ 2,004,190 $ 2,447,012 September 30, 2019 and 2018 are as follows: 2019	September 30, 2019 December 31, 2018 September 30, 2018 $ 1,584,169 $ 1,943,976 $ 2,358,387 326,473 60,214 88,625 $ 1,910,642 $ 2,004,190 $ 2,447,012 September 30, 2019 and 2018 are as follows: 2019
		Warranty Provision $ 1,943,976 117,169 (474,168) (2,808) $ 1,584,169	Others $ 60,214 306,016 (39,304) (453) $ 326,473	Total $ 2,004,190 423,185 (513,472) (3,261) $ 1,910,642

43 -

Balance, beginning of period Provisions recognized (reversed) Usage Effect of foreign currency exchange differences Balance, end of period			2018
		Warranty Provision $ 2,795,933 866,548 (1,301,363) (2,731) $ 2,358,387	Others $ 581,268 (383,200) (109,443) - $ 88,625	Total $ 3,377,201 483,348 (1,410,806) (2,731) $ 2,447,012

The Company provides warranty services 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.

22. EQUITY

Share Capital

a. Ordinary shares

September 30, 2019 Numbers of shares authorized (in thousands of shares) 1,000,000 Shares authorized $ 10,000,000 Number of shares issued and fully paid (in thousands of shares) 818,812 Shares issued $ 8,188,119	December 31, 2018 September 30, 2018 1,000,000 1,000,000 $ 10,000,000 $ 10,000,000 818,814 819,079 $ 8,188,135 $ 8,190,792

In March, May and July 2018, HTC retired 16 thousand, 1,697 thousand and 183 thousand restricted shares for employees, totaling NT$162 thousand, NT$16,972 thousand and NT$1,825 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 ordinary shares as of September 30, 2018 decreased to NT$8,190,792 thousand, divided into 819,079 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 ordinary shares as of September 30, 2019 decreased to NT$8,188,119 thousand, divided into 818,812 thousand ordinary shares at a par value of NT$10. Every ordinary share carries one vote per share and a right to dividends.

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

44 -

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 September 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

September 30,
2019
May be used to offset a deficit, distributed as cash
dividends, or transferred to share capital
Arising from the issuance of ordinary shares
$ 14,726,392
Arising from consolidation excess
23,288
Arising from expired share options
519,745
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
269,817
Arising from employee restricted shares

730

$ 15,539,972

December 31,
2018
September 30,
2018
$ 14,714,126 $ 14,675,646

23,288
23,288

506,611
488,828

60,873
60,873

247,944
268,056

23,426

121,926
$ 15,576,268
$ 15,638,617

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.
45 -
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 account by the Company.

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

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

Information on the appropriation of earnings proposed by HTC’s board of directors and approved by 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.

46 -

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 Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ (7,077) 7,077 $ -	2018 $ (49,590) 25,786 $ (23,804)

23. OPERATING REVENUE

Sale of goods Other operating income		For the Three Months Ended September 30 2019 2018 $ 2,316,855 $ 3,931,668 133,403 112,610 $ 2,450,258 $ 4,044,278		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 2,316,855 133,403 $ 2,450,258		2019 $ 7,588,556 612,433 $ 8,200,989	2018 $ 19,109,928 497,553 $ 19,607,481

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	For the Three Months Ended September 30 2019 2018 $ 128,788 $ 113,481 - 25 128,788 113,506 170,844 132,447 65 - 27,394 55,093 $ 327,091 $ 301,046	For the Three Months Ended September 30 2019 2018 $ 128,788 $ 113,481 - 25 128,788 113,506 170,844 132,447 65 - 27,394 55,093 $ 327,091 $ 301,046	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 128,788 - 128,788 170,844 65 27,394 $ 327,091		2019 $ 363,151 - 363,151 468,735 98 129,740 $ 961,724	2018 $ 424,704 345 425,049 328,877 - 134,503 $ 888,429

