English Translation of Consolidated1 Financial Statements ...211.72.70.116/upload//fiscal/fbbd19dbf407197381c32... · (English Translation of Consolidated Financial Statements and

The auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared

and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese

language auditors’ report and financial statements, the Chinese version shall prevail.

(English Translation of Consolidated1 Financial Statements and Report

Originally Issued in Chinese)

Solid State System Co., Ltd. and Subsidiaries

Consolidated Financial Statements

December 31, 2016 and 2015

(With Independent Auditors’ Report Thereon)

See accompanying notes to consolidated financial statements.

(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese)


Consolidated Balance Sheets


(expressed in thousands of New Taiwan Dollars)

December 31,

2016

December 31,

2015

Assets Amount % Amount %

Current assets:

Cash and cash equivalents (note 6(1)) $ 69,684 10 184,340 22

Accounts receivable, net (note 6(3)) 7,616 1 1,358 -

Accounts receivable from related parties, net (notes 6(3) and 7) 64,846 9 49,606 6

Inventories (note 6(4)) 124,440 17 129,665 16

Other current financial assets (notes 6(5) and 8) 188,754 26 187,550 22

Other current assets 7,705 1 9,357 1

463,045 64 561,876 67

Non-current assets:

Property, plant and equipment (notes 6(6) and 8) 188,652 26 191,784 23

Intangible assets (note 6(7)) 17,390 2 29,233 4

Deferred tax assets (note 6(10)) 23,686 3 17,462 2

Refundable deposits(note 8) 29,692 4 29,702 4

Other non-current financial assets 2,974 1 3,774 -

Other non-current assets (note 6(9)) 477 - - -

262,871 36 271,955 33

Total assets $ 725,916 100 833,831 100




Consolidated Balance Sheets (Continued)



December 31,

2016

December 31,

2015

Liabilities and Equity Amount % Amount %

Current liabilities:

Current financial liabilities at fair value through profit or loss

－current (note 6(2))

$ 67 - 57 -

Accounts payable 11,535 2 7,246 1

Accrued payroll 18,289 2 18,528 2

Unearned revenue (note 7) - - 28,086 4

Other current liabilities 29,211 4 42,460 5

59,102 8 96,377 12

Non-current liabilities:

Deferred tax liabilities (note 6(10)) 197 - - -

Net defined benefit liabilities－non-current (note 6(9)) - - 802 -

Guarantee deposits - - 1,050 -

197 - 1,852 -

Total liabilities 59,299 8 98,229 12

Equity (note 6(11)):

Common stock 808,596 111 808,596 97

Capital surplus 276,160 38 276,160 33

Accumulated deficits (418,139) (57) (349,154) (42)

Total equity 666,617 92 735,602 88

Total liabilities and equity $ 725,916 100 833,831 100




Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015

(expressed in thousands of New Taiwan Dollars, except for earnings per share)

For the years ended December 31,

2016 2015

Amount % Amount % Operating revenues (notes 6(13) and 7) $ 643,069 100 482,374 100

Operating costs (notes 6(4) and 7) 429,285 67 335,070 69

Gross profit 213,784 33 147,304 31

Operating expenses (note 6(8)):

Selling 67,610 11 61,129 13

General and administrative 33,263 5 38,032 8

Research and development 193,313 30 223,132 46

Total operating expenses 294,186 46 322,293 67

Net operating loss (80,402) (13) (174,989) (36)

Non-operating income and expenses (note 6 (15)):

Other income 4,878 1 3,396 1

Other gains and losses (674) - 2,886 -

Financial costs (105) - (248) -

4,099 1 6,034 1

Loss before tax (76,303) (12) (168,955) (35)

Income tax benefit (note 6(10)) (6,246) (1) (4,893) (1)

Net loss (70,057) (11) (164,062) (34)

Other comprehensive income:

Items that will not be reclassified subsequently to profit

or loss:

Remeasurements of the defined benefit plans (note 6(9)) 1,291 - (1,773) -

Income tax relating to items that will not be reclassified

subsequently (note 6(10))

219 - (301) -

Total items that will not be reclassified subsequently to

profit or loss

1,072 - (1,472) -

Other comprehensive income 1,072 - (1,472) -

Total comprehensive income $ (68,985) (11) (165,534) (34)

Earnings per share (New Taiwan Dollars) (note 6(12))

Basic earnings per share $ (0.87) (2.17)




Consolidated Statements of Changes in Equity



Common

stock

Advance

receipts for

share capital

Capital

surplus

Accumulated

deficits Total equity Balance as of January 1, 2015 $ 707,737 2,011 92,333 (183,620) 618,461

Net loss for the period - - - (164,062) (164,062)

Other comprehensive income for the period - - - (1,472) (1,472)

Total comprehensive income for the period - - - (165,534) (165,534)

Conversion of advance receipts for share capital to common stock 859 (2,011) 1,152 - -

Advance receipts for common stock issued in cash 100,000 - 169,325 - 269,325

Compensation cost of common stock issued to employees - - 13,350 - 13,350

Balance as of December 31, 2015 808,596 - 276,160 (349,154) 735,602

Net loss for the period - - - (70,057) (70,057)

Other comprehensive income for the period - - - 1,072 1,072

Total comprehensive income for the period - - - (68,985) (68,985)

Balance as of December 31, 2016 $ 808,596 - 276,160 (418,139) 666,617




Consolidated Statements of Cash Flows




2016 2015

Cash flows from operating activities:

Net loss before income tax $ (76,303) (168,955) Adjustments Adjustments of non-cash-related items

Depreciation 29,887 25,040 Amortization 12,818 12,915 Provision for doubtful accounts 43 - Interest expense 105 248 Interest income (2,426) (2,537) Compensation cost of common stock issued to employees - 13,350 Provision for inventory devaluation loss 37,096 30,739

Total adjustments of non-cash-related items 77,523 79,755 Changes in operating assets and liabilities: Changes in operating assets: Financial assets held for trading - 8 Accounts receivable (6,301) 1,121 Accounts receivable from related parties (15,240) 12,651 Inventories (31,871) (58,240) Other operating assets 1,224 24,648

Total changes in operating assets (52,188) (19,812) Changes in operating liabilities: Accounts payable 4,289 (16,775) Financial liabilities held for trading 10 57 Other operating liabilities (41,165) 34,059

Total changes in operating liabilities (36,866) 17,341 Total changes in operating assets and liabilities (89,054) (2,471)

Total adjustments (11,531) 77,284 Cash flow used in operations (87,834) (91,671) Interest received 2,486 2,540 Interest paid (107) (246) Income taxes refunded (paid) 317 (238)

Net cash flows used in operating activities (85,138) (89,615) Cash flows from investing activities: Acquisition of property, plant and equipment (26,703) (87,556) Decrease (increase) in refundable deposits 10 (5,448) Acquisition of intangible assets (975) (10,544) Increase in other financial assets-current (800) (55,500)

Net cash flows used in investing activities (28,468) (159,048) Cash flows from financing activities:

Increase (decrease) in guarantee deposits (1,050) 1,050 Advance receipts for common stock issued in cash - 269,325

Net cash flows generated from (used in) financing activities

(1,050) 270,375

Net increase (decrease) in cash and cash equivalents for the period (114,656) 21,712 Cash and cash equivalents at beginning of period 184,340 162,628 Cash and cash equivalents at end of period $ 69,684 184,340

(Continued)



Notes to Consolidated Financial Statements


(amounts expressed in thousands of New Taiwan Dollars,

except for per share information and unless otherwise noted)

1. Organization

Solid State System Co., Ltd. (“the Company”) was incorporated on November 26, 1998, as a company

limited by shares and registered under the Ministry of Economic Affairs of the Republic of China

(“R.O.C.”) The address of the Company’s registered office is 5F-1 No. 22 Tai Yuen Street, Tai Yuen

Hi-Tech Industrial Park, Jubei City, Hsinchu 302, Taiwan, R. O. C. The Company’s common stocks

have been publicly listed on Taipei Exchange since December 24, 2007.

The main activities of the Company and its subsidiaries (hereinafter referred to as the “Consolidated

Company”) are the design, research, development, manufacture and sale of integrated circuits (ICs).

2. Approval Date and Procedures of the Financial Statements

The consolidated financial statements were authorized for issue by the Board of Directors on March 2,

2017.

