FocalTech : 2023 second quarter financial report

FocalTech Systems Co., Ltd. and

Subsidiaries

Consolidated Financial Statements for the

Six Months Ended June 30, 2023 and 2022

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

To 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 June 30, 2023 and 2022, the related consolidated statements of comprehensive income for the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, 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 the Standards on Review Engagements of the Republic of China "Review of Interim 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 June 30, 2023 and 2022, combined total assets of these non-significant subsidiaries were NT$2,155,998 thousand and NT$2,077,258 thousand, respectively, representing 12% and 8%, respectively, of the consolidated total assets, and combined total liabilities of these subsidiaries were NT$858,278 thousand and NT$971,170 thousand, respectively, representing 9% and 7%, respectively, of the consolidated total liabilities; for the three months and six months ended June 30, 2023 and 2022, the amounts of combined comprehensive income (loss) of these subsidiaries were NT$36,071 thousand, NT$56,649 thousand, NT$4,021 thousand and NT$(64,798) thousand ,respectively, representing 34%, 40%, 3%, (6%).

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 June 30, 2023 and 2022, its consolidated financial performance and its consolidated cash flows for the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022 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 Yu-Hong Kuo and Chih-Ming Shao.

Deloitte & Touche

Taipei, Taiwan

Republic of China

August 11, 2023

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

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FOCALTECH SYSTEMS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars)

			June 30, 2023							December 31, 2022				June 30, 2022
			(Reviewed)							(Audited)							(Reviewed)
ASSETS			Amount	%						Amount	%					Amount	%
CURRENT ASSETS
Cash and cash equivalents (Note 6)	$	5,363,649				30		$	5,674,470			27	$	5,092,965			20
Financial assets at fair value through profit or loss - current (Note 7)			124,807				1						-				-					23,075			-
Accounts receivables, net (Note 10)			1,179,869				6						1,148,471			6					1,875,211			7
Inventories (Note 11)			3,593,162				20					5,753,731			28				8,066,294			32
Other financial assets (Note 9)			535,247				3					517,464			2					2,726,810			11
Other current assets			222,631				1						258,794			1					240,147			1
Total current assets			11,019,365				61						13,352,930			64				18,024,502			71
NON-CURRENT ASSETS
Financial assets at fair value through profit or loss - non-current (Note 7)			516,519				3						467,143			2					474,689			2
Financial assets at fair value through other comprehensive income - non-current
(Note 8)			180,807				1						179,137			1					179,864			1
Property, plant and equipment (Note 13)			2,456,871				14					2,514,208			12				2,484,591			10
Goodwill (Notes 14)			1,237,268				7						1,237,268				6					1,237,268				5
Other intangible assets (Note 15)			71,244				-						60,549			-					65,683			-
Deferred tax assets			223,765				1						306,129			2					12,639			-
Refundable deposits(Note 16)			2,418,643				13					2,654,474				13				2,911,003			11
Other non-current assets (Note 32)			18,679				-						25,347			-					57,830			-
Total non-current assets			7,123,796				39						7,444,255				36					7,423,567			29
TOTAL	$	18,143,161			100		$	20,797,185			100	$	25,448,069			100
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term borrowings (Note 17)	$	516,513				3			$	3,070,806			15	$	649,951			3
Accounts payables (Note 18)			1,387,760				8						929,492			4					2,474,372			10
Other payables (Note 19)			1,441,700				8						1,653,776			8					1,395,473			6
Dividends payables (Note 28)			108,000				-						-				-					3,400,000			13
Current tax liabilities (Note 4)			403,460				2						629,303				3					867,958			3
Current position of long-term borrowings (Note 17)			129,288				1						25,000				-					-				-
Other current liabilities (Notes 23)			161,447				1						81,038			-					65,291			-
Total current liabilities			4,148,168				23						6,389,415			30				8,853,045			35
NON-CURRENT LIABILITIES
Long-term borrowings (Note 17)			786,840				4						961,840			5					786,840			3
Deferred tax liabilities			220,196				1						216,757			1					50,459			-
Net defined benefit liabilities - non-current (Note 4)			13,331				-						13,560			-					21,847			-
Guarantee deposits received(Notes 21)			3,931,728				22					4,369,353			21				4,431,227			18
Other non-current liabilities			-				-						-					-					10,400			-
Total non-current liabilities			4,952,095				27					5,561,510				27					5,300,773			21
Total liabilities			9,100,263				50					11,950,925			57				14,153,818			56
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT (Notes 22 and 27)
Share capital
Ordinary shares			2,159,300				12					2,161,107				11					2,163,617			8
Capital surplus			5,900,050				33					6,041,988			29				6,076,459			24
Retained earnings
Legal reserve			712,562				4						712,562				3					712,562			3
Special reserve			-				-						211,479				1					211,479			1
Undistributed earnings			565,045				3						196,847			1					2,920,459			11
Total retained earnings			1,277,607				7						1,120,888				5					3,844,500			15
Other equity			(141,928)			(1)				(296,495)		(1)				(594,368)			(2)
Treasury shares			(163,060)			(1)				(196,057)		(1)				(213,824)			(1)
Equity attributable to owners of the parent			9,031,969				50					8,831,431			43				11,276,384			44
NON-CONTROLLING INTERESTS (Note 22)			10,929				-						14,829				-					17,867			-
Total equity			9,042,898				50						8,846,260				43					11,294,251			44
TOTAL	$	18,143,161				100		$	20,797,185			100	$	25,448,069			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.

