solid state system co., ltd. and subsidiaries · determined pension cost rate at the reporting date...
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(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese.)
Solid State System Co., Ltd. and Subsidiaries
Consolidated Financial Statements
With Independent Auditors’ Review ReportFor the Nine Months Ended September 30, 2018 and 2017
The independent auditors’ review report and the accompanying consolidated financial statements are the English translation of theChinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of theEnglish and Chinese language independent auditors’ review report and consolidated financial statements, the Chinese version shallprevail.
(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese.)
Reviewed only, not audited in accordance with the generally accepted auditing standards as of September 30, 2018 and 2017
Solid State System Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
September 30, 2018, December 31 and September 30, 2017
(Expressed in Thousands of New Taiwan Dollars)
September 30, 2018 December 31, 2017 September 30, 2017
Assets Amount % Amount % Amount %
Current assets:
Cash and cash equivalents (note 6(1)) $ 25,691 4 48,790 8 79,813 12
Accounts receivable, net (note 6(3)) 26,816 4 14,775 2 11,972 2
Accounts receivable from related parties, net (notes 6(3) and
7) 76,137 11 81,028 12 51,168 7
Inventories (note 6(4)) 208,168 30 132,018 20 147,012 22
Other current financial assets (notes 6(5) and 8) 81,891 12 115,777 18 119,883 18
Other current assets 11,284 1 9,326 1 6,715 1
429,987 62 401,714 61 416,563 62
Non-current assets:
Property, plant and equipment (notes 6(6) and 8) 204,351 30 195,449 30 176,836 26
Intangible assets (note 6(7)) 22,628 3 20,360 3 18,865 3
Deferred tax assets 29,007 4 24,656 4 23,686 4
Refundable deposits (note 8) 7,951 1 7,968 1 29,737 4
Other non-current financial assets 2,812 - 4,498 1 3,934 1
Other non-current assets 1,719 - 1,719 - 477 -
268,468 38 254,650 39 253,535 38
Total assets $ 698,455 100 656,364 100 670,098 100
September 30, 2018 December 31, 2017 September 30, 2017
Liabilities and Equity Amount % Amount % Amount %
Current liabilities:
Short-term borrowings (notes 6(8) and 8) $ 30,586 4 - - 33,168 5
Current financial liabilities at fair value through profit or loss
(note 6(2)) - - - - 1 -
Contract liabilities-current 2,497 - - - - -
Accounts payable 48,773 7 11,500 2 22,194 3
Accrued payroll 9,986 2 16,163 2 10,199 2
Unearned revenue - - 4,319 1 658 -
Other current liabilities 37,784 6 34,858 5 31,623 5
129,626 19 66,840 10 97,843 15
Non-current liabilities:
Deferred tax liabilities 364 - 309 - 197 -
Other non-current liabilities 726 - - - - -
1,090 - 309 - 197 -
Total liabilities 130,716 19 67,149 10 98,040 15
Equity (note 6(12)):
Common stock 808,596 116 808,596 123 808,596 120
Accumulated deficits (240,857) (35) (219,381) (33) (236,538) (35)
Total equity 567,739 81 589,215 90 572,058 85
Total liabilities and equity $ 698,455 100 656,364 100 670,098 100
See accompanying notes to consolidated financial statements.
(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese.)
Reviewed only, not audited in accordance with the generally accepted auditing standards
Solid State System Co., Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the three and nine months ended September 30, 2018 and 2017
(Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share)
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017
Amount % Amount % Amount % Amount %
Operating revenues (notes 6(14), (15) and 7) $ 190,333 100 147,346 100 519,483 100 400,055 100
Operating costs (note 6(4)) 119,376 63 102,321 69 342,484 66 280,592 70
Gross profit 70,957 37 45,025 31 176,999 34 119,463 30
Operating expenses (note 7):
Selling 16,742 9 15,677 11 47,147 9 45,344 11
General and administrative 10,520 5 9,253 6 32,208 6 27,275 7
Research and development 43,985 23 45,381 31 126,574 25 138,718 35
Total operating expenses 71,247 37 70,311 48 205,929 40 211,337 53
Net operating loss (290) - (25,286) (17) (28,930) (6) (91,874) (23)
Non-operating income and expenses (note 6(17)):
Other income 202 - 321 - 772 - 1,115 -
Other gains and losses 984 1 109 - 2,460 1 (3,713) (1)
Finance costs (35) - (42) - (74) - (87) -
1,151 1 388 - 3,158 1 (2,685) (1)
Income (loss) before tax 861 1 (24,898) (17) (25,772) (5) (94,559) (24)
Income tax benefits (note 6(11)) - - - - (4,296) (1) - -
Net income (loss) for the period 861 1 (24,898) (17) (21,476) (4) (94,559) (24)
Other comprehensive income for the period - - - - - - - -
Total comprehensive income for the period $ 861 1 (24,898) (17) (21,476) (4) (94,559) (24)
Earnings per share (New Taiwan Dollars) (note 6(13))
Basic earnings per share $ 0.01 (0.31) (0.27) (1.17)
Diluted earnings per share $ 0.01 (0.31) (0.27) (1.17)
See accompanying notes to consolidated financial statements.
(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese.)
Reviewed only, not audited in accordance with the generally accepted auditing standards
Solid State System Co., Ltd. and Subsidiaries
Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2018 and 2017
(Expressed in Thousands of New Taiwan Dollars)
Common stock Capital surplusAccumulated
deficits Total equityBalance as of January 1, 2017 $ 808,596 276,160 (418,139) 666,617
Net loss for the period - - (94,559) (94,559)
Other comprehensive income for the period - - - -
Total comprehensive income for the period - - (94,559) (94,559)
Appropriation and distribution of retained earnings:
Capital surplus to offset deficits - (276,160) 276,160 -
Balance as of September 30, 2017 $ 808,596 - (236,538) 572,058
Balance as of January 1, 2018 $ 808,596 - (219,381) 589,215
Net loss for the period - - (21,476) (21,476)
Other comprehensive income for the period - - - -
Total comprehensive income for the period - - (21,476) (21,476)
Balance as of September 30, 2018 $ 808,596 - (240,857) 567,739
See accompanying notes to consolidated financial statements.
(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese.)