47 -

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 (loss) gain on the disposal of property, plant and equipment Net gain on disposal of subsidiary (Note 27) Net foreign exchange gain Net loss on valuation of financial instruments at fair value through profit or loss Impairment loss Other loss		For the Three Months Ended September 30 2019 2018 $ - $ - - - (1,674) 82,984 - - 33,022 459,018 (98,334) (295,674) (63,746) - (152,976) (348,622) $ (283,708) $ (102,294)		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ - - (1,674) - 33,022 (98,334) (63,746) (152,976) $ (283,708)		2019 $ - - 81,947 - 323,452 (157,548) (54,788) (537,935) $ (344,872)	2018 $ 31,285,385 1,077,246 80,493 15,396 386,879 (88,039) - (757,937) $ 31,999,423

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

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. Financial costs

Interest on lease liabilities Others	For the Three Months Ended September 30 2019 2018 $ 3,515 $ - - 698 $ 3,515 $ 698	For the Three Months Ended September 30 2019 2018 $ 3,515 $ - - 698 $ 3,515 $ 698	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 3,515 - $ 3,515		2019 $ 10,211 5,087 $ 15,298	2018 $ - 1,390 $ 1,390

48 -

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 September 30 2019 2018 $ 118,892 $ 120,878 25,536 24,931 295,566 301,138 37,837 - $ 477,831 $ 446,947 $ 12,223 $ 24,130 144,506 96,748 25,536 24,931 $ 182,265 $ 145,809 $ - $ - 295,566 301,138 $ 295,566 $ 301,138		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 118,892 25,536 295,566 37,837 $ 477,831 $ 12,223 144,506 25,536 $ 182,265 $ - 295,566 $ 295,566		2019 $ 363,994 75,888 892,474 109,388 $ 1,441,744 $ 39,391 433,991 75,888 $ 549,270 $ - 892,474 $ 892,474	2018 $ 355,488 66,353 895,486 - $ 1,317,327 $ 70,261 285,227 66,353 $ 421,841 $ - 895,486 $ 895,486

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 September 30 2019 2018 $ 1,476,075 $ 1,635,000 58,190 67,194 480 2,765 58,670 69,959 24,863 8,578 55,248 233,335 $ 1,614,856 $ 1,946,872 $ 210,921 $ 411,307 1,403,935 1,302,230 - 233,335 $ 1,614,856 $ 1,946,872		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 1,476,075 58,190 480 58,670 24,863 55,248 $ 1,614,856 $ 210,921 1,403,935 - $ 1,614,856		2019 $ 4,539,910 184,527 1,439 185,966 31,638 126,559 $ 4,884,073 $ 711,871 4,172,202 - $ 4,884,073	2018 $ 6,507,437 228,521 8,297 236,818 26,449 532,678 $ 7,303,382 $ 1,403,310 5,367,394 532,678 $ 7,303,382

49 -
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 nine months ended September 30, 2019 and 2018, the accrual rates and amount of employees’ compensation are as follows:

Accrual rate

Employees’ compensation Amount	For the Nine Months Ended September 30
	2019 2018 4% 4%

Employees’ compensation	For the Three Months Ended September 30 2019 2018 $ - $ (110,462)	For the Three Months Ended September 30 2019 2018 $ - $ (110,462)	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ -		2019 $ -	2018 $ 643,492

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 year ended December 31, 2018.

For any further information on the employees’ compensation and remuneration to directors and supervisors approved in the meeting of the 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) Property, plant and equipment (included in other gains and losses) Intangible asset (included in other gains and losses)	For the Three Months Ended September 30 2019 2018 $ 32,005 $ 56,321 63,746 - - - $ 95,751 $ 56,321	For the Three Months Ended September 30 2019 2018 $ 32,005 $ 56,321 63,746 - - - $ 95,751 $ 56,321	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 32,005 63,746 - $ 95,751		2019 $ 115,223 63,746 (8,958) $ 170,011	2018 $ 646,811 - - $ 646,811

50 -

h. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses Valuation loss arising from financial instruments classified as held for trading		For the Three Months Ended September 30 2019 2018 $ 330,866 $ 795,295 (297,844) (336,277) (98,334) (295,674) $ (65,312) $ 163,344		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 330,866 (297,844) (98,334) $ (65,312)		2019 $ 1,075,705 (752,253) (157,548) $ 165,904	2018 $ 2,166,570 (1,779,691) (88,039) $ 298,840