3. New Standards and Interpretations Adopted

(1) Impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial

Supervisory Commissions R.O.C. (“FSC”) but not yet in effect

According to the Ruling No. 1050026834 issued on July 18, 2016, by the FSC, public entities are

required to conform to the IFRSs which were issued by the International Accounting Standards

Board (IASB) before January 1, 2016, and were endorsed by the FSC on January 1, 2017 in

preparing their financial statements. The related new standards, amendments and interpretations are

as follows:

New Standards, Amendments and Interpretations Effective date per IASB

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment

Entities: Applying the Consolidation Exception

January 1, 2016

Amendments to IFRS 11 Accounting for Acquisitions of

Interests in Joint Operations

January 1, 2016

IFRS 14 Regulatory Deferral Accounts January 1, 2016

Amendments to IAS 1 Disclosure Initiative January 1, 2016

Amendments to IAS 16 and IAS 38 Clarification of

Acceptable Methods of Depreciation and Amortization

January 1, 2016

2

Solid State System Co., Ltd. and subsidiaries


(Continued)


Amendments to IAS 16 and IAS 41 Agriculture: Bearer

Plants

January 1, 2016

Amendments to IAS 19 Defined Benefit Plans: Employee

Contributions

July 1, 2014

Amendments to IAS 27 Equity Method in Separate

Financial Statements

January 1, 2016

Amendments to IAS 36 Recoverable Amount Disclosures

for Non-Financial Assets

January 1, 2014

Amendments to IAS 39 Novation of Derivatives and

Continuation of Hedge Accounting

January 1, 2014

Annual improvements cycles 2010-2012 and 2011-2013 July 1, 2014

Annual improvements cycle 2012-2014 January 1, 2016

IFRIC 21 Levies January 1, 2014

The initial application of the above IFRSs would not have any material impact on its consolidated

financial statements.

(2) New standards, amendments and interpretations not yet endorsed by the FSC

New standards and amendments issued by the IASB but not yet endorsed by the FSC are

summarized as below. The FSC announced that the Consolidated Company should apply IFRS 9

and IFRS 15 starting January 1, 2018. As of the date the Consolidated Company’s consolidated

financial statements were authorized for issue, the FSC has not yet announced the effective dates

of the other IFRSs.


IFRS 9 Financial Instruments January 1, 2018

Amendments to IFRS 10 and IAS 28 Sale or Contribution of

Assets Between an Investor and Its Associate or Joint

Venture

Effective date to be

determined by IASB

IFRS 15 Revenue from Contracts with Customers January 1, 2018

IFRS 16 Leases January 1, 2019

Amendment to IFRS 2 Clarifications of Classification and

Measurement of Share-based Payment Transactions

January 1, 2018

Amendment to IFRS 15 Clarifications of IFRS 15 January 1, 2018

3



(Continued)


Amendment to IAS 7 Disclosure Initiative January 1, 2017

Amendment to IAS 12 Recognition of Deferred Tax Assets for

Unrealized Losses

January 1, 2017

Amendments to IFRS 4 Insurance Contracts (Applying IFRS 9

Financial Instruments with IFRS 4 Insurance Contracts)

January 1, 2018

Annual improvements cycle 2014-2016:

IFRS 12 Disclosure of Interests in Other Entities

January 1, 2017

IFRS 1 First-time Adoption of International Financial

Reporting Standards" and IAS 28 "Investments in

Associates and Joint Ventures

January 1, 2018

IFRIC 22 Foreign Currency Transactions and Advance

Consideration

January 1, 2018

Amendments to IAS 40 Investment Property January 1, 2018

The standards which are relevant to the Consolidated Company are listed below:

Issue Dates

New Standards and

Amendments Content of Amendment

May 28, 2014

April 12, 2016

IFRS 15 Revenue from

Contracts with Customers

The new standard provides a single model for

determining whether an entity recognizes revenue in

accordance with the method, timing and amount by

applying the five-step model. IFRS 15 replaces IAS

18 Revenue, IAS 11 Construction Contracts, and the

relevant interpretations.

On April 12, 2016, the amendments clarify how to

identify performance obligations in a contract;

determine whether a company is a principal or an

agent; and determine whether the revenue from

granting a license should be recognized at a point in

time or over time.

4



(Continued)

Issue Dates

New Standards and

Amendments Content of Amendment

November 19,

2013

July 24, 2014

IFRS 9 Financial

Instruments

The new standard will replace IAS 39 Financial

Instruments: Recognition and Measurement. The main

amendments are as follows:

‧Clarification and measurement: The financial asset

is driven by the entity’s business model and the

contractual cash flow characteristics, which would

be classified as financial assets measured at

amortized cost, financial assets measured at fair

value through other comprehensive income (OCI),

and financial assets at fair value through profit or

loss. The financial liabilities measured at fair value

through profit or loss that have changes in fair value

related to the changes in its credit risk are

recognized in OCI.

‧Impairment: The new expected credit loss model is

to replace the current incurred loss model.

‧Hedge accounting: More principle-based regulations

are adopted to correspond hedge accounting with

risk management. Such regulations include the

revisions on the requirements of adoption,

continuation, and discontinuation of hedge

accounting, allowing more categories of risk

exposure to conform with the hedged items.

January 13, 2016 IFRS 16 Leases The new standard of accounting for lease is amended

as follows:

‧For a contract that is, or contains, a lease, the lessee

shall recognize a right-of-use asset and lease

liability on the balance sheet. During the lease term,

the lease payment shall include the measurement of

the depreciation on the right-of-use asset and the

interest expense on the lease liability.

‧A lessor shall classify a lease as either finance lease

or operating lease. The accounting treatment

remains similar in accordance with IAS 17 Leases.

The Consolidated Company assessed that the application of the IFRS 15 Revenue from Contracts with

Customers and IFRS 9 Financial Instruments would not have any material impact on its financial

position and financial performance. The Consolidated Company continues evaluating the impact of the

initial adoption of the IFRS 16 Leases on its financial position and financial performance. The results

thereof will be disclosed when the Consolidated Company completes its evaluation.

5



(Continued)

4. Significant accounting policies

The significant accounting policies presented in the consolidated financial statements are summarized

as follows. Except for those described individually, the significant accounting policies have been

applied consistently to all periods presented in these consolidated financial statements.

(1) Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations

Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as

the “Regulations”) and the International Financial Reporting Standards, International Accounting

Standards, IFRIC Interpretations, and SIC Interpretations endorsed by the FSC (hereinafter

referred to as the “IFRSs endorsed by the FSC”).

(2) Basis of preparation

A. Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis except for

the following material items in the balance sheets:

(a) Financial instruments measured at fair value through profit or loss are measured at fair

value (including derivative financial instruments);

(b) The net defined benefit liability (asset) is recognized as the fair value of the plan assets,

less, the present value of the defined benefit obligation.

B. Functional and presentation currency

The functional currency of each consolidated entity is determined based on the primary

economic environment in which it operates. The consolidated financial statements are

presented in New Taiwan Dollars (“TWD”), which is the Company’s functional currency.

All financial information presented in TWD has been rounded to the nearest thousand.

(3) Basis of consolidation

A. Principles of preparation of the consolidated financial statements

The consolidated financial statements comprise the Company and the entities controlled by

the Company (its subsidiaries). The Company controls an entity when it is exposed, or has

rights, to variable returns from its involvement with the entity and has the ability to affect

those returns through its control over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements

from the date that control commences until the date that control ceases.

6



(Continued)

Intra-group balances and transactions, and any unrealized income and expenses arising from

intra-group transactions are eliminated in preparing the consolidated financial statements.

B. List of subsidiaries in the consolidated financial statements

Percentage of

ownership (%)

Name of

investor Subsidiary Main activities

December

31, 2016

December

31, 2015

The Company ViCHIP

Corporation

Limited(ViCHIP)

Operating electronic components

manufacturing, wholesaling, sales and product

design business

100% 100%

C. List of subsidiaries which are not included in the consolidated financial statements: None.

(4) Foreign currency

Transactions in foreign currencies are translated to the respective functional currencies of the

consolidated entities at the exchange rates at the dates of the transactions. Monetary assets and

liabilities denominated in foreign currencies at the end of the reporting period (hereinafter referred

to as the reporting date) are retranslated to the functional currency at the exchange rate at that date.

The foreign currency gain or loss on monetary items is the difference between amortized cost in

the functional currency at the beginning of the period, adjusted for the effective interest and

payments during the period, and the amortized cost in foreign currency translated at the exchange

rate at the end of the period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair

value are retranslated to the functional currency at the exchange rate at the date that the fair value

was determined. Non-monetary items in a foreign currency that are measured based on historical

cost are translated using the exchange rate at the date of transactions.

Foreign currency differences arising on retranslation are recognized in profit or loss except for

the available-for-sale equity instrument differences, which are recognized in other comprehensive

income.

(5) Classification of current and non-current assets and liabilities

The Consolidated Company classifies an asset as current when any one of the following

requirements is met. Assets that are not classified as current are non-current assets.

A. It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle;

B. It holds the asset primarily for the purpose of trading;

C. It expects to realize the asset within twelve months after the reporting period; or

7



(Continued)

D. The asset is cash or cash equivalent unless the asset is restricted from being exchanged or

used to settle a liability for at least twelve months after the reporting period.

The Consolidated Company classifies a liability as current when any one of the following

requirements is met. Liabilities that are not classified as current are non-current liabilities.

A. It expects to settle the liability in its normal operating cycle;

B. It holds the liability primarily for the purpose of trading;

C. The liability is due to be settled within twelve months after the reporting period; or

D. It does not have an unconditional right to defer settlement of the liability 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.

(6) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, petty cash and demand deposits. Cash

equivalents are short-term, highly liquid investments that are readily convertible to known

amounts of cash and which are subject to an insignificant risk of changes in value.

The time deposits, which meet the above definition and are held for the purpose of meeting short-

term cash commitments rather than for investment at other purpose, are classified as cash and cash

equivalents.