Reviewed only, not audited in accordance with the generally accepted auditing standards
Solid State System Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2018 and 2017
(Expressed in Thousands of New Taiwan Dollars)
For the nine months ended September 30,
2018 2017
Cash flows from operating activities:Net loss before income tax $ (25,772) (94,559)Adjustments:
Adjustments to reconcile profit (loss):Depreciation 21,169 16,044Amortization 5,158 5,183Expected credit losses / Provision for doubtful accounts 156 208Interest expense 74 87Interest income (772) (1,115)Provision for inventory devaluation loss 7,432 25,762Adjustment for other non-cash-related losses 214 -
Total adjustments to reconcile profit (loss) 33,431 46,169Changes in operating assets and liabilities:
Changes in operating assets:Accounts receivable (12,197) (4,564)Accounts receivable from related parties 4,891 13,678Inventories (83,582) (48,334)Other operating assets 192 538
Total changes in operating assets (90,696) (38,682)Changes in operating liabilities:
Financial liabilities held for trading - (66)Accounts payable 37,273 10,659Other operating liabilities (3,806) (1,722)
Total changes in operating liabilities 33,467 8,871Total changes in operating assets and liabilities (57,229) (29,811)
Total adjustments (23,798) 16,358Cash flows used in operations (49,570) (78,201)Interest received 801 1,142Interest paid (64) (79)Income taxes (paid) refunded (7) 236
Net cash flows used in operating activities (48,840) (76,902)Cash flows from investing activities:
Acquisition of property, plant and equipment (30,541) (7,534)Decrease (increase) in refundable deposits 17 (45)Acquisition of intangible assets (7,721) (6,658)Decrease in other current financial assets 33,400 68,100
Net cash flows from (used in) investing activities (4,845) 53,863Cash flows from financing activities:
Increase in short-term borrowings 30,586 33,168Net cash flows from financing activities 30,586 33,168
Net (decrease) increase in cash and cash equivalents for the period (23,099) 10,129Cash and cash equivalents at beginning of period 48,790 69,684Cash and cash equivalents at end of period $ 25,691 79,813
See accompanying notes to consolidated financial statements.
(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese.)Reviewed only, not audited in accordance with the generally accepted auditing standards
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2018 and 2017
(Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share Information and Unless Otherwise Specified)
1. Company History
Solid State System Co., Ltd. (“3S”) was incorporated on November 26, 1998, as a company limited byshares and registered under the Ministry of Economic Affairs of the Republic of China (“R.O.C.”). Theaddress of 3S’s registered office is 5F-1 No. 22 Tai Yuen Street, Tai Yuen Hi- Tech Industrial Park, JubeiCity, Hsinchu 302, Taiwan, R. O. C. 3S’s common stocks have been publicly listed on Taipei Exchangesince December 24, 2007.
The main activities of 3S and its subsidiaries (hereinafter referred to as “the 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 reported to the Board of Directors and issue on November 8,2018.
3. New Standards and Interpretations Adopted
(1) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the FinancialSupervisory Commission, R.O.C. (“FSC”) which have already been adopted.
The following new standards, interpretations and amendments have been endorsed by the FSC andare effective for annual periods beginning on or after January 1, 2018.
New Standards, Interpretations and Amendments
Effective dateper International
AccountingStandards Board
Amendment to IFRS 2 Classification and Measurement of Share-basedPayment Transactions
January 1, 2018
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4Insurance Contracts
January 1, 2018
IFRS 9 Financial Instruments January 1, 2018
IFRS 15 Revenue from Contracts with Customers January 1, 2018
Amendment to IAS 7 Disclosure Initiative January 1, 2017
Amendment to IAS 12 Recognition of Deferred Tax Assets for UnrealizedLosses
January 1, 2017
Amendment to IAS 40 Transfers of Investment Property January 1, 2018
Annual Improvements to IFRS 2014-2016 Cycle:
Amendment to IFRS 12 January 1, 2017
Amendments to IFRS 1 and Amendments to IAS 28 January 1, 2018
IFRIC 22 Foreign Currency Transactions and Advance Consideration January 1, 2018
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Except for the following items, the Company believes that the adoption of the above IFRSs wouldnot have any material impact on its consolidated financial statements. The extent and impact ofsignificant changes are as follows:
(i) IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 Revenue, IAS 11 Construction Contracts, and the relevantinterpretations. The standard provides a single model for determining whether an entityrecognizes revenue in accordance with the method, timing and amount by applying the fivestep model. The Company adopt IFRS 15 in its consolidated financial statements using thecumulative effect approach. As a result, there is no need to reproduce the comparativeinformation in previous periods. The Company recognizes the cumulative effect upon theinitially application of this Standard as an adjustment to the opening balance of retainedearnings on January 1, 2018.
The Company uses the practical expedients for completed contracts, which means it need notrestate those contracts that have been completed on January 1, 2018.
The following are nature and impacts on the changing of accounting policies:
(a) Sales of goods
Prior to the adoption of IFRS 15, for the sales of goods, revenue is currently recognizeddepending on the individual terms of the sales agreement. For export sales that areusually FOB shipping point, transfer occurs upon loading the goods onto the relevantcarrier at the port. For domestic sales, transfer occurs upon issuance of receipt by thecustomer. The related risks and rewards of ownership have to be transferred. Revenue isrecognized at this point provided that the revenue and costs can be measured reliably, therecovery of the consideration is probable and there is no continuing managementinvolvement with the goods. Under IFRS 15, revenue is recognized when a customerobtains control of the goods.
(b) Rendering of services
The Company renders services to its customers. If the services under a singlearrangement are rendered in different reporting periods, then the consideration isallocated on a relative fair value basis between the different services. Revenue iscurrently recognized using the stage-of-completion method. Under IFRS 15, the totalconsideration in the service contracts will be allocated to all services based on theirstand-alone selling prices. The stand-alone selling prices will be determined based on thelist prices at which the Company sells the services in separate transactions.
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(c) Impacts on financial statements
The following tables summarize the impacts of adopting IFRS 15 on the Company’ s
consolidated financial statements for the nine months ended September 30, 2018:
September 30, 2018 January 1, 2018Impacted lineitems on theconsolidatedbalance sheet
Balancesprior to theadoption of
IFRS 15
Impact ofchanges inaccounting
policies
Balanceupon
adoptionof IFRS 15
Balancesprior to theadoption of
IFRS 15
Impact ofchanges inaccounting
policies
Balanceupon
adoptionof IFRS 15
Deferred revenue $ 2,497 (2,497) - 4,319 (4,319) -
Contract liabilities-current
- 2,497 2,497 - 4,319 4,319
Impact onliabilities
- -
Except for the aforementioned differences, there were no other material differencesbetween the consolidated statements of comprehensive income and cash flows presentedunder the IFRS 15 and the consolidated statements of comprehensive income and cashflows presented under IAS 18 Revenue.
(ii) IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement which containsclassification and measurement of financial instruments, impairment and hedge accounting.
As a result of the adoption of IFRS 9, the Company adopted the consequential amendments toIAS 1 Presentation of Financial Statements which requires impairment of financial assets to bepresented in a separate line item in the statement of profit or loss and other comprehensiveincome. Previously, the Company’s approach was to include the impairment of receivables inadministrative expenses. Additionally, the Company adopted the consequential amendments toIFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018 butgenerally have not been applied to comparative information.