25. INCOME TAXES RELATING TO CONTINUING OPERATIONS

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

Current tax In respect of the current period Land value increment tax Adjustments for prior periods Deferred tax In respect of the current period Income tax (benefit) expense recognized in profit or loss		For the Three Months Ended September 30 2019 2018 $ 101,146 $ 76,937 - - (282,969) (70,638) (181,823) 6,299 181,300 6,583 $ (523) $ 12,882		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 101,146 - (282,969) (181,823) 181,300 $ (523)		2019 $ 104,912 - (282,969) (178,057) 175,551 $ (2,506)	2018 $ 247,098 84,027 (70,638) 260,487 5,073,231 $ 5,333,718

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, Uomo Vitruviano Corp., DeepQ Technology Corp. and HTC VIVE TECH Corp. for the years through 2017 have been examined and approved by the tax authorities.

51 -

26. (LOSS) EARNINGS PER SHARE

Unit: NT$ Per Share

Basic (loss) earnings per share Diluted (loss) earnings per share	For the Three Months Ended September 30 2019 2018 $ (2.86) $ (3.18) $ (2.86) $ (3.18)	For the Three Months Ended September 30 2019 2018 $ (2.86) $ (3.18) $ (2.86) $ (3.18)	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ (2.86) $ (2.86)		2019 $ (8.55) $ (8.55)	2018 $ 20.03 $ 19.65

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

Net (Loss) Profit for the Period

(Loss) profit for the period attributable to owners of the parent		For the Three Months Ended September 30 2019 2018 $ (2,343,490) $ (2,603,000)		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ (2,343,490)		2019 $ (7,004,517)	2018 $ 16,418,775

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 or bonuses issued Weighted average number of ordinary shares used in the computation of diluted (loss) earnings per share	For the Three Months Ended September 30 2019 2018 818,812 819,139 - - - - 818,812 819,139	For the Three Months Ended September 30 2019 2018 818,812 819,139 - - - - 818,812 819,139	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 818,812 - - 818,812		2019 818,812 - - 818,812	2018 819,890 5 15,850 835,745

If the Company offered to settle the compensation paid to employees in cash or shares, the Company assumed the entire amount of the compensation 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.

52 -

The exercise price of the outstanding options issued by the Company exceeded the average market price of the shares during the nine months ended September 30, 2019 which is excluded 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

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
$ 410,857
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

53 -

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 HTC’s ordinary shares, the exercise price is adjusted accordingly.

Information on employee share options are as follows:

Balance, beginning of period Shares granted Shares exercised Shares forfeited Balance, end of period Options exercisable, end of period Weighted-average fair value of option granted (NT$)	For the Nine Months	Ended September 30
	2019 Number of Shares (In Thousands) Weighted- average Exercise Price (NT$) 6,909 $138.19 20,000 35.50 - (378) 26,531 60.84 6,512 $ 15.45	2018
		Number of Shares (In Thousands) Weighted- average Exercise Price (NT$) 16,068 $137.45 - - (149) (8,542) 7,377 139.19 7,357 $ -

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

	September 30,	December 31,	September 30,
	2019	2018	2018
Range of exercise prices (NT$)	$35.5-$149	$54.5-$149	$54.5-$149
Weighted-average remaining contractual life (years)	8.11 years	4.21 years	4.46 years

54 -

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.

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 2018 and for the nine months ended September 30, 2019, 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 number of HTC’s issued and outstanding employee restricted shares as of September 30, 2019 was 169 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$31,638 thousand and NT$26,449 thousand for the nine months ended September 30, 2019 and 2018, respectively.

55 -

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 not measured at fair value approximate their fair values or their fair values cannot be measured reliably.