(7) Financial instruments

Financial assets and financial liabilities are initially recognized when the Consolidated Company

becomes a party to the contractual provisions of the instruments.

A. Financial assets

(a) Financial assets at fair value through profit or loss

A financial asset is classified in this category if acquired principally for the purpose of

selling or repurchasing in the short term. This type of financial asset is measured at fair

value at the time of initial recognition, and attributable transaction costs are recognized

in profit or loss as incurred. Financial assets at fair value through profit or loss are

measured at fair value, and changes therein, which take into account any dividend and

interest income, are recognized in profit or loss, and are included in non-operating

income and expenses. A regular way purchase or sale of financial assets shall be

recognized and derecognized, as applicable, using trade-date accounting.

8



(Continued)

(b) Receivables

Receivables are financial assets with fixed or determinable payments that are not quoted

in an active market. Receivables comprise note and account receivables and other

receivables. Such assets are recognized initially at fair value, plus, any directly

attributable transaction costs. Subsequent to initial recognition, receivables are

measured at amortized cost using the effective interest method, less, any impairment

losses other than insignificant interest on short-term receivables.

Interest income is included in non-operating income and expenses.

(c) Impairment of financial assets

A financial asset is impaired if, and only if, there is objective evidence of impairment as

a result of one or more events that occurred after the initial recognition of the asset and

that loss event has an impact on the estimated future cash flows of the financial asset that

can be estimated reliably.

All individually significant receivables are assessed for specific impairment.

Receivables that are not individually significant are collectively assessed for impairment

by grouping together assets with similar risk characteristics. In assessing collective

impairment, the Consolidated Company uses historical trends of the probability of

default, the timing of recoveries, and the amount of loss incurred, adjusted for

management’s judgment as to whether current economic and credit conditions are such

that the actual losses are likely to be greater or lesser than those suggested by historical

trends.

An impairment loss in respect of a financial asset is deducted from the carrying amount

except for accounts receivable, for which an impairment loss is reflected in an allowance

account against the receivables. When it is determined a receivable is uncollectible, it

is written off from the allowance account. Any subsequent recovery of a receivable

written off is recorded in the allowance account. Changes in the amount of the

allowance account are recognized in profit or loss.

Impairment losses and recoveries are recognized in profit or loss. Impairment losses and

recoveries on financial assets other than receivables are recognized in non-operating

income and expenses.

(d) Derecognition of financial assets

The Consolidated Company derecognizes financial assets when the contractual rights of

the cash inflow from the asset are terminated, or when the Consolidated Company

transfers substantially all the risks and rewards of ownership of the financial assets.

9



(Continued)

On derecognition of a financial asset in its entirety, the difference between the carrying

amount and the sum of the consideration received or receivable and any cumulative gain

or loss that had been recognized in other comprehensive income and included in non-

operating income and expenses.

B. Financial liabilities and equity instruments

(a) Classification of debt or equity

Debt or equity instruments issued by the Consolidated Company are classified as

financial liabilities or equity in accordance with the substance of the contractual

agreement.

Equity instruments refer to surplus equities of the assets after the deduction of all the

debts for any contracts. Equity instruments issued are recognized as the amount of

consideration received, less, the direct cost of issuing.

Interest related to a financial liability is recognized in profit or loss, under non-operating


(b) Financial liabilities at fair value through profit or loss

A financial liability is classified in this category if acquired principally for the purpose

of selling or repurchasing in the short term. This type of financial liability is measured

at fair value at the time of initial recognition, and attributable transaction costs are

recognized in profit or loss as incurred. Financial liabilities at fair value through profit

or loss are measured at fair value, and changes therein, which take into account any

interest expense, are recognized in profit or loss, and are included in non-operating


(c) Other financial liabilities

Financial liabilities not classified as held-for-trading or designated as at fair value

through profit or loss, which comprise accounts payable and other payables, are

measured at fair value, plus, any directly attributable transaction cost at the time of initial

recognition. Subsequent to initial recognition, they are measured at amortized cost

calculated using the effective interest method. Interest expense not capitalized as capital

cost is recognized in profit or loss, and is included in non-operating income and expenses.

(d) Derecognition of financial liabilities

The Consolidated Company derecognizes a financial liability when its contractual

obligation has been discharged or cancelled, or has expired. The difference between the

carrying amount of a financial liability removed and the consideration paid is recognized

in profit or loss, under non-operating income and expenses.

10



(Continued)

(e) Offsetting of financial assets and liabilities

The Consolidated Company presents financial assets and liabilities on a net basis when

the Consolidated Company has the legally enforceable right to offset and intends to settle

such financial assets and liabilities on a net basis or to realize the assets and settle the

liabilities simultaneously.

C. Derivative financial instruments

The Consolidated Company holds derivative financial instruments to hedge its foreign

currency and interest rate exposures. Derivatives are recognized initially at fair value and

attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial

recognition, derivatives are measured at fair value, and changes therein are recognized in

profit or loss, under non-operating income and expenses. When the fair value of a derivative

instrument is positive, it is classified as a financial asset, and when the fair value is negative,

it is classified as a financial liability.

(8) Inventories

Inventories are measured at the lower of cost and net realizable value. The costs of inventories

include expenditure incurred in acquiring the inventories, conversion costs, and other costs

(weighted-average method) incurred in bringing them to their existing location and condition.

Net realizable value is the estimated selling price in the ordinary course of business, less the

estimated costs incurred in acquiring the available-for-sale inventories and selling expenses.

(9) Property, plant and equipment

A. Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation

and accumulated impairment losses. Cost includes expenditure that is directly attributed to

the acquisition of the asset, any cost directly attributable to bringing the asset to the location

and condition necessary for it to be capable of operating in the manner intended by

management, and the initial estimate of the costs of dismantling and removing the item and

restoring the site on which it is located. The cost of the software is capitalized as part of the

equipment if the purchase of the software is necessary for the equipment to be capable of

operating.

Each part of an item of property, plant and equipment with a cost that is significant in relation

to the total cost of the item shall be depreciated separately, unless its useful life and

depreciation method are the same as the useful life and depreciation method of another

significant part of that same item.

The gain or loss arising from the derecognition of an item of property, plant and equipment

shall be determined as the difference between the net disposal proceeds, if any, and the

carrying amount of the item, and it shall be recognized as non-operating income and expenses.

11



(Continued)

B. Subsequent cost

Subsequent expenditure is capitalized only when it is probable that the future economic

benefits associated with the expenditure will flow to the Consolidated Company and the

amount can be reliably measured. The carrying amount of those parts that are replaced is

derecognized. Ongoing repairs and maintenance are expensed as incurred.

C. Depreciation

The depreciable amount of an asset is determined after deducting its residual amount, and it

shall be allocated on a systematic basis over the asset’s useful life. Each significant item of

property, plant and equipment shall be evaluated and depreciated separately if it possesses a

different useful life. The depreciation charge for each period shall be recognized in profit or

loss.

The estimated useful lives for the current and comparative years of significant items of

property, plant and equipment are as follows:

(a) Building: 2 to 50 years

(b) Machinery and equipment: 2 to 10 years

(c) Office and other equipment: 2 to 5 years

(d) Buildings constitute mainly building facilities, mechanical and electrical power

equipment, related engineering, laboratory engineering, etc. Each constituent is

depreciated based on its useful life of 50 years, 10 years, and 2 years.

Depreciation methods, useful lives, and residual values are reviewed at each reporting date.

If expectations differ from the previous estimates, the change is accounted for as a change in

an accounting estimate.

(10) Leases

A. Lesser

Lease income from an operating lease is recognized in income on a straight-line basis over

the lease term.

B. Lessee

Payments made under an operating lease (excluding insurance and maintenance expenses)

are recognized in profit or loss on a straight-line basis over the term of the lease.

12



(Continued)

(11) Intangible assets

A. Research and development

During the research phase, activities are carried out to obtain and understand new scientific

or technical knowledge. Expenditures during this phase are recognized in profit or loss as

incurred.

Expenditures arising from the development phase shall be recognized as an intangible asset

if all the conditions described below can be demonstrated; otherwise, they will be recognized

in profit or loss as incurred.

(a) The technical feasibility of completing the intangible asset so that it will be available for

use or sale.

(b) Its intention to complete the intangible asset and use or sell it.

(c) Its ability to use or sell the intangible asset.

(d) How the intangible asset will generate probable future economic benefits.

(e) The availability of adequate technical, financial and other resources to complete the

development and to use or sell the intangible asset.

(f) Its ability to measure reliably the expenditure attributable to the intangible asset during

its development.

B. Other intangible assets

Other intangible assets acquired by the Consolidated Company are measured at cost less

accumulated amortization and any accumulated impairment losses.

C. Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits

embodied in the specific asset to which it relates.

D. Amortization

The depreciable amount is the cost of an asset, or other amount substituted for cost, less its

residual value.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful

lives of intangible assets from the date that they are available for use. The estimated useful

lives for the current and comparative periods are as follows:

13



(Continued)

(a) Software: 3 to 8 years

(b) Patent and technology fee: 3 to 12 years

(c) Other intangible assets: 5 years

The residual value, amortization period, and amortization method for an intangible asset with

a finite useful life shall be reviewed at least annually at each fiscal year-end. Any change

shall be accounted for as changes in accounting estimates.