The detail of new significant accounting policies and the nature and effect of the changes toprevious accounting policies are set out below:
(a) Classification of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured atamortized cost, fair value through other comprehensive income (FVOCI) and fair valuethrough profit or loss (FVTPL). The classification of financial assets under IFRS 9 isgenerally based on the business model in which a financial asset is managed and itscontractual cash flow characteristics. The standard eliminates the previous IAS 39categories of held to maturity, loans and receivables and available for sale. Under IFRS9, derivatives embedded in contracts where the host is a financial asset in the scope ofthe standard are never bifurcated. Instead, the hybrid financial instrument as a whole isassessed for classification. For an explanation of how the Company classifies andmeasures financial assets and accounts for related gains and losses under IFRS 9, pleasesee note 4(3).
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
The adoption of IFRS 9 did not have any a significant impact on its accounting policieson financial liabilities.
(b) Impairment of financial assets
IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking expectedcredit loss (ECL) model. The new impairment model applies to financial assets measuredat amortized cost, contract assets and debt investments at FVOCI, but not to investmentsin equity instruments. For related accounting policies on impairment of financial assetsunder IFRS 9, please see note 4(3).
(c) Transition
The adoption of IFRS 9 have been applied retrospectively, except as described below:
•Differences in the carrying amounts of financial assets resulting from the adoption ofIFRS 9 are recognized in retained earnings and other equity interest as of January 1,2018. Accordingly, the information presented for 2017 does not generally reflect therequirements of IFRS 9 and therefore is not comparable to the information presentedfor 2018 under IFRS 9.
•The following assessments have been made on the basis of the facts and circumstancesthat existed at the date of initial application.
-The determination of the business model within which a financial asset is held.
-The designation and revocation of previous designations of certain financial assetsand financial liabilities as measured at FVTPL.
-The designation of certain investments in equity instruments not held for trading asat FVOCI.
(d) Classification of financial assets on the date of initial application of IFRS 9
The following table shows the original measurement categories under IAS 39 and thenew measurement categories under IFRS 9 for each class of the Company’ s financialassets as of January 1, 2018. (the measurement categories and carrying amount offinancial liabilities have not changed.)
IAS 39 IFRS 9Measurement
categoriesCarryingAmount
Measurementcategories
CarryingAmount
Financial Assets
Cash andequivalents
Loans and receivables 48,790 Amortized cost 48,790
Receivables Loans and receivables 95,803 Amortized cost 95,803
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
IAS 39 IFRS 9Measurement
categoriesCarryingAmount
Measurementcategories
CarryingAmount
Other currentfinancial assets
Loans and receivables 115,777 Amortized cost 115,777
Refundabledeposits
Loans and receivables 7,968 Amortized cost 7,968
Other non-currentfinancial assets
Loans and receivables 4,498 Amortized cost 4,498
There were no other material differences on the Company’s financial assets under IFRS 9and IAS 39 as of January 1, 2018.
(iii) Amendments to IAS 7 Disclosure Initiative
The amendments require disclosures that enable users of financial statements to evaluate thechanges in liabilities arising from financing activities, including both changes arising fromcash flow and non-cash changes.
To satisfy the new disclosure requirements, the Company presents a reconciliation between theopening and closing balances for liabilities with changes arising from financing activities.Please refer to note 6(21).
(2) The impact of IFRS endorsed by FSC but not yet effective
The following new standards, interpretations and amendments have been endorsed by the FSC andare effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No.1070324857 issued by the FSC on July 17, 2018:
New Standards, Interpretations and Amendments
Effective dateper International
AccountingStandards Board
IFRS 16 Leases January 1, 2019
IFRIC 23 Uncertainty over Income Tax Treatments January 1, 2019
Amendments to IFRS 9 Prepayment features with negative compensation January 1, 2019
Amendments to IAS 19 Plan Amendment, Curtailment or Settlement January 1, 2019
Amendments to IAS 28 Long-term interests in associates and joint ventures January 1, 2019
Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019
Except for the following items, the Company believes that the adoption of the above IFRSs wouldnot have any material impact on its consolidated financial statements. The extent and impact ofsignification changes are as follows:
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(i) IFRS 16 Leases
IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determiningwhether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. Alessee recognizes a right-of-use asset representing its right to use the underlying asset and alease liability representing its obligation to make lease payments. In addition, the nature ofexpenses related to those leases will now be changed since IFRS 16 replaces the straight-lineoperating lease expense with a depreciation charge for right-of-use assets and interest expenseon lease liabilities. There are recognition exemptions for short-term leases and leases of low-value items. The lessor accounting remains similar to the current standard – i.e. the lessors willcontinue to classify leases as finance or operating leases.
The Company has completed an initial assessment of the potential impact on its consolidatedfinancial statements, wherein the detailed assessment has yet to be completed. The actualimpact of applying IFRS 16 on its financial statements in the period of initial application willdepend on future economic conditions, including the Company’ s discounting rate, thecomposition of the Company’s lease portfolio at that date, the Company’s latest assessment ofwhether it will exercise any lease renewal options and the extent to which the Companychooses to use practical expedients and recognition exemptions.
So far, the most significant impact identified is that the Company will have to recognize itsnew assets and liabilities for its operating leases of offices.
Besides, The Company does not expect the adoption of IFRS 16 to have any impact on itsability to comply with the revised maximum leverage threshold loan covenant.
1) Determining whether an arrangement contains a lease
On transition to IFRS 16, the Company can choose to apply either of the following:
•apply the IFRS 16 definition of a lease to all its contracts; or
• a practical expedient that does not need any reassessment whether a contract is, orcontains, a lease.
The Company plans to apply the practical expedient to grandfather the definition of alease upon transition. This means that it will apply IFRS 16 to all contracts entered intobefore January 1, 2019 and identified as leases in accordance with IAS 17.
2) Transition
As a lessee, the Company can apply the standard using either of the following:
•retrospective approach; or
•modified retrospective approach with optional practical expedients.
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
On January 1, 2019, the Company plans to initially apply IFRS 16 using the modifiedretrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will berecognized as an adjustment to the opening balance of retained earnings at January 1,2019, with no restatement of comparative information.
When applying the modified retrospective approach to leases previously classified asoperating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether toapply a number of practical expedients on transition. The Company is assessing thematerial impact of using these practical expedients.
(ii) IFRIC 23 Uncertainty over Income Tax Treatments
In assessing whether and how an uncertain tax treatment affects the determination of taxableprofit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates, an entityshall assume that a taxation authority will examine the amounts it has the right to examine andhave a full knowledge on all related information when making those examinations.
If an entity concludes that it is probable that the taxation authority will accept an uncertain taxtreatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses,unused tax credits, as well as tax rates consistently with the tax treatment used or planned to beused in its income tax filings. Otherwise, an entity shall reflect the effect of uncertainty foreach uncertain tax treatment by using either the most likely amount or the expected value,depending on which method the entity expects to better predict the resolution of theuncertainty.
So far, the most significant impact identified is that the Company will have to recognize thenew income tax liabilities and income tax expense for its uncertainty over income taxtreatments.