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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 June 30					For the Six Months Ended June 30
	2023			2022			2023			2022
		Amount	%				Amount	%				Amount	%				Amount	%
REVENUE (Note 23)	$ 3,112,352		100	$ 3,327,292		100	$ 6,337,630		100		$ 7,219,974		100
COSTS OF SALES (Note 11
and 24)		(2,474,171)	(79)	(2,200,307)	(66)	(5,092,268)	(80)	(4,551,392)	(63)
GROSS PROFIT		638,181		21	1,126,985		34	1,245,362		20		2,668,582		37
OPERATING EXPENSES
(Note 24, 27, 29 and 31)
Selling and marketing
expenses	(81,527)	(3)	(132,400)	(4)	(158,856)	(3)	(261,477)	(4)
General and administrative
expenses	(109,017)	(4)	(148,789)	(4)	(214,894)	(3)	(292,138)	(4)
Research and development
expenses	(410,156)	(13)	(823,399)	(25)	(798,682)	(13)	(1,419,834)	(20)
Total operating
expenses		(600,700)	(20)	(1,104,588)	(33)	(1,172,432)	(19)	(1,973,449)	(28)
OPERATING INCOME		37,481		1	22,397		1	72,930		1		695,133		9
NON-OPERATING INCOME
AND EXPENSES
Finance costs(Note 24)	(11,988)	-	(6,372)	-	(32,409)	(1)	(10,158)	-
Interest income	61,017		2	16,704		-	111,258		2		26,660		1
Gain (loss) on financial
assets and liabilities at
fair value through profit
or loss	23,226		1	(64,769)	(2)	31,472		1		(51,255)	(1)
Other gains and losses - net	12,558		-	115,838		3	17,369		-		149,065		2
Gain (loss) on foreign
exchange	14,552		-	124,898		4	(1,564)	-		294,134		4
Total non-operating
income and
expenses	99,365		3	186,299		5	126,126		2		408,446		6
INCOME BEFORE INCOME
TAX	136,846		4	208,696		6	199,056		3		1,103,579		15
INCOME TAX EXPENSE
(Note 25)		(34,150)	(1)	(125,638)	(4)	(46,344)	(1)	(297,935)	(4)
NET INCOME		102,696		3	83,058		2	152,712		2		805,644		11
OTHER COMPREHENSIVE
INCOME
Items that may be
reclassified subsequently
to profit or loss:
Exchange differences
from translating the
financial statements of
foreign operations	3,141		-	61,508		2	(5,372)	-		211,856		3

(Continued)

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

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					For the Three Months Ended June 30							For the Six Months Ended June 30
					2023							2022							2023									2022
			Amount	%				Amount	%				Amount	%						Amount	%
Unrealized (loss) gain
from debt instrument
investments measured
at fair value through
other comprehensive
loss					(454)	-					(1,536)	-					1,897			-						(9,101)	-
Items that may be
reclassified
subsequently to
profit or loss					2,687		-					59,972		2					(3,475)		-						202,755		3
Total other
comprehensive loss					2,687		-					59,972		2					(3,475)		-						202,755		3
TOTAL COMPREHENSIVE
INCOME FOR THE
PERIOD	$			105,383		3	$		143,030		4	$		149,237			2	$	1,008,399		14
NET INCOME
ATTRIBUTABLE TO:
Owners of the Company	$			105,062		3	$		89,612		2	$		156,719			2	$			818,875		11
Non-controlling interests					(2,366)	-					(6,554)	-					(4,007)		-						(13,231)	-
		$			102,696		3	$		83,058		2	$		152,712			2	$			805,644		11
TOTAL COMPREHENSIVE
INCOME
ATTRIBUTABLE TO:
Owners of the Company	$			107,578		3	$		144,861		4	$		153,137			2	$	1,012,832		14
Non-controlling interests					(2,195)	-					(1,831)	-					(3,900)		-						(4,433)	-
		$			105,383		3	$		143,030		4	$		149,237			2	$	1,008,399		14
EARNINGS PER SHARE
(Note 26)				$	0.51									$	0.44									$	0.76											$	4.02
Basic
Diluted				$	0.49							$	0.42							$	0.74											$	3.83

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.

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