FocalTech : 2022 third quarter financial report

FocalTech Systems Co., Ltd. and

Subsidiaries

Consolidated Financial Statements for the

Nine Months Ended September 30, 2022 and 2021

Notice to Readers

The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

INDEPENDENT AUDITORS' REVIEW REPORT

The Board of Directors and Shareholders

FocalTech Systems Co., Ltd.

Introduction

We have reviewed the accompanying consolidated balance sheets of FocalTech Systems Co., Ltd. and its subsidiaries (collectively, the "Company") as of September 30, 2022 and 2021, the related consolidated statements of comprehensive income for the three months ended September 30, 2022 and 2021 and for the nine months ended September 30, 2022 and 2021, the consolidated statements of changes in equity and of cash flows for the six months then ended, and the related notes to the consolidated financial statements, including a summary of significant accounting policies(collectively referred to as the "consolidated financial statements"). Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 "Interim Financial Reporting" endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews.

Scope of Review

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

Basis for Qualified Conclusion

As disclosed in Note 12 to the consolidated financial statements, the financial statements of non-significant subsidiaries included in the consolidated financial statements referred to in the first paragraph were not reviewed. As of September 30, 2022 and 2021, combined total assets of these non-significant subsidiaries were NT$2,265,707 thousand and NT$427,255 thousand, respectively, representing 10% and 2%, respectively, of the consolidated total assets, and combined total liabilities of these subsidiaries were NT$1,071,062 thousand and NT$68,590 thousand, respectively, representing 8% and 1%, respectively, of the consolidated total liabilities; for the three months and nine months ended September 30, 2022 and 2021, the amounts of combined comprehensive income (loss) of these subsidiaries were NT($7,509) thousand, NT($43,894) thousand, NT($72,307) thousand and NT($159,576) thousand ,respectively, representing 0%, (2%), 5%, (3%).

Qualified Conclusion

Based on our reviews, except for the adjustments, if any, as might have been determined to be necessary had the financial statements of the non-significant subsidiaries and as described in the preceding paragraph been reviewed, nothing has come to our attention that caused us to believe that the accompanying consolidated financial statements do not give a true and fair view of the consolidated financial position of the Group as of September 30, 2022 and 2021, its consolidated financial performance and its consolidated cash flows for the three months ended September 30, 2022 and 2021 and for the nine months ended September 30, 2022 and 2021 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 "Interim Financial Reporting" endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

The engagement partners on the reviews resulting in this independent auditors' review report are Chih-Ming Shao and Ming-Hsing Cho.

Deloitte & Touche

Taipei, Taiwan

Republic of China

November 11, 2022

This is the translation of the financial statements. CPAs do not audit or review on this translation.

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars)