(3) The impact of IFRSs issued by International Accounting Standards Board (IASB) but not yetendorsed by the FSC
As of the date, the following IFRSs that have been issued by the IASB, but have yet to be endorsedby the FSC:
New Standards, Interpretations and AmendmentsEffective date
per IASBAmendments to IFRS 10 and IAS 28 Sale or Contribution of Assets Betweenan Investor and Its Associate or Joint Venture
Effective date to bedetermined byIASB
IFRS 17 Insurance Contracts January 1, 2021
The Company is evaluating the impact on its consolidated financial position and consolidatedfinancial performance upon the initial adoption of the abovementioned standards or interpretations.The results thereof will be disclosed when the Company completes its evaluation.
(Continued)
8
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
4. Summary of Significant Accounting Policies
(1) Statement of compliance
The consolidated financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as theRegulations) and the guidelines of IAS 34 Interim Financial Reporting (hereinafter referred to asIAS 34) which are endorsed and issued into effect by FSC, These consolidated financial statementsdo not include all of the information required by the Regulations and by the IFRS, InternationalAccounting Standards, IFRIC Interpretations and SIC Interpretations endorsed and issued into effectby the FSC (hereinafter referred to as the IFRSs endorsed by the FSC) for a complete set of theannual consolidated financial statements.
Except as described in the following paragraph, the Company’s significant accounting policies areapplied consistently with the consolidated financial statements for the year ended December 31,2017. For related information, please refer to note 4 of the consolidated financial statements for theyear ended December 31, 2017.
(2) Basis of consolidation
The principle of preparation of the consolidated financial statements is consistent with those of theconsolidated financial statements for the year ended December 31, 2017. For related information,please refer to note 4(3) of the consolidated financial statements for the year ended December 31,2017.
A. List of subsidiaries in the consolidated financial statements
Percentage of ownership (%)
Name ofinvestor Subsidiary Main activities
September30, 2018
December31, 2017
September30, 2017
3S ViCHIP CorporationLimited(ViCHIP)
Operating electroniccomponentsmanufacturing,wholesaling, sales andproduct design business
%100 %100 %100
B. List of subsidiaries which are not included in the consolidated financial statements: None.
(3) Financial instruments (applicable from January 1, 2018)
A. Financial assets
Financial assets are classified into the following categories: measured at amortized cost andFVTPL.
The Company shall reclassify all affected financial assets only when it changes its businessmodel for managing its financial assets.
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(a) Financial assets measured at amortized cost
A financial asset is measured at amortized cost if it meets both of the following conditionsand is not designated as at FVTPL:
• it is held within a business model whose objective is to hold assets to collectcontractual cash flows; and
• its contractual terms give rise on specified dates to cash flows that are solely paymentsof principal and interest on the principal amount outstanding.
A financial asset measured at amortized cost is initially recognized at fair value, plus anydirectly attributable transaction costs. These assets are subsequently measured at amortizedcost using the effective interest method. The amortized cost is reduced by impairmentlosses. Interest income, foreign exchange gains and losses, and impairment loss, arerecognized in profit or loss. Any gain or loss on derecognition is recognized in profit orloss.
(b) Financial assets at FVTPL
All financial assets not classified as amortized cost or FVOCI described as above aremeasured at FVTPL. On initial recognition, the Company may irrevocably designate afinancial asset, which meets the requirements to be measured at amortized cost or atFVOCI, as at FVTPL if doing so eliminates or significantly reduces an accountingmismatch that would otherwise arise.
Financial assets in this category are measured at fair value at initial recognition.Attributable transaction costs are recognized in profit or loss as incurred. Subsequentchanges that are measured at fair value, which take into account any dividend and interestincome, are recognized in profit or loss.
(c) Impairment of financial assets
The Company recognizes loss allowances for expected credit losses on financial assetsmeasured at amortized cost (including cash and cash equivalents, receivables, otherfinancial assets and refundable deposits).
The Company measures loss allowances at an amount equal to lifetime ECL, except for thefollowing which are measured as 12-month ECL:
• debt securities that are determined to have low credit risk at the reporting date;and
• other debt securities and bank balances for which credit risk (i.e. the risk of defaultoccurring over the expected life of the financial instrument) has not increasedsignificantly since initial recognition.
Loss allowance for accounts receivable are always measured at an amount equal to lifetimeECL.
(Continued)
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Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Lifetime ECLs are the ECLs that result from all possible default events over the expectedlife of a financial instrument.
12-month ECLs are the portion of ECLs that result from default events that are possiblewithin the 12 month after the reporting date (or a shorter period if the expected life of theinstrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual periodover which the Company is exposed to credit risk.
When determining whether the credit risk of a financial asset has increased significantlysince initial recognition and when estimating ECL, the Company considers reasonable andsupportable information that is relevant and available without undue cost or effort. Thisincludes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment as well as forward-lookinginformation.
The Company considers a debt security to have low credit risk when its credit risk rating isequivalent to the globally understood definition of investment grade which is considered tobe BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher perTaiwan Ratings.
The Company assumes that the credit risk on a financial asset has increased significantly ifit is more than 90 days past due.
The Company considers a financial asset to be in default when the financial asset is morethan 180 days past due and the borrower is unlikely to pay its credit obligations to theCompany in full.
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as thepresent value of all cash shortfalls. The difference between the cash flows due to theCompany in accordance with the contract and the cash flows that the Company expects toreceive. ECLs are discounted at the effective interest rate of the financial asset.
Loss allowances for financial assets measured at amortized cost are deducted from the grosscarrying amount of the assets. The loss allowance is charged to profit or loss.
The gross carrying amount of a financial asset is written off either partially or in full to theextent that there is no realistic prospect of recovery. This is generally the case when theCompany determines that the debtor does not have assets or sources of income that couldgenerate sufficient cash flows to repay the amounts subject to the write-off. However,financial assets that are written off could still be subject to enforcement activities in orderto comply with the Company’s procedures for recovery of amounts due.
(Continued)
11
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(d) Derecognition of financial assets
Financial assets are derecognized when the contractual rights of the cash flows from theassets expire, or when the Company transfers substantially all the risks and rewards ofownership of the financial assets.
B. Derivative financial instruments
The Company holds derivative financial instruments to hedge its foreign currency and interestrate exposures. Derivatives are recognized initially at fair value. Any attributable transactioncosts are recognized in profit or loss as incurred. Subsequent to initial recognition, derivativesare measured at fair value, and changes therein are recognized in profit or loss and are includedin the line item of non-operating income and expenses. When the fair value of a derivativeinstrument is positive, it is classified as a financial asset, whereas when the fair value is negative,it is classified as a financial liability.
(4) Revenue from contract with customers (Applicable from January 1, 2018)
Revenue is measured based on the consideration to which the Company expects to be entitled inexchange for transferring goods or services to a customer. The Company recognizes revenue when itsatisfies a performance obligation by transferring control of a good or a service to a customer. Theaccounting policies for the Company’s main types of revenue are explained below.