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

a. Fair value hierarchy

September 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	Level 1 $ - - - $ - $ 85,853 - 849,584 - - $ 935,437 $ -	Level 2 $ 18,983 - - $ 18,983 $ - - - - - $ - $ 176,531	Level 3 $ - 338,503 24,208 $ 362,711 $ - 96,637 - 1,003,919 739,465 $ 1,840,021 $ -	Total $ 18,983 338,503 24,208 $ 381,694 $ 85,853 96,637 849,584 1,003,919 739,465 $ 2,775,458 $ 176,531

56 -

December 31, 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 September 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 $ - - - $ - $ 116,768 - 477,412 - - $ 594,180 $ -	Level 2 $ 83,411 - - $ 83,411 $ - - - - - $ - $ 82,156 Level 2 $ 72,777 - - $ 72,777 $ - - - - - $ - $ 160,816	Level 3 $ - 214,340 22,124 $ 236,464 $ - 388,700 - 1,103,891 749,046 $ 2,241,637 $ - Level 3 $ - 210,002 15,883 $ 225,885 $ - 526,333 - 1,247,749 752,512 $ 2,526,594 $ -	Total $ 83,411 214,340 22,124 $ 319,875 $ 83,383 388,700 409,412 1,103,891 749,046 $ 2,734,432 $ 82,156 Total $ 72,777 210,002 15,883 $ 298,662 $ 116,768 526,333 477,412 1,247,749 752,512 $ 3,120,774 $ 160,816

57 -

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

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

For the nine months ended September 30, 2019

Financial Assets Balance at January 1, 2019 Recognized in other comprehensive income Purchases Return of investments Effect of foreign currency exchange differences Balance at September 30, 2019 For the nine months ended September 30, 2018	Financial Assets at FVTPL Derivatives $ 236,464 - 124,762 - 1,485 $ 362,711	Financial Assets at FVTOCI Equity Instruments $ 2,241,637 (435,490) 153,254 (137,736) 18,356 $ 1,840,021	Total $ 2,478,101 (435,490) 278,016 (137,736) 19,841 $ 2,202,732

Financial Assets Balance at January 1, 2018 Recognized in other comprehensive income Reclassification Purchases Effect of foreign currency exchange differences Balance at September 30, 2018	Financial Assets at FVTPL Derivatives $ 131,742 - (7,378) 97,822 3,699 $ 225,885	Financial Assets at FVTOCI Equity Instruments $ 3,024,565 (606,702) 7,378 40,221 61,132 $ 2,526,594	Total $ 3,156,307 (606,702) - 138,043 64,831 $ 2,752,479

c. Valuation techniques and inputs applied for the purpose of 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 values 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.

58 -
e. Valuation process for the fair value measurement within Level 3

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

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

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

Categories of Financial Instruments

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2019		2018		2018
Financial assets
Financial assets at FVTPL
Held for trading	$	18,983	$	83,411	$	72,777
Mandatorily at FVTPL		362,711		236,464		225,885
Amortized cost (Note 1)		35,614,754		43,548,840		46,128,949
Financial assets at FVTOCI
Equity instruments		2,775,458		2,734,432		3,120,774
Financial liabilities
Financial liabilities at FVTPL
Held for trading		176,531		82,156		160,816
Amortized cost (Note 2)		16,684,271		19,269,254		19,986,364

Note 1: The balances included financial assets measured at amortized cost, which comprise cash and cash equivalents, other financial assets, trade receivables, other receivables and refundable deposits.
Note 2: The balances included financial liabilities measured at amortized cost, which comprise notes 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.

59 -

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 nine months ended September 30, 2019
USD	$	9,865	$ (133,470)
EUR		(7,041)	(3,515)
RMB		(25,681)	(61,465)
JPY		(2,110)	(1,522)
For the nine months ended September 30, 2018
USD		(16,251)	(134,861)
EUR		427	(3,334)
RMB		(17,398)	(102,649)
JPY		(4,119)	(1,436)

60 -

b. Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure of counterparty 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 consolidated 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 reserving financing facilities, and also monitors liquidity risk of shortage of funds by the maturity date of financial instruments and financial assets.

1) Liquidity risk tables for non-derivative financial liabilities

The following table details the Company’s remaining contractual 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.