			September 30, 2022				December 31, 2021				September 30, 2021
			(Reviewed)							(Audited)							(Reviewed)
ASSETS			Amount	%					Amount	%					Amount		%
CURRENT ASSETS
Cash and cash equivalents (Note 6)	$	5,651,666			25		$	6,456,988			26	$	8,028,997		37
Financial assets at fair value through profit or loss - current (Note 7)			-			-					119,218				1					118,195		1
Financial assets at fair value through other comprehensive income - current
(Note 8)			-			-					55,590				-					56,302		-
Accounts receivables, net (Note 10)			1,215,112		5					3,255,081			13				2,575,410		12
Inventories (Note 11)			7,064,135			31					3,822,218			15				2,493,821		12
Other financial assets (Note 9)			696,913			3					3,879,862			15				963,546		5
Other current assets			361,778				2					536,459			2					486,573		2
Total current assets			14,989,604				66					18,125,416			72				14,722,844		69
NON-CURRENT ASSETS
Financial assets at fair value through profit or loss - non-current (Note 7)			466,459			2					412,779			1					336,632		2
Financial assets at fair value through other comprehensive income - non-current
(Note 8)			187,345			1					178,404			1					181,941		1
Property, plant and equipment (Note 13)			2,530,122			11					2,468,605			10				1,325,179		6
Goodwill (Notes 14)			1,237,268			6					1,237,268				5					1,237,268			6
Other intangible assets (Note 15)			67,676			-					47,228			-					51,214		-
Deferred tax assets			352,747			2					9,914			-					42,188		-
Refundable deposits(Note 16)			2,746,308			12					2,841,745				11				2,481,317			11
Other non-current assets (Note 32)			57,316				-					10,575			-					1,089,813			5
Total non-current assets			7,645,241				34					7,206,518				28				6,745,552		31
TOTAL	$	22,634,845				100		$	25,331,934				100	$	21,468,396		100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note 17)	$	3,426,058			15		$	301,712			1		$	859,664		4
Accounts payables (Note 18)			2,046,843			9					2,620,160			10				2,166,241		10
Other payables (Note 19)			1,762,469			8					1,596,958			6					1,319,945		6
Dividends payables (Note 28)			-			-					-				-					700,000		3
Current tax liabilities (Notes 4)			694,543			3					1,786,309				7					1,327,561			6
Other current liabilities (Notes 23)			67,242				-					110,356			1					117,312		1
Total current liabilities			7,997,155				35					6,415,495			25				6,490,723		30
NON-CURRENT LIABILITIES
Long-term borrowings (Note 17)			986,840			5					786,840			3					786,840		4
Deferred tax liabilities			238,547			1					51,584			-					59,531		-
Net defined benefit liabilities - non-current (Note 4)			21,682			-					22,140			-					23,015		-
Guarantee deposits received(Notes 21)			4,579,403			20					4,397,513			18				1,902,874			9
Other non-current liabilities			10,400				-					10,400					-					10,400		-
Total non-current liabilities			5,836,872				26					5,268,477				21				2,782,660			13
Total liabilities			13,834,027				61					11,683,972				46				9,273,383		43
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT (Notes 22 and 27)
Share capital
Ordinary shares			2,162,377			9					2,162,367			9					2,165,215		10
Capital surplus
Additional paid-in capital			4,751,572			21					4,737,390			19				4,736,211	`	22
Treasury shares			124,926			1					79,917			-					79,963		1
Employee share options			59,331			-					65,873			-					45,871		-
Restricted stock for employees			1,095,945			5					1,145,555				5					1,212,385		6
Employee share options - expired			34,448				-					34,134			-					34,134		-
Total capital surplus			6,066,222				27					6,062,869			24				6,108,564		29
Retained earnings
Legal reserve			712,562			3					101,230				-					101,230		-
Special reserve			211,479		1					122,316				-					122,316		1
Undistributed earnings			159,998				1					6,202,079					25				4,873,886		23
Total retained earnings			1,084,039				5					6,425,625				25				5,097,432		24
Other equity			(314,847)			(1)				(1,025,199)		(4)				(1,193,149)		(6)
Treasury shares			(213,824)		(1)				-			-					(371)		-
Equity attributable to owners of the parent			8,783,967				39					13,625,662			54				12,177,691		57
NON-CONTROLLING INTERESTS (Note 22)			16,851				-					22,300				-					17,322		-
Total equity			8,800,818				39					13,647,962				54				12,195,013		57
TOTAL	$	22,634,845				100		$	25,331,934				100	$	21,468,396		100
The accompanying notes are an integral part of the consolidated financial statements.

This is the translation of the financial statements. CPAs do not audit or review on this translation.