A. Sale of goods
The Company’s main products included NAND Flash controller IC and Audio IC. The Companyrecognizes revenue when control of the products has transferred, being when the products aredelivered to the customer, the customer has full discretion over the channel and price to sell theproducts, and there is no unfulfilled obligation that could affect the customer’s acceptance of theproducts. Delivery occurs when the products have been shipped to the specific location, the risksof obsolescence and loss have been transferred to the customer, and either the customer hasaccepted the products in accordance with the sales contract, the acceptance provisions havelapsed, or the Company has objective evidence that all criteria for acceptance have beensatisfied.
B. Rendering of services
Some of the manufacturing and sales contracts of the Company include pre-production activitiessuch as researching, developing, designing and testing of new products. Revenue from providingservices is recognized in the accounting period in which the services are rendered. For fixed-price contracts, revenue is recognized based on the actual service provided to the end of thereporting period as a proportion of the total services to be provided. The proportion of servicesprovided is determined based on the actual labor hours spent relative to the total expected laborhours of the transaction.
(Continued)
12
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Estimates of revenues, costs or extent of progress toward completion are revised if circumstanceschange. Any resulting increases or decreases in estimated revenues or costs are reflected in profitor loss in the period in which the circumstances that give rise to the revision become known bymanagement. In case of fixed-price contracts, the customer pays the fixed amount based on apayment schedule. If the services rendered by the Company exceed the payment, a contract asset(recorded in other current assets) is recognized. If the payments exceed the services rendered, acontract liability is recognized.
If the contract includes an hourly fee, revenue is recognized in the amount to which theCompany has a right to invoice. Customers are invoiced on a monthly basis and consideration ispayable when invoiced.
C. Financing components
The Company does not expect to have any contracts where the period between the transfer of thepromised goods or services to the customer and payment by the customer exceeds one year. As aconsequence, the Company does not adjust any of the transaction prices for the time value ofmoney.
(5) Income tax
Income tax expense in the financial statements is measured and disclosed in according to paragraphB12 of IAS 34 endorsed by the FSC.
Income tax expense for the period is best estimated by multiplying pretax income for the interimreporting period by the effective annual tax rate as forecasted by the management. This is recognizedfully as income tax expense for the current period.
For a change in tax rate that is substantively enacted in an interim period, the effect of the changeshould immediately be recognized in the interim period in which the change occurs.
Temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and their respective tax bases are measured based on the tax rates that have been enacted orsubstantively enacted at the time of the asset or liability is recovered or settled and recognizeddirectly in equity or other comprehensive income as income tax expense.
(6) Employee benefits
Pension cost for an interim period is calculated on a year-to-date basis by using the actuariallydetermined pension cost rate at the reporting date of the prior fiscal year, adjusted for significantmarket fluctuations since that time and for significant curtailments, settlements, or other significantone-off events.
5. Major Sources of Accounting Judgments, Estimations and Assumptions of Uncertainty
The preparation of the consolidated financial statements in conformity with the Regulations and the IFRS(in accordance with IAS 34 endorsed by the FSC) requires management to make judgments, estimationsand 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.
(Continued)
13
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Except for the following, the preparation of the consolidated financial statements, the major sources ofaccounting judgments, estimations and assumptions of uncertainty are applied consistently with note 5 tothe consolidated financial statements for the year ended December 31, 2017.
The loss allowance of accounts receivable
The Company has estimated the loss allowance of accounts receivable that is based on the risk of a defaultoccurring and the rate of expected credit loss. The Company has considered historical experience, currenteconomic conditions and forward looking information at the reporting date to determine the assumptionsto be used in calculating the impairments and the selected inputs. The relevant assumptions and inputvalues, please refer to note 6(3).
6. Description of Significant Accounts:
Except as described below, there were no significant changes in the description of significant accountsmentioned in the consolidated financial statements for the year ended December 31, 2017. For otherinformation about the description of significant accounts, please refer to note 6 of the consolidatedfinancial statements for the year ended December 31, 2017.
(1) Cash and cash equivalents
September30, 2018
December31, 2017
September30, 2017
Cash on hand and petty cash $ 167 233 355
Checking and savings accounts 23,124 45,657 46,258
Time deposits 2,400 2,900 33,200
$ 25,691 48,790 79,813
Refer to note 6(18) for the sensitivity analysis of the financial assets and liabilities of the Company.
Time deposits with original maturities of more than three months as of September 30, 2018, andDecember 31 and September 30, 2017, respectively, were reclassified to other current financialassets. Please refer to note 6(5).
(2) Financial liabilities at fair value through profit or loss
September30, 2018
December31, 2017
September30, 2017
Financial liabilities at fair value through profit orloss
Held for trading-current:
Foreign currency forward contracts $ - - (1)
(Continued)
14
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
The Company held derivative financial instruments to manage its foreign currency exchange riskresulting from operations. The related transactions had been settled as of September 30, 2018 andDecember 31, 2017. The Company held the following derivative instruments presented as held fortrading financial liabilities as of September 30, 2017:
Unit: foreign currency thousand
September 30, 2017Contractamount Currency Maturity date
Sell-forward foreign currency exchangecontracts
USD 400 Sell USD/Buy TWD
October 31,2017
(3) Accounts receivable (including receivables from related parties)
September30, 2018
December31, 2017
September30, 2017
Accounts receivable $ 103,176 95,870 63,391
Less: loss allowance (223) (67) (251)
$ 102,953 95,803 63,140
Accounts receivable, net $ 26,816 14,775 11,972
Accounts receivable from related parties, net $ 76,137 81,028 51,168
The Company applies the simplified approach to provide for its loss allowance used for ECL, whichpermit the use of lifetime expected loss provision for accounts receivable as of September 30, 2018.The ECL on accounts receivable by reference to past default experience of the customers and creditrisk characteristics, as well as forward looking information, the loss allowance for accountsreceivable (including receivables from related parties) as of September 30, 2018 was determined asfollows:
Gross carryingamount
Weighted-averageloss rate Loss allowance
Not past due $ 97,496 %0.217 212
Past due 1~89 days 4,849 %0.144 7
Past due 90~180 days 831 %0.482 4
Total $ 103,176 223
(Continued)
15
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31 and September 30, 2017, the Company applies the incurred loss model inconsidering the allowance for doubtful accounts of receivable (including accounts receivable andreceivables from related parties). The Company’s aging analysis of receivables (including accountsreceivable and receivables from related parties) as of December 31 and September 30, 2017 were asfollows:
December 31, 2017 September 30, 2017Total
amountImpairedamount
Totalamount
Impairedamount
Not past due $ 95,441 63 63,204 245
Past due 0~89 days 429 4 187 6
$ 95,870 67 63,391 251
The movement in the allowance for doubtful accounts (including accounts receivable andreceivables from related parties) was as follows:
For the nine months endedSeptember 30,
2018 2017Beginning balance (Note) $ 67 43
Impairment loss recognized 156 208
Ending balance $ 223 251
Note: The Company assessed that the application of the IFRS 9 would not require anyadjustments on its loss allowance with respect to its receivables as of January 1, 2018.