September 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 $ 1,675,999 4,365,063 35,597 65,635 - $ 6,142,294 Less Than 3 Months $ 2,978,647 4,930,145 102,714 - $ 8,011,506	3 Months to 1 Year $ 6,769,194 3,218,707 93,485 - - $ 10,081,386 3 Months to 1 Year $ 6,834,200 4,293,148 - - $ 11,127,348	Over 1 Year $ - - 295,013 - 165,578 $ 460,591 Over 1 Year $ - - - 130,400 $ 130,400

61 -

September 30, 2018

Note and trade payables Other payables Other current liabilities Guarantee deposits received	Less Than 3 Months $ 3,136,391 4,870,499 69,109 - $ 8,075,999	3 Months to 1 Year $ 6,848,166 4,952,127 - - $ 11,800,293	Over 1 Year $ - - - 110,072 $ 110,072

2) Liquidity risk tables for derivative financial instruments

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

September 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 $ (18,457) $ 23,599,176 (23,712,549) $ (113,373) 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 $ - $ - - $ -

62 -

September 30, 2018

Less Than 3 Months Net settled Foreign exchange contracts $ 18,257 Gross settled Foreign exchange contracts Inflows $ 26,930,185 Outflows (26,982,512) $ (52,327) Bank credit limit September 30, 2019 Unsecured bank general credit limit Amount used $ 274,011 Amount unused 16,747,202 $ 17,021,213	3 Months to 1 Year Over 1 Year $ - $ - $ - $ - - - $ - $ - December 31, 2018 September 30, 2018 $ 538,680 $ 569,070 18,128,633 18,166,043 $ 18,667,313 $ 18,735,113

3) Bank credit limit

Amount used included guarantees for customs duties and patent litigation.

31. RELATED-PARTY TRANSACTIONS

Balances, 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.

Chander Electronics Corp.

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.

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 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
(Continued)

63 -

Related-party Relationship with the Company Premier Investment & Consultant Its chairwoman is HTC’s chairwoman in substance (Shanghai) Co., Ltd PROOF OF CAPITAL, L.P. It’s co-founder is HTC’s management Gui Zhou Wei Ai Educational Associates Technology Co., Ltd. Chengdu Weiai New Economic Subsidiary of associates Technology Institute Weishang Electronics (Shanghai) Related party in substance Co., Ltd (Concluded)

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

Operating Sales

Other related parties	For the Three Months Ended September 30 2019 2018 $ 132 $ 13,294	For the Three Months Ended September 30 2019 2018 $ 132 $ 13,294	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 132		2019 $ 3,828	2018 $ 31,243

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

September 30, 2019 December 31, 2018 September 30, 2018 Other related parties $ 210 $ 516 $ 4,435 Some related parties whose received products sold at prices which were no different from sales to third parties. No guarantees have 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 has been recognized for the nine months ended September 30, 2019 and 2018. Purchase For the Three Months Ended September 30 For the Nine Months Ended September 30 2019 2018 2019 2018 Other related parties $ 1,321 $ 4,216 $ 6,751 $ 8,784	September 30, 2019 December 31, 2018 September 30, 2018 Other related parties $ 210 $ 516 $ 4,435 Some related parties whose received products sold at prices which were no different from sales to third parties. No guarantees have 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 has been recognized for the nine months ended September 30, 2019 and 2018. Purchase For the Three Months Ended September 30 For the Nine Months Ended September 30 2019 2018 2019 2018 Other related parties $ 1,321 $ 4,216 $ 6,751 $ 8,784	September 30, 2019 December 31, 2018 September 30, 2018 Other related parties $ 210 $ 516 $ 4,435 Some related parties whose received products sold at prices which were no different from sales to third parties. No guarantees have 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 has been recognized for the nine months ended September 30, 2019 and 2018. Purchase For the Three Months Ended September 30 For the Nine Months Ended September 30 2019 2018 2019 2018 Other related parties $ 1,321 $ 4,216 $ 6,751 $ 8,784	September 30, 2019 December 31, 2018 September 30, 2018 Other related parties $ 210 $ 516 $ 4,435 Some related parties whose received products sold at prices which were no different from sales to third parties. No guarantees have 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 has been recognized for the nine months ended September 30, 2019 and 2018. Purchase For the Three Months Ended September 30 For the Nine Months Ended September 30 2019 2018 2019 2018 Other related parties $ 1,321 $ 4,216 $ 6,751 $ 8,784
		2019 $ 6,751	2018 $ 8,784

Some related parties whose received products sold at prices which were no different from sales to third parties. No guarantees have 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 has been recognized for the nine months ended September 30, 2019 and 2018.