(12) Impairment of non-financial assets

The Consolidated Company measures whether an impairment occurred in non-financial

assets (except for inventories and deferred income tax assets) on every reporting date, and

estimates the recoverable amount. If it is not possible to determine the recoverable amount

(fair value less cost to sell and value in use) for the individual asset, then the Consolidated

Company will have to determine the recoverable amount for the asset's cash-generating unit

(CGU).

The recoverable amount for individual asset or a cash-generating unit is the higher of its fair

value less costs to sell and its value in use. If, and only if, the recoverable amount of an asset

is less than its carrying amount, the carrying amount of the asset shall be reduced to its

recoverable amount. That reduction is an impairment loss. An impairment loss shall be

recognized immediately in profit or loss.

The Consolidated Company should assess at the end of each reporting period whether there

is any indication that an impairment loss recognized in prior periods for an asset other than

goodwill may no longer exist or may have decreased. If any such indication exists, the entity

shall estimate the recoverable amount of that asset.

An impairment loss recognized in prior periods for an asset other than goodwill shall be

reversed if, and only if, there has been a change in the estimates used to determine the asset’s

recoverable amount since the last impairment loss was recognized. If this is the case, the

carrying amount of the asset shall be increased to its recoverable amount as a reversal of a

previously recognized impairment loss.

(13) Revenue recognition

A. Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair

value of the consideration received or receivable, net of returns, trade discounts, and volume

rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an

executed sales agreement, that the significant risks and rewards of ownership have been

transferred to the customer, recovery of the consideration is probable, the associated costs

and possible return of goods can be estimated reliably, there is no continuing management

involvement with the goods, and the amount of revenue can be measured reliably. If it is

14



(Continued)

probable that discounts will be granted and the amount can be measured reliably, then the

discount is recognized as a reduction of revenue as the sales are recognized.

B. Service

Revenue from services rendered is recognized in profit or loss in proportion to the stage of

completion of the transaction at the reporting date.

(14) Employee benefits

A. Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an

employee benefit expense in profit or loss in the periods during which services are rendered

by employees.

B. Defined benefit plans

The Consolidated Company’s net obligation in respect of defined benefit pension plans is

calculated separately for each plan by estimating the amount of future benefit that employees

have earned in return for their service in the current and prior periods; that benefit is

discounted to determine its present value. Any fair value of any plan asset is deducted.

The discount rate is the yield at the reporting date (market yields of government bonds) on

bonds that have maturity dates approximating the terms of the Consolidated Company’s

obligations and that are denominated in the same currency in which the benefits are expected

to be paid.

The calculation is performed annually by a qualified actuary using the projected unit credit

method. When the calculation results in a benefit to the Consolidated Company, the

recognized asset is limited to the total of any unrecognized past service costs and the present

value of economic benefits available in the form of any future refunds from the plan or

reductions in future contributions to the plan. In order to calculate the present value of

economic benefits, consideration is given to any minimum funding requirements that apply

to any plan in the Consolidated Company. An economic benefit is available to the

Consolidated Company if it is realizable during the life of the plan, or on settlement of the

plan liabilities.

When the benefits of a plan are improved, the expense of the increased benefit relating to the

past services by the employees is recognized immediately in profit or loss.

Remeasurements of the net defined benefit liability (asset), which comprise (1) actuarial gains

and losses, (2) the return on plan assets (excluding interest) and (3) the effect of the asset

ceiling (if any, excluding interest), are recognized immediately in other comprehensive

income , , are recognized immediately in other comprehensive income; wherein the Company

recognized them under retained earnings.

15



(Continued)

The Consolidated Company recognizes the gains or losses on the curtailment or settlement

of the defined benefit plans when the curtailment or settlement occurs. The gain or loss on

curtailment comprises any resulting change in the fair value of the plan assets and in the

present value of the defined benefit obligation.

C. Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are

expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or

profit-sharing plans if the Consolidated Company has a present legal or constructive

obligation to pay this amount as a result of past service provided by the employee, and the

obligation can be estimated reliably.

(15) Income tax

Income tax expenses include both current taxes and deferred taxes. Except for expenses related

to business combinations or recognized directly in equity or other comprehensive income, all

current and deferred taxes shall be recognized in profit or loss.

Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the

year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate,

as well as tax adjustments related to prior years.

Deferred taxes arise due to temporary differences between the carrying amounts of assets and

liabilities for financial reporting purposes and their respective tax bases.

Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to

the period when the asset is realized or the liability is settled, based on tax rates that have been

enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities may be offset against each other if the following criteria are met:

A. The entity has the legal right to settle tax assets and liabilities on a net basis; and

B. the taxing of deferred tax assets and liabilities fulfills one of the scenarios below:

(a) Levied by the same taxing authority; or

(b) Levied by different taxing authorities, but where each such authority intends to settle tax

assets and liabilities (where such amounts are significant) on a net basis every year of

the period of expected asset realization or debt liquidation, or where the timing of asset

realization and debt liquidation is matched.

16



(Continued)

A deferred tax asset should be recognized for the carry forward of unused tax credits and

deductible temporary differences to the extent that it is probable that future taxable profit will be

available against which the unused tax credits and deductible temporary differences can be utilized.

Such unused tax credits and deductible temporary differences shall also be re-evaluated every year

on the financial reporting date, and adjusted based on the probability that future taxable profit will

be available against which the unused tax credits and deductible temporary differences can be

utilized.

(16) Earnings per share

The Consolidated Company discloses the Company’s basic and diluted earnings per share

attributable to common stockholders of the Company. The calculation of basic earnings per share

is based on the profit attributable to the common stockholders of the Company divided by the

weighted-average number of common stock outstanding. The calculation of diluted earnings per

share is based on the profit attributable to common stockholders of the Company, divided by the

weighted-average number of common stock outstanding after adjustment for the effects of all

dilutive potential common stock.

(17) Operating segment information

An operating segment is a component of the Consolidated Company that engages in business

activities from which it may earn revenues and incur expenses (including revenues and expenses

relating to transactions with other components of the Consolidated Company). Operating results

of the operating segment are regularly reviewed by the Consolidated Company’s chief operating

decision maker to make decisions about resources to be allocated to the segment and to assess its

performance. Each operating segment consists of standalone financial information.

5. Major Sources of Accounting Assumptions, Judgments and Estimation Uncertainty

The preparation of the consolidated financial statements in conformity with the IFRSs endorsed by the

FSC requires management to make judgments, estimations, and assumptions that affect the application

of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual

results may differ from these estimations.

Management continues to monitors the accounting estimations and assumptions. Management

recognizes any changes in accounting estimations during the period in which the estimates are revised

and in any future periods affected.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a

material adjustment within the next financial year is as follows:

(1) Valuation of inventory

Due to the rapid technological changes, the Consolidated Company estimates the net realizable

value of inventory for obsolescence and unmarketable items at the end of the reporting period, and

then writes down the cost of inventories to net realizable value. The net realizable value of the

inventory is mainly determined based on the assumptions of future demand within a specific time

17



(Continued)

horizon which might subject to significant fluctuations. Please refer to note 6(4) for further

description of the valuation of inventory.

(2) Valuation of Property, plant and equipment

In the process of evaluating the potential assets, the Consolidated Company is required to make

subjective judgments in determining the independent cash flows, useful lives, expected future

income and expenses related to the specific asset groups considering of the nature of the industry.

Any changes in these estimates based on changed economic conditions or business strategies and

could result in significant impairment charges or reversal in future years. Please refer to note 6(6)

for further description of the impairment assessment on property, plant and equipment.

6. Description of the Significant Accounts

(1) Cash and cash equivalents

December 31,

2016 2015

Cash on hand and petty cash $ 287 167 Checking and savings accounts 25,397 48,148

Time deposits 44,000 136,025

$ 69,684 184,340

Refer to note 6(16) for the sensitivity analysis of the financial assets and liabilities of the

Consolidated Company.

Time deposits with original maturities of more than three months as of December 31, 2016 and

2015, respectively, were reclassified to other current financial assets. Please refer to note 6(5).

(2) Financial liabilities at fair value through profit or loss

December 31,

2016 2015

Financial liabilities at fair value through profit or loss

Held for trading－current:

Foreign currency forward contracts $ (67) (57)

The Consolidated Company held derivative financial instruments to manage its foreign currency

exchange risk resulting from operations. The Consolidated Company held the following

derivative instruments presented as held-for-trading financial liabilities as of December 31, 2016,

and 2015:

18



(Continued)

Unit: foreign currency thousand

December 31, 2016 December 31, 2015

Contract

amount

Currency

Maturity

date

Contract

amount

Currency

Maturity

date

Sell－forward

foreign currency

exchange contracts

USD 500 Sell USD/

Buy TWD

February 3,

2017

USD 350 Sell USD/

Buy TWD

January 29,

2016

(3) Accounts receivable

December 31,

2016 2015

Accounts receivable 7,659 1,358

Less: allowance for doubtful receivables (43) -

$ 7,616 1,358

Aging analysis of receivables (including accounts receivable and receivables from related parties)

as of the reporting date:


Total

amount

Impaired

amount

Total

amount

Impaired

amount Not past due $ 72,465 42 50,964 -

Past due 0~89 days 40 1 - -

$ 72,505 43 50,964 -

The movement in the allowance for doubtful receivables (including accounts receivable and

receivables-related parties) was as follows:

For the years ended

December 31,

2016 2015

Balance as of January 1 $ - -

Impairment loss recognized 43 -

Balance as of December 31 $ 43 -

19



(Continued)

The Consolidated Company comprehensively determines an impairment loss according to the

historical payment behaviors, credit ratings, and aging of receivables of its customers. An

impairment loss in respect of accounts receivable is reflected in an allowance account against the

receivables.