(4) Inventories
September30, 2018
December31, 2017
September30, 2017
Raw materials $ 17,495 730 8,574
Work in process 114,193 68,554 69,231
Finished goods 76,457 62,729 69,193
Merchandise inventory 23 5 14
$ 208,168 132,018 147,012
The details of operating costs were as follows:
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017
Cost of goods sold $ 119,460 98,634 335,052 254,830
Inventory devaluationloss(reversal) (84) 3,687 7,432 25,762
$ 119,376 102,321 342,484 280,592
(Continued)
16
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(5) Other current financial assets
September30, 2018
December31, 2017
September30, 2017
Time deposits (over three months) $ 79,600 113,000 117,500
Pledged deposits 300 300 300
Others 1,991 2,477 2,083
$ 81,891 115,777 119,883
Please refer to note 8 for the details regarding facilities guarantee as of September 30, 2018, andDecember 31 and September 30, 2017.
(6) Property, plant and equipment
Land Building
Machineryand
equipment
Office andother
equipment TotalCost:
Balance as of January 1, 2018 $ 34,271 74,339 134,980 7,654 251,244
Additions - - 16,602 13,475 30,077
Reclassification - - (6) - (6)
Balance as of September 30,2018 $ 34,271 74,339 151,576 21,129 281,315
Balance as of January 1, 2017 $ 34,271 74,992 117,999 27,569 254,831
Additions - - 3,215 1,013 4,228
Disposals and write-off - - (41) - (41)
Balance as of September 30,2017 $ 34,271 74,992 121,173 28,582 259,018
Accumulated Depreciation:
Balance as of January 1, 2018 $ - 17,501 34,254 4,040 55,795
Depreciation for the period - 1,657 15,916 3,596 21,169
Balance as of September 30,2018 $ - 19,158 50,170 7,636 76,964
Balance as of January 1, 2017 $ - 15,737 26,324 24,118 66,179
Depreciation for the period - 1,844 12,204 1,996 16,044
Disposals and write-off - - (41) - (41)
Balance as of September 30,2017 $ - 17,581 38,487 26,114 82,182
(Continued)
17
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Land Building
Machineryand
equipment
Office andother
equipment TotalBook value:
Balance as of January 1, 2018 $ 34,271 56,838 100,726 3,614 195,449
Balance as of September 30,2018 $ 34,271 55,181 101,406 13,493 204,351
Balance as of January 1, 2017 $ 34,271 59,255 91,675 3,451 188,652
Balance as of September 30,2017 $ 34,271 57,411 82,686 2,468 176,836
Please refer to note 8 for the details regarding facilities guarantee as of September 30, 2018, andDecember 31 and September 30, 2017.
(7) Intangible assets
Computersoftware
Patent andtechnologylicense fee Total
Cost:
Balance as of January 1, 2018 $ 11,583 22,721 34,304
Additions 3,543 4,091 7,634
Reclassification - (208) (208)
Balance as of September 30, 2018 $ 15,126 26,604 41,730
Balance as of January 1, 2017 $ 11,256 38,511 49,767
Additions 3,324 3,334 6,658
Write-off - (20,936) (20,936)
Balance as of September 30, 2017 $ 14,580 20,909 35,489
Accumulated amortization:
Balance as of January 1, 2018 $ 5,625 8,319 13,944
Amortization for the period 2,411 2,747 5,158
Balance as of September 30, 2018 $ 8,036 11,066 19,102
Balance as of January 1, 2017 $ 4,317 28,060 32,377
Amortization for the period 3,235 1,948 5,183
Write-off - (20,936) (20,936)
Balance as of September 30, 2017 $ 7,552 9,072 16,624
(Continued)
18
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Computersoftware
Patent andtechnologylicense fee Total
Book value:
Balance as of January 1, 2018 $ 5,958 14,402 20,360
Balance as of September 30, 2018 $ 7,090 15,538 22,628
Balance as of January 1, 2017 $ 6,939 10,451 17,390
Balance as of September 30, 2017 $ 7,028 11,837 18,865
(8) Short-term borrowings
September 30,2018
December 31,2017
September 30,2017
Unsecured bank loans $ 9,586 - 18,168
Secured bank loans 21,000 - 15,000
$ 30,586 - 33,168
Unused short-term credit lines $ 179,944 209,780 177,112
Range of interest rates 1.49%~1.70% - 1.49%~2.86%
Please refer to note 8 for details regarding facilities guarantee as of September 30, 2018, andDecember 31 and September 30, 2017.
(9) Operating lease
There were no significant additions to the operating lease contracts for the nine months endedSeptember 30, 2018 and 2017. For related information about operating lease, please refer to note6(8) of the consolidated financial statements for the year ended December 31, 2017.
(10) Employee benefit
Given there was no significant market fluctuations since that time and for significant curtailments,settlements, or other significant one-off event in the prior fiscal year, the pension costs in thefinancial statements are measured and disclosed according to the actuarial results determined onDecember 31, 2017 and 2016.
For information related to the Company’ s pension costs for the three and nine months endedSeptember 30, 2018 and 2017, please refer to note 12.
(Continued)
19
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(11) Income tax
According to the amendments to the “Income Tax Act” enacted by the office of the President of theR.O.C. on February 7, 2018, an increase in the corporate income tax rate from 17% to 20% isapplicable upon filing the corporate income tax return commencing FY 2018. For a change in taxrate that is substantively enacted in an interim period, the effect of the immediate change should berecognized in the interim period in which the change occurs.
A. The amount income tax benefits for the three and nine months ended September 30, 2018 and2017, was as follows:
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017Current tax expense $ - - - -
Deferred tax benefit
Change in tax rate - - (4,296) -
Income tax benefits $ - - (4,296) -
B. 3S’s and ViCHIP’s income tax returns had been assessed by the tax authorities through 2016.
(12) Capital and other equity interest
Except as described in the following paragraph, there were no significant changes in the Company’scapital and other equity interest for the nine months ended September 30, 2018 and 2017. For relatedinformation about the stockholders’ equity, please refer to note 6(11) of the consolidated financialstatements for the year ended December 31, 2017.
3S’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 legalreserve 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, ifany, may be appropriated according to the proposal presented in the annual stockholders’ meeting bythe Board of Directors.
In consideration of financial planning, distribution of profits shall be appropriated by means of stockdividends or cash dividends, or both. The cash dividends should not be lower than 10% of the totaldividends.
The deficit compensation for 2017 and 2016 were approved during the stockholders’ meeting heldon June 8, 2018 and May 31, 2017. The related information is available on Market Observation PostSystem website.
The Company’ s deficit compensation for 2018 will be presented for a resolution in the Board ofDirectors’ meeting, which are then to be approved in annual stockholders’ meeting. The informationwill be available on the Market Observation Post System website after the said meetings.
