ctci annual report - acs · the following section reports the operating plan and outlines the...

Stock Code: 5209

Taiwan Stock Exchange Market

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2017 Annual Report

Printed on March 31, 2018

Spokesperson Name: Chih-Cheng, Lin Title: Director of Executive Management Office Tel: 886-2-2785-3839 ext. 59105 E-mail: [email protected] Deputy Spokesperson Name: Yu-Wan, Hsu Title: Accounting Manager Tel: +886-2-2833-9999 # 13002 E-mail: [email protected] Headquarters and Branches Headquarters Address: 5th Fl., 52, Sec.3, Nangang Rd., Taipei, Taiwan Tel: 886-2- 2785-3839 Branch Kaohsiung Branch Address: 306, Nan-Tze Shin Rd., Kaohsiung, Taiwan Tel: 886-7-352-5226 Stock Transfer Agent KGI Securities Co., Ltd. Address: 5th Fl., 2, Sec. 1, Chongqing South Rd., Taipei, Taiwan Tel: 886-2-2389-2999 Website: http://kgieworld.com.tw Auditors PriceWaterhouseCoopers Auditors: Yu-Lung Wu , Se-Kai Lin Address: 27th Fl., 333, Sec. 1, Keelung Rd., Taipei, Taiwan Tel.: 886-2-2729-6666 Website: http://www.pwc.tw/ Corporate Website http://www.acs.com.tw

mailto:[email protected]

Contents

I. Letter to Shareholders ......................................................................................................... 1

II. Company Profile 2.1 Date of Incorporation .................................................................................................................. 4 2.2 Company History .......................................................................................................................... 4

III. Corporate Governance Report 3.1 Organization ................................................................................................................................. 7 3.2 Directors and Management Team ............................................................................................. 15 3.3 Remuneration of Directors, President, and Vice President ....................................................... 20 3.4 Implementation of Corporate Governance ............................................................................... 26 3.5 Public Expenses of CPA .............................................................................................................. 56 3.6 Information on replacement of CPA .......................................................................................... 57 3.7 The Company's Chairman, President and Managers Responsible for Finance or

Accounting who have Held a Post in the CPA Office or its Affiliated within the Latest Year ............................................................................................................................................ 57

3.8 Changes in Shareholding of Directors, Managers and Major Shareholders .............................. 57 3.9 Information Disclosing the Relationship between any of the Company’s Top Ten

Shareholders .............................................................................................................................. 58 3.10 Shareholdings of the Company Directors, Managements, and Direct and Indirect

Investments of the Company in Affiliated Companies .............................................................. 59 IV. Capital Overview 4.1 Capital and Shares ...................................................................................................................... 60 4.2 Issuance of Corporate Bonds ..................................................................................................... 64 4.3 Preferred Shares ........................................................................................................................ 64 4.4 Issuance of Depository Receipt .................................................................................................. 64 4.5 Employee Stock Options ............................................................................................................ 64 4.6 Limit Employee right with new shares ....................................................................................... 66 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions ......................... 66 4.8 Financing Plans and Implementation ......................................................................................... 66 V. Operational Highlights 5.1 Business Activities ...................................................................................................................... 67 5.2 Market and Sales Overview ....................................................................................................... 84 5.3 Human Resources ...................................................................................................................... 93 5.4 Environmental Protection Expenditure Information ................................................................. 95 5.5 Relations between labor and employer ..................................................................................... 95 5.6 Important Contracts ................................................................................................................... 98

VI. Financial Information 6.1 Five-Year Financial Summary ................................................................................................... 100 6.2 Five-Year Financial Analysis ..................................................................................................... 104 6.3 Audit Committee’s Report in the Most Recent Year ............................................................... 107 6.4 Consolidated Financial Statements for the Years Ended December 31, 2015 and 2014

.................................................................................................................................................. 108 6.5 Non-Consolidated Financial Statements for the Years Ended December 31, 2015 and

2014.......................................................................................................................................... 108 6.6 Impact of the Financial Distress Occurred to the Company and Affiliates in the Recent

Years until the Annual Report being published ....................................................................... 108 VII. Review of Financial Conditions, Operating Results, and Risk Management 7.1 Analysis of Financial Status ...................................................................................................... 109 7.2 Analysis of Operation Results .................................................................................................. 111 7.3 Analysis of Cash Flow ............................................................................................................... 112 7.4 Major Capital Expenditure Items ............................................................................................. 112 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans

and the Investment Plans for the Coming Year ....................................................................... 112 7.6 Analysis of Risk Management .................................................................................................. 113 7.7 Other ........................................................................................................................................ 117 VIII. Special Disclosure 8.1 Summary of Affiliated Companies ........................................................................................... 118 8.2 Private Placement Securities in the Most Recent Years .......................................................... 120 8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent

Years ......................................................................................................................................... 120 8.4 Other Supplementary Information .......................................................................................... 121 Appendix I. Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016…………122 II. Non-Consolidated Financial Statements for the Years Ended December 31, 2017 and

2016 …………………………………………………………………………………………………………………………………….197

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I. Letter to Shareholders

Dear Shareholders,

ASI consolidated operating income during 2017 was NT $1.338 billion, a increase of 17.4%

compared to 2016. The after-tax net income was NT $75,890 thousand, a increase of 4.81%

compared to 2016. The net profit margin of 2017 is lower than that of 2016 due to the main

revenue was mainly from the public engineering bid. In response to the new technology

development and the needs of industrial intelligence, we actively invested in R&D of intelligent

manufacturing and process safety innovation and adjust our business strategy. We will also fully

engage in corporate social responsibility and sustainable development as well as strive for

achieving better operating revenue and profit growth in order to live up to the expectation of our

shareholders.

Looking ahead to the economic outlook and industry demand in 2018, we slightly adjusted the

internal organization and set up an IIoT (Industrial Internet of Things) team to enhance our core

business "advanced automation" and "smart M&E" market leadership role and competitiveness; in

the Intelligent Manufacturing (IM) business, we provide our customer intelligent solutions by

improving the operational performance and obtain customer’s recognition. We had completed

some IM projects at several key customers and earned good reputation. It is expected to bring in

significant growth compared to the previous year.

The following section reports the operating plan and outlines the company's development strategy

for 2018:

2018 Business Plan Overview

♦ Business Operation Policy In response to the industry 4.0 and digital transformation trend, driven by technological innovation and customer demand, the future business directions of ASI are as follows: 1. Advanced Automation: Advanced automation is the foundation of intelligent manufacturing.

The growth strategy is to incorporate new IIoT solution into automation business to provide our customers with automation upgrade solution in the process automation industry and general industry.

2. Smart E&S (Electrical and Mechanical): In addition to current involvement on transportation and high-tech plants engineering work, ASI will also engage in new businesses on Smart Airport, Intelligent Industrial Park development and smart building projects by providing smart IIoT solutions.

3. Intelligent Manufacturing (IM): As the market demand in Industry 4.0 is getting very strong, ASI will actively promote business growth by providing pragmatic industry intelligence solutions on standardized and replicable applications, and assist in the establishment of intelligent production lines and intelligent factories.

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4. Industrial Internet of Things (IIoT): With existing ICT communications expertise and adopting the latest Internet of Things technology, it provides smart platform integration to assist customers in smart park, plant and community planning and value-added applications of the IoT system.

5. Global Businesses: Focusing on target customers in mainland China and Southeast Asia's foreign-funded enterprises, ASI will promote IM and Smart E&M business with our partners in overseas market.

♦ Potential Business and Marketing Strategy

1. Advanced Automation Business Petrochemical Industry: An integrated control automation system with advanced features of energy saving and process safety is the foundation of modern smart plant; in addition to providing IM solutions, ASI will introduce global proven IIoT products for domestic refinery and petrochemical customers to improve their operating performance, while continue working with CTCI Group to bid on domestic and overseas EPC projects’ instrumentation work. General Industry: Provide sales and services of the Integrated Automation System (IAS) and expand the application and construction opportunities of production machinery automation.

2. Smart E&M (Electrical and Mechanical) Business Transportation: Focusing on Taoyuan International Airport T1 and T2 E&M retrofitting projects (incl. BHS and Bag Drop, etc.) and keep track on the business of Taoyuan Aerotropolis project, T3 E&M and the third runway opportunities, and strive for the MRT-related weak current and orbital communications projects, etc. High-tech plant mechanical and electrical: lock the important customers of the mainland expansion plant and the existing plant to improve the maintenance work, and to expand the business opportunities in biotech factory professional electromechanical work.

3. Intelligent Manufacturing (IM) Business After understanding the potential of Industry 4.0, domestic petrochemical customers all have strong demands to implemented IM solutions in the plant for improving the business operation performance. ASI had been awarded and completed some of the IM projects in the fields of petrochemical, chemical and plastic processing industries. We will continue to enhance business strength by expanding our IM team. Meanwhile, the R&D team will accelerate the development of cyber integration platform to integrate data collection, data analysis and KPI modules, by introducing iCIP products, to expand business by replication sales of standard solutions. Continuous Process Industry: In business of process optimization, the benefits of GPS and plant energy integration were verified in real projects and well recognized by customers. Business model will shift from consultancy service first to directly enter into actual system implementation project. In asset management, adding VR and AR technology on top of Integraph platform can ease the maintenance of machine integrity, management of

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change so as to improve operation performance. Machine-oriented Industry: Offer solutions such as product quality optimization, anti-counterfeit technology, and big data analytics of process information.

4. Industrial Internet of Things (IIoT) Applications In addition to familiar petrochemical customers, they promoted and introduced the construction of smart factory areas, and through the collection and analysis of production process data, established a smart intelligence center to expand the application of IoT technology in the process industry.

5. Overseas Businesses In China, we focus on the opportunity of expansion projects from long-term customers. Also we will promote the process safety business with local partners. Business growth can be expected. In Southeast Asia, by cooperating with the government economic and trade promotion, we will expand the business opportunities for intelligent services.

♦ R&D Status Report

ASI will continue to devote R&D resources in accordance with business needs to develop the cyber-physical integration, industry IoT and process safety application. In 2018, the key R&D goals includes Industry 4.0 cyber-physical integration system for optimization operation guide, acoustic diagnosis system for rotary machine, smart optical measurement system, smart airport baggage re-confirmation handling equipment and chemical plant P&ID process safety application platform.

Future Development Strategy To expand the foundation of business growth and sustainable development, provide customer performance enhancement services, ASI will continue to devote in R&D for innovation based on business needs, so as to pursue the revenue growth by increasing the percentage of intelligence services. In addition to strengthening human resources and technology development, ASI also commit to enhance the internal and external collaboration synergies, improve quality and safety management, insists on CTCI motto of "Most Reliable". With "professionalism, integrity, teamwork and innovation", the ASI team are dedicated to provide customers with more intelligent solutions and becoming more successful than ever to enhance shareholder values. Best wishes for good health and fortune.

Very sincerely yours,

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II. Company Profile 2.1 Date of Incorporation: August 3, 1987 2.2 Company History

1987： CTCI invested NT $20 million to found "Advanced Control & Systems Inc. (ACS)". ACS service scope includes communication, control related design and system integration.

1988： The first chemical process dynamic simulator in Taiwan was published.

1995： Kaohsiung Branch was founded. MR.SAFETY, a product of hazard analysis module system was published.

1997： ACS obtained DNV ISO-9001 quality assurance certification.

1998： Systems Division, responsible for sales of computer related system integration, was established.

1999： Slight changes were made to company’s Chinese name while English name stayed the same.

Internet and Communications Division was established. ACS developed the artificial neural networks design software – ANNDOE.

2000： SIMACS 2000 Dynamic Process Simulator released. ACS designed and developed petrochemical industrial skills verification

system. Artificial Intelligence Division was established to promote the application

of neural network technology.

2001： ACS developed the information integrating and monitoring platform (ScadACS).

2002： February, ACS stocks listed on OTC (over-the-counter) market. Advanced Control & Information Technologies (Shanghai) Co, Ltd. was

founded to expend the system integration market in mainland China. ACS developed Laboratory Information System (LIMACS), and

Computerized Maintenance Management System (CMMS).

2003： ACS obtained DNV ISO-9001 2000 certification. 2005： ACS obtained CMMI Level 2 certification.

2006：

ACS developed the Electronic Patrol System (e-Patrol). ACS developed the Neural Network Model Application Platform (NeuroNet

Master). ACS developed the Process Fault Detection and Correction System (FDC)

for Electronic Plants. Subsidiary - Advanced Control & Information Technologies Co., Ltd.

(Shanghai) Xiamen Branch was established in July.

2007：

ACS obtained the information services development plan of the Industrial Development Bureau of the Ministry of Economic Affairs (flagship mentoring program) on the export of Advanced Process Solutions.

2008 : ACS obtained CMMI Level 3 certification.

2009:

ACS obtained the Diagnostic counseling sub-project of the Manufacturing Industry Energy Saving and Carbon Reduction Project of the Industrial Development Bureau.

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ACS obtained DNV ISO-9001 2008 Certification. ACS awarded the “A+ class” company on the evaluation of information

disclosure in year 2008 by the Securities and Futures Institute. ACS successfully completed the information services development plan of

the Industrial Development Bureau of the Ministry of Economic Affairs (flagship mentoring program) on the export of Advanced Process Solutions.

2010:

ACS awarded the “A+ class” company on the evaluation of information disclosure in year 2009 by the Securities and Futures Institute.

“MR. Safety”, the safety and risk assessment software was published.

2011: ACS won 2011 “Happiness Enterprise Award” from Department of Labor, Taipei City Government

ACS awarded the “A+ class” company on the evaluation of information disclosure in year 2010 by the Securities and Futures Institute.

ACS earned the 4th Term Excellence Prize of the “Smart Energy-Saving Award” from Taipei City Government.

2012: Selected to 2011 Top 500 Service Enterprises by CommonWealth Magazine, and ranked No.32 in IC Distributor and Service Industry.

Awarded “One-Star Happiness Enterprise” from Department of Labor, Taipei City Government.

Awarded 2011 outstanding employers offering vocational rehabilitation services to disabled workers from Taipei City Government.

Awarded the ninth edition (2011) of “Information Disclosure and Transparence Ranking A++”on Taiwan Stock Exchange(TWSE) listed.

“Mr. Energy 50001”, Energy Management System was published. 2013: Acquire the first Taiwan MITTELSTAND Award and Counseling Targets.

Acquire Label A of Taipei City Government Hiring disable employees. Awarded the tenth edition (2012) of “Information Disclosure and Transparence

Ranking A++”on Taiwan Stock Exchange(TWSE) listed. “PowerMonitor”, Power Monitoring System was published.

2014: Awarded Excellent Company of Industry-Academic Cooperation. Awarded the eleventh edition (2013) of “Information Disclosure and

Transparence Ranking A++”on Taiwan Stock Exchange(TWSE) listed. Shareholders' meeting convened on June 26 to elect Directors of the tenth

nine seats (including 3 seats Independent Directors). On the same day board meeting, Hwei-Nan Yih chairman and president Yin-Fan Liu are eligible for re-election.

2015: Awarded the twelfth edition (2014) of “Information Disclosure and Transparence Ranking A++”on Taiwan Stock Exchange (TWSE) listed.

Awarded the first edition of the Corporate Governance Evaluation TOP 5% on Taiwan Stock Exchange (TWSE) OTC.

2016: Awarded ISO14001 (environment protection) and OHSAS18001 (occupational health and safety assessment) Certifications.

Awarded “Distinguished Construction and Business Institution Award” from

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Chinese Institute of Engineers. Awarded the 2nd edition of the Corporate Governance Evaluation TOP 5% on

Taiwan Stock Exchange (TWSE) OTC. Corporate Sustainability Report (2015) Certified with AA1000 and GRI G4

Standards by British Standards institution. 2017: Awarded ISO-9001 2015 certification.

Awarded the 3rd edition of the Corporate Governance Evaluation TOP 5% on Taiwan Stock Exchange (TWSE) OTC.

Corporate Sustainability Report (2015) Certified with AA1000 and GRI G4 Standards by British Standards institution.

Awarded “Corporate Sustainability Report – Top.50 of gold medal for the service industry” from TCSA.

Advanced Control & System Inc. (ACS) changed the name to CTCI Advanced Systems Inc.(CTCI ASI), Advanced Control & Information Technologies Co., Ltd. (Shanghai) (ACIT) changed the name to CTCI Advanced Systems Shanghai Inc.(CTCI ASSI)

Shareholders' meeting convened on June 22 to elect Directors of the 11th nine seats (including 3 seats Independent Directors). On the same day board meeting, Director Chen Chen–Chin was elected by the directors as the new chairman and was appointed as the general manager.

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III. Corporate Governance Report 3.1 Organization

3.1.1 Organization Structure

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3.1.2 Operations and functions of the various departments 1.Audit Office

a. Responsible for the establishment of the company's quality management system, counseling each project to establish quality activities documents, leading the quality audit operations of the various permanent departments and projects, and discuss plans to improve quality.

2.QM & HSE Office a. Responsible for establishing the company's quality, safety and health environmental

management system, counseling each project to establish quality, safety and health environment activity documents, leading the quality, safety and health environment auditing operations of each permanent department and each project, and devising plans to improve the safety and health environment.

3.Executive Management Office：

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(1)IT Department a. Planning, implementation and management of the company's overall information

architecture。 b. Planning, development, implementation and maintenance of management information

system. c. Planning and management of data backup, computer virus protection and information security

operations.。 d. Technical Consultant and support of information technology.

(2) Financial Department a. Account receivable/payable operation and capital allocation. b. Bank credit and guarantee operations. c. Foreign exchange and short/long-term investment.

(3) Accounting Department a. Accounting operation. b. Financial report and tax issues.

(4) HR Department a. In charge of recruitment, appointment, insurance, pay, attendance management and other

human resources related operations. (5)Administration & General Service Department

a. Human resource management. b. Management of the board of directors and shareholders activities. c. Company's operating budgeting and cost control. d. Official document and contract management.