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

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2019		2018		2018
Other related parties	$	1,311	$	4,159	$	5,485

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.

64 -

Compensation of Key Management Personnel

Short-term benefits Post-employment benefits Share-based payments	For the Three Months Ended September 30 2019 2018 $ 18,626 $ 19,165 175 165 2,109 2,107 $ 20,910 $ 21,437	For the Three Months Ended September 30 2019 2018 $ 18,626 $ 19,165 175 165 2,109 2,107 $ 20,910 $ 21,437	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 18,626 175 2,109 $ 20,910		2019 $ 76,954 525 525 $ 78,004	2018 $ 125,292 437 6,253 $ 131,982

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

	September 30,	September 30,
		2019
VIA Technologies (China) Co., Ltd.	$	14,240
Premier Investment & Consultant (Shanghai) Co., Ltd		79,745
Weishang Electronics (Shanghai) Co., Ltd		56,383
	$	150,368

Interest Expense

VIA Technologies (China) Co., Ltd. Premier Investment & Consultant (Shanghai) Co., Ltd Weishang Electronics (Shanghai) Co., Ltd	For the Three Months Ended September 30 2019 2018 $ 200 $ - 789 - 650 - $ 1,639 $ -	For the Three Months Ended September 30 2019 2018 $ 200 $ - 789 - 650 - $ 1,639 $ -	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ 200 789 650 $ 1,639		2019 $ 824 2,544 2,099 $ 5,467	2018 $ - - - $ -

Lease Expense

VIA Technologies (China) Co., Ltd. Weishang Electronics (Shanghai) Co., Ltd Other related parties	For the Three Months Ended September 30 2019 2018 $ - $ 6,855 - 7,904 499 1,650 $ 499 $ 16,409	For the Three Months Ended September 30 2019 2018 $ - $ 6,855 - 7,904 499 1,650 $ 499 $ 16,409	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ - - 499 $ 499		2019 $ 232 - 2,351 $ 2,583	2018 $ 22,121 27,662 4,589 $ 54,372

65 -

The Company leased offices, staff dormitory and meeting rooms owned by VIA Technologies (China) Co., Ltd., Weishang Electronics (Shanghai) Co., Ltd and other 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 September 30, 2019, US$4,000 thousand was invested and was classified as financial assets at FVTOCI depending on its nature.

Acquisitions of Property, Plant and Equipment

Other related parties	For the Three Months Ended September 30 2019 2018 $ - $ 224	For the Three Months Ended September 30 2019 2018 $ - $ 224	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2019 $ -		2019 $ -	2018 $ 224

Other Related-party Transactions

Other related parties provide consultancy service fee to the Company. The consultancy service fee was NT$10,464 thousand for the nine months ended September 30, 2019. As of September 30, 2019, the unpaid consultancy service fee was NT$5,098 thousand.

32. PLEDGED ASSETS

As of September 30, 2019, December 31, 2018 and September 30, 2018, time deposits amounting to NT$257,595 thousand, NT$476,276 thousand and NT$473,424 thousand which 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 Italy are still ongoing. The Company implemented the alternative solution since 2012. The Company evaluated the lawsuits and considered the risk of patents-in-suits are low. Also, preliminary injunction and summary judgment against the alternative solution of the Company are very unlikely.

66 -

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.

In regard to the Company’s motion for summary judgement in Washington Court and invalidity proceedings in the United States Patent and Trademark Office (“USPTO”), Washington Court granted on the Company’s summary judgment motion in March 2012 and ruled on non-infringement of two of patents-in-suit. As for the third patent-in-suit, the Washington Court had granted a stay on case pending the decision of IPCom’s appeal. In January 2014, the Court of Appeal for the Federal Circuit affirmed the Washington Court’s decision.

In June 2019, the Federal Circuit issued an order that affirmed the USPTO’s decision of invalidating the third patent-in-suit. In October 2019, the Washington Court dismissed the US case according to a joint stipulation of dismissal filed by both parties.