(4) Inventories

December 31,

2016 2015

Raw materials $ 2,359 10,276 Work in process 81,612 68,700

Finished goods 40,468 49,210

Merchandise inventory 1 1,479

$ 124,440 129,665

The details of operating costs were as follows:

For the years ended

December 31,

2016 2015

Cost of goods sold $ 392,174 304,343

Inventory devaluation loss 37,096 30,739

Revenue from sale of scrap - (12)

Physical inventory losses 15 -

$ 429,285 335,070

(5) Other current financial assets

December 31,

2016 2015

Time deposits (over three months) $ 170,600 185,100 Pledged deposits 15,300 -

Others 2,854 2,450

$ 188,754 187,550

Please refer to note 8 for the details regarding facilities guarantee as of December 31, 2016.

20



(Continued)

(6) Property, plant and equipment

Land Building

Machinery

and

equipment

Office and

other

equipment Total

Cost:

Balance as of January 1, 2016 $ 34,271 74,992 97,209 34,377 240,849

Additions - - 26,201 584 26,785

Reclassification - - (30) - (30)

Disposals and write-off - - (5,381) (7,392) (12,773)

Balance as of December 31, 2016 $ 34,271 74,992 117,999 27,569 254,831

Balance as of January 1, 2015 $ 34,271 73,654 30,335 17,117 155,377

Additions - 1,338 69,400 19,943 90,681

Reclassification - - (425) - (425)



Accumulated depreciation:

Balance as of January 1, 2016 $ - 13,207 17,318 18,540 49,065

Depreciation - 2,530 14,387 12,970 29,887


Balance as of December 31, 2016 $ - 15,737 26,324 24,118 66,179

Balance as of January 1, 2015 $ - 10,948 11,721 6,140 28,809

Depreciation - 2,259 7,698 15,083 25,040


Balance as of December 31, 2015 $ - 13,207 17,318 18,540 49,065

Book value:



According to the test for impairment for the years ended December 31, 2016 and 2015, the

recoverable amount for an asset or a cash-generating unit is the higher than its book value.

Therefore, the Consolidated Company did not recognize any impairment loss on property, plant

and equipment.

Please refer to note 8 for the details regarding facilities guarantee as of December 31, 2016 and

2015.

(7) Intangible assets

Software

Patent and

technology

fee

Other

intangible

assets Total

Cost:

Balance as of January 1, 2016 $ 17,728 41,902 - 59,630

Additions 485 490 - 975

Write-off (6,957) (3,881) - (10,838)

Balance as of December 31, 2016 $ 11,256 38,511 - 49,767

21



(Continued)

Software

Patent and

technology

fee

Other

intangible

assets Total

Balance as of January 1, 2015 $ 13,694 38,937 105 52,736

Additions 6,968 3,265 - 10,233

Reclassification 425 - - 425

Write-off (3,359) (300) (105) (3,764)


Accumulated amortization:

Balance as of January 1, 2016 $ 8,724 21,673 - 30,397

Amortization 2,550 10,268 - 12,818

Write-off (6,957) (3,881) - (10,838)

Balance as of December 31, 2016 $ 4,317 28,060 - (32,377)

Balance as of January 1, 2015 $ 10,256 10,885 105 21,246

Amortization 1,827 11,088 - 12,915

Write-off (3,359) (300) (105) (3,764)


Book value:



(8) Operating lease

A. Lessee

The Consolidated Company leases office space and laboratory facilities under operating

leases. The rent expense paid monthly and the leases typically run for a period of 2 to 3

years with an option to renew the lease after that date.

For the years ended December 31, 2016 and 2015, $9,075 and $9,806, respectively, were

recognized as expenses in profit or loss in respect of operating leases.

Period Amount

2017.1.1~2017.12.31 $ 8,543

2018.1.1~2018.7.31 4,123

$ 12,666

22



(Continued)

B. Lesser

The office space rented out by the Consolidated Company is through the use of an operating

lease. The term of lease is from August 1, 2015 to September 12, 2016. For the years ended

December 31, 2016 and 2015, the Consolidated Company recognized property rental income

amounting to $2,452 and $859, respectively.

(9) Employee benefit

A. Defined benefit plans

The present value of the defined benefit obligation and the fair value of the plan assets of the

Consolidated Company were reconciled as follows:

December 31,

2016 2015

Present value of the defined benefit obligations $ 14,468 15,503 Fair value of plan assets 14,945 14,701

Net defined benefit liabilities (assets) $ (477) 802 The Consolidated Company makes defined benefit plan contributions to the pension fund

account at Bank of Taiwan that provides pensions for employees upon retirement. The plans

(covered by the Labor Standards Law) entitle a retired employee to receive an annual

payment based on years of service and average salary for the six months prior to retirement.

(a) Composition of plan assets

The Consolidated Company allocates pension funds in accordance with the Regulations

for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund,

and such funds are managed by the Bureau of Labor Funds, Ministry of Labor

(hereinafter referred to as the Bureau of Labor Funds). Minimum earnings shall be no

less than the earnings attainable from two-year time deposits with interest rates offered

by local banks.

The Consolidated Company’s Bank of Taiwan labor pension reserve account balance

amounted to $14,945 at the end of the reporting period. For information on the utilization

of the labor pension fund assets including the asset allocation and yield of the fund,

please refer to the website of the Bureau of Labor Funds.

23



(Continued)

(b) Movements in present value of the defined benefit obligation

The movements in present value of the defined benefit obligation of the Consolidated

Company for the year ended December 31, 2016 and 2105 were as follows:

For the years ended

December 31,

2016 2015

Defined benefit obligation as of January 1 $ 15,503 13,369

Current service costs and interest 240 301

Remeasurements of the net defined benefit liabilities

(assets)

- Actuarial loss (gain) arising from changes in

financial assumptions

181 1,824

- Actuarial losses (gains) arising from experience

adjustments

(1,456) 9

Defined benefit obligation as of December 31 $ 14,468 15,503

(c) Movements in fair value of the defined benefit plan assets

The movements in fair value of the defined benefit plan assets of the Consolidated

Company for the year ended December 31, 2016 and 2105 were as follows:

For the years ended

December 31,

2016 2015

Fair value of plan assets as of January 1 $ 14,701 14,319

Interest income 228 322

Remeasurements of the net defined benefit liabilities

(assets)

Return on plan assets (excluding current interest) 16 60

Fair value of plan assets as of December 31 $ 14,945 14,701

(d) Expenses recognized in profit or loss

The Consolidated Company’s expenses recognized in profit or losses for the years ended

December 31, 2016 and 2015, were as follows:

For the years ended

December 31,

2016 2015

Net interest on the net defined benefit liabilities (assets) $ 12 (21)

24



(Continued)

(e) Remeasurements of the net defined benefit liabilities (assets) recognized in other

comprehensive income

The Consolidated Company’s remeasurements of the net defined benefit liabilities

(assets) recognized as accumulated in other comprehensive income for the years ended

December 31, 2016 and 2015 were as follows:

For the years ended

December 31,

2016 2015

Cumulative amount as of January 1 $ 473 2,246

Recognized during the period 1,291 (1,773)

Cumulative amount as of December 31 $ 1,764 473

(f) Actuarial assumptions

The following are the Consolidated Company’s significant actuarial assumptions of the

present value of the defined benefit obligation:

December 31,

2016 2015

Discount rate 1.131% 1.550%

Future salary increases 3.000% 3.000%

The Consolidated Company has been approved by the Bureau of Labor Funds to

temporarily cease its contribution to the labor fund starting October 2014. Therefore,

there were no expected allocation payment to be made by the Consolidated Company to

the defined benefit plans for the one-year period after December 31, 2016.

The weighted-average duration of the defined benefit obligation is 14.52 years.

(g) Sensitivity analysis

When calculating the present value of the defined benefit obligation, the Consolidated

Company uses judgments and estimations to determine the actuarial assumptions,

including the discount rate and future salary changes as of the financial statement date.

Any changes in the actuarial assumptions may significantly impact the amount of the

defined benefit obligation.