(6)Cost Management Department a. Company operating budgets, analysis of operating costs and cost structure preparation. b. Project budget and manpower management, payment planning assistance and cost review,

cost and progress management and equity tracking in project execution stage. c. Project Scheduling, progress tracking and schedule modification. d. Quotation cost analysis, quotation review and seal management, building and maintenance of

quotation and cost database. (7)Legal Affairs & Contract Admin. Department

a. Processing all kinds of Legal Affair. b. Company contract template preparation, contract review, contract dispute handling and claims

assistance. 4.Procurement Department

a. In charge of the company-wide purchasing operations, including instrument, equipment procurement, engineering subcontracting and insurance matters.

5.Research and Development Department

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a. With company's objectives, in charge of research and development strategy planning, implementation, and performance evaluation. Using JTBD “jobs-to-be-done” as a common language to verify customer’s need. Driving a new product development process to achieve the goal of product development and market-oriented. Implementation of integrated R&D and project work. Improving company core technology and commercializing developed products.

b. R&D will select competitive edge products, also gained new technology or improved skill of engineering to cost down, enhance quality, and shorten schedule. To create greater profits and revenue, strengthen competitiveness of company.

6.Construction Service Department a. Implementation of project site construction, supervision and commissioning.

7.Smart Automation Business Division： (1) Advanced Automation Department

a. Project planning, implementation and control of petrochemical and power plant automation control system.

b. Agents of worldwide well-known industrial software and hardware equipment Pioneering distribution, direct sales market, as well as perfect after-sales service.

(2) Smart M&E Department a. Rail Transit E&M: the design, construction and integration of signaling, communication, power

SCADA and other relevant E & M systems. b. Hi-Tech Factory E&M:，the design, construction and integration of cleanroom, FMCS, energy

efficiency and other relevant E & M systems. c. Low power systems of fire fighting, fire alarm and gas detection. d. Airport E&M: the design, construction and integration of airport baggage handling (BHS),

baggage reconciliation (BRS), tower automation, and aerospace. e. Development of computer application software and smart application platform.

8. Intelligent Manufacturing Business Division：

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(1) Intelligent Manufacturing Department I a. Industrial 4.0 business implementation starts with process optimization, energy saving, facility

maintains, and safety adaption. b. Building up intelligent prediction models on producing, selling, stocking, transporting, and

purchasing activities by data modeling and utility theoretic model. c. Technology build up and selling of Intergraph series products. d. Project implementation of Intergraph SPF and SPM. e. Technology build up and selling of AspenTech series products. f. HSE technologies build up and selling of own PSM products.

(2) Intelligent Manufacturing Department II a. Power Monitor: Collecting electricity data for performance analysis of electricity consumption

and enhance electrical efficiency and safety. Also, it helps reduce power over use fines and monitoring the performance of electricity. To achieve optimal energy conservation and electricity demand deployment

b. Energy Management: Collecting energy-using data of electricity equipments, air conditioner, chillers, motors, boilers and air compressors for deploying optimal energy use and production.

c. Implementation of process safety and risk assessment project, training and product selling. d. Energy effective and management systems: Providing the optimized operational

recommendations of energy, power generation and electricity usage of a variety of different energy sources, such as cogeneration and electricity. And, it provides operators the remote monitoring services for power generating equipment management and performance analysis.

e. Traditional industry machine tool connects to network program: To build network data acquisition system for machine tools device, base on ASI CIP platform products for data collection analysis, and connect to customer MES or ERP system interface to display the factory management information.

f. Long pipeline monitoring system: Monitor the trans-plant chemical pipeline operation status and warning for abnormal conditions. Support for pipeline maintain and operation and keep the safety of residents.

(3) Business of IIoT application a. The five dimensions of IIoT, as a blueprint of developing smart industrial park and plant,

includes 1) Environmental condition 2) Utility resource monitoring 3) Intelligent application of IoT 4) Safety requirement 5) Hardware and software planning of combat information center.

b. Promote and strengthen PSM management business in petrochemical plants, especially old ones. Utilize HAZAOP and LOPA service to introduce safety issues, in order to expand the business opportunities of Process Optimization, Energy Management, Asset and Information Management of plant, Logistic Management, and Safety Production Board. All in all, the goal is to construct a demo plant in Taiwan and further develop business in China.

9.Smart Automation Business Division： a. Responsible for the company's short, medium and long-term organization and business

development and strategic planning to promote.

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3.1.3 Risk management 1. Risk Management Policy: Risk management an integral part of the company's management. Risk management is a systematic mechanisms, methods and processes to prevent the accidents from happening or reduce the risk impacts, through the risk identification, risk assessment, response to control, and other measures. While making propositions or signing contracts with other companies in ASI before, both the relevant Divisions and persons in charge will carry out risk assessment and accordingly allocate a risk premium, but each Division/person adopts different risk management procedures and different risk levels. Such that ASI studied and defined "Risk Management Criterion" within its internal businesses control system, to require employees adopt a consistent, effective method to systematically identify and evaluate the risks which the processes of daily operations and customer services may face, as well as track and manage these risks, to reduce the company's loss caused by the events, to strengthen the company's service quality and competitiveness, and to pursuit of optimal efficiency. The Criterion went into effect on April 1st 2007.

(1) Purposes for defining the criterion: a. Description of the Company's risk management process, on which the Division was able to

systematically manage risks; b. Providing the criterion for risks management, such that ASI employees will adopt the

consistent ways of dealing with risk. c. To have risks management and internal businesses control mechanisms combined to run. The company has always been, through different projects, grouping of humans and resources to serve specific customers, so this criterion applies in particular to project risks management. In addition for the projects, this criterion also applies to the following operational activities of company executive layer and Division executive layer (hereinafter be referred to as "non-project operational activities"): sales of goods and receivables Financing Investment Research & Development

(2) Risk management processes and procedures: a. Risk items recognition (or "risks identification"). b. Risk levels evaluation. c. Risk strategies planning. d. Risk tracking and improvements.

(3) Risk Levels: Risks are divided into four levels. a. Low risk. b. Moderate risk. c. Slight High risk. d. High risk.

When a risk item is evaluated as "Slight high risk" or "high risk", the associated project / non-project person in charge of risk activities has to propose an improvement plan to reduce the risk level to "Moderate risk" or "low risk."

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2. Risk management organization: (1)Organization Description:

a. Risk Management Executive Committee is the steering unit of risks management, and General Manager acts as the chairman. Risk Management Executive Committee holds regularly "Risk Management Policy Conference", according to the risks management reports submitted by Divisions, reviews the effectiveness of risk management mechanisms and accordingly revises the criterion; and based on the statistical analysis on the past risks, events and associated frequency of occurrence, proposes to amend related criterion , guidelines and operational procedures of ASI quality system, to enhance the functions of staff training, to hire external experts so as to decrease the occurrence frequency of risks and / or reduce their impacts. Risk Management Committee Executive Secretary is the coordinator of ASI risk management mechanism.

b. The Risk Management in Divisions is promoted by Division Heads, who is responsible for the effectiveness of the risk management of its division. The risk management representatives in divisions, designated by the Division Heads, host the risk management related affairs in Divisions. Project managers assume full responsibility for the risk management of the projects within Divisions, and project risk control managers host the risk management related affairs in Projects.

c. The persons in charge of non-project operational activities of company executive layer and division executive layer, designated separately by General Manager and Division Head, are simultaneously responsible for the risks management of the activities.

d. Audit Office is the audit unit within the risk management framework, based on the Criterion, performs objective and independent audits to ensure the risk management mechanism be operated effectively. In addition, the risk control about the company business management and the business operations between ASI and its affiliated companies is based on the principles and criterion of internal businesses control system and the exact execution of the audit system to construct the firewall of the risk management.

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(2)Risk Management Organization (3)For hedge accounting of the aims and methods: The company did not use hedge accounting, it does

not apply.

Board of directors

Risk Management Executive Committee

Executive Secretary

Risk manager on behalf of the Divisions

(Company executive layer) Non-project person in charge

of operational activities

Audit Office

The project risk control manager

(Division executive layer) Non-project person in charge of operational

All staffs

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3.2 Directors and Management Team 3.2.1 Directors

March 31, 2018

Title Name Date Elected Gender

Term (Years

)

Date First Elected (Rep. of juridical person)

Shareholding when Elected

Shares %

Current Shareholding

(Rep. of juridical person)

Shares %

Spouse & Minor

Shareholding Shares %

Shareholding by Nominee

Arrangement Shares %

Experience（Education） Other Position

Executives and Directors who are spouses or within

two degrees of kinship Title Name Relation

Chairman Chen-Chin Chen (Rep. of CTCI Corporation)

2017.06.22 Man 3 1987.08.03 (2017.06.22)

11,444,842

48.72

11,444,842

48.72

0 0 0 0 -Degree of Master of Mechanical Engineering in National Central University

-Degree of Bachelor of Mechanical Engineering in National Central University

-Section Manager of CTCI Piping Department

-General Manager of CTCI Innovation R&D Center

-Vice President, ASi

- Chairman of CTCI Advanced Systems Inc.

- CENTURY AHEAD LIMITED Co. Ltd

-Chairman of CTCI Advanced Systems Shanghai Inc.

- - -

Director Shyue-Ching Liu (Rep. of CTCI Corporation)

2017.06.22 Man

3 2017.06.22 0 0 0 0 0

0

0 0 - Ph.D.of Electrical Engineering, University of Hawaii System

- Chairman/President of Chunghwa Telecom

- Vice Director of Directorate General of Telecommunications

- Director of Department of Posts and Telecommunications of the Ministry of Communications

- Director ,SERCOMM CORPORATION

-Independent Director, MATEC HOLDINGS Corp.

-Independent Director, RADIUM LIFE TECH CO.,LTD

- - -

Director Hou-Sheng Chan

2017.06.22 Man

3 2008.06.13 0 0 0 0 0 0 0 0 -Ph.D. University of Wales -Professor & Chairman,

Department and Graduate Institute of Sociology, National Taiwan University

-Professor & Director, Graduate Institute of Social Welfare, National Chung Cheng University

-Professor, Graduate Institute of Social Policy and Social Work, Chi Nan University,

-Chairman, Council of Labor Affairs, Executive Yuan,

-Minister of State, Executive Yuan,

-National Policy Advisors to the President.

-Chairman , Cross-Straits Common Market Foundation. -Independent Director, Industrial Bank of Taiwan.

- - -

Director Bao-Lang Chen

2017.06.22 Man

3 2011.09.08 0

0

0

0 0 0 0 0 B.S. of Chemical Engineering

National Chen-Kung University

-President of CPC Corporation, Taiwan

-Chairman of KouKuang Petrochemical Technology Co.(KPTC)

-Chairman of Formosa Petrochemical Corp.

- - -

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Title Name Date Elected Gender

Term (Years

)

Date First Elected (Rep. of juridical person)

Shareholding when Elected

Shares %

Current Shareholding

(Rep. of juridical person)

Shares %

Spouse & Minor

Shareholding Shares %


Arrangement Shares %

Experience（Education） Other Position

Executives and Directors who are spouses or

within two degrees of kinship

Title Name Relation Director Hung-I Chen 2017.06.22 Man

3 2017.06.26 401,000 1.71 416,000 1.77 7,000 0.03 0 0 -B.F.A., Department of

Drama &Theatre, National Taiwan University. -New York Film Academy. -Employee of Motion Picture Association of America -TV/Stage Actor -Anchor of ESPN STAR SPORTS

-Anchor of FOX SPORTS - - -

Independent director

Ryh-Yan Chang

2017.06.22 Man

3 2014.06.26 0 0 0 0 0 0 0 0 -Master of Finance, National Taiwan University -Rih-Yan Chang CPA firm owner -Deloitte & Touche partner

-Ryh-Yan Chang CPA firm owner. -Independent Director, Joinsoon Electronics MFG Co., LTD -Independent Director, Savior Lifetec Corporation -Independent Director, Panion & BF Biotech Inc. -Director, Sysgration Co., Ltd. -Director, Roo Hsing Co., Ltd. - Independent Director, E.SUN BANK -Chairman, Diligence Financial Advisor Co., Ltd.


Wen-nan, Tsan

2017.06.22 Man 3 2017.06.22 0 0 0 0 0 0 0 0 - Ph.D., Information Management, in National Central University - member of the Executive Yuan National Development Fund Investment Review Conference Electronic information industry, industry Layout Group Review Committee - member of the Economic department Review of Scientific and technological undertakings listed on the case Assessment - Board of Taiwan Asia-Pacific Industrial Analysis Professional Association (APIAA) chairman

- Director of Institute of Industrial Intelligence, Institute of Information Industry, Incorporated Corporation -Independent Director , Promise Technology - Independent Director , ASolid Technology Co., Ltd. - Independent Director , Chunghwa Precision Test Tech.Co., Ltd . -Director , Elitegroup Computer Systems.


Mei-Huei Li

2017.06.22 Woman 3 2014.06.26 0 0 0 0 0 0 0 0 -Master of Political Science, National Taiwan University

-Vice Chairman of CINEMARK -Vice Chairman of Sheen Chuen-Chi Cultural & Educational Foundation -Chairman, zhong Bao insurance services Inc. -CEO,USTV - Master pen, Business weekly - Adjunct Associate Professor, Chinese Culture University

-Chairman,SHAN-SHUI Management consultant Limited company

http://www.asolid-tek.com/about.php?lang=2

17

Major shareholders of the institutional shareholders

March 31, 2018 Name of institutional shareholders Major shareholders of the institutional shareholders

CTCI Corporation

CTCI Foundation (7.97%), Fubon Life Insurance Co., Ltd.(6.70%), CTBC Bank Co., Ltd. (CTCI Corporation Employee Stock Ownership Trust)(6.41%), Blackrock Global Funds-Asian Growth Leaders(4.13%), CTBC Bank Co., Ltd. (Sustainability Employee Stock Ownership Trust)(3.44%), Chunghwa Post Co., Ltd.(2.83%), Cathay Life Insurance Co., Ltd.(2.39%), KGI Bank(2.20%), American Funds Developing World Growth And Income Fund(2.18%), USI Corporation(1.99%)

Major shareholders of the major shareholders that are juridical persons

Name of juridical persons Major shareholders of the juridical persons CTCI Foundation N/A Fubon Life Insurance Co., Ltd. Fubon Financial Holding Co., Ltd. CTBC Bank Co., Ltd. (CTCI Corporation Employee Stock Ownership Trust)

N/A

Blackrock Global Funds-Asian Growth Leaders.

N/A

CTBC Bank Co., Ltd. (Sustainability Employee Stock Ownership Trust)

N/A

Chunghwa Post Co., Ltd. Ministry of Transportation and Communications Cathay Life Insurance Co., Ltd. Cathay Bank Co., Ltd. KGI Bank China Development Financial American Funds Developing World Growth And Income Fund

N/A

USI Corporation. Wikipedia Co., Ltd. (25.28%), Asia Aggregate Co., Ltd. (8.53%), Investment (1.73%), Lin Su Shan Shan (1.67%), Delta Chemical Industry Co., Ltd. (1.27%), Wu Xiao-chun (1.04%), American Bank JP Morgan Chase Bank (1.0%), Standard Chartered International Commercial Bank (1.00%)

18

Professional qualifications and independence analysis of directors

March 31, 2018

Criteria Name

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Independence Criteria(Note) Number of Other

Public Companies in Which the Individual is Concurrently Serving as an Independent Director

An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company

1 2 3 4 5 6 7 8 9 10

Chen-Chin Chen 0 Bao-Lang Chen 0 Shyue-Ching Lu 2 Hou-Sheng Chan 1 Hung-I Chen 0 Ryh Yan Chang 3 Wen-Nan Tsan 3 Mei-Huei Li 0 Remark A：Column will be adjusted by the actual quantity. Remark B：Each director and supervisor who applies with the following descriptions priority two years been elected or on the period while holding a post should mark on the column of criteria.

1. Not an employee of the Company or any of its affiliates. 2.Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company,

or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1%

or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the

top five in holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company. 7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial,

accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not been a person of any conditions defined in Article 30 of the Company Law.

19

10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law. Remark：Director Charles Y. Huang discharged on Sep. 9th 2016

3.2.2 Management Team

March 31, 2018

Title Name

Gender Date

Effective Shareholding Spouse & Minor

Shareholding


Arrangement Experience(Education) Other Position

Managers who are Spouses or Within Two Degrees of

Kinship Shares % Shares % Title Name Relation

President Chen-Chin Chen

Man 2017.06.22 0 0 0 0 0 0 -Degree of Master of Mechanical Engineering in National Central University

-Degree of Bachelor of Mechanical Engineering in National Central University

-Section Manager of CTCI Piping Department

-Deputy Manager of CTCI Innovation R&D Center -General Manager of CTCI Innovation R&D Center

- Chairman, CTCI Advanced Systems Inc.

- Chairman, CTCI Advanced Systems Shanghai Inc.

-Chairman, CENTURY AHEAD LIMITED

- - -

Vice President

Chiang-Nan Tsai

Man 2011.06.22 129,548

0.55 0 0 0 0 -B.S. of Electrical Engineering Chung Yuan Christian University

-Deputy Director of Engineering Business Unit of ACS

-Director of Project Business Unit of ACS

- Chairman, CTCI Advanced Systems Shanghai Inc.

-Director, CENTURY AHEAD LIMITED

-Director, CTCI Resources Engineering Inc.

- - -

Vice President

Tsung- Kung Shu

Man 2017.08.02 0 0 0 0 0 0 -Degree of Master of Chemical Engineering in Massavhusetts University, USA

-Degree of Bachelor of Chemical Engineering in Tamkang University

- President, CTCI Advanced Systems Shanghai Inc.

- Director, CTCI Advanced Systems Shanghai Inc.

- - -

Finance Manager

Pai-Chen Soong

Woman 2012.12.19 0 0 0 0 0 0 -Master of National Taiwan University College of Management --Vice Manager, Financial Department, CTCI Corporation

- - - -

Accounting Manager

Shirley Hsu

Woman 2015.11.05 0 0 0 0 0 0 -Chung Hsing University

-. - - -

.