(Continued)
20
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(13) Earnings per share
The Company calculated the EPS as follows:
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017
Basic earnings pershare:
Net income (loss) $ 861 (24,898) (21,476) (94,559)
Weighted averagecommon stocksoutstanding(thousand shares) 80,860 80,860 80,860 80,860
Basic EPS (TWD) $ 0.01 (0.31) (0.27) (1.17)
Diluted EPS (TWD) $ 0.01 (0.31) (0.27) (1.17)
(14) Revenue from contracts with customers
Disaggregation of revenue
For the threemonths endedSeptember 30,
2018
For the ninemonths endedSeptember 30,
2018
Primary geographical markets:
America $ 122,576 313,180
Taiwan 32,179 101,279
Japan 28,278 86,073
China 3,507 9,620
Hong Kong 3,773 9,311
India 20 20
$ 190,333 519,483
Major products:
Revenue from IC $ 178,297 485,121
Technical Service Income 12,036 34,362
$ 190,333 519,483
For details on revenue for the three and nine months ended September 30, 2017, please refer to note6(15).
(Continued)
21
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(15) Operating revenues
For the threemonths endedSeptember 30,
2017
For the ninemonths endedSeptember 30,
2017
Sales of goods $ 139,426 380,906
Rendering of services 7,920 19,149
$ 147,346 400,055
For details on revenue for the three and nine months ended September 30, 2018, please refer to note6(14).
(16) Compensation of employees, directors and supervisors
According to 3S’s articles of incorporation, 3S’s annual net income before tax, after offsetting anyaccumulated deficit, no less than 10% of the remainder shall be appropriated as employeecompensation, and no more than 2% of the remainder shall be appropriated as compensation todirectors and supervisors. The compensation of employee in the form of stock bonuses may alsoapply to employees of the affiliated companies. The Board of Directors is authorized to set outrelated terms and conditions. The remuneration to independent directors of 3S are distributed on amonthly fixed term and excluded from the above mentioned distribution.
Because 3S incurred a net loss for the nine months ended September 30, 2018 and 2017,compensation to employees and directors and supervisors were not accrued. If there are anysubsequent adjustments to the actual compensation amounts after the annual stockholders’meeting,the adjustment will be regarded as changes in accounting estimates and will be reflected in profit orloss in the following year.
(17) Non-operating income and expenses
A. Other income
For the three months ended September 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017
Interest income $ 202 321 772 1,115
(Continued)
22
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
B. Other gains and losses
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017Foreign exchange gains
(losses), net $ 231 (140) 1,921 (4,227)
Gains (losses) on financialliabilities at fair valuethrough profit or loss (119) 47 (377) 283
Others 872 202 916 231
$ 984 109 2,460 (3,713)
C. Finance costs
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017
Interest expenses $ 35 42 74 87
(18) Financial instruments
Except as described in the following paragraph, there were no significant changes in the Company’sfair value of financial instruments exposed to credit risk and market risk. For related informationabout the fair value of financial instruments, please refer to note 6(16) of the consolidated financialstatements for the year ended December 31, 2017.
A. Liquidity risk
The following are the contractual maturities of financial liabilities:
Carryingamount
Contractualcash flows
Within 6months
September 30, 2018
Non-derivative financial liabilities
Unsecured variable-rate bank loans $ 9,586 9,613 9,613
Secured variable-rate bank loans 21,000 21,046 21,046
Accounts payable 48,773 48,773 48,773
Other payables(recorded in other currentliabilities) 29,197 29,197 29,197
$ 108,556 108,629 108,629
(Continued)
23
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Carryingamount
Contractualcash flows
Within 6months
December 31, 2017
Non-derivative financial liabilities
Accounts payable $ 11,500 11,500 11,500
Other payables(recorded in other currentliabilities) 25,975 25,975 25,975
$ 37,475 37,475 37,475
September 30, 2017
Non-derivative financial liabilities
Unsecured variable-rate bank loans $ 18,168 18,171 18,171
Secured variable-rate bank loans 15,000 15,005 15,005
Accounts payable 22,194 22,194 22,194
Other payables(recorded in other currentliabilities) 23,102 23,102 23,102
Derivative financial liabilities
Current financial liability at fair valuethrough profit or loss 1 1 1
$ 78,465 78,473 78,473
The Company does not expect that the cash flows included in the maturity analysis could occursignificantly earlier or at significantly different amounts.
B. Currency risk
(a) Exposure to currency risk
The Company’ s financial assets and liabilities exposed to exchange rate risk were asfollows:
September 30, 2018 December 31, 2017 September 30, 2017
Foreigncurrency
Exchangerate TWD
Foreigncurrency
Exchangerate TWD
Foreigncurrency
Exchangerate TWD
Financial assets
Monetaryitems
USD $ 3,576 30.53 109,175 3,378 29.78 100,597 2,950 30.28 89,326
Financialliabilities
Monetaryitems
USD 1,613 30.53 49,245 394 29.78 11,733 1,559 30.28 47,207
(Continued)
24
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(b) Sensitivity analysis
The Company’s exposure to foreign currency risk arises from the translation of the foreigncurrency exchange gains and losses on cash and cash equivalents, receivables (includingaccounts receivable and receivables from related parties), accounts payable and otherpayables that are denominated in foreign currency.
A 1% depreciation or appreciation of the TWD against the USD as of September 30, 2018and 2017, would have decreased or increased the net loss by $479 and $350, respectively.This analysis is based on foreign currency exchange rate variances that the Companyconsidered to be reasonably possible at the reporting date. The analysis assumes that allother variables remain constant.