25



(Continued)

If there is a change in the actuarial assumptions as of December 31, 2016, the impact on

the defined benefit obligation would be as follows:

Impact on the defined

benefit obligation

Increase 0.25% Decrease 0.25%

Discount rate $ (505) 528

Future salary increase rate $ 511 (492)

Reasonably possible changes to one of the relevant actuarial assumptions on December

31, 2016, holding other assumptions remain constant, would have affected the defined

benefit obligation by the amounts shown above. In practical, the relevant actuarial

assumptions are correlated to each other. The approach used in recognizing the net

defined liability in the balance sheets is the same as the one used in developing the

sensitivity analysis and the relevant actuarial assumptions in the current and previous

years.

B. Defined contribution plans

The Consolidated Company allocates 6% of each employee’s monthly wages to the labor

pension personal account at the Bureau of Labor Insurance, Ministry of Labor (hereinafter

referred to as the Bureau of Labor Insurance) in accordance with the provisions of the Labor

Pension Act. Under this defined contribution plan, the Consolidated Company allocates a

fixed amount to the Bureau of Labor Insurance without additional legal or constructive

obligations.

The Consolidated Company’s pension costs under the defined contribution method were

$7,795 and $7,628 for the years ended December 31, 2016 and 2015, respectively. Payment

was made to the Bureau of Labor Insurance.

(10) Income tax

A. Income tax expense (benefit)

The amount of income tax benefit for the years ended December 31, 2016 and 2015, was as

follows:

For the years ended

December 31,

2016 2015

Current tax expense $ - -

Deferred tax benefit

Origination and reversal of temporary differences (6,246) (4,893)

Income tax benefit $ (6,246) (4,893)

26



(Continued)

The amount of tax expense (benefit) recognized in other comprehensive income for the years

ended December 31, 2016 and 2015 was as follows:

For the years ended

December 31,

2016 2015

Items that will not be reclassified subsequently to profit or

loss:

Remeasurements of the defined benefit plans $ 219 (301)

The reconciliation of income tax and loss before tax for the years ended December 31, 2016

and 2015, is as follows:

For the years ended

December 31,

2016 2015

Loss before tax $ (76,303) (168,955)

Income tax using the Company’s domestic tax rate (12,971) (28,722)

Adjustment due to impacts from permanent differences 12 (10,676)

Changes in unrecognized tax losses (2,055) 34,604

Under (over) provision in prior periods and others 8,768 (99)

$ (6,246) (4,893)

B. Deferred income tax assets

(a) Deferred tax assets have not been recognized in respect of the following items:

December 31,

2016 2015

Tax losses $ 187,168 189,223

According to the R.O.C. Income Tax Act, the previous 10 years’ losses of the Company’s

domestic subsidiaries as assessed by the tax authorities can offset the current year’s net

income for income tax purposes.

The deferred tax assets have not been recognized in respect of these items because it is

not probable that future taxable profit will be available against which the Consolidate

Company can utilize the benefits there from.

27



(Continued)

As of December 31, 2016, the unused operating loss carry forwards were as described

below:

Year loss occurred

Unused operating loss

Carry forwards Expiration year

2006 (assessed) $ 45,809 2016

2007 (assessed) 8,410 2017

2008 (assessed) 131,749 2018

2009 (assessed) 5,149 2019

2010 (assessed) 179,531 2020

2011 (assessed) 189,248 2021

2012 (assessed) 119,127 2022

2013 (assessed) 62,056 2023

2014 (assessed) 125,017 2024

2015 (filed) 195,333 2025

2016 (estimated) 39,559 2026

$ 1,100,988

(b) Recognized deferred tax

Changes in the amount of deferred tax assets (liabilities) for the years ended December

31, 2016 and 2015 were as follows:

Deferred tax assets:

Balance as

of January

1, 2015

Recognized

in profit or

loss

Recognized

in other

comprehen-

sive income

Balance as

of

December

31, 2015

Recognized

in profit or

loss

Recognized

in other

comprehen-

sive income

Balance as

of

December

31, 2016

Provision for

inventory

devaluation

loss $ 12,154 (5,226) - 17,380 (6,306) - 23,686

Defined benefit

plans (177) 4 (301) 120 39 81 -

Others 291 329 - (38) (38) - -

$ 12,268 (4,893) (301) 17,462 (6,305) 81 23,686

28



(Continued)

Deferred tax liabilities:

Balance as

of January

1, 2015

Recognized

in profit or

loss

Recognized

in other

comprehen-

sive income

Balance as

of

December

31, 2015

Recognized

in profit or

loss

Recognized

in other

comprehen-

sive income

Balance as

of

December

31, 2016

Defined benefit

plans $ - - - - (37) 138 101

Others - - - - 96 - 96

$ - - - - 59 138 197

C. The Company’s and ViCHIP Corporation Limited’s income tax returns had been assessed by

the tax authorities through 2014.

D. Integrated income tax information:

December 31,

2016 2015

UnAppropriated accumulated deficit of 1998 and after $ (418,139) (349,154) Ba Balance of deductible tax account $ (310) (310)

For the years ended

December 31,

2016 2015

(estimated) (actual)

Tax deduction ratio for earnings distribution to R.O.C.

residents

- -

The information related to the appropriated accumulated deficit and tax deduction ratio

shown in the tables above is prepared in accordance with ruling letter No. 10204562810

issued by the Ministry of Finance, R.O.C. on October 17, 2013. Effective January 1, 2015,

the tax deduction ratio for individual stockholder residing in the R.O.C. will be half of the

original tax deduction ratio according to the revised Article 66-6 of the Income Tax Act.

29



(Continued)

(11) Capital and other equity interest

As of December 31, 2016 and 2015, the Company’s authorized share capital were both $1,200,000,

of which included the amount of $100,000 reserved for employee stock options, the Company’s

issued and outstanding share capital were both $808,596. The par value of the Company’s

common stock is $10 dollars per share.

As of January 1, 2015, $2,011 cash had been received as advance receipts for share capital but has

not yet been registered. In 2015, the advance was transferred to common stock of 86 thousand

shares; and after the capital registration procedure had been completed, the capital surplus

increased by $1,152.

Pursuant to the Company’s board of directors’ resolution on June 11, 2015, the Company issued

a total of 10,000 thousand shares of common stock, at a par value of $10 per share. These shares

were at $27 dollars per share. The offering was approved with permit No. 1040015065 by the FSC

on May 21, 2015. The effective date of the capital increase was July 14, 2015, and after the capital

registration procedure had been completed. The compensation cost of common stock issued to

employees amounted to $13,350, which was accounted for as reserved for common stock issued

to employees.

A. Common stock

(a) First private placement of common stock in 2008

In order to appeal to strategic investors for the purpose of strengthening the Company’s

stockholder structure and improving competitiveness, on August 8, 2008, based on the

resolution of a special stockholders’ meeting, the board of directors approved the

proposal to raise $100,205 through private placement of 5,726 thousand common stock

at a premium price of $17.5 dollars per share. The premium amounted to $42,945 and

was recognized as capital surplus－additional paid-in capital. The effective date of the

capital increase was August 25, 2008, and the required registration process was

completed on September 8, 2008. Except for the restriction on trading as required by

the Securities and Exchange Act and the requirement for a public offering could only be

made three years after the issuance date whenever the Company meets the profitability

requirement announced by the Taipei Exchange in Taiwan, the rights and obligations of

participants in this private placement are identical to those of holders of current

outstanding common stock. As of the report date, the above-mentioned restriction had not

yet been lifted.

30



(Continued)

(b) First private placement of common stock in 2013

In order to appeal to strategic investors for the purpose of strengthening the Company’s

stockholder structure and improving competitiveness, on June 4, 2013, based on the

resolution of a special stockholders’ meeting, the board of directors approved the

proposal, to raise $144,000 through private placement of 7,500 thousand common stock

at a premium price of $19.2 dollars per share on November 13, 2013. The premium

amounted to $69,000 and was recognized as capital surplus－additional paid-in capital.

The effective date of the capital increase was November 27, 2013, and the required

registration process was completed on December 25, 2013. Except for the restriction

on trading as required by the Securities and Exchange Act and the requirement for a

public offering could only be made three years after the issuance date whenever the

Company meets the profitability requirement announced by the Taipei Exchange in

Taiwan, the rights and obligations of participants in this private placement are identical

to those of holders of current outstanding common stocks. As of the report date, the above-

mentioned restriction had not yet been lifted.

B. Capital surplus

December 31,

2016 2015

Capital surplus－additional paid-in capital $ 261,214 261,214 Capital surplus－compensation cost of common stock issued

to employees 13,350 13,350 Capital surplus－pick up from changes in enquiry from

associates 1,596 1,596 $ 276,160 276,160

In accordance with the R.O.C. Company Act, realized capital surplus can only be reclassified

as share capital or distributed as cash dividends after offsetting losses. The aforementioned

capital surplus include additional paid in capital and donation gains. In accordance with the

Securities Offering and Issuance Guidelines, the amount of capital surplus to be reclassified

as share capital shall not exceed 10 percent of the actual share capital amount.

C. Retained earnings

(a) Legal reserve

Pursuant to the R.O.C. Company Act, 10% of the Company’s annual profit is to be set

aside as legal reserve until such retention equals the amount of issued common stock.

Where a company incurs no loss, it may distribute the amount of the legal reserve that

exceeds 25% of issued common stock either by capitalizing its legal reserve and

distributing the new shares as stock dividend to its original stockholders in proportion to

the number of shares held by each of them or by distributing a cash dividend.