20

3.3 Remuneration of Directors, President, and Vice President 3.3.1 Remuneration of Directors December 31st, 2017; Unit: NT$ thousands

Title Name Remuneration

Ratio of total remuneration

(A+B+C+D) to net income(%)

Relevant remuneration received by directors who are also employees

Ratio of total compensation

(A+B+C+D+E+F+G) to net income(%)

Compensation paid to directors from an invested company other than the

company’s subsidiary

Base Compensation(A) Pension Fund(B) Compensation of

directors (C) Allowances(D) Salary, Bonuses, and Allowances

(E)

Pension Fund(F) (Note 1)

Compensation of employees (G)

COMPANY

All Consolidate

d Entities

COMPANY

All Consolidate

d Entities

COMPANY

All Consolidated

Entities COMPAN

Y

All Consolidate

d Entities

COMPANY

All Consolidat

ed Entities

COMPANY

All Consolidat

ed Entities

COMPANY

All Consolidated

Entities

COMPANY All

Consolidated Entities

COMPANY All

Consolidated

Entities

Cash Stock Cash Stock

Chairman Hwei-Nan Yih (Rep. of CTCI

Corp.)

Director Yin-Fan Liu (Rep. of CTCI Corp.)

Chairman Chen-Chin

Chen (Rep. of CTCI

Corp.)


Director Shyue-Ching Lu

Director Hou-Sheng Chan

Director Hung-I Chen Independent director

Ryh Yan Chang


Hsi-Peng Lu


Mei-Huei Li


Wen-Nan Tsan

7,162 7,162 0 0 550 550 912 912 11.36 11.36 5,633. 5,633 205 205 35 0 35 0 19.10 19.10 None

Note 1: It’s allocated to the pension plan in 2017. Note 2: Chairman Hwei-Nan Yih, Director Yin-Fan Liu , and Independent director Hsi-Peng Lu are dismissed on Jun. 22, 2017, and disclose the information during his tenure of office only. Note 3: Chairman Chen-Chin Chen, Director Shyue-Ching Lu , and Independent director Ryh-Yan Chang are elected on Jun. 22, 2017, and disclose the information during his tenure of office only.

21

Bracket

Name of Directors

Total of (A+B+C+D) Total of (A+B+C+D+E+F+G)

ASI All Consolidated

Entities ASI

All Consolidated Entities

Under NT$ 2,000,000

CTCI Corporation ,Hwei-Nan Yih, Bao-Lang Chen, Yin-Fan Liu, Chen-Chin Chen, Shyue-Ching Lu, Hou-Sheng Chan, Hung-I Chen, Ryh Yan Chang, Hsi-Peng Lu, Mei-Huei Li, Wen-Nan Tsan


CTCI Corporation ,Bao-Lang Chen, Shyue-Ching Lu, Hou-Sheng Chan, Hung-I Chen, Ryh Yan Chang, Hsi-Peng Lu, Mei-Huei Li, Wen-Nan Tsan

CTCI Corporation ,Bao-Lang Chen, Shyue-Ching Lu, Hou-Sheng Chan, Hung-I Chen, Ryh Yan Chang, Hsi-Peng Lu, Mei-Huei Li, Wen-Nan Tsan

NT$2,000,000 ~ NT$5,000,000 - - Yin-Fan Liu, Hwei-Nan Yih, Chen-Chin Chen

Yin-Fan Liu, Hwei-Nan Yih, Chen-Chin Chen

NT$5,000,000 ~ NT$10,000,000 - - - - NT$10,000,000 ~ NT$15,000,000 - - - -

NT$15,000,000 ~ NT$30,000,000 - - - -

NT$30,000,000 ~ NT$50,000,000 - - - -

NT$50,000,000 ~ NT$100,000,000 - - - -

Over NT$100,000,000 - - - -

Total





22

3.3.2 Compensation of President and Executive Vice President December 31st, 2017; Unit: NT$ thousands

Title Name

Salary(A) Pension Fund (B) (Note 1)

Bonuses and Allowances (C)

Compensation of employees (D)

Ratio of total compensation

(A+B+C+D) to net income (%)

Compensation paid to the president and executive vice president from an

invested company other than the company’s

subsidiary ASI All


ACS All


ASI All


ACS All

Consolidated Entities ASI

All Consolidated

Entities Cash Stock Cash Stock

President (Note 2)

Yin-Fan Liu

4,817 4,817 312 312 4,383 4,383 80 0 80 0 12.71 12.71 None

President (Note 3)

Chen-Chin Chen

Vice President Chiang-Nan Tsai

Vice President (Note 4)

Tsung-Kung Shu

Note 1: It’s allocated to the pension plan in 2017. Note 2: President Yin-Fan Liu is dismissed on Jun. 22, 2017, and disclose the information during his tenure of office only. Note 3: Vice President Chen-Chin Chen is dismissed on Jun. 21, 2017, and appointed as President on Jun. 22, 2017. Note 4: Vice President Tsung-Kung Shu is appointed on Jun. 22, 2017, and disclose the information during his tenure of office only.

Bracket Name of President and Executive Vice President

ACS All Consolidated Entities

Under NT$ 2,000,000 Yin-Fan Liu , Tsung-Kung Shu Yin-Fan Liu , Tsung-Kung Shu NT$2,000,000 ~ NT$5,000,000 Chen-Chin Chen, Chiang-Nan Tsai Chen-Chin Chen, Chiang-Nan Tsai NT$5,000,000 ~ NT$10,000,000 - - NT$10,000,000 ~ NT$15,000,000 - - NT$15,000,000 ~ NT$30,000,000 - - NT$30,000,000 ~ NT$50,000,000 - - NT$50,000,000 ~ NT$100,000,000 - - Over NT$100,000,000 - -

Total Yin-Fan Liu, Chen-Chin Chen, Chiang-Nan Tsai,

Tsung-Kung Shu Yin-Fan Liu, Chen-Chin Chen, Chiang-Nan Tsai,

Tsung-Kung Shu

23

3.3.3 2017 Compensation of employees to Management Team December 31st, 2016; Unit: NT$ thousands

Title Name

Compensation of employees - in Stock

(Fair Market Value)

Compensation of employees

- in Cash Total

Ratio of Total Amount to Net Income（％）

Executive Officers

Chairman Chen-Chin Chen

0

115

115

0.15

President (Note1) Chen-Chin Chen President (Note2) Yin-Fan Liu Vice President Chiang-Nan Tsai Vice President Tsung-Kung Shu Finance Manager Pai-Chen Soong Accounting Manager Shirley Hsu

Note 1: Chairman Chen-Chin Chen is concurrently appointed as President on Jun. 22, 2017. Note 2: President Yin-Fan Liu is dismissed on Jun. 21, 2017.

24

3.3.4 Comparison of Remuneration for Directors, Presidents and Executive Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Presidents and Executive Vice Presidents

1. Analysis of total remuneration of ratio to net income in accordance with CTCI’s Directors, President and Executive Vice President by CTCI and all consolidated entities’ financial statements in the most recent two fiscal years.

Unit: NT$ thousands

Year Title

ACS All Consolidated Entities 2017 2016 2017 2016

Ratio to net income (%) Ratio to net income (%) Ratio to net income (%) Ratio to net income (%)

Directors 19.10 25.47 19.10 25.47 Presidents and Executive Vice President 12.71 13.11 12.71 13.11

2. The remuneration’s policies, standards, combinations, the procedures for determining the remuneration, and the relation to business performance

and future risks (1) CTCI ASI Directors’ Compensation is categorized into Base Remuneration, Remuneration and Allowance:

Directors’ Base Remuneration: Pursuant to Article 35 of Articles of Incorporation, the remuneration of directors, chairman shall be determined by the Board of Directors in reference to the industry standard and their respective contribution.

Directors’ Remuneration: It is paid according to Article 37 of Articles of Incorporation, “when net profit occurs in the annual accounts, the Company may, after reserving a sufficient amount of the income before tax to cover the accumulated losses, with the resolution of the board of directors, distribute no more than 2% of the income before tax to pay to the board of directors as remuneration” and Company’s performance. The Directors’ remuneration will not be paid to Independent Directors.

Allowance: It includes traveling allowance and attendance fee which are stipulated with reference to the typical pay levels adopted by other public listed companies or companies within the similar industry field.

(2) The structure of remuneration of the President and Executive Vice Presidents is categorized into fixed and variable ones. The fixed remuneration is salary paid monthly, while the variable one includes employee remuneration, year-end bonus and Employee Stock Options, with the standards based on individual’s annual key performance index (KPI) assessment. The aforementioned assessment includes qualitative indicators (e.g. core competencies, potential development, etc.) and quantitative indicators (e.g. the achievement of the individual's goals, the rate of achievement or the degree of achievement of the expected target value, etc.) Employee remuneration is paid based on the Company’s Articles of Incorporation. The year-end bonus is determined based on the annual operating performance of the Company, and shall be decided after suggestion of Company's personnel development committee / Remuneration Committee and approval by Board of Directors. The grant of Employee Stock Option is

25

categorized into regular and reward. The regular number of options will be determined by corporate title, seniority and job performance. The employees who have directly contribution to the Company or outstanding performance are eligible for the grant of reward stock options which is decided after suggestion of Chairman / Remuneration Committee and approval by Board of Directors.

(3) The procedure for setting remuneration is in accordance with “Procedure for Performance Assessment and Remuneration Standard of the directors

and Management Officers “. It refers to the typical pay levels adopted by other public listed companies and companies within the similar industry field, and considered about Company’s business performance, individual performance and their respective contribution to Company in order to prescribe reasonable remuneration. Remuneration committee and Board will periodically review the reasonableness of the remuneration and make timely adjustment of the remuneration system based on the Company’s business and relevant laws. It also shall not produce an incentive for the Directors, President and Executive Vice Presidents to engage in activity to pursue remuneration exceeding the risks that the Company may tolerate in order to avoid the Company loss suffering even after the compensation payment.

3. Future risk association

The standard, structure and system of the compensation of Directors, President and Executive Vice Presidents will be adjusted per future risk factor and will not encourage Directors, President and Executive Vice Presidents to risk danger in desperation for pursuit of rewards in order to avoid the Company loss suffering even after the compensation payment.

26

3.4 Implementation of Corporate Governance 3.4.1 Board of Directors

Seven (8) meetings March 31 2018 ended the Board of Directors, the directors in attendance situation: (As of March 31, 2018)

Title Name Attendance in Person By Proxy Attendance

rate(%) Note

A total of 2 meetings of the 10th Term Board of Directors during the most recent fiscal year.

Chairman Hwei-Nan Yih(Rep. of CTCI Corp.) 2 0 100.0

Director Yin-Fan Liu(Rep. of CTCI Corp.) 2 0 100.0

Director Bao-Lang Chen 2 0 100.0

Director Hou-Sheng Chan 2 0 100.0

Director Hong-I Chen 2 0 100.0

Independent Director Chang, Ryh Yan 2 0 100.0

Independent Director Hsi-Peng Lu 2 0 100.0

Independent Director Mei-Huei Li 2 0 100.0

A total of 6 meetings of the 11th Term Board of Directors during the most recent fiscal year.

Chairman Chen-Chin Chen(Rep. of CTCI Corp.) 6 0 100.0

Director Bao-Lang Chen 5 1 83.0

Director Hou-Sheng Chan 6 0 100.0

Director Hsi-Peng Lu 6 0 100.0

Director Hong-I Chen 6 0 100.0

Independent Director Ryh-Yan Chang 6 0 100.0

Independent Director Wen-Nan Tsan 6 0 100.0

Independent Director Mei-Huei Li 5 1 83.0

27

Other mattes to be included： I. Any matter listed in Article 14-3 of Securities and Exchange Act as well as any recorded board

resolution for which an independent director has dissenting opinion or qualified opinion should be noted in the minutes, detailing its date, term, issue, all opinions of the independent director(s) and how the company handles it.

II. In the event that a director has to avoid voting on a resolution because of a conflict of interest, the name of the director, the content of the resolution, reasons and the resolute of the vote should be noted.

1. Name of the director：Chen-Chin Chen Content of Resolution： - The first meeting of the eleventh term board of directors - The President appointment. - Causes for avoidance and voting should be specified：Chairman Chen-Chin Chen recused

themselves during the discussion of and the voting on this item because of the interested party relationship. Independent Director Chang, Ryh Yan was Deputy Chairman.

2. Name of the director：Chen-Chin Chen Content of Resolution： - The fifth meeting of the eleventh term board of directors - The average salary of the

Company's employees. - The fifth meeting of the eleven term board of directors - Approval of the remuneration of the

executives of the Company. Causes for avoidance and voting should be specified：Chairman Chen-Chin Chen recused themselves during the discussion of and the voting on this item because of the interested party relationship. Independent Director Chang, Ryh Yan was Deputy Chairman.

3. Name of the director：Chen-Chin Chen Content of Resolution： - The sixth meeting of the eleventh term board of directors - The quantity and Name list of

2017 employee stock option. Causes for avoidance and voting should be specified：Chairman Chen-Chin Chen recused themselves during the discussion of and the voting on this item because of the interested party relationship. Independent Director Chang, Ryh Yan was Deputy Chairman.

III. board for the year and the closest fiscal year as well as evaluation of its work. 1. The company has set up audit committee in June of 204, please refer to 3.3.5 Corporate

Governance Execution Status and Deviations. 2. The meeting minutes were disclosure on the Web-site of the company. 3. The company takes out the liability insurance for all directors to lower the risk and reduce the

damages of the company and the shareholders.

28

3.4.2 Audit Committee (Attendance of Supervisors for Board Meeting)

A. Implementation of Audit Committee (1). Seven (6) meetings March 31, 2018 ended the Audit Committee attendance situation:

(As of March 31, 2018)

Title Name Attendance in Person

By Proxy Attendance rate(%)

Note

A total of 2 meetings of the 1st Term Audit Committee during the most recent fiscal year Independent

Director Ryh Yan Chang 2 0 100.0

Independent Director

Hsi-Peng Lu 2 0 100.0


Mei-Huei Li 2 0 100.0

A total of 4 meetings of the 2nd Term Audit Committee during the most recent fiscal year Independent

Director Ryh Yan Chang 4 0 100.0


Wen-Nan Tsan 4 0 100.0


Mei-Huei Li 3 1 75.0

Other mentionable items: I. Any matter listed in Article 14-5 of Securities and Exchange Act as well as any

recorded board resolution for which an audit member has dissenting opinion but consent by two-thirds or more of all directors should be noted in the minutes, detailing its date, term, issue, all opinions of the members of committee and how the company handles it: Up to the annual report be disclosed, all matters were consented by the attendant auditors.

II. In the event that an independent director has to avoid voting on a resolution because of a conflict of interest, the name of the independent director, the content of the resolution, reasons and the resolute of the vote should be noted：None

III. Communications between independent directors, and the company’s internal audit officer and CPA: 1. After having presented the audit and follow-up reports to the Chairman, the

Internal Audit officer submits the same reports via e-mail for review by the Independent Directors on a monthly basis. The Internal Audit officer communicates with the Independent Directors in person quarterly. There was no further issue after responding their comments. The Internal Audit officer presents the findings of audit reports in the meetings of the Audit Committee and the Board of Directors. All the Independent Directors have adequate access to how audit performs. The communication channel between Independent Directors and the Internal Audit officer functioned well.

2. The CPAs present audit reports and financial report to the independent director. The CPAs held the meeting to communicate with the independent directors periodically, and communicate with business personnel to acquire the operation status of the company. Good communication between the independent directors and CPAs.

29

3.4.3 Corporate Governance Execution Status and Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies”

Item

Implementation Status Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM

Listed Companies” and reasons

Yes No Summary

1. Does the Company establish and disclose the Corporate Governance Practice Principals in accordance with the Corporate Governance Best Practice Principles for the TWSE/ GTSM Listed Companies?

V The Company has established “Corporate Governance Principles” based on “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies”.

None

2. Ownership structure and shareholder’s equity (1) Does the Company set up the internal

standard operation procedure to handle issues such as shareholder’s advices, questions, disputes and accusations for implementation accordingly?

(2) Does the Company have control over the

major shareholders, who control the Company and have the name list of the major shareholders who have the ultimate control over the Company?

V

V

(1) The Company has designated Spokesperson

system and Investment Relation Department to handle shareholders’ suggestions or complaints.

(2) The Company, pursuant to Article 25 of the

Securities and Exchange Act, compile and file the report monthly of the changes in the number of shares held by the insiders (including directors, managerial officers, and shareholders holding more than 10% of the total shares of the Company) with the Competent Authority.

None The major shareholder indicated in Article 19 refers to those who own 5% or more of the outstanding shares of the Company or the shareholding stake thereof are on the top ten list. When the Company provides shareholder registers in accordance with book closures carried out at the company by the shareholder services agent, the registers indicate the major shareholders controlling the Company.

30

Item



Yes No Summary

(3) Does the Company set up and implement the risk control and firewall mechanism with the subsidiaries and affiliates?

(4) Does the Company stipulate internal

regulation, prohibiting the insiders of the company to make use of the unpublished information for the trading of securities?

V

V

(3) Pursuant to “Regulations Governing Establishment of Internal Control Systems by Public Companies”, the Company has established “Procedure of supervision and governance of subsidiaries”. Also, the Company has established relevant procedures between the Company and affiliates which be audited by Auditing Dept.

(4) The company laid down "To prevent insider

trading management guidelines" to prohibit the use of undisclosed insider information to trade securities on the market. On " Employee Code of Conduct” specified that employees of any possible significant impact on its position as the company was informed of the price information on securities transactions, without the prior public disclosure, should be in accordance with the provisions of the Securities Exchange Act strictly confidential and shall not use the information in insider trading.

None None

3. The composition and duties of the Board (1) Whether members of the Board of Directors

to develop and implement a diversified policy (2) Operations of the Company’s Nomination

Committee, Compensation Committee, or other committees of the Board of Directors

V

V

(1) The Company has established the diversification of board of directors in its “Corporate Governance Principles “.For short term and long term development strategy, the expertise has been considered while selection of the members of the Board of Directors.

(2) The Company has set up the Audit Committee in

March of 2014 to substitute the supervisors, and the Remuneration Committee. The company also

None None

31

Item



Yes No Summary

(3) Whether the company set board performance

assessment guide and regular annual performance appraisal?