The Company’ s realized and unrealized foreign exchange gains (losses) on the foreigncurrency monetary items using the functional currency of 3S were as follows:
For the three months ended September 30, For the nine months ended September 30,
2018 2017 2018 2017
Foreignexchange
gains (losses)
Averagerate
Foreignexchange
gains (losses)
Averagerate
Foreignexchange
gains (losses)
Averagerate
Foreignexchange
gains (losses)
Averagerate
TWD $ 231 - (140) - 1,921 - (4,227) -
C. Fair value of financial instruments
(a) Categories of financial instruments and fair value
The fair value of financial assets and liabilities at FVTPL is measured on a recurring basis.The Company’ s carrying amount and the fair value of financial assets and liabilities(including information for fair value hierarchy, excluding financial instruments whose fairvalues approximate the carrying amounts and equity investments which cannot be estimatedreliably in an active market) were as follows:
September 30, 2018Carrying Fair value Amount Level 1 Level 2 Level 3 Total
Financial assets measured atamortized cost
Cash and cash equivalents $ 25,691 - - - -
Receivables 102,953 - - - -
Other current financial assets 81,891 - - - -
Refundable deposits 7,951 - - - -
Other non-current financial assets 2,812 - - - -
$ 221,298 - - - -
(Continued)
25
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2018Carrying Fair value Amount Level 1 Level 2 Level 3 Total
Financial liabilities measured atamortized cost
Short-term borrowings $ 30,586 - - - -
Accounts payable 48,773 - - - -
Other payables (recorded in othercurrent liabilities) 29,197 - - - -
$ 108,556 - - - -
December 31, 2017
Carrying Fair valueAmount Level 1 Level 2 Level 3 Total
Loans and receivables
Cash and cash equivalents $ 48,790 - - - -
Receivables 95,803 - - - -
Other current financial assets 115,777 - - - -
Refundable deposits 7,968 - - - -
Other non-current financial assets 4,498 - - - -
$ 272,836 - - - -
Financial liabilities measured atamortized cost
Accounts payable $ 11,500 - - - -
Other payables (recorded in othercurrent liabilities) 25,975 - - - -
$ 37,475 - - - -
September 30, 2017Carrying Fair valueAmount Level 1 Level 2 Level 3 Total
Loans and receivables
Cash and cash equivalents $ 79,813 - - - -
Receivables 63,140 - - - -
Other current financial assets 119,883 - - - -
Refundable deposits 29,737 - - - -
Other non-current financial assets 3,934 - - - -
$ 296,507 - - - -
Financial liabilities at fair value through profit or loss
Held for trading financialliabilities – foreign currencyforward contracts $ 1 - 1 - 1
(Continued)
26
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2017Carrying Fair valueAmount Level 1 Level 2 Level 3 Total
Financial liabilities measured atamortized cost
Short-term borrowings $ 33,168 - - - -
Accounts payable 22,194 - - - -
Other payables (recorded in othercurrent liabilities) 23,102 - - - -
$ 78,464 - - - -
(b) Valuation techniques for financial instruments not measured at fair value
The Company estimates the financial instruments not measured at fair value using thefollowing methods and assumptions:
Fair value measurement for financial liabilities measured at amortized cost will be based onthe latest quoted price and agreed-upon price if these prices are available in the activemarkets. When market value is unavailable, the fair value of financial liabilities areevaluated based on the discounted cash flow of the financial liabilities.
(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 nine months ended September 30, 2018 and2017.
(19) Financial risk management
There were no significant changes in the Company’s objectives and policies applied in the financialrisk management from those in note 6(17) of the consolidated financial statement for the year endedDecember 31, 2017.
(20) Capital management
The Company’ s objectives, policies and processes for capital management were consistent with theconsolidated financial statements for the year ended December 31, 2017. There were no significantchanges in quantified factors of capital management from those in the consolidated financialstatement for the year ended December 31, 2017. For related information about the capitalmanagement, please refer to note 6(18) of the consolidated financial statements for the year endedDecember 31, 2017.
(Continued)
27
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
(21) Financing activities not affecting current cash flow
Reconciliation of liabilities arising from financing activities were as follows:
Short-termborrowings
Balance as of January 1, 2018 $ -
Cash flows
Proceeds from borrowings 51,586
Repayments of borrowings (21,000)
Balance as of September 30, 2018 $ 30,586
7. Related-party Transactions
(1) Names and relationship with related parties
The followings are entities that have had transactions with related party during the periods coveredin the consolidated financial statements.
Name of related parties Relationship with the Company
Toshiba Corporation (Toshiba) The parent of TMC
Kingston Digital International Ltd (KDIL) The subsidiary of Kingston Technology Company
Toshiba Memory Corporation (TMC) A member of the board of 3S
(2) Significant transactions with related parties
A. Sales and service revenue from related parties
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
Related Party Category 2018 2017 2018 2017Other related-parties
Toshiba $ - - - 65,428
KDIL 122,343 60,219 305,277 143,128
TMC 28,278 17,696 86,073 83,193
$ 150,621 77,915 391,350 291,749
The collection terms for sales to related parties will be 30 to 45 days or after the month-end; theprices of products sold to related parties were determined by the product specifications and thesituation regarding market supply and demand, and there was no obvious difference from thosewith non-related parties.
(Continued)
28
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
B. Accounts receivable from related parties
Related Party CategorySeptember
30, 2018December31, 2017
September30, 2017
Other related-parties
KDIL $ 69,870 62,196 34,804
TMC 6,267 18,832 16,364
$ 76,137 81,028 51,168
(3) Transactions with key management personnel
Key management personnel compensation comprised:
For the three months endedSeptember 30,
For the nine months endedSeptember 30,
2018 2017 2018 2017
Short-term employee benefits $ 3,191 3,338 7,694 7,638
Post-employment benefits 81 108 243 216
$ 3,272 3,446 7,937 7,854
8. Pledged Assets
The carrying values of the Company’s pledged assets are as follows:
AssetsPurpose of
PledgedSeptember
30, 2018December31, 2017
September30, 2017
Time deposits (recorded inother current financialassets)
Customs dutyguarantee
$ 300 300 300
Property, plant and equipment Loancommitments 89,453 91,109 91,682
Refundable deposits Warrantyguarantee 5,500 5,500 27,420
$ 95,253 96,909 119,402
9. Significant Commitments and Contingencies
Except the consolidated financial statements note 6(9), 3S 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.
(Continued)
29
Solid State System Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
12. Others
A summary of current-period employee benefits, depreciation, and amortization, by function, is asfollows:
By function For the three months endedSeptember 30, 2018
For the three months endedSeptember 30, 2017
By itemClassified asOperating
Costs
Classified asOperatingExpenses
Total Classified asOperating
Costs
Classified asOperatingExpenses
Total
Employee benefits
Salary 406 40,669 41,075 390 37,583 37,973
Labor and healthinsurance
44 3,085 3,129 42 3,040 3,082
Pension 22 1,999 2,021 21 1,998 2,019
Others 46 2,064 2,110 29 1,546 1,575
Depreciation 4,046 3,075 7,121 2,891 2,095 4,986
Amortization - 1,550 1,550 - 1,962 1,962
By function For the nine months endedSeptember 30, 2018
For the nine months endedSeptember 30, 2017
By item
Classified asOperating
Costs
Classified asOperatingExpenses
Total Classified asOperating
Costs
Classified asOperatingExpenses
Total
Employee benefits
Salary 1,216 110,947 112,163 1,009 119,280 120,289
Labor and healthinsurance
130 9,113 9,243 111 9,372 9,483
Pension 65 5,851 5,916 55 5,964 6,019
Others 115 5,165 5,280 81 4,800 4,881
Depreciation 11,982 9,187 21,169 8,568 7,476 16,044
Amortization - 5,158 5,158 - 5,183 5,183
13. Segment Information
The Company is a single reportable segment. The Company is mainly engaged in the design, research,development, manufacture and sale of integrated circuits (ICs). The operating segment information isconsistent with the consolidated financial statements. Please refer to the consolidated statements ofcomprehensive income for net revenues from external customers and segment profit or loss, and refer tothe consolidated balance sheets for segment assets.