31



(Continued)

(b) Special reserve

In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, a portion

of current-period earnings and undistributed prior-period earnings shall be reclassified

as a special earnings reserve during earnings distribution. The amount to be reclassified

should equal the current-period total net reduction of other stockholders’ equity.

Similarly, a portion of undistributed prior-period earnings shall be reclassified as a

special earnings reserve (which does not qualify for earnings distribution) to account for

cumulative changes to other stockholders’ equity pertaining to prior periods. Amounts

of subsequent reversals pertaining to the net reduction of other stockholders’ equity shall

qualify for additional distributions.

(c) Distribution of earnings/deficit compensation

The Company’s articles of incorporation require that after-tax earnings shall first be

offset against any deficit, and 10% of the remaining balance shall be set aside as legal

reserve. The appropriation for legal reserve is discontinued when the balance of the

legal reserve equals the total authorized capital. Special reserve may be appropriated for

operations or to meet regulations. The remaining earnings, if any, may be appropriated

according to the proposal presented in the annual stockholders’ meeting by the board of

directors.

In consideration of financial planning, distribution of profits shall be appropriated by

means of stock dividends or cash dividends, or both. The cash dividends should not be

lower than 10% of the total dividends.

The deficit compensation for 2015 and 2014 was approved during the stockholders’

meeting held on June 16, 2016 and June 17, 2015. The related information is available

on Market Observation Post System website.

The Company’s accumulated deficits for 2016 will be presented for a resolution in the

Board of Directors’ meeting on March 2, 2017 and to be approved in annual stockholders’

meeting. The information will be available on the Market Observation Post System

website after the said meetings.

32



(Continued)

(12) Earnings per share

The Consolidated Company calculated the EPS as follows:

For the years ended

December 31,

2016 2015

Basic earnings per share:

Net loss $ (70,057) (164,602)

Weighted-average common stocks outstanding (thousand

shares) $ 80,860 75,709

Basic EPS (TWD) $ (0.87) (2.17)

(13) Operating revenues

For the years ended

December 31,

2016 2015

Sale of goods $ 564,016 421,377

Rendering of services 79,053 60,997

$ 643,069 482,374

(14) Compensation of employees, directors and supervisors

According to the Company’s articles of incorporation, the Company’s annual net income before

tax, after offsetting any accumulated deficit, no less than 10% of the remainder shall be

appropriated as employee compensation, and no more than 2% of the remainder shall be

appropriated as compensation to directors and supervisors. The compensation of employee in

the form of stock bonuses may also apply to employees of the affiliated companies. The Board

of Directors is authorized to set out related terms and conditions. The remuneration to

independent directors of the Company are distributed on a monthly fixed term and excluded from

the above mentioned distribution.

Because the Company incurred a net loss in the years ended December 31, 2016 and 2015,

compensation to employees and directors and supervisors were not accrued.

(15) Non-operating income and expenses

A. Other income

For the years ended

December 31,

2016 2015

Interest income $ 2,426 2,537

Rent income 2,452 859

$ 4,878 3,396

33



(Continued)

B. Other gains and losses

For the years ended

December 31,

2016 2015

Foreign exchange gains(losses), net $ (1,941) 2,839

Net gains (losses) on financial assets and liabilities at fair

value through profit or loss 118 (325)

Others 1,149 372

$ (674) 2,886

C. Finance costs

For the years ended

December 31,

2016 2015

Interest expenses $ 105 248

(16) Financial instruments

A. Credit risk

As of the reporting date, the Consolidated Company’s maximum credit risk exposure is

mainly from the carrying amount of financial assets recognized in the consolidated balance

sheet.

The Consolidated Company’s potential credit risk is derived primarily from cash and cash

equivalents and receivable (including accounts receivable and accounts receivables from

related parties). The Consolidated Company maintains its cash and cash equivalents in

various creditworthy financial institutions. The Consolidated Company monitors its

exposure with these financial institutions; therefore, the Consolidated Company believes that

there is no concentration of credit risk in regard to cash and cash equivalents.

The Consolidated Company’s sales to individual clients constituting over 10% of total sales

revenue for the years ended December 31, 2016 and 2015, were 91% and 95%, respectively,

of the total sales revenues. To reduce the concentration of credit risk, the Consolidated

Company continuously evaluates the credit status of its customers and the collectability of

accounts receivable, and provides an allowance for doubtful accounts. It is management’s

belief that such concentration of credit risk is under control.

34



(Continued)

B. Liquidity risk

The following are the contractual maturities of financial liabilities:

Carrying

amount

Contractual

cash flows

Within 6

months

6~12

months

1~2

years December 31, 2016

Non-derivative financial

liabilities

Accounts payable $ 11,535 11,535 11,535 - -

Other payables(recorded in

other current liabilities)

21,746 21,746 21,746 - -

Derivative financial liabilities

Financial liabilities at fair

value through profit or loss

67 67 67 - -

$ 33,348 33,348 33,348 -

December 31, 2015

Non-derivative financial

liabilities

Accounts payable $ 7,246 7,246 7,246 - -

Other payables(recorded in

other current liabilities)

34,966 34,966 34,966 - -

Guarantee deposits 1,050 1,050 - - 1,050

Derivative financial liabilities

Financial liabilities at fair

value through profit or loss

57 57 57 - -

$ 43,319 43,319 42,269 - 1,050

The Consolidated Company does not expect that the cash flows included in the maturity

analysis could occur significantly earlier or at significantly different amounts.

C. Currency risk

(a) Exposure to currency risk

The Consolidated Company’s significant financial assets and liabilities exposed to

exchange rate risk were as follows:


Foreign

currency

Exchange

rate TWD

Foreign

currency

Exchange

rate TWD

Financial assets

Monetary items

USD $ 2,399 32.25 77,368 1,742 32.81 57,155

Financial liabilities

Monetary items

USD 506 32.25 16,319 597 32.81 19,588

35



(Continued)

(b) Sensitivity analysis

The Consolidated Company’s exposure to foreign currency risk arises from the

translation of the foreign currency exchange gains and losses on cash and cash

equivalents, receivables (including accounts receivable and receivables from related

parties), accounts payable and other payables that are denominated in foreign currency.

A 1% depreciation or appreciation of the TWD against the USD as of December 31,

2016 and 2015, would have decreased or increased the net loss by $507 and $312,

respectively. This analysis is based on foreign currency exchange rate variances that

the Consolidated Company considered to be reasonably possible at the reporting date.

The analysis assumes that all other variables remain constant.

Information on foreign exchange gains (losses), including those realized and unrealized

using the functional currency were as follows:


2016 2015

Foreign

exchange

gains

(losses)

Average

rate

Foreign

exchange

gains

(losses)

Average

rate

TWD $ (1,941) - 2,839 -

D. Fair value of financial instruments

(a) Categories of financial instruments and fair value

The Consolidated Company’s carrying amount and the fair value of financial assets and

liabilities (including information for fair value hierarchy, but excluding financial

instruments whose fair values approximate the carrying amounts and equity investments

which cannot be estimated reliably in an active market) were as follows:

December 31, 2016

Carrying Fair value

Amount Level 1 Level 2 Level 3 Total

Loans and receivables

Cash and cash equivalents $ 69,684 - - - -

Receivables 72,462 - - - -

Other current financial assets 188,754 - - - -

Refundable deposits 29,692 - - - -

Other non-current financial

assets 2,974 - - - -

$ 363,566 - - - -

36



(Continued)

December 31, 2016

Carrying Fair value


Financial liabilities at fair value

through profit or loss

Held for trading financial

liabilities – foreign

currency forward contracts $ 67 - 67 - 67

Financial liabilities measured at

amortized cost

Accounts payable $ 11,535 - - - -

Other payables (recorded in

other current liabilities) 21,746 - - - -

$ 33,281 - - - -

December 31, 2015

Carrying Fair value


Loans and receivables

Cash and cash equivalents $ 184,340 - - - -

Receivables 50,964 - - - -

Other current financial assets 187,550 - - - -

Refundable deposits 29,702 - - - -

Other non-current financial

assets 3,774 - - - -

$ 456,330 - - - -

Financial liabilities at fair value

through profit or loss

Held for trading financial

liabilities – foreign

currency forward contracts $ 57 - 57 - 57

Financial liabilities measured at

amortized cost

Accounts payable $ 7,246 - - - -

Other payables (recorded in

other current liabilities) 34,966 - - - -

Guarantee deposits 1,050 - - - -

$ 43,262 - - - -

(b) Valuation techniques for financial instruments not measured at fair value

The Consolidated Company estimates the financial instruments not measured at fair

value using the following methods and assumptions:

Fair value measurement for financial liabilities measured at amortized cost will be based

on the latest quoted price and agreed-upon price if these prices are available in the active

markets. When market value is unavailable, the fair value of financial liabilities are

evaluated based on the discounted cash flow of the financial liabilities.

37



(Continued)

(c) Valuation techniques for financial instruments that are measured at fair value

Derivative financial instruments

Foreign currency forward contract is measured based on the current forward

exchange rate.