V

has: a) Business Strategy Committee: This committee will

propose, discuss and make policy for the company's business development, product research, organization changes, operation procedure changes, white paper revising etc...

b) Human Resource Committee: This committee is mainly responsible for reviewing job and duties, performance system for management level, and the state of their implementation. Periodically prepare and view the code of Conduct and Ethics for the employees in employee handbook. Conduct reward and discipline, operate conscientiously and carefully. It’s a decisive key point of proposal and other massive company decision.

c) Risk Management Executive Committee: This committee will periodically hold “Risk Management Policy Conference.”Based on risk management report by offices, make self-criticism of validity on risk management system, and revise standards. Analyze consequences of statistics according to the risk, passed issues, and frequency. Advice on improving the company related standards of quality system, operation procedure, and employee training to reduce frequency of normal risk and/or to lower the blast.

(3) The Company has set up the “Regulations Governing the board Performance Evaluation“ by the resolution of the Boards on 13 December, 2016. By the regulations, the Company shall

None None

32

Item



Yes No Summary

(4) Regular evaluation of CPAs’ independence

V

conduct a board performance evaluation at least once a year. The board performance evaluation for the current year shall be conducted at the end of each year according to the evaluation procedures and the evaluation indexes of the regulations. The criteria for evaluating the performance of the board of directors include the following aspects:

a. Participation in the operation of the Company; b. Improvement of the quality of the board of

directors' decision making; c. Composition and structure of the board of

directors; d. Election and continuing education of the

directors; e. Internal control; and f. Others.

The 2017 board performance evaluation has been completed via self-evaluation by members of Board of Directors in early 2018 and the result has been reported

(4) Based on the company's 'Accountants'

performance assessment approach', the Accounting Department conducted an evaluation of accountants' independence and adaptability once a year and made a written record. After the performance results were available and approved by the person in charge at the end of the fiscal year, the performance evaluation were submitted

33

Item



Yes No Summary

to the yearly board meeting. Accountants of Eric Wu and Se-Kai Lin from PwC Taiwan had been evaluated for their independence and adaptability and the results had been submitted to the 4th session of the Second Audit Committee and the 6th session of the Eleventh boarding meeting on 7 March 2018. Two accountants met requirements and thus are qualified to be certified public accountants of the company.

Because of its internal organization change of PwC Taiwan, it is approved by the 16th session of the First Audit Committee and the 18th session of the Tenth boarding meeting of the company on 8 May 2017 that starting from the second quarter of 2017, the original CPA of Eric Wu and Douglas Chang have been changed to Eric Wu and Se-Kai Lin.

Because of its internal organization change of PwC Taiwan, it is approved by the 4th session of the Second Audit Committee and the 6th session of the Eleventh boarding meeting of the company on 3 March 2018 that starting from 2017, the original CPA of Eric Wu and Se-Kai Lin have been changed to Jenny Yeh and Eric Wu.

34

Item



Yes No Summary

4. Does the company set up the corporate governance units or personnel responsible for matters related corporate governance?(including but not limited to providing the business-required information to the directors and supervisor, handling the matters related to the meetings of the Board and the shareholders' meeting, the registration of the company and the minutes of the Board and the shareholders' meeting)

V Executive Management Office is the corporate governance unit for matters related corporate governance including(but not limited):

Provide the business-required information to the irectors and supervisor.

Hand the matters related to the meetings of the Board and the shareholders' meeting, the registration of the company and the minutes of the Board and the shareholders' meeting.

Plan the 3 hours of on-site course for directors. Renew the Directors’ and Officers’ Liability Insurance.

Inform the related information of laws or announcements to insiders on irregular basis.

Prepare the Self-evaluation of Corporate Governance Evaluation and assist related divisions to follow up Corporate Governance Evaluation Indicators and related regulations by the Competent Authority published.

None

35

Item



Yes No Summary

5. Communication channel with stakeholders V (1) The Company establishes "CSR" and "Investor Relations" sections in its corporate website to explain to stakeholders the conducts for fulfilling CSR and may be contacted via its corporate website when needed. The Company will give proper feedback to any reasonable concerns raised by the stakeholders.

(2) HR, Administration, and Procurement Departments are responsible for the communication window of employees, investors and business partners.

(3) Finance Department provides service to banks and others.

(4) Company Website has been set up service e-mail box for customers, suppliers and employees.

None

6. Does the company appoint a professional service agent for Annual General Meeting of Shareholders affairs

V KGI Securities Co., Ltd. has appointed as the professional service agents for Annual General Meeting of Shareholders affairs.

None

7. Information Disclosure (1) Establishment of a corporate website to

disclose information regarding the Company’s financials, business and corporate governance status

V

(1) a) The Company has set up a Chinese/English

website (www.acs.com.tw) to disclose information regarding the Company’s financial and business status and update information regularly.

b) The Company has disclosed information regarding the organization and function of Internal Auditing Dept., “Rules Governing Procedure for Making of Endorsements or Guarantees”, “The Procedure for Acquisition and Disposition of Assets” and “Rules Governing

None

36

Item



Yes No Summary

(2) Other information disclosure channels (e.g.,

maintaining an English-language website, appointing responsible people to handle information collection and disclosure, appointing spokespersons, webcasting investors conference)

V

Procedure for Loaning of Funds” on the Company website.

(2) a) The Company has set up a Chinese/English

website and has appointed Administration Dept. to handle information collection and disclosure.

b) The Company has appointed Director of EMO Chih-Cheng, Lin as the spokesperson, Accounting Manager Yu-Wan, Hsu as deputy spokesperson and they are responsible for speaking to the public. The Company will hold investors conference presentation according to practical needs.

c) The sound recordings and presentations of investor’s conference have been posted on the Company website. The Company has disclosed financials and business information of inventors’ conference on the Company website and the Market Observation Post System pursuant to regulations of Taiwan Stock Exchange Corporation.

None

7. Other important information to facilitate better understanding of the Company’s corporate governance practices (e.g., employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for

V (1)The implemented systems or measures of human rights, employee rights, employee wellness by the Company, such as gender equity and sexual harassment prevention regulations, have been specified in working regulations and employee handbook in accordance with the laws. The Company has set up feedback mailbox to handle employee’s questions of rights at any moment.

(2)Investor relations: The Company has designated Spokesperson system, and has set up Investment

None

37

Item



Yes No Summary

directors and supervisors) Relations section on the Company website to handle investors’ questions and at any time, update real time investment information on the Company website.

(3)Supplier relations and rights of stakeholders: The Company has set up the customer service hotline to provide a channel for suppliers, customers and rights of stakeholders, and to solve questions quickly. If an interested party relationship exists between any director, or a juristic person the director represents, and any agenda item, and such relationship is likely to prejudice the interests of the Company, the director will not participate in discussion of or voting on that agenda item, and shall recuse themselves during discussion of and voting on that item.

(4)Directors training records: Please refer to “Other Important Information Regarding Corporate Governance” .

(5)The implementation of risk management policies and risk evaluation measures： The Company has set risk management organization and designated risk management policies. Financial risk management: Take hedge measures to reduce the risk of exchange rate and related derivatives, and review financial structure on demand. Internal control: has designated a full time auditor to audit and deliver a report on the Company’s internal control system periodically and aperiodically.

(6)The implementation of consumer or customer protection policies: The Company does business with all customers by signing contracts for

38

Item



Yes No Summary

protecting the right and obligation of each other. The Company has established the customer service method, conducted the customer satisfaction survey periodically each year, and analyzed questions to improve on. The Company and each departments has designed customer service assistant to answer phone calls and handle customer’s questions. Furthermore, the Company has established a public website with the contact phone number and email address for customers to ask questions directly, in order to implement policies of consumer and customer protection.

(7)Purchasing insurance for directors: The Company purchased D&O insurance for its directors, specified in the Chapter 5 Article 34 of Articles of Incorporation, and implemented in accordance with rules.

8. Does the company have a corporate governance self-assessment report commissioned by the company or other professional institutions of governance evaluation report

V The company had the corporate governance self-assessment report and uploaded to TWSE website. The self-assessment results and improvement measures are reported to EMO on March 2018.

None

【Note 1】 No. Evaluation Item Specific Improvements 2.6 Annual General Meeting convened before 5/31? ASI’s Annual General Meeting will be convened on 29th May, 2018.

3.31 Is there performance appraisal of board of directors, which is carried out annually and posted on the Company website or the annually report?

The Company has formulated the “Regulations Governing the board Performance Evaluation“ on 12th December, 2016. The internal board performance evaluation for the current year shall be conducted at the end of each year. The results of performance evaluation for 2017 were reported to Board of Directors on 7th March, 2018 and disclosed on the Company’s website.

39

3.4.4 Composition, Responsibilities and Operations of the Remuneration Committee

1. Profile of the Remuneration Committee

Criteria Name

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience Independence Criteria(Note) Number of

Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director

An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company 1 2 3 4 5 6 7 8

Ryh Yan Chang 3 Wen-Nan Tsan 3 Mei-Huei Li 0 Note 1: Zhan Hou-Sheng resigned on March 20th, 2014, Chiu Shean-Bii and Ho Chen-Tan resigned on June 25th, 2014. Note 2: Directors, during the two years before being elected and during the term if office, meet any of the following situations, please tick the appropriate corresponding boxes:

(1) Not an employee of the Company or any of its affiliates. (2) Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the

Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. (3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an

aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. (4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three

subparagraphs. (5) Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that

holds shares ranking in the top five in holdings. (6) Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with

the Company. (7) Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides

commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. (8) Not been a person of any conditions defined in Article 30 of the Company Law.

Note 3: Does the member comply with the provision of Article 6, paragraph 5 of the “Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter” if he/she is a director of the Company.

40

2. Operations of the Remuneration Committee 1) Three (5) meetings March 31, 2018 ended the Remuneration Committee:

(As of March 31, 2018)

Title Name Actual attendance (B) Attendance

commissioned Actual attendance

rate (%)(B/A) Note

A total of 2 meetings of the 2nd Term Remuneration Committee during the most recent fiscal year. (until 2017.6.21)

Convener Ryh Yan, Chang 2 0 100.0 Member Hsi-Peng, Lu 2 0 100.0

Member Mei-Huei, Li 2 0 100.0

A total of 3 meetings of the 3rd Term Remuneration Committee during the most recent fiscal year. (2017.6.22~2018.3.31)

Convener Ryh Yan, Chang 3 0 100.0 Member Wen-Nan, Tsan 3 0 100.0

Member Mei-Huei, Li 3 0 100.0 Other matters 1. If the Board does not accept or amend the proposed remuneration committee, should clearly state the date, term agenda,

and decision of the board and the company's compensation committee advice on treatment: None. 2. the remuneration committee resolved matters, if members of the objections or reservations of record or a written

statement, should state the compensation committee date, term agenda, and all members of the opinions and advice to members of the treatment: None situation.

41

3.4.5 Corporate Social Responsibility

Item

Implementation Status Deviations from “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies” and reasons

Yes No Summary

1. Exercising Corporate Governance (1)Does the company declare its corporate social

responsibility policy and examine the results of the implementation?

(2)Does the company organize CSR training on a

regular basis? (3)Does the company establish exclusively (or

concurrently) dedicated units to be in charge of proposing and enforcing the corporate social responsibility policies, and report to Board of Directors periodically?

(4)Does the company organize regular training on

business ethics and promotion of matters prescribed in the preceding Article for directors, supervisors and employees, and should incorporate the foregoing into its employee performance appraisal system to establish a clear and effective reward and discipline system?

V

V

V

V

(1)The Committee is responsible for setting

corporate social responsibility policy, overseeing the company’s CSR planning, promotion, execution, data exchange, reviewing the improvement of the whole, and also from time to time to reviewing and correcting the implementation of the results.

(2)The company is organized CSR training on a regular basis.

(3)ASI CSR Committee has introduced three

working groups, including business management group, social participation group and environmental protection groups. Each unit is formed by part-time colleagues, responsible for the different stakeholders’ related issues. Perform report to Board of Directors periodically

(4)Regularly hold discussion meetings, post “Provision for Employees in the New Code of Ethics Manual” on bulletin board and wall poster, and broadcast business ethics on television. Indeed, to clearly define the moral issues which should be complied with by the staff, reward and punishment is reviewed by the Personnel Committee.

None None None None

2. Fostering a Sustainable Environment (1)Does the company endeavor to utilize all resources

more efficiently and use renewable materials which have a low impact on the environment?

V

(1)As one of the community members, the

company devoted to carbon reduction efforts. The company continued to pursue the

As the company is not a manufacturing plants, and therefore it does not apply to

42

Item


Yes No Summary

(2)Does the company establish proper environmental

management systems based on the characteristics of their industries?

(3)Does the company monitor the impact of climate

change on its operations and should establish company strategies for energy conservation and carbon and greenhouse gas reduction?

V

V

development and application of new technologies, and develop "energy management information platform", "power monitoring system" and other products to help all kinds of factories increased functionality and performance process of energy saving. In 2015, the company was a member of Manufacturing Industry Energy Management Demonstration Team to promote energy-saving project planning and counseling consultant.

(2)ASI has fully implemented e-business for many years, promoted electronic personal and project documents, a significant reduction in paper waste. For reduction paper waste, ASI combine print and personal access cards in order to print accurately as needed and to avoid paper waste.

(3)In the part of water and energy saving, we adjusting the amount of water on pipes and appropriate settings in air-conditioned for office room at any time. Also, turn off the computer and the transaction machine after using. In response to carbon reduction, ASI redecorated and switches to LED energy-saving lamps with T5 lighting in conference room this year. The overall efforts in energy saving and carbon reduction, was awarded the "Energy Saving Taipei City Government fourth Golden Award" in recognition. The management goals and their implementation are announced on the company’s website and TWSE.

"the use of renewable materials". None None

3. Preserving Public Welfare

43

Item


Yes No Summary

(1)Does the company comply with relevant labor laws and regulations, protect the legal rights and interests of employees, and have appropriate management methods and procedures?

(2)Does the company establish complaint mechanisms

for employees and handle the issues properly? (3)Does the company provide safe and healthy work

environments for its employees, and organize training on safety and health for its employees on a regular basis?

(4)Does the company establish the regular

V

V

V

V

(1)ASI respects the employees’ human rights, complies with labor laws, and establishes employee discipline policy to protect the employees’ legitimate rights and interests. We set "staff work rules" to protect the legitimate interests of employees and non-discriminatory employment policies etc. And based on Gender Equality in Employment Law and Sexual Harassment Prevention Act that we set "sexual harassment prevention measures, appeals and disciplinary policy" to protect Gender Equality and provide staff the sexual non-harassment working environment.

(2)The company has set up an internal portal, "I have something to say" page, providing employee complaint mechanisms and the issues will be handled by the personnel committee properly.

(3)ASI is concerned with the employees’ health and safety. In addition to an annual subsidized physical examination provided, regular drinking water quality inspection, air quality inspection, and illumination detection are conducted in order to maintain workplace safety. Health and safety workshops offered by the qualified instructor are also held regularly. Since 2017, the company has carried out “safety Moment” five minutes before the start of the large meetings to enhance employees' attention to the environment, safety and healthy.

(4)ASI has regular annual meeting such as

None None None None

44

Item


Yes No Summary

communication mechanisms and in a reasonable manner to notify the employee may have a significant impact on the working conditions of changes?

(5)Does the company establish an effective career

development and training program for employees? (6)Does the company establish and disclose policies on

consumer rights and interests and provide a clear and effective procedure for accepting consumer complaints?

(7)Does the company follow the relevant regulations

and international guidelines on the marketing and labeling of products and services?

(8)Does the company check whether suppliers had the

record of impacting environment and society?

V

V

V

V

labor-management committee meeting, labor-safety committee meeting and Labor Pension Management Committee meeting that provide fully channel to discussion and communication with labor representatives. Also, general manager has annual seminars to talk with colleagues in various departments that reporting on the financial position of the company operations and changes and raised various issues to achieve the purposes of full communication.

(5)All units are required to prepare their annual training plan and execute accordingly. Training plan execution review report will be reviewed quarterly.

(6)ASI provides customer service line to solve any problems from suppliers, clients and stakeholders. Client satisfaction surveys are released in the end of each year to make improvement for the coming year.

(7)Quality is the key to business continuity among

the most important, and it is the commitment to client by ACS. ASI build quality management system according to ISO 9001: 2008 international standards, to ensure compliance with it in project management, design, procurement, construction, manufacturing, commissioning and maintenance of all aspects.

(8) Before becoming an official supplier, the company will evaluate all new players, and check

None None None None

45

Item


Yes No Summary

(9)Does the contract of the company and its main

supplier contain terms of suppliers as a violation of their corporate social responsibility policies, and have a significant impact on the environment and society, have the right to terminate or rescind the contract?

V

whether they had the record of impacting environment and society.

(9)The evaluation of suppliers Includes the certification of security, environment and integrity. The evaluation also covered the quality, price, delivery, safety, health, environmental management, environmental protection and energy saving, labor human rights, health management, employee benefits. After all the rigorous evaluation process, unqualified vendors, will be suspended.

None

4. Enhancing Information Disclosure (1) Does the company expose the reliable corporate

social responsibility Information on its website and MOPS, etc.?

V

We have published the all relevant information in the annual report, financial report, CSR, MOPS (Market Observation Post System), and company's external website ASI abide by laws and regulations and uphold the principle of good faith that is the basic attitude to respect investors and the corporate obligations of the shareholders. We will continue to enhance the transparency of information disclosure to implement corporate governance in the future. From 2012, ASI has get consecutive transparency of information disclosure that is rated the highest level award and awarded the Top.5 Listed “Companies Information Disclosure Evaluation" in this year.

None

5.If the Company has established corporate social responsibility principles based on “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies”, please describe any discrepancy between the principles and their implementation: ASI has established Corporate social responsibility principles based on “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies”.

46

Item


Yes No Summary

In the 13th session of the Ninth board meeting of the company, the code of 'Corporate Social Responsibility Principles ' has been worked out and passed. The company will follow this code, and will periodically make ' ASI Corporate Social Responsibility Report' and put it in the company website. The report will cover company's management, environment protection, and social participation etc. If there is any unclear herein, please refer to this report for detail.