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

b. In December 2015, Koninklijke Philips N.V. (“Philips”) filed a lawsuit against the Company in the District Court of Mannheim, Germany, alleging infringement of certain Philips patents. In October 2016, the Mannheim Court found that certain smartphone products sold by Company in Germany infringed the German part of European Patent No. 0888687 (EP ‘687 patent), which relates to device user interface, and granted an injunction against the Company. However, Philips’ attempts to enforce an injunction based on this patent were unsuccessful due to a workaround, supplied by Google, being implemented in HTC devices. In July 2017, the German Federal Patent Court found that EP ‘687 patent was invalid.

Philips’ infringement hearing relating to their patent number European Patent No. 1459165 was heard on May 16, 2018. The patent concerned scrolling functionality. Unusually, the judges dismissed the infringement allegations at the hearing rather than waiting to issue a written decision. The other infringement case based on Philips’ patents is taking place in 2018 Q2. This case is based on patent European Patent No. 1356367, which relates to dimming control of a device screen. The infringement trial hold on June 22, 2018 and has stayed the infringement action pending the outcome of the nullity action on September 28, 2018.

Philips’ infringement case based on European Patent No. 0888687 related to device user interface was heard by Paris court of First Instance on April 8, 2019. Philips’ infringement case based on European Patent No. 1571988 related to activity sensor was heard by Paris court of First Instance on April 9, 2019. Philips’ infringement case based on European Patent No. 1384134 related to quick search function of device user interface was heard by Paris court of First Instance on April 10, 2019. 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 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 we obtain 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 has proceed as follows: European Patent No. (UK) 1440525 was heard in late April 2018. The Court decision shows that Company infringes ‘525. Company has implemented workaround to ‘525. European Patent No. (UK) 1685659 was heard in middle of June and the Court rules that ‘659 is invalid and the Court decision shows that Company infringes EP 1623511.

67 -

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 approved and authorized for issuing consolidated financial statements, the appeals court has not issued a ruling with respect to the above-mentioned 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 group entities and the exchange rates between foreign currencies and respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

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	September 30, 2019 Foreign Currencies Exchange Rate $ 1,170,172 31.04 61,291 33.94 3,875,796 0.2877 1,708,510 4.35 94,271 31.04 6,885 4.35 13,645 31.04 23,354 4.35 720,793 31.04 34,231 33.94 2,647,264 0.2877 122,116 4.35	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	September 30, 2018
			Foreign Currencies Exchange Rate $ 1,336,228 30.54 84,114 35.49 6,167,833 0.2693 1,708,298 4.44 87,805 30.54 4,885 4.44 15,781 30.54 14,054 4.44 827,514 30.54 66,254 35.49 3,589,964 0.2693 319,850 4.44

For the nine months ended September 30, 2019 and 2018, realized and unrealized net foreign exchange gains were NT$165,904 thousand and NT$298,840 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’s entities.

68 -

35. SIGNIFICANT CONTRACTS

The Company specializes in the research, design, manufacture and sale of smart mobile devices and virtual reality devices. To enhance the quality of its products and manufacturing technologies, the Company has patent agreements, 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 nine months ended September 30, 2019 and 2018 can be referred to in the consolidated statements of comprehensive income and the segment assets and liabilities as of September 30, 2019 and 2018 can be referred to in the consolidated balance sheets.

69 -

AI assistant

HTC — Interim / Quarterly Report 2019

52128_rns_2019-11-13_82dac238-9bb4-4fd5-838c-812c560be53e.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

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

HTC CORPORATION AND SUBSIDIARIES

HTC CORPORATION AND SUBSIDIARIES

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

c. Financial liabilities

d. Derivative financial instruments

Provisions

a. Warranty provisions

b. Onerous contracts

Revenue Recognition

Leasing

2019

2018

Employee Benefits

Short-term employee benefits

Retirement benefits

- Other long term employee benefits

Termination benefits

Share-based Payment Arrangements

Taxation

a. Current tax

b. 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 THROUGH PROFIT OR LOSS

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

a. Trade receivables at amortized cost

September 30, 2019

HTC Interim / Quarterly Report 2019