There is no transfer between the levels for the years ended December 31, 2016 and 2015.

(17) Financial risk management

A. Overview

The Consolidated Company is exposed to the following risks due to usage of financial

instruments:

(a) Credit risk

(b) Liquidity risk

(c) Market risk

This note presents information about the Consolidated Company’s exposure to each of the

above risks, the Consolidated Company’s objectives, policies, and processes for measuring

and managing risk, and the Consolidated Company’s management of capital. Further

quantitative disclosures are included throughout these consolidated financial statements.

B. Objectives and policies for managing risk

The core business departments are responsible for the management of operational risk. The

Consolidated Company has established appropriate procedures based on the nature of

business. Before entering into transactions involving risk, the approval policy must be

carried out based on related procedures. Significant contracts are approved by the general

counsel, and the potential risks of operations are assessed by the Internal Audit Office as a

reference for drafting its annual audit plan.

The Consolidated Company regularly monitors risks faced by the Consolidated Company in

accordance with the Consolidated Company’s risk management policies and procedures to

reflect changes in market conditions and the Consolidated Company’s activities. There are

three monitoring mechanisms:

(a) The department or employee responsible establishes a risk management mechanism that

can effectively recognize, evaluate, supervise and control risk.

(b) In addition to the risks approved by the related department or team, the general counsel

assists the president to seek improvements of laws and risks.

38



(Continued)

(c) The Internal Audit Office monitors risk, as overseen by the directors and supervisors.

C. Credit risk

The credit risk information on cash and cash equivalents and receivables is disclosed in Note

6(16). According to the Consolidated Company’s policy, the Consolidated Company could

only provide financial guarantees for the entities in which it has business relationship with

and demand short term financing support from the Consolidated Company. As of December

31, 2016 and 2015, the Consolidated Company did not provide any financial guarantees for

any such entities.

D. Liquidity risk

Liquidity risk is the risk that the Consolidated Company will encounter difficulty in meeting

the obligations associated with its financial liabilities that are settled by delivering cash or

another financial asset. The Consolidated Company’s approach to managing liquidity is to

ensure, as far as possible, that it always has sufficient liquidity to meet its liabilities when

due, under both normal and stressed conditions, without incurring unacceptable losses or

risking damage to the Consolidated Company’s reputation.

Liquidity risk of the Consolidated Company is monitored through its corporate treasury

department which tracks the development of the actual cash flow position for the

Consolidated Company and uses input from a number of sources in order to forecast the

overall liquidity position both on a short and long term basis. Corporate treasury invests

surplus cash in money market deposits and short term investments with appropriate maturities

to ensure sufficient liquidity is available to meet liabilities when due. The Consolidated

Company manages sufficient cash and cash equivalents so as to cope with its operations and

mitigate the effects of fluctuations in cash flows. As of December 31, 2016, the

Consolidated Company has unused short-term bank facilities of $232, 250.

E. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, will

affect the Consolidated Company’s income or the value of its holdings of financial

instruments. The objective of market risk management is to manage and control market risk

exposures within acceptable parameters, while optimizing the return.

The Consolidated Company buys and sells derivatives, and also incurs financial liabilities, in

order to manage market risks. All such transactions are carried out within the guidelines set

by the Board of Directors and are subject to the monitor from internal audit office.

Generally the Consolidated Company seeks to apply hedge accounting in order to manage

volatility in profit or loss.

The Consolidated Company is exposed to currency risks on foreign currency denominated

financial assets and liabilities arising from its operating, financing and investing activities.

39



(Continued)

The Consolidated Company is exposed to currency risk on sales, purchases and borrowings

that are denominated in a currency other than the respective functional currencies of the

Consolidated Company’s entities, primarily the TWD. The currencies used in these

transactions are denominated in TWD, USD, and JPY.

In respect of the valuation of other monetary assets and liabilities denominated in foreign

currencies, the Consolidated Company hedges 50 percent of its net exposure (net cash flows)

expected in three months, subject to the situation of which the rate may be adjusted to an

acceptable level by buying or selling foreign currencies at spot rates, when there is necessary

to address short-term imbalances. The Consolidated Company uses forward exchange

contracts to hedge, with a maturity of less than three months from the reporting date, and

therefore, hedge accounting is not applied in these circumstances.

(18) Capital management

The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and

market confidence and to sustain future development of the business. Capital consists of common

stock, capital surplus, retained earnings, and non-controlling interests of the Consolidated

Company. The board of directors monitors the return on capital as well as the level of dividends

to common stockholders.

There were no changes in the Consolidated Company’s approach to capital management during

the year ended December 31, 2016.

December 31,

2016 2015

Total liabilities $ 59,299 98,229 Total equity $ 666,617 735,602 Debt-to-capital ratio 8.90% 13.35%

As of December 31, 2016, the debt-to-adjusted-capital ratio had deceased due to the

reclassification of the unearned revenue.

7. Related-party Transactions

(1) Parent company and ultimate controlling party

The Company is the ultimate controlling party of the Consolidated Company.

40



(Continued)

(2) Significant transactions with related parties

A. Sales and service revenue from related parties

For the years ended

December 31,

Related Party Categories 2016 2015

Entities with significant influence over the Consolidated

Company

$

582,239

457,947

The collection terms for sales to related parties will be 30 to 45 days or after the month-end;

the prices of products sold to related parties were determined by the product specifications

and the situation regarding market supply and demand, and there was no obvious difference

from those with non-related parties

B. Unearned revenue

Unearned receipts resulting from the contract of rendering service were as follows:

December 31,



Company

$

-

28,086

C. Purchases

For the years ended

December 31,



Company

$

9

8

As of December 31, 2016 and 2015, payables resulting from the above transactions had been

settled.

D. Accounts receivable from related parties

December 31,



Company

$

64,846

49,606

41



(Continued)

E. Other transactions

For the years ended

December 31,



Company

$

3

-

As of December 31, 2016 and 2015, payables resulting from the above transactions had been

settled.

(3) Transactions with key management personnel

Key management personnel compensation comprised:

For the years ended

December 31,

2016 2015

Short-term employee benefits $ 8,633 9,988

Post-employment benefits 216 216

$ 8,849 10,204

8. Pledged Assets

The carrying values of pledged assets were as follows:

December 31,

Assets Purpose of Pledged 2016 2015

Time deposits (recorded in other

current financial assets)

Guarantees for purchase $ 300 -

Time deposits(recorded in other

current financial assets)

Customs duty guarantee 15,000 -

Property, plant and equipment Loan commitments 93,526 96,056

Refundable deposits Warranty guarantee 27,420 27,420

$ 136,246 123,476

9. Significant Commitments and Contingencies

Except the consolidated financial statements note 6(8), the Company has licenses to use other

companies’ technology, which require monthly royalty payments based on sales volume.

10. Significant Disaster Losses: None.

11. Significant Subsequent Events: None.

42



(Continued)

12. Others

The following is a summary statement of employee benefits, depreciation, and amortization expenses

by function:

By function For the year ended December 31,

2016

For the year ended December 31,

2015

By item

Classified

as

Operating

Costs

Classified

as

Operating

Expenses

Total

Classified

as

Operating

Costs

Classified

as

Operating

Expenses

Total

Employee benefits

Salary 1,424 154,638 156,062 1,009 165,277 167,286

Labor and health

insurance

152 11,847 11,999 109 11,851 11,960

Pension 78 7,729 7,807 61 7,546 7,607

Others 118 6,002 6,120 64 5,675 5,739

Depreciation 3,425 26,462 29,887 - 25,040 25,040

Amortization - 12,818 12,818 - 12,915 12,915

13. Segment Information

(1) General information

The Consolidated Company is a single reportable segment. The Consolidated Company is

mainly engaged in the design, research, development, manufacture and sale of integrated circuits

(ICs). The operating segment information is consistent with the consolidated financial

statements. Please refer to the consolidated statements of comprehensive income for net

revenues from external customers and segment profit or loss, and refer to the consolidated balance

sheets for segment assets.

(2) Products and services information

Revenues of the Consolidated Company from external customers:

For the years ended

December 31,

2016 2015

Sales of integrated circuits $ 564,016 421,377

Rendering of services 79,053 60,997

$ 643,069 482,374

43


Notes to Consolidated Interim Financial Statements

(3) Geographic information

In presenting information on the basis of geography, segment revenue is based on the geographical

location of customers, and segment assets are based on the geographical location of the assets.

For the years ended

December 31,

2016 2015

Revenues from external customers:

Japan $ 313,993 277,414

USA 268,148 180,533

Taiwan 28,617 20,442

China 28,404 3,985

Hong Kong 3,907 -

$ 643,069 482,374

December 31,

2016 2015

Non-current assets Taiwan $ 206,042 221,017

(4) Major customer information

Sales to individual customers representing greater than 10% of the revenues were as follows:

For the years ended

December 31,

2016 2015

Toshiba $ 313,993 277,414

KDIL 268,148 178,514

$ 582,141 455,928

Documents

English Translation of Consolidated1 Financial Statements ...211.72.70.116/upload//fiscal/fbbd19dbf407197381c32... · (English Translation of Consolidated Financial Statements and