6. Other important information to facilitate better understanding of the Company’s corporate social responsibility practices： The CSR Policy Statement: ASI's CSR policy strengthens the company's management physique, fulfills its social citizenship responsibilities, and strives

for environmental conservation practices to achieve the goal of sustainable business operation of the company. The company's welfare committee provides education scholarship and bursary each semester to employees’ kids who are studying from primary

school to college, as well as nursery subsidies for employee’s infants who are in public or private kindergartens registered in the government in order to increase employee’s welfare and to support government's childbirth encouragement.

For a long time, the company has an agreement with Ming Chi University of Technology to provide internship for students. The company sponsors 30,000TWD for Taiwan Energy Technology Service Industry Development Association and donated 24 notebook computers

to the corporate legal person Sanyi Strategic Development Association in 2017. The company vigorously developed solutions for energy conservation and emission reduction and applied them to various kinds of air compressor

systems, cooling water system, heating systems of factories in order to achieve the goal of energy conservation and emission reduction and to contribute a share for reduction of the global warming. ASI employees participated Earth Hour event at home from 20:30 to 21:30 on 19 March 2017.

The company provides employees with optimal workplace as well as take employees’ growth and except for improving working environment, enhancing jobsite safety, promoting the concept of plant carbon emission, creating friendly workplace, strengthening staff centripetal force. We received “Happiness Enterprise Award” program hosted by Department of Labor, Taipei City Government in 2011 and 2012.

Awarded “Corporate Sustainability Report – Top.50 of gold medal for the service industry” from TCSA in 2017. 7. If the corporate social responsibility reports have received assurance from external institutions, they should state so below:

For the sake of the credibility of the report, the publication of the report of all the information and data are verified by reputable international institutions Association of British (BSI) according to GRI G4 and AA1000 Assurance standard high assurance levels to verify the check type II, BSI verification statement also included in the 2015 corporate social responsibility report.

47

3.4.6 The Ethical Corporate Management

Item

Implementation Status Deviations from “Ethical Corporate Management Best Practice Principles for TWSE/ GTSM-Listed Companies” and reasons

Yes No Summary

1. To Establish ethical corporate management policy and plan

(1) Does the company declare the policy of integrity management explicitly on its regulations and external documents? Do the Board of Directors and management team commit to the policy?

(2) Does the company establish the program to prevent acts of bad faith, clearly specify the operating procedures, behavior guidelines, disciplinary irregularities and complaints system, and implement it?

(3) Does the company adopt preventive measures for operation activities with higher risk of dishonesty as specified in the second section of Article VII of " Ethical Corporate Management Best Practice Principles for TWSE/ GTSM-Listed Companies " ?

V

The company has set up ' Employee Code of Conduct ' for employees to follow. This code clearly specifies conduct standard and requires the company employees to abide by laws and ethics. The company also has worked out ' Code of Ethics for Directors and Managers '. Not only board members and supervisors are trained according to the 'Key Points of On-Job-Training for Public Company's Board Members and Supervisors' but new appointed board members and supervisors are trained for profession duties and are introduced for the company's management system including the ' Employee Code of Conduct '. All board members and supervisors are requested to sign 'Letter of Consent for Board Member (Supervisors)' in which board member and supervisor agree to work faithfully and to assume management liabilities. They shall indemnify for any damage caused by their violation of the company's rules.

None

2. Implementation of ethical corporate management. (1) Does the company assess the record of integrity of

suppliers, and specify the terms of the integrity of conduct in contract?

V

The company has established rules relating to business credibility. The Auditing Department periodically does various audit to check functions of the business credibility rules.

None

48

Item


Yes No Summary

(2) Does the company set up units to promote ethical corporate management, and report its implementation to the Board of Directors regularly?

(3) Does the company set policies to prevent conflicts of interest, provide adequate communication channel, and implement?

(4)Does the company set up effective accounting system, internal control system for ethical corporate management, and implement the internal audit periodically.

(5)Does the company have the internal or external training of the ethical corporate management regularly?

It is forbidden to have preferential affairs between employee and party. All employees can’t pay or ask for present, entertainment, commission or bribe for the advantage of themselves or third party, when they conduct their work. The Company set up effective and faultless accounting system and internal control program to manage out of ordinary affairs. The Company also set up a specialized independent audit unit to execute yearly auditing plans and report the audit results to supervisors every month. The audit unit also has to attend the Audit Committee and Board of Directors to report the faults and extraordinary affairs in their internal control inspection, and push related units to take modified measures and trace the results quarterly until they are fully- modified. In addition to post the core value of the company, “professionalism, integrity, teamwork, innovation”, at the office, there are education and training courses organized for these ideas.

3. The implementation status of setting up impeachment channel, punishment and complaint system for violation of ethical corporate principles.

V In addition to set the company's spokesman, dedicate person are designated for the information collection and expose placed outside the company's Web site. There is an “Opinion

None

49

Item


Yes No Summary

Message” in the official website to provide investors communication channel. The personnel committee takes responsibility of handling the impeachment issues. The company will protect those who propose the impeachment.

4. Information disclosure (1) Disclosure of good faith management practice and

other related information on website set up by the company.

V

The Company disclosed the related enterprise culture and operation guidelines on its website, and posted ”Corporate Governance Principles” in corporate governance zone under Investor Relations on website. The contact way to the spokesman assigned by the Company has been disclosed on its website.

None

5. If the company has established its own ethical corporate principles based on “Ethical Corporate Management Best Practice Principles for TWSE/GTSM-Listed Companies”, please describe the difference between operation practice and the ethical corporate principles: None

6. Other important information to facilitate understanding of the company’s good faith management implementation.（e.g. To review and revise the company’s ethical corporate management best practice principles） The Company strictly observed “Company Act”,” Securities and Exchange Act”, related rules for TWSE/GTSM-Listed Companies and other commerce ordinances to implement the good faith management. Review and revise the Company’s internal management principles including “Corporate Governance Principles”, “Code of Ethics for Directors and Managers”, and “Employee Code of Conduct” based on the development of ethical corporate management principles. The company has relevant credibility regulations for business documents (such as purchase orders). The regulations strictly prohibit any promise or any commissioning, profit, remuneration, bribe, agency fee, or any other illegal profit to related people.

3.4.7 Corporate Governance Guidelines and Regulations Please refer to the Company’s website at www.acs.com.tw

http://www.acs.com.tw/

50

3.4.8 Other Important Information Regarding Corporate Governance 1. Training program for directors

Title Name Date Elected Study period

Sponsoring Organization Course Training

hours From TO

Chairman Chin-Chen Chen

2017/6/22

2017/12/15 2017/12/15 Taiwan Corporate Governance Association

How do directors fulfill their duty of loyalty 3.0

2017/11/23 2017/11/23 Taiwan Institute for Sustainable Energy

Discovering sustainable opportunities for the country by SDGs

3.0


The point risk managements of Board of Directors are used of innovative technologies.

3.0


Big data analysis, and prevention/detection of fraud.

3.0

Director Shyue-Ching

Lu 2017/6/22

2017/11/23 2017/11/23 Securities and Futures Institute

Analysis of Enterprise Financial Information and Application of Decision Making

3.0



3.0


2017/6/22 2017/11/17 2017/11/17

Dharma Drum Mountain Humanities and Social Improvement Foundation

From Ethic to Materialization - Interviewing Insider Trading

3.0


From Big Data to Artificial Intelligence 3.0

Director Hou-Sheng, Chan

2017/6/22



3.0



3.0

2017/03/10 2017/03/10 Taiwan Academy of Banking and Finance

Trust Industry Supervisors (including on-the-job) seminars

3.0

http://www.sfi.org.tw/en/index.html




51

Title Name Date Elected Study period

Sponsoring Organization Course Training

hours From TO

Director Hung-I Chen

2017/6/22 2017/05/16 2017/05/16 Securities and Futures

Institute

How Dongzhang Supervises the Company to Conduct Investigation and Prevention of Fraud and Strengthen Corporate Governance

3.0


Commercial Bribery Prevention Regulation and Practice Case Analysis

3.0


Chang, Ryh Yan

2017/6/22 2017/08/11 2017/08/11

Taiwan Corporate Governance Association


3.0



3.0


Wen-Nan Tsan

2017/6/22 2017/05/12 2017/05/12



3.0


Business Considerations and Legal Risk Analysis of Business Management Decisions

3.0


Li, Mei-Huei

2017/6/22 2017/08/11 2017/08/11



3.0



3.0

2. Operation Procedure of the Company’s Internal important Information: According to the letter of Financial Supervisory Commission dated March 16th, 2009 and consulting with “Internal Material Information Disclosure Procedure” which is announced by Taiwan Stock Exchange Corporation (TWSE), the Company has obtained the approval of the “Regulations Governing Prevention of Insider Trading” (the “Regulation”) in the 8th meeting of the 8th term Board of Directors in August 26th, 2009. The Regulation is the code of conduct for Directors, Supervisors, Managerial personnel, and the persons regulated under the Regulation and it includes the scope of Internal Material Information, and the laws, regulations, orders that people forenamed should comply with. The Company has provided the Regulation to all Directors and Supervisors, and also disseminates the all employees.







52

3.4.9 Internal Control System (1) A Statement on Internal Control

53

(2) Where a CPA has been hired to carry out a special audit of the internal control system, furnish the CPA audit report: None

3.4.10 In Recent Years until the Annual Report being Published, Violation of Internal Control Policies

by Employees: None.

3.4.11 Major Resolutions of Shareholders’ Meeting and Board Meetings 1. Major resolutions of Shareholders’ Meeting of Year 2017(2017.06.22)

Date Resolutions of Shareholder’s Meeting Executive Condition

2017.06.22

1. Approving and merging 2016 financial statements.

Resolutions are followed.

2. Adoption of the Company’s distribution plan of 2016 earnings.

The ex-dividend date was on August 1st, 2017, and cash dividend was paid on August 25th, 2017. (Each common share holder will be entitled to receive a cash dividend of TWD 2.506 per share)

3. Approval of the amendment to the Company’s “Articles of Incorporation”

Announced on MOPS and CTCI ASI website..

4. Approval of the amendment to the Company’s “Rules Governing the Election of Directors”.

Announced on MOPS and CTCI ASI website .

5. Approval of the amendment to the Company’s “Rule Governing Procedure for Marking of Endorsements or Guarantees”.

Announced on MOPS and CTCI ASI website..

6. Approval of the amendment to the Company’s “The Procedure for Acquisition and Disposition of Assets”

Announced on MOPS and CTCI ASI website .

7. The election of the Company's 11th Term Directors

Announced on MOPS and CTCI ASI website. The list of newly elected Directors: Chen-Chin Chen, Representative of CTCI Corporation;Hsi-Peng Lu, Representative of CTCI Corporation;Lu, Shyue-Ching; Chan, Hou-Sheng;Chen, Bao-Lang;Chen, Hung-I; The list of newly elected Independent Directors: Chang, Ryh Yan;Tsan, Wen-Nan;Li, Mei-Huei;

8. Approval of removing the non-competition restrictions on board directors newly-elected.

The resolution of removing 9 directors (including 3 independent directors) of the 11th Term Board of Directors has been made and implemented.

2. Major Resolutions of board of directors as of the date of this annual report：The resolutions are

passed unanimity by all present directors. 2017.03.17 Report of the independence and qualification of CPAs

Approval of 2016 compensation of directors and employee bonus Approval of 2016 Business Report, Financial Statements, and Consolidated Financial Statements Approval of 2016 profit distribution

54

Approval of the “2016 Internal Control System Statement” Approval of the adjustment of “articles of incorporation” and “Rules for Director Elections” Approval of the modification of “Internal Control System” and “Internal Audit System” Approval of the election of the eleventh term directors Approval of the convening of 2017 Annual General Meeting Approval of the period and place for proposals and director nomination of 2017 Annual General Meeting Approval of the loan applications for Company Funds

2017.05.08 Report on Consolidated financial reports as of March 31th, 2017. Approval of auditing the qualification of candidates of the 11th Term Board of Directors. Approval of the amendment to the Company’s “Internal Control Systems” and the internal rules. Approval of change of independent auditors of the Company.

2017.06.22 Through the Elected Chairman of the Eleventh Board of Directors Through the appointment of the company’s general manager Appointment of a member of the company's "Salary Compensation Committee" Approval of the ex-dividend record date of 2017. Through company spokesperson and acting spokesperson Approval of the adjustment of managerial officers of the Company.

2017.11.01 Report on Consolidated financial reports as of September 30th, 2017. Report on Status Report of Directors’ and Officers’ Liability Insurance. Approval of the amendment to the Company’s “Internal Control Systems” and the internal rules.

2017.12.14 Report on the implementation of ethical corporate management. Approval of the budget of 2018. Approval of the Year 2018 Audit Plan. Approval of the amendment to the Company’s “Internal Control Systems” and the internal rules. Approval of the issuance of 2018 Employee Stock Options. Approval of the remuneration of the management officers of the Company.

2017.03.07 Evaluation Report for the Independence and Capability of Independent Auditor. Assessment Report for Adoption of International Financial Reporting Standards IFRS 16 Leases. Report for Board of Directors Performance Assessments. Approval of the distribution plan of the 2017 directors’ and employees’ remuneration. Approval of the Fiscal 2017 business report, financial reports and consolidated reports. Approval of the distribution plan of Fiscal 2017 earnings. Approval of “Statement of Internal Control System for the Year 2017”. Approval of the convening of the 2018 Annual General Meeting. Approval of the place and the period of time for shareholders to submit proposals of the 2018 Annual General Meeting. Approval of change of independent auditors of the Company. Approval on loans to subsidiaries for working capital requirement granted. Approval of list of subscribers and the number of shares they are allowed to subscribe for of 2018 Employee Stock Options Program.

3.4.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting

55

to Important Resolutions Passed by the Board of Directors: None

3.4.13 Resignation or Dismissal of Personnel Involved in Preparation of Financial Reports: (As of Match 31st, 2018)

Job Title Name On Duty Date Dismissal Date Reason of on Duty or Dismissal

Chairman Hui-Chen Yin 2008.06.13 2017.06.22 Term of office expires election

President Yin-Fan Liu 2011.06.22 2017.06.22 Job Rotation

R&D Manager Shao-Wen, Cheng 2014.08.07 2017.05.12 Resignation

56

3.5 Public Expenses of CPA 3.5.1 Information of CPA

Accounting Firm Name of CPA Audit Period Note PriceWaterHouseCoopers Eric Wu Se-Kai Lin 2017.01.01-2017.12.31 -

3.5.2 Public Expenses of CPA

Unit: NT$ thousands

Item Amount (NTD) Audit Fee Non-audit Fee Total

1 Less than 2,000,000 440 440

2 2,000,000 ~ 4,000,000 (inclusive of 2,000,000) 2,391 2,391 3 4,000,000 ~ 6,000,000 (inclusive of 4,000,000) 4 6,000,000 ~ 8,000,000 (inclusive of 6,000,000) 5 8,000,000 ~ 10,000,000 (inclusive of 8,000,000) 6 More than 10,000,000 (inclusive of 10,000,000)

Unit: NT$ thousands

Accounting Firm Name of CPA Audit Fee Non-audit Fee

Audit Period Note System Design

Registration Human

Resource Other

(Note1) Total

PriceWaterHouseCoopers Eric WU

2,391 0 0 0 440 440 2017.01.01-2017.12.31 Note Se-Kai Lin Note: The Non-audit fees (Other) includes (in NT$ thousands): transfer-pricing report service fee 340 and profit tax administrative relief fee 100..

3.5.3 In the event that the CPA firm is changed and the audit public expenses paid in the year when the CPA firm is less than that paid in the preceding year, reduction of the audit public expenses, percentage and causes: None.

3.5.4 In the event that the audit public expenses reduce by 15% compared with that was charged in the preceding year, reduction of audit public expenses, percentage and causes：None.

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3.6 Information on replacement of CPA: (1) Year 2017：Because of its internal organization change of PwC Taiwan, the original CPA of Eric

Wu and Douglas Chang have been changed to Eric Wu and Se-Kai Lin starting from the second quarter of 2017.

(2) Former accountant for a public company annual reports should be disclosed that the three points of the Article 10 and paragraph 5, first and the second item and reply: Not applicable.

3.7 The Company's Chairman, President and Managers Responsible for Finance or Accounting who

have Held a Post in the CPA Office or its Affiliated within the Latest Year : None 3.8 Changes in Shareholding of Directors, Managers and Major Shareholders

3.8.1 Changes in shareholding transfer or shareholding pledge of directors, managers and majority shareholders in the recent year and as of the date of the publication of the annual report.