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

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

		For the Three Months Ended September 30					For the Nine Months Ended September 30
	2022			2021				2022				2021
		Amount	%				Amount	%				Amount	%					Amount	%
REVENUE (Note 23)	$ 2,370,317			100	$ 6,272,422			100	$ 9,590,291			100		$ 16,394,543			100
COSTS OF SALES (Note 11
and 24)		(4,369,610)		(184)	(2,857,205)		(46)	(8,921,002)	(93)	(8,442,986)		(51)
GROSS (LOSS) PROFIT		(1,999,293)		(84)	3,415,217			54	669,289			7		7,951,557			49
OPERATING EXPENSES
(Note 24, 27, 29 and 31)
Selling and marketing
expenses	(137,921)		(6)	(153,340)		(3)	(399,398)	(4)	(398,136)		(2)
General and administrative
expenses	(145,431)		(6)	(190,348)		(3)	(437,569)	(5)	(449,917)		(3)
Research and development
expenses	(671,579)		(28)	(654,004)		(10)	(2,091,413)	(22)	(1,721,637)		(11)
Total operating
expenses	(954,931)		(40)	(997,692)		(16)	(2,928,380)	(31)	(2,569,690)		(16)
OPERATING (LOSS)
INCOME	(2,954,224)		(124)	2,417,525			38	(2,259,091)	(24)	5,381,867			33
NON-OPERATING INCOME
AND EXPENSES
Finance costs(Note 24)	(15,025)		(1)	(2,724)		-	(25,183)	-		(7,481)		-
Interest income	18,807			1	9,069			-	45,467			-		23,647			-
Gain (loss) on financial
assets and liabilities at
fair value through profit
or loss	(28,213)		(1)	(179,102)		(3)	(79,468)	(1)	80,219			-
Other gains and losses - net	25,155		1	151,615			3	174,220			2		347,445			2
Gain (loss) on foreign
exchange	(14,956)		(1)	8,719			-	279,178			3		(41,160)			-
Total non-operating
income and
expenses	(14,232)		(1)	(12,423)			-	394,214			4		402,670			2
(LOSS) INCOME BEFORE
INCOME TAX	(2,968,456)		(125)	2,405,102			38	(1,864,877)	(20)	5,784,537			35
INCOME TAX EXPENSE
(BENEFIT) (Note 25)		198,222			8	(577,633)		(9)	(99,713)	(1)	(1,021,027)		(6)
NET (LOSS) INCOME		(2,770,234)		(117)	1,827,469			29	(1,964,590)	(21)	4,763,510			29
OTHER COMPREHENSIVE
INCOME
Items that may be
reclassified subsequently
to profit or loss:
Exchange differences
from translating the
financial statements of
foreign operations	168,225			7	(7,945)		-	380,081			4		(95,003)		(1)
																											(Continued)

This is the translation of the financial statements. CPAs do not audit or review on this translation.

FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

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

			For the Three Months Ended September 30						For the Nine Months Ended September 30
			2022									2021							2022								2021
			Amount	%						Amount	%					Amount	%						Amount	%
Unrealized (loss) gain
from debt instrument
investments measured
at fair value through
other comprehensive
loss			(3,314)		-							(1,082)		-				(12,415)	-						(878)			-
Items that may be
reclassified
subsequently to
profit or loss			164,911		7							(9,027)		-				367,666		4						(95,881)		(1)
Total other
comprehensive loss			164,911		7							(9,027)		-				367,666		4						(95,881)		(1)
TOTAL COMPREHENSIVE
INCOME FOR THE
PERIOD	$ (2,605,323)		(110)	$	1,818,442			29	$ (1,596,924)		(17)	$	4,667,629			28
NET (LOSS) INCOME
ATTRIBUTABLE TO:
Owners of the Company	$ (2,760,461)		(117)	$	1,833,297			29	$ (1,941,586)	(20)	$	4,785,388			29
Non-controlling interests			(9,773)		-							(5,828)		-				(23,004)	-						(21,878)		-
		$	(2,770,234)		(117)	$	1,827,469			29	$	(1,964,590)	(20)	$	4,763,510			29
TOTAL COMPREHENSIVE
INCOME
ATTRIBUTABLE TO:
Owners of the Company	$ (2,604,307)		(110)	$	1,824,311			29	$ (1,591,475)	(17)	$	4,691,940			28
Non-controlling interests			(1,016)		-							(5,869)		-				(5,449)	-						(24,311)		-
		$	(2,605,323)		(110)	$	1,818,442			29	$	(1,596,924)	(17)	$	4,667,629			28
(LOSS) EARNINGS PER
SHARE (Note 26)			$ (13.57)									$	9.02									$ (9.53)								$	23.73
Basic
Diluted													$	8.58																		$	22.52

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

(Concluded)

This is the translation of the financial statements. CPAs do not audit or review on this translation.