Unit: Shareholder

Title Name

2017 As of Match 31st, 2018

Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Chairman CTCI Corporation 0 0 0 0

Chairman Hwei-Nan Yih 0 0 0 0

Chairman Chin-Chen Chen 0 0 0 0

Director Lu, Shyue-Ching 0 0 0 0

Director Hong-I Chen 15,000 0 0 0

Director Bao-Lang Chen 0 0 0 0

Director Hou-Sheng Chan 0 0 0 0

Independent Director Li, Mei-Huei 0 0 0 0

Independent Director Chang, Ryh Yan 0 0 0 0

Independent Director Lu, Hsi-Peng 0 0 0 0

Independent Director Wen-Nan Tsan 0 0 0 0

President Yin-Fan Liu 0 0 0 0 Vice President Chiang-Nan Tsai 0 0 0 0

Vice President Chen-Chin Chen 0 0 0 0

Vice President TSUNG-KUNG SHU 0 0 0 0

Finance Manager Pai-Chen Soong 0 0 0 0

Accounting Manager Shirley Hsu 0 0 0 0

3.8.2 Shares Trading with Related Parties: None 3.8.3 Shares Pledge with Related Parties: None

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3.9 Information Disclosing the Relationship between any of the Company’s Top Ten Shareholders (As of March 31, 2018)

Name Shareholding Spouse &

Minor


Arrangement

The relationship between any of the Company’s Top Ten Share holders

Remarks

Shares % Shares % Shares % Name Relation

CTCI Corporation 11,444,842 48.72 0 0 0 0 GRQ

Investment Corporation

Parent Company of GRQ Investment Corporation

Representative: John T. Yu 0 0 0 0 0 0

GRQ Investment Corporation

Parent Company of GRQ Investment Corporation Chairman

Fubon Life Insurance Co., Ltd

1,080,000 4.6 0 0 0 0 -- --

Representative: Ming-Hsing Tsai 0 0 0 0 0 0 -- --

Hu-Fang-Yu Chen 1,026,000 4.37 0 0 0 0 Hong-I Chen Mother & Son

Hong-I Chen 416,000 1.77 7,000 0.03 0 0 Hu-Fang-Yu Chen Mother & Son

GRQ Investment Corporation 324,417 1.38 0 0 0 0 CTCI

Corporation

Subsidiary of CTCI

Corporation

Representative: John T. Yu 0 0 0 0 0 0 CTCI

Corporation Chairman

Xian-Hua Mo 220,169 0.94 0 0 0 0 -- --

TIAN-FU GUO 181,000 0.77 137,00

0 0.58 0 0 JHONG-FU

GUO Father & Son

JHONG-FU GUO 174,000 0.74 0 0 0 0 TIAN-FU GUO Father & Son

Kam-chuen Lin 158,000 0.67 0 0 0 0 -- --

Hwei-Nan Yih 144,968 0.62 0 0 0 0 -- --

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3.10 Shareholdings of the Company Directors, Managements, and Direct and Indirect Investments of the Company in Affiliated Companies

Unit: Share%

Affiliated Company

Investment of the Company

Directors, Managements Direct

and Indirect Investment of the Company

Total Investment

Share % Share % Share %

Century Ahead Ltd. 750,000 100% 0 0 750,000 100%

CTCI Advanced Systems Shanghai Inc.

Note 1 100% 0 0 Note 1 100%

Note 1： Investment amount: US750, 000, non Stock issued

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IV. Capital Overview 4.1 Capital and Shares

4.1.1 Source of Capital 1. Issued Shares

As of March 31, 2018

Year /Month

Par Value (NT$)

Authorized Capital Paid-in Capital Remark

Shares (thousands)

Amount (NT$

thousands)

Shares (thousands)

Amount (NT$

thousands )

Sources of Capital

Capital Increased by Assets Other

than Cash

Other

2016.10 10 26,000 260,000 23,491,500 234,915,000 ESOP None

2. Type of Stock

Share Type Authorized Capital

Remarks Issued Shares Un-issued Shares Total Shares

Common Share 23,491,500 2,508,500 26,000,000 Listed stock

Note: The company OTC stock。.

4.1.2 Status of Shareholders As of March 31, 2018

Item Government

Agencies Financial

Institutions

Other Juridical Person

Domestic Natural Persons

Foreign Institutions &

Natural Persons

Total

Number of Shareholders 0 1 11 2,214 4 2,228

Shareholding (shares) 0 1,142,000 11,838,098 10,492,755 18,647 23,491,500

Percentage 0.00 4.86 50.39 44.67 0.08 100.00

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4.1.3 Shareholding Distribution Status 4. Common Shares (The par value for each share is NT$10)

As of March 31, 2018

Class of Shareholding (Unit : Share)

Number of Shareholders Shareholding (Shares) Percentage

1 ~ 999 722 84,091 0.36 1,000 ~ 5,000 1,166 2,317,246 9.86

5,001 ~ 10,000 150 1,132,659 4.82 10,001 ~ 15,000 57 728,097 3.10 15,001 ~ 20,000 35 649,728 2.77 20,001 ~ 30,000 32 789,074 3.36 30,001 ~ 40,000 12 431,094 1.84 40,001 ~ 50,000 9 398,884 1.70

50,001 ~ 100,000 14 1,030,855 4.39 100,001 ~ 200,000 10 1,418,344 6.04 200,001 ~ 400,000 2 544,586 2.32 400,001 ~ 600,000 1 416,000 1.77 600,001 ~ 800,000 0 0 0

800,001 ~~ 1,000,000 0 0 0 1,000,001 or over 3 13,550,842 57.67

Total 2,213 23,491,500 100.00 2. Preferred stocks: The Company does not issue preferred stock

4.1.4 List of Major Shareholders As of March 31, 2018

Shareholder's Name Shareholding

Shares Percentage

CTCI Corporation 11,444,842 48.72

Fubon Life Insurance Co., LTD 1,080,000 4.60

Fang-Yu Chen Xu 1,026,000 4.37

Hung-I Chen 416,000 1.77

Nan Shan Life Insurance Company, Ltd 324,417 1.38

Xian-Hua Mo 220,169 0.94

TIAN-FU GUO 181,000 0.77

JHONG-FU GUO 174,000 0.74

Kam-chuen Lin 158,000 0.67

Hwei-Nan Yih 144,968 0.62

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4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share

Item 2016 2017 Market Price per Share

Highest Market Price 44.50 52.40 Lowest Market Price 38.00 39.75 Average Market Price 40.27 45.36

Net Worth per Share Before Distribution 22.31 22.99 After Distribution 19.80 -

Earnings per Share Weighted Average Shares 23,478,000 23,492,000 Diluted Earnings Per Share 3.08 3.23

Dividends per Share Cash Dividends 2.505 2.877

Stock Dividends Dividends from Retained Earnings - - Dividends from Capital Surplus - -

Accumulated Undistributed Dividends - - Return on Investment

Price / Earnings Ratio 13.07 14.04 Price / Dividend Ratio 16.08 15.77 Cash Dividend Yield Rate 0.06 0.06

4.1.6 Dividend Policy and Implementation Status

(1) Dividend Policy

According to the Article of Incorporation,When net profit occurs in the annual accounts, the Company may, after reserving a sufficient amount of the income before tax to cover the accumulated losses, with the resolution of the board of directors, distribute at least 2% of the income before tax to pay to the employees as remuneration, and distribute no more than 2% of the income before tax to pay to the board of directors as remuneration. The remuneration could be stock or cash, and the employee remuneration could be distributed to the employees of subsidiaries of the Company under certain conditions. A report of the distribution of employee remuneration or the board of directors remuneration shall be submitted to the shareholders’ meeting. The allocable profit for the current year, which is the balance after the profit distribution and covering losses aforementioned as the preceding Paragraph, together with the undistributed retained earnings accrued from prior years shall be referred to as cumulative distributable earnings, which shall be distributed as dividends to shareholders according to shareholders’ resolutions. In order to meet the requirements in business expansion and industry growth, fulfilling future

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operating needs and stabilizing financial structure is the priority of the Company's dividend policy. Thus, the distribution of the cumulative distributable earnings accords to the shareholders’ resolutions. And, the amount of shareholders’ bonus shall not be less than 50% of cumulative distributable earnings of the Company, and in particular cash dividend shall not be less than 20%.

(2)Proposed Distribution of Dividend Due to the board of directors resolution on 7 March 2018, the Company has decided to distribute the cash dividends NT$ 67,587,966 (NT$ 2.877 per share) to common shareholders.

4.1.7 Impact of Stock Dividend Distribution on Business Performance, EPS and Return on

Investment: Not Applicable.

4.1.8 Employee Remuneration and Directors' Remuneration (1) According to the Article of Incorporation,When net profit occurs in the annual accounts, the

Company may, after reserving a sufficient amount of the income before tax to cover the accumulated losses, with the resolution of the board of directors, distribute at least 2% of the income before tax to pay to the employees as remuneration, and distribute no more than 2% of the income before tax to pay to the board of directors as remuneration. The remuneration could be stock or cash, and the employee remuneration could be distributed to the employees of subsidiaries of the Company under certain conditions. A report of the distribution of employee remuneration or the board of directors remuneration shall be submitted to the shareholders’ meeting.

(2) The estimation basis on remuneration to Employees and remuneration to Directors, the calculating basis on the number of shares for share bonus and accounting treatment for the differences between the actual distributing amounts and estimations: Estimation of employee remuneration and Directors compensation is based on prior experience and is recognized as current expenses. In the case of significant change ( per Article 6 of Securities and Exchange Act Enforcement Rules, the amount is excess NT$10,000 thousand and reaches 1% of audited net operating revenue or 5% of paid-in capital), the expense shall be adjusted accordingly in the year of the employee remuneration is recorded. When the change is not significant, it shall be recorded in the following year as change in accounting estimation. If the amount remains variable on the date of Shareholders’ meeting in the following year, it shall be recorded in the following year as change in accounting estimation.

(3) Profit Distribution of Year 2017 Approved in Board of Directors Meeting for Employee

Remuneration and Directors’ Remuneration (a) Recommended Distribution of Directors’ Remuneration is NT$550,000, and Employee

Remuneration in cash is NT$2,385,183. (b) Ratio of Recommended Employee Stock Bonus to Capitalization of Earnings: N/A (c) Recounted EPS after Recommended Distribution of Employee Remuneration and Directors’

Remuneration: NT$2.877 per share (d) Earnings per share with consideration of the proposed employee remuneration and warrants:

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employee remuneration is distributed via cash, so earning per share is not changed. (4) Information of 2016 Earnings Set Aside to Employee Bonus and Directors’ and Supervisors’

Remuneration: Unit: NT$

Actual Distribution A Recognized Estimated Amount B

Variance C=A-B

Remuneration for Employees (Cash) 2,557,356 2,557,356 0

Remuneration for Directors (Cash) 618,852 618,852 0

The actual distribution of employee Remuneration and Directors compensation in 2015 is based on Shareholders’ Resolution and corresponds to actual reserve

(5) The Information of Top Ten Recipients of Employee Bonuses in 2016:

Name Title Amount(NT$) Chen-Chin Chen Chairman(2017/06/22~)

239,554

Yin-Fan Liu President(~2017/06/21) Chiang-Nan Tsai Vice President Tsung-Kung Shu Vice President Jen-Chwan Lee Chief Engineer Albert Tsao Chief Engineer Chih-Cheng Lin Chief Engineer Bruce Lin Chief Engineer Shu-Jen TU Chief Engineer Kuo-Chun Chang Chief Engineer

Other Employees 2,317,802 Total 2,557,356

4.1.9 Buyback of Treasury Stock: None 4.2 Issuance of Corporate Bonds: None 4.3 Preferred Shares: None 4.4 Issuance of Depository Receipt: None 4.5 Employee Stock Options

In order to attract and maintain the talents for the development of ACS, motivate employees’ will of long-term employment, and consolidate staffs’ centripetal force, the Company reserves 3,000,000 shares. The Company had approved to issue the Employee Stock Option Plans for five times, 600 units per issue. In total, there are 3,000 units issued. Each unit represents 1,000 common shares of the Company, and the exercise price for the shares is the market closing price of Company's common shares on the day the options are granted.

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4.5.1 Issuance of Employee Stock Options As of March 31, 2018

Type of Stock Option 5th Tranche 2018 ESOP

Regulatory approval date

2011/06/17 2018/01/09

Issue date 2011/06/22 2018/03/23

Units issued 600 units 600 units

Option shares to be issued as a percentage of outstanding shares

2.55695 2.55411

Duration The duration for options is 6 years, during which employees may not transfer, pledge, or gift their options except to heirs. Upon the expiration of the grant period, unexercised options are deemed forfeited and the subscribers may no longer claim right to exercise the option and purchase those shares.

Conversion measures

issue new share

Conditional conversion periods and percentages

Subscribers may exercise their options by the following schedule and proportion: The availability period The ceiling of option exercisable (accumulate) Regular Reward Less than 2 years 0% 0% In 2 years after the grant 50% 25% In 3 years after the grant 75% 50% In 4 years after the grant 100% 100%

Converted shares 145,250 shares 0 shares

Exercised amount NT$ 7,291,675 NT$ 0 Number of shares yet to be converted

0 shares 600,000 shares

Adjusted exercise price for those who have yet to exercise their rights

None NT$ 46.85

Unexercised shares as a percentage of total issued shares

0 2.55411

Impact on possible dilution of shareholdings

Dilution to Shareholders’ Equity is limited.

Note 1：The 5th Tranche to the 2017.06.21 credentials deadline. (The expiration date is 21nd Jun. 2017, the exercise date rescheduled to April 24th 2017, due to 2017 shareholders’ meeting).

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4.5.2 List of Executives Receiving Employee Stock Options and the Top 10 Employees: As of March 31, 2018

Title Name No. of Option Shares

Option Shares as a Percentage of Shares

issued

Exercised Unexercised

No. of Shares Converted

Strike Price (NT$)

Amount (NT$

thousands)

Converted Shares as a

Percentage of Shares issued

No. of Shares

Converted Strike Price

(NT$) Amount

(NT$ thousands)

Converted Shares as a

Percentage of Shares issued

Manager Chin-Chen Chen

18,000 0.0766 0

5th: NT$42.0

0 0 75,000

2018 ESOP: NT$46.85

0 0

Vice President

Chiang-Nan Tsai

Vice President Tsung-Kung Shu

Accounting Manager Yu-Wan Hsu

Financial Manager Pai-Chen Soong

Manager Chi-Hua Yu

65,000 0.2767 18,500 922,950 0.7875 68,000 0 0

Director K.C. Chang Manager Chin-Cheng Lin Chief Engineer

Ting-Shun Chuang

Manager Yao-Hua Wang Vice Chief Engineer

Chen-Hsing Huang

Vice Chief Engineer Rui-Hong Lin

Vice Chief Engineer Shi-xin Kang

Vice Chief Engineer Xin-zhi Huang

Vice Chief Engineer

Zhiling Chen

4.6 Limit Employee right with new shares: None 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions: None 4.8 Financing Plans and Implementation: None

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V. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope (1) Main areas of business operations

(a) The Feasibility Study, Planning, Design, Procurement, Fabrication, Assembly, Supervision, Installation, Calibration, Commissioning, Maintenance and Operation for System Hardware /Software in detail or overall work. Including the following service items: Engineering of Programmable Logic Controller, Automation System and Optimized Control Instrumentation, Monitoring and Data Acquisition System Electrical Safety and Revamping Works Process Dynamic Simulation System and Operator Training System Communication Network System Supervisory Control and Data Acquisition System Plant Central Monitoring System, Fire and Fighting System and Access Control System Facility or industrial park mechanical and electrical projects The Application of Hardware/Software on the Special Purpose The application and integration of Industrial IoT Manufacturing Execution Systems and Advanced process control system

(b) Refining equipment, chemical equipment, oil/gas transport and storage system, industrial safety equipment systems planning, consultants, consulting, design, testing, maintenance, operation and others.

(c) Computer hardware and software, automation instrument, energy saving equipment, technology imports and sales agent.

(d) Railway vehicle industry semaphore equipment, automatic fare collection equipment, communications equipment assembly, manufacturing and trading business.

(e) Environmental pollution detection and analysis of surveys, advisory business; environmental assessment, investigation, monitoring, planning business; environmental health and safety planning business.

(f) Waste water treatment, air pollution monitoring and control, noise and vibration engineering, refrigeration and air conditioning system, fire safety equipment installation, automatic control instrument, installation of computer equipment, telecommunications equipment, information software and telecommunications equipment importer.

(g) Industrial energy saving includes energy-saving, and CO2 emission reduction or recycling solution services.

(h) Airport E&M systems and ICT related projects, including airport baggage handling System, air-side or land-side mechanical and electrical systems and SCADA system, and ICT systems.

(i) Factory Automation, Industrial IoT and Smart Applications.

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(2) Revenue distribution

The company revenue shall divide into engineering service and product sales two portions, as follows:

Y 2017 Unit；NT$ thousands

PRODUCT/SERVICE ITEM SALES AMOUNT % Engineering service 1,152,951 86.19 Product sales 184,704 13.81 Total 1,337,655 100.00

(3)Main Products and Services:

(a) Products Mr. Energy 50001: Energy management information platform - Mr. Energy 50001 is the

new develop product by ASI apply for the energy saving and carbon reduction application as an information management tools of ISO50001 system. Provide enterprises with significant energy equipment identification, regulatory identification information, energy baselines, performance indicator and the analysis for energy consumption per unit product. According to customer scheduling estimated energy consumption and monitored the performance of energy in real time. In line with international certification standards to enhance the corporate green image.

Intergraph Series Products：Used in oil refining, chemical, biotech pharmaceuticals, paper, mining, nuclear thermal power next-generation and marine facilities, etc. 3D Plant Design Software Plant Design System (commonly known as the industry PDS ®), the global industry's most advanced next-generation knowledge-based 3D plant design software, SmartPlant ® 3D, three-dimensional model of the factory cruise software SmartPlant ® Review, the most advanced generation of knowledge-based three-dimensional design of the ship Software IntelliShip ®, factory planning configuration solution SmartPlant ® Layout, the data for the respect of instrumentation engineering and instrumentation engineering information management software, SmartPlant ® Instrumentation (formerly INtools ®), the data for the respect of the knowledge-based P & ID solution for SmartPlant ® P & ID , a new generation of process HazOp automatic analysis / recognition system SmartPlant ® Process Safety, in respect of plant data for the Electrical Engineering Electrical Engineering and Information Management software, SmartPlant ® Electrical, material specifications cum supply chain management system SmartPlant ® Materials (formerly MARIAN ®), strong tough, flexible and integrated factory-cum-engineering information management platform SmartPlant ® Foundation, robust and flexible plant asset performance management system Meridium, I-Sketch ™ affordable single-line diagram of industrial piping / materials related to series, and easy to use will not forget the two-dimensional parametric engineering drawing

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software SmartSketch ®. Mr. PSM : Mr. PSM is a complete Safety Management System, coordinate with the most

professional services by our consultant, which then provide the best compliance audit, integration of process safety information and version management. This product is designed for the process plant, providing the most effective process safety management and self-maintenance usage.

Airport Baggage Handling System：Handling passenger baggage by using automated control to sort and deliver baggage to the destination quickly and accurately. This system can automatically recognize early baggage, specially designed "early baggage storage systems" device, this device can be kept early arrived baggage prior to departure of flight. If the departure time is closer, the baggage which storage in the "early baggage storage system" will be extracted out. Meanwhile, the sorter will start sorting out the baggage by each flight and deliver to unloaded conveyer according to the computer's calculation; early arrived baggage will be installed into cabinets with normal arrived luggage, which substantially increase the efficiency of baggage delivery. It provides a self-developed Baggage Reconciliation System to facilitate the handling of baggage packing and delivery to meet the requirements of IATA753.

Airport E&M System: Combining the supply chain to provide overall aeronautical information management and intelligent applications to assist airport customer to develop and achieve the goal of smart airport.

AspenTech product sales agents and maintenance services to provide high-level application production process. There are three categories promoting : Aspen Engineering Suite (AES)、Manufacturing and Supply Chain(MSC)、Asset Performance Management(APM).

Industrial equipment (distribution, agency product): Provides customer-related control system products contain as Novatech D/3 DCS products, Mitsubishi, IDEC's PLC controller, HMI and HMI, SCADA control software, relays, switches and other products That can be used in petrochemical, oil refining, paper, incineration plants, chemical plants, transportation, utilities and other application areas.

Air Compressor Group Control energy saving System : The system can provide medium and large plant air compressors to optimize energy saving in parallel grouping running with remote control and status monitoring. It can be customized, and modified according to customer requirements to reduce operating costs and to provide the most optimal management mechanism.

Power monitoring system (PowerMonitor) : It is a set of low-level power management system that provides an overview of basic electricity, power line diagram, trend analysis and simple electricity demand forecast function. It makes general factory less spending in a very short period of time. In addition, let the factory get a set of easy using and effectively management of electricity situation workshop solutions.

Cyber Integration Platform (CIP): A big data collection platform, covering a wide range of

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industry communication protocols, can capture all kinds of real-time information from customer plant site. Proceed with a long-term intensive data accumulated as a massive database. Include high-speed access capability for the high-density database. Function as big data analysis software applications platform then help to fulfill the factory intelligently. It is necessary tools for industry customer to promote industrial 4.0 and big data analysis.

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(b) Service items System Design, Revamping and Setup Control System Engineering Service (Including DCS, PLC, SCADA, PC-based System

etc.) Plant emergency stop safety system (Including ESDS、Safety System etc.) Safety Instrumented System General industrial automation integration Access Control & CCTV System FMCS, Facilities Monitor & Control System Clean rooms, AC and Electrical System Aviation Mechanical and Electrical System (Including Ground satellite receiving

system, BHS, Public Electrical System etc.) Central Traffic Control and Communication System Instrument Calibration, Installation and Maintenance Power Management System The application and integration of Industrial IoT

Computer Software Design Plant automation/monitoring systems Intelligent manufacturing application systems Computer simulation systems Airport Baggage Handling System/ Baggage Reconciliation system Internet application system Satellite ground control application systems Computerized Asset and Maintenance Management System Airport Operation and Management System

Industrial 4.0 plan and implement services i-CIP（big data database）build-up Industrial 4.0 performance program planning Industrial 4.0 solution implementation Intelligent factory, production, and connection solution implementation Process Simulation and Process Optimization

Counseling of the Energy Saving, Energy Management and System Installation Energy saving of the Utility System Energy Saving of the Plant Process Equipment Plant-wide energy Management

Intelligent Pilot Plant and the Deign/Implementation for equipment package Conceptual Design and Cost-Benefit Analysis Implementation for Optimized Operation System Design and Implementation for Intelligent Equipment Providing platform and service to implement Digital Plant with 3D model, intelligent

72

P&ID, laser scan imaged and asset data. Multi-Product Real-Time Optimization Quality Control System.

(4) Main product and service of subsidiary:

Please refer to Basic Information of the Consolidated Business Reports.

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5.1.2 The general situation of industries ASI is a professional system integrator, the main business areas cover oil & gas, chemical process, high-tech plant facilities, and transportation, and energy industrial fields. The assessment of future market development of ASI describes as follows:

(1) The global economic environment In 2017 rests on the International Monetary Fund (IMF) statistics, the global economy growth reaches 3.6%, the international finance environment loose as before, in addition booming continues growth, also lets the international oil price and the global original material price joggings pushes high, the main economy reduces the deflation haze, the folk consumer confidence could raise inspires, forms the forward circulation which booming could the maintenance recover, the global economy long rate achieves the recent years high spot; IMF grows the newest forecast in view of 2018 economies, the global economical growth rate estimate about 3.7%, maintains 2017 the temperate growth. Counts according to the Department of Executive, the Taiwan economical growth rate is 2.86% in 2017, forecast is 2.42% in 2018. Recently global economy steadily changes for the better. In order to grasp the world economics’ better situation and opportunity, the government impetus enthusiastic policy, the expansion expends, the investment and the exportation kinetic energy, the impetus obtained grows with the salary, breaks through difficult position of the Taiwan economy growth. In addition, the government strengthens the impetus structure reform, in accordance to the economy development and completely growth, making more prosperity, more stability, and better homeland. The acceleration industry innovation and structure reforming, is the government current first important matter. Therefore, the government fully promotes the revitalization of the six measures of economy. Employ two methods to achieve one goal by the economical supplies surface and the demand surface, Promotes the folk to expend, before the acceleration gazes the infrastructure, the encouragement folk participates in the public construction together, in the expansion needs, and implements the laws and regulations to deregulate, simultaneously impels “five to add two” the industrial innovation continually, Implements industrial reforming to promote, lets the Taiwan economy vigorous development. The method includes:

i. Impetus the salary growth ii. Optimize tax system, improve the capital market

iii. Accelerates to invest Taiwan iv. Implements the laws and regulations to deregulate v. Accelerate the implementation of advanced infrastructure projects

vi. Impels “five plus two” the industrial innovation plan continually

(2) Industrial development and the current situations The industry 4.0 has launched wideky in the industrial market. Recent industrial market that Industry 4.0 is emerging, Industry 4.0 purpose is to improve the competitiveness of the industry, enhance of their advantages in the new industrial revolution, including extensive use of the new ICT technologies, such as IoT, cloud computing and big-data analysis to achieve

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objectives. The intelligent manufacturing development that focus on the industry 4.0 market, has gradually mastered such new technologies to help customers upgrade the transition. In government public construction sector, the Taoyuan International Airport third terminal mega project go into the peak of the construction in 2017, ASI focuses on the airport mechanical and electrical engineering industry development has substantial opportunities. ASI is listed in IT service industry classification of system integrator. Company has always been operating caution, promoted to the business operating concepts of professional, and integrity, teamwork, and innovation. 2016 shares and profit and the revenue are keep top level in industry. And the company is peer in the minority business across oil & gas, petrochemical, energy, transportation and hi-tech plant industries and providing the professional integration services company, and has automation system turnkey capacity. The company has accumulated many automation system experiences in oil & gas and energy fields, also traffic surveillance systems in transportation and high-tech plant E&M projects. It had been cultivated by a group of experienced industrial automation project talent, and long-term cooperation with the parent company, maintains visibility in the international market, has a competitive advantage in the marketplace. In recent years, apart from upgrading the original international project management capability and factories manufacturing execution ability, but is also actively engaged in intelligent manufacturing, industrial safety and energy-saving emission reduction field, and is unique in the industry, and applying relevant technology industry 4.0, extended intelligent application, and factory automation businesses complement.

(3) The up/down stream relationships The company's customers cover oil& gas, petrochemical, energy, transport and hi- tech plant industries, and provides customers the best system integration services. The upstream of the supply chain are software and hardware manufacturers, or agents. And ASI services items are located in the middle and lower streams, includes hardware and software distribution, application development, customization and systems integration, etc. As years experiences, it has the competitive advantage of the project cost control. -------------------------------------------------------------------------------------------------------------------------------

Hardware/ Materials Manufacturer

Software Manufacturer

Hardware Equip. Dealer

System Equip./Unit Supplier

Application Software Developer

System Software Dealer

System Integrator

Government Agencies

Oil Refining Industry

Petrochemical Industry

Natural Gas Industry

Transportation Industry

High-tech electronic Plants

Biotech Industry

Energy-Intensive Customers

The Service Provider Industry

Upstream Middle Downstream Consumer

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(4) Product development trends and competitive situations (a) Product development trends Energy management market is gradually rising

The forecast in the global energy use demand still will continue to climb high, the energy managed the market to be vigorous, according to Research the Nester statistical analysis in 2014, the global energy management system (EMS) market value was 25.48 billion, estimated to 2022 achieved 56.59 billion, year compound rate of increment (CAGR) achieved 21.46%.In which Asian and Pacific area energy management system management system market compound yearly rate, estimated will achieve 29.81%, in 2021 will amount to 15.54 billion.

The smart city applications will accelerate the city ecosystem and the emerging technical development. According to IDC survey, in recent years, the smart city gathered a huge market opportunity by the scattered investment plan, will lead the more technical development from 2018 the fund investment. The smart city correlation technology development global disbursement will amount to 80 billion in 2018. Along with the correlation construction development continually growth, estimated in 2021, the global smart city correlation technology development disbursement increased to 135 billion. The smart city market development will use the general platform in under many smart plan coordination to reduce the maintenance cost, will achieve the cross system the data sharing goal. Forms the new ecosystem, and will accelerate in the city ecosystem the emerging technical development, future also will see many innovation solution appearance.

Industry 4.0 is in the ascendant, and intelligent manufacturing become future star Germany Government proposed industry 4.0 in 2012, then became an important global intelligent plant concepts, such as a tidal wave sweeping the global industrial manufacturing. Industry 4.0 of core purposes is improve industrial of competitiveness, in this around industrial revolution one of the target is to find new opportunities. Industry 4.0 not just revolution but evolution, hopes through new of ICT technologies to solve the bottle neck problems, accelerated production, reduced pollution, save energy, information transparent, fast delivery and the sustainable development, which widely using robots, sensors, and real networking, cloud computing and the big data analysis, etc. Meanwhile, Industry 4.0 is likely to significantly change the manufacturing value chain, business models, services and the existing work split forms, and is seen as likely to trigger a global turning point in the fourth industrial revolution. In addition, the industry look forward to is, according to different industries in the future, manufacturing intelligence can improve the productivity efficiency of 30%~50%, up to 20%~25% energy saving effectiveness, drive revenue and salary growth, it also help to solve the labor shortage and aging labor problems, that is perfectly in line with the needs of Taiwan

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industrial upgrading and restructuring. (b) Competitiveness situations

ASI business ranges extensively wide. In the system integration market, the company has different competition case in different industry, no specific frequent competitor. Customer tendering strategy will affect who the competitors are and competition basis. As the industrial technology increasingly mature, construction cost relatively reduced, these will compress company‘s profit margin and winning opportunities. So, how to create competition advantage become main subject of company development strategy. At present, ASI set up Research & Development department and Innovation Business Development department, promoting the development of intelligent manufacturing technologies that focus on the development of profession and differentiation of services, expecting to grab the niche market. For industry development, from excavating customer demands, locating products and business, and gradually promoting from domestic to overseas markets are the industry business development strategy.

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5.1.3 Technology and R&D Overview (1)Annual R&D expenses and successfully developed technologies and products in latest 5 years

(a)Annual R&D expenses in latest 5 years

Unit: NT$ thousands Item/Year 2013 2014 2015 2016 2017 Operating Revenue

1,122,980 1,353,826 1,445,914 1,138,973 1,337655

R&D Expense 14,948 16,290 17,040 12,615 8,303 R&D Expense as percentage of Operating Revenue (%)

1.33 1.20 1.18 1.11 0.62

R&D expenses are the expenditures of R&D Department occurred in developing new technologies, new system products, new software tools, new software platform of occurred; and the projects of the Divisions are responsible for the expenditure in adding value to the new system products or integrating the system products into a customized project system. Therefore, the annual R&D expenses are of maintaining a certain level of past several years. For this year, some R&D engineers are shifted to Divisions to work together with our customer for requirement analysis, and same Divisions also devoted resource to survey new ICT and develop worker location management system, those expenses are included in Divisions’ expenditures, so it cause the direct expenditures of R&D is decreased, but the total R&D expenses of whole company still maintain at a certain level actually.

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(b)Successfully Developed Technologies and Products in Latest Five Years

Year R&D Achievements

2013

Power Monitor – Electrical single-line – Overview of electrical – Trend chart of power utilization – Prediction of amount

2014

Safety KPI(Process Safety Performance Indicators)： - Create hierarchical process safety performance indicators (PSPI)

and evaluate plant wide safety performance metrics 。 - Real time display of process safety performance indicators。 Use

leading KPI to track whether safety activities are executed as planned. Use lagging KPI to review defects such that hazards can be prevented.

- Create common key performance indicators to benchmark between similar operating plants.

Facility Management Air Side Control System(Phase I : Real time monitoring)：

- Modeling air handling unit (AHU) by psychrometrics。Real time operating conditions of each AHU components (such as cooling coil, hot coil, humidifiers) can be estimated and performance can be monitored.

2015

Facility Management Air Side Control System(Phase II Optimal set points determination)：

- Develop real time optimization algorithms to determine best chilled water and hot water valve opening, optimal setting of room temperature and humidity according to outside air condition so as to satisfy the objectives of energy saving and stable operations.

PSM Audit : - Develop a tool to support audits of PSM (Process Safety

Management) 14 elements following the regulations. Help manufacturers prepare and manage proper documents as an evidence of PSM compliance.

Utility plant operator guidance : - Develop an utility planning system to achieve energy optimization

by calculating a utilities forecast based on actual and future production demand while considering penalties, peak demand charges, and load factor contract clauses to best achieve energy optimization of a process. With such process utility software users can optimize process utilities while accounting for operational, economic, and environmental constraints.

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Year R&D Achievements

2016

Process Safety Management - Process Information (PSI): -Process safety information collection, including hazardous information about highly hazardous chemicals, process information, and manufacturing equipment. -PSM knowledge base, including accident investigation, PHA, change management, audit, performance indicators and other knowledge objects. - Process safety information performance metrics and compliance check, including the establishment and implementation of performance measurement, the establishment of a regular compliance check mechanism.

Advanced Demand Analysis and Planning Scheduling System: - Including production scheduling information, data synchronization: control the current production situation, the simultaneous integration of production equipment and ERP system information. A variety of context management, analysis: for the rapid analysis of abnormal events and excluded. Production Scheduling Optimization: Build the best production schedule.

Industrial 4.0 Smart Cabinet: - Integration of industrial networking, big data analysis, data visualization platform, packaged into a fast replication and provisioning of the industry 4.0 intelligent services.

2017

Acoustic Diagnosis for Rotary Machine -By using acoustic and big data technologies to monitor rotary machine status, to diagnosis the abnormal condition in early stage, then can prevent malfunction to cause un-warning shutdown and equipment damaged. -Collect sound of machine automatically and compare with a model which is trained by machine learning technology.

3D Printers Cyber-Physical Integration Manufacture System -Create a demo system of 3D printer manufacture line with the concept of minimum viable product. -To remote monitor 3D printers and create MES (manufacturing Execution System) model.

MOC (Manage of Change) Function of Process Safety Management -Follow the regulation/code requirement, an easy to use system can improve the performance of check/audit procedures and assist all users to get required information quickly. -A document system can provide storage, maintain and version

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Year R&D Achievements tracing for all data and documents, then can ensure all retrieved data will be the latest revision and is same are actual field situation.

New Functions of Intelligent Energy Management System -Provide user a more efficiency method while to estimate energy consumption index, it can help user to save time when build a energy baseline model.

-Provide an easy way to configure operation interface, it can greatly reduce the required manpower of energy management department when to create the required customized reports.

(2)New Products Currently Planned and R&D in Progress

Acoustic Diagnosis for Rotary Machine (Phase II) : Develop a low power wireless sound

recorder which is powered by battery, it can be easily to setup without power and network cables. Combine with research result of phase I and continue to collect long-time machines’ sound data, a low cost on-line acoustic diagnosis system can be built up to assist facility maintenance work of factory.

Cyber-Physical Integration of Chemical Industry 4.0 : Create a Digital-Twin system in Cyber Space by collecting the sensors’ signal of Physical Space with a new generation integration technology. The actual behaviors and characteristics of Physical Space can be completely replicated in Cyber Space, it can assist to monitor, analysis and optimize the operation of Physical Space. In this year, to cooperate with academia, a Digital Twin for distillation and chemical loop of isopropanol waste water recycle processes will be built up.

Smart optical measurement system : Develop an optical measure system which can be used in traditional manufacture industries, it can provide a fully automatic measure operation to replace the manual work, not only problems of human operation error will be minimized, the production procedures will be speed up due to quality control is more efficiency.

Process Safety Management – An application of Pipe & Instrument Diagram (P&ID) : Develop an intelligent management system with P&ID database, it provides a user friendly interface for document version control, the revision of P&ID and other related documents of safety purpose will be controlled, then the complete and newest data will be retrieved while required. It is an easy way to assist integration works of P&ID with other process safety management.

Smart airport baggage re-confirmation handling equipment : Develop a kind of equipment to improve the ground baggage moving operation of from conveyer to baggage cart at airport, and implement smart application. It can minimize the baggage

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delivery procedure error, improve the operation efficiency and reduce the occupational injury of workers.

(3)The progress of ongoing R&D projects (As of 03/31/2018 only)

R&D Project Name Current Progress

Further Investment (in unit of thousand dollars)

Planned Completion

Date

Major factors to effect project’s success

Acoustic Diagnosis for Rotary Machine (Phase II)

16 2,420 2018.12.31

High power saving performance, low wireless signal interference and collect enough data to create a data model for various equipment.

Cyber-Physical Integration of Chemical Industry 4.0

15 4,480 2018.12.31 Collect enough data with high stability and analytic data form lab.

Smart optical measurement system

17 3,533 2018.12.31 Image recognition under different light sources and correction of algorithm of image Processing.

Process Safety Management – An application of Pipe & Instrument Diagram (P&ID)

18 3,620 2018.12.31

Successfully Integrate customized functions; provide a user friendly operation Interface to meet customer needs.

Smart airport baggage re-confirmation handling equipment

23 2,770 2018.12.31

Solve the wireless signal interface of airport baggage handling area and a comfortable device; to understands the safety regulation/code of different countries.

Advanced function of energy management system

20 3,000 2018.12.31

Energy Analysis Intensified Change Principal Component Analysis Improve the benefits of change, energy source platform graphics display platform, graphic objects.

Industry 4.0 Cyber Physical Integration System in the demo plant of chemical industry

20 3,000 2018.12.31

Completion of process static model and dynamic model, the calibrated maturity of dynamic model and the integrity of collected real-time operation data.

In addition to the R&D programs listed in the above table on the future main success factors, there are other R&D success factors as follows:

Accurate R&D strategies and indeed proper assessment of market demand. For meeting market demand, proper communication at any time between the

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researchers and the users about demands. A stable R&D team of human resources, with excellent research and development

technology already built in the company. Good progress control, in order to target the established budget and schedule to

complete for assuring timeliness of research results. (4)Annual Investment in R&D in next three years

Unit: NT$ thousands

Item / Year Year 2018 Year 2019 Year 2020

R&D Investment 29,990 33,000 33,000

Net Operating Revenue (undisclosed financial prediction report)

Not applicable

Not applicable

Not applicable

R&D Investment as a percentage of Net Operating Revenue

Not applicable

Not applicable

Not applicable

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5.1.4 The development of long-and short-term business plans

(1) Short term business plan (a) Promote factory automation actively, control system of power plant, mechanical and

electrical business, transportation business, and Intelligent building. Enhance the industrial products agents strengthen for system integration integrity.

(b) Promote intelligent manufacturing business, using process simulation, control and application software solutions to help clients building up better model of process operation.

(c) Strengthening marketing activities of ASI owned products to high up Mr. PSM and Mr. Energy 50001 market penetration.

(d) New business focus using cloud computing and big data technologies, to enhance the manufacturing management performance with mobile device, such as mobile phone, iPAD and others. It could provide centralize management and effective tracking via cloud computing applications.

(e) Enhance overseas business promotion activities, including Mr. PSM and Mr. Energy 5001 in China market, as well as new industrial solution marketing activities. The business approach for ADB, ERDB and BHS will be considered.

(f) Develop distinguishing application and reference of industrial IoT.

(2) Long term business plan (a) Focus on core business, strengthen main automation contractor capabilities, provide

consistent service to meet various customer demands of the industry. (b) Use the industry expertise and know-how, continuous development of large data, Internet

of Things and Industry 4.0 and other intelligent technology applications or import solutions in the transportation, energy, general industry or refining petrochemical industry business opportunities, the establishment development of customer win-win relationship.

(c) Keep developing intelligent solutions and systems integration business, focus the intelligent manufacturing, smart city and other new markets, training international talent, combined with strategic partners, through overseas affiliates of CTCI Group and strategic alliance partners to help expand overseas markets.

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5.2 Market and Sales Overview 5.2.1 Market Analysis 1. Sales Analysis by Major Services:

(1)By domestic and overseas Unit；NT$ thousands

Year Area

2017 Amount %

Overseas 203,186 15.19 Domestic 1,134,469 84.81

Total 1,337,655 100.00

(2)By Major business Categories Unit；NT$ thousands

Year Area

2017 Amount %

MAC 378,197 28.27 Transportation E&M 703,523 52.59

IM 252,704 18.90 Industrial

Products Sales 3,231 0.24

total 1,337,655 100.00

2. Market Share The company engages in system integration market. Industrial control as the core, ASI provide professional services such as hardware and software facilities integration, consulting service, software customization, system integration, training and education, and other professional services. Service cover oil & gas, petrochemical, power plant, energy, high-tech technology, aerospace/airport and railway industries. Due to the technical solution of each industry is different, so need each industry of Domain Knowledge (exclusive field industry knowledge), most of domestic system integration company have its own professional service field. Therefore, different industries can be said a oligopoly market, the market share of the company in this particular application, there should be about 10% ~ 20%.

3. Future supply and demand situation of the market and growth (1) Short-term marketing trends

a. Because the recent years ,petrochemical industry faced with many challenges that affects our country development, included: The environmental protection, the shale were mad the revolution, the petrochemical industry emerge fiercely with the oil price undulation and so on, Our petrochemical products are the main exporter in mainland China that is developing petrochemical industry, has the profound influence to the Taiwan petrochemical industry, facing each kind of challenge, caters to the green environmental protection the circulation

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economic type and the global competition, becomes our country two big essential subjects which is the industry future development.

b. Transportation industry focus on mass transit and airport terminal business The Government has proposed $ 880 billion Advanced Infrastructure Construction Program, of which about 424.333 billion NTD in railway construction is expected to drive more than 700 billion output value. It can also promote the development of related industries, such as through vehicle technology improvement, compound transport or light rail. Also with control technology, information upgrade, it can achieve the city view, economy investment, and government service win-win situation. Track construction of the five major aspects for the highspeed train and TRA transport networking, TRA west railway system and east end railway system upgrade, TRA railway elevated and speed up, as commuter in the city. providing south-central sightseeing railway services. The highest level of the executive branch approved "Taoyuan International Airport campus framework plan" on April 11 ,2011, as the airport park blueprint for the future development of the airport. Promoting the construction of Taoyuan International Airport Park and aviation city, that have to create 12 MRT station metropolitan area with a total investment of more than NT $ 500 billion, that can be driven more than NT $ 2 trillion of economic benefits. It comes to the highest running record, Taoyuan International Airport 2016 PAX exceeded 40 million people, and has been promoted to the ranks of A-class international airports, the existing terminal construction and improvement plans are reported to maintain service quality. The third terminal construction program also entered into the contract period. ASI has the relevant business opportunities, and will actively seek new opportunities for increased participation.

(2) Intermediate marketing trends a. New investments opportunities of Taiwan O&G market

In response to non-nuclear home environment, domestic demand for natural gas increased significantly. Ministry of Economic Affairs announced to accelerate the construction of the third natural gas receiving station, is one of the non-nuclear homes in 2025, the future domestic demand for natural gas will continue to grow, by the oil construction, the overall scheduling and complementarity more in line with national needs, is expected to supply Taipower in 2022 Power plant 500,000 metric tons of natural gas, completed in 2023, the annual operating volume of 3 million metric tons, about 600 billion NTD investment. Taipower said that has been fighting for the fourth and fifth natural gas receiving terminals construction rights. The fourth receiving terminal will be covered in the Keelung port, the main supply northern power plant reconstruction of two new gas units, the total reserves of 1.4 million tons, plans about 35 billion NTD. The fifth receiving terminal is expected in the north of Taichung thermal power plant, the future import days not only near the supply of new power unit no. 11,12, but also pull the pipeline to the new Maili Power Plant for no. 7 to 10 new units, the total reserves of 3.5 million tons gas, Plan of fifth terminal estimates more

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than 60 billion NTD. b. Overseas new Oil refinery and related plants’ opportunities

In response to the imminent relocation of the CPC Kaohsiung plant, CPC not only aggressively expanded its production capacity in Dalin Plant but also planned to invest in the second phase of the Kaohsiung Container Terminal Phase II project to become a trading center for storage, transportation and petrochemical operations and consider investing in Southeast Asia's oil The country of origin for the new refinery will create new business opportunities. In the meantime Taiwan vendors will set up oil refinery and chemical complex plants in mainland China, by the leader of the Petrochemical Association. It agreed by the Ministry of Fujian to located at Guley peninsula petrochemical zones, but also successfully passed the approval of the Investment Commission of Taiwan. "Zhangzhou Guley Refining and Chemical Integration" initial plan to promote 9.6 billion RMB of light oil cracking plants, production of ethylene / vinyl acetate copolymer, ethylene oxide, ethylene glycol, styrene, propylene, butadiene and benzene products.

c. Intelligence manufacture marketing opportunities, government policies The highest level of the executive branch approved "intelligent automation industry development program" in 2011 ,drive in development of intelligent automation industries that using value in 3 c, 3K, machine tools, industrial machinery, green energy and health care …, accelerate industrial upgrading and transformation in Taiwan. Industrial Development Bureau, Ministry of Economic Affairs integrate including related corporate research institutions, public association, school units, and manufacturers, common executive for ten years of "smart type automation industry promoted plans", that to assist domestic enterprise using smart sense measuring and high-speed operation technology, makes general automation products, equipment and system has smart decision capacity, reached high additional value of smart automation production, that to meet Industry 4.0 development direction. The long period of the company's monitor and control experience and ability combine to the (MAC) and the intelligent manufacture (IM) , may integrate facility production control and management information, Towards to Industry 4.0 application development, can assist improvement of customer production competition.

d. The Taipei MRT entered updated period Taipei MRT system will step into system renew period during following 10 years. The MRT assets renewal fund constantly cumulates annually, that to cover related improved or renewal plans. The assets cumulated over NT 25 billions. That can provides equipment or system renewal plans of early stage MRT network lines, including vehicles medium-term upgrade, signaling system upgrade, communication system upgrade, and emergency response system in case of MRT disaster encountered. There’re business opportunities. Meanwhile, the earlier existing systems using European and American equipment or system. facing global competition, the localization policy will be enhanced and opportunities coming.

4. Competitiveness

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(1) The project management capability and enhance competitiveness According to Gartner Group research pointed out that global statistic shown 50% of successful projects budget overruns or delay closing time. The project manager’s leadership and management skills are the key points. Contractor's ability for success is building on good project management skills. ASI inherited CTCI group’s legacy of project management culture and provides good quality services.

(2) Sharing group resources to assist development CTCI Group has worldwide operations, through the mechanism of resource sharing and cooperation within the group to maintain cost advantages. Group also can assist through overseas affiliates to support marketing activities

(3) The KM platform provides rapid application resources

In order to meet the internal knowledge accumulation, sharing, and innovation demands. Keep operating or maintaining KM, encourage colleagues upload project execution experience’ data, and applications, also reached the technical heritage, knowledge sharing, learning objectives, and indirectly strengthening competitiveness.

(4) Strengthening the management skill and accountability, improve efficiency

Company business is divided into two main spindle, industry automation business group and system integration business group to develop industrial automation engineering and intelligent manufacturing businesses. we focus on market development and cost control, project implementation to achieve the unity goals with responsibilities of management. While following the CTCI Group towards a culture of accountability. Strengthening accountability concepts, in order to line with CTCI Group goal and enhance business performance and management of quality, achieve the overall goals of improved performance.

(5) Development of new ICT technologies to enhance competitiveness Industry 4.0 is the industrial market trends in the future, primarily through the Internet, cloud computing and sensor detection, big data analysis and other techniques to achieve .The company has already expressed concern over the development of such technologies, established ICT technology R&D team to develop innovative applications, that will be successful and extend to become a competitive edge in the market.

5. The advantage and disadvantage of company development prospects, and counter-measures (1) Advantages：

a. Industry 4.0 is the next industrial market development trends to drive intelligent manufacturing, smart cities and IoT to flourish, that also driving the development of sensors, identification and communication technologies, solidly apply in the public transport, aerospace and manufacturing.

b. Energy saving and environmental protection awareness, green manufacturing and green

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cities concepts continue to expand, such as promote ISO 50001 energy management system. There are some domestic manufacturers have passed validation. It will encourage to promote low-carbon technologies, energy management and energy-saving technologies and solutions will be booming.

(2) Disadvantages：

a. Petrochemical industry investment barriers keep increasing For the petrochemical industry, the community has been taught as a high risk, high pollution, harm environment industries, which led to several major petrochemical investments have suffered by many environmental groups and populations struggles in recent years. Also several industrial safety accidents to let people's negative perception on the petrochemical industry, increasing the difficulty of promoting petrochemical investment. Industrial safety requirements increased therefore, that ASI can assess how to enhance industrial safety service and expand fighting for such opportunity.

b. Oil Market uncertainty reduce investment Recently international oil prices disruption, most large-scale petrochemical or green energy investment faces shut down or ac review of green energy investment. It affects investment and business opportunities. Market uncertainty has spiked. We must find a new business of industrial development.

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5.2.2 The Company’s Main Services Purposes and Service Sequences 1. The usage of major products:

Major Products Usage

PSM-Audit, PSI PSM-Audit: Provide auditing standard for Process Safety Management（PSM）

from 14 aspects, including auditing query and guideline. It also provides supporting information to satisfy PSM 14 aspects, in accordance of government regulation. Building up with full text search function, PSM-Audit is the best solution for information users with big data. PSI is the second aspect of PSM, process safety information is a basic data of process safety management. Through these data, all related staff can be easy to understand the theory and hazard of process operation. The toxic property of chemicals, the limitations/procedure of plant operations and equipment are a part of process safety information. Mr .PSI is an integrated platform which provides a documentation collection, management and full-text search functions; it can be used for various data, like text, valve and picture. It can assist users to identify the root cause during audit activities.

Mr. Safety PrHA (preliminary hazard analysis), HazOp (hazard and operability analysis), LOPA & ETA (the protective layer and an event analysis), Dow chemical index of Fire and explosion、SIS(Safety instrument system) and FMEA/CA(Failure Mode Effective Analysis) are the supporting tools to help engineers in accordance with government regulations, prevent and analyze disaster for factory process in order to meet the systematic analysis of the requirements for the effective work evaluation and management. Now we have finished Traditional、Simplified、English & Network version.

Airport Baggage Handling System

The system handles passengers’ baggage by automatic control system, which can sort out the baggage and deliver the baggage cabinets to the destination. This system can recognize the early arrived baggage, for the purpose, we designed the Early Baggage Storage System device to keep the early arrived baggage prior to departure of flight. If the departure time is closer, the baggage which storage in the "early baggage storage system" will be extracted out. Meanwhile, the sorter will start sorting out the baggage by each flight and deliver to unloaded conveyer according to the computer's calculation; early arrived baggage will be installed into cabinets with normal arrived luggage, which substantially increase the efficiency of baggage delivery.

Mitsubishi Factory Automation Products

Providing customers with Mitsubishi SCADA, PLC, HMI(Touch Screen) and Invertor.

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Major Products Usage Mitsubishi Mechanical and Electrical Products

Providing customers with Mitsubishi power equipment protection devices.

IDEC Auto Control Devices

Providing a variety of control components within the product control panel from the PLC, HMI (Touch Screen) to relays, switches, lights, explosion-proof control devices of the product.

Hexagon PPM Intergraph Series Products

3D Plant Design Software Plant Design System (commonly known as the industry PDS ®), the global industry's most advanced next-generation knowledge-based 3D plant design software, Smart ® 3D, three-dimensional model of the factory cruise software SmartPlant ® Review, the data for the respect of instrumentation engineering and instrumentation engineering information management software, SmartPlant ® Instrumentation (formerly INtools ®), the data for the respect of the knowledge-based P & ID solution for SmartPlant ® P & ID , in respect of plant data for the Electrical Engineering Electrical Engineering and Information Management software, SmartPlant ® Electrical, material specifications cum supply chain management system SmartPlant ® Materials (formerly MARIAN ®), strong tough, flexible and integrated factory-cum-engineering information management platform SmartPlant ® Foundation, An affordable industry isometric drawing and material pick-up software, SmartPlant® Isometrics, a solution for plant construction team to manage the schedule of a digital project, a solution to assist to improve process safety of a digital plant, a solution which combines the live scene of 360˚ simulation operation training, assessment platform and project cost and performance management solutions.

Air Compressor Group Control energy saving System

The system can provide medium and large plant air compressors to optimize energy saving in parallel grouping running with remote control and status monitoring. It can be customized, and modified according to customer requirements to reduce operating costs and to provide the most optimal management mechanism.

Operation Guidance System for Process Operation (GPS)

According to the process equipment (compressor, distillation tower, etc.) of the mechanical and operational characteristics to build-up a process model which refer to the production index and provide optimal operation guidelines by simulation to improve process efficiency and achieve energy-saving emission reduction benefits.

Energy Management Information Platform (Mr. Energy 50001)

To provide the inspections of equipment, regulations authentication information, energy performance indicators setting and the establishment of energy baseline by following ISO50001 standards and in line with international certification standards. It also can monitor the energy performance in real-time and enhance corporate green image.

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Major Products Usage Power Monitoring System (PowerMonitor)

Power monitoring system is a set of low-level power management system that provides an overview of basic electricity, power line diagram, trend analysis and simple electricity demand forecast functions. This system can provide a solution while in short time and with a small amount of cost for general plants, moreover, make a simple using and efficiently manage power status solution workshops for the plants.

Cyber Integration Platform (CIP)

A big data collection platform, covering a wide range of industry communication protocols, can capture all kinds of real-time information from customer plant site. Proceed with a long-term intensive data accumulated as a massive database. Include high-speed access capability for the high-density database. Function as big data analysis software applications platform then help to fulfill the factory intelligently. It is necessary tools for industry customer to promote industrial 4.0 and big data analysis.

Intelligent Automation Solution (IAS)

Enhances plant operations, equipment monitoring systems, production management systems of the manufacturing industry to reduce plant operation and maintenance cost as well as improve production stability and plant safety.

2. Research and development proceedings of major products:

Within the product business of ACS, there are two types of products, one is self-developed products, and the other is agential products authorized by international famous manufacturers. The development of self-developed products comes completely from scratch, based on the internal requirements issued by the business departments, or from semi-finished products which are transformed from the systems developed by business projects (instead of research projects) according to the external requirements. There is no research and development proceeding for agential products. As to the system/software integration business of ACS, which carry on based on the proceedings of business projects, through planning, design, procurement, installation, test and commission steps, which are not belong to the category of research and development proceedings of products.

5.2.3 Major Materials Used and Supply Status:

Name of Material Supplier Supply Status

Industrial Control Products Supcon, NovaTech, Mitsubishi, IDEC Adequate supply

PDS and Intergraph SmartPlant Series Products Intergraph Adequate supply

AspenOne All series：Aspen plus, Aspen Dynamic,Aspen Polymers & Aspen Utility

AspenTech Adequate supply

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5.2.4 Major Suppliers and Clients A. Major Clients (each commanding 10%-plus share of annual order volume) Information for the Last Two Calendar Years

Unit：NT$ thousands

Item

2016 2017

Company Name Amount Percent

Relation with

Issuer

Company Name Amount Percent

Relation with

Issuer

1 CTCI Corp 688,443 60.44 Parent company CTCI Corp 304,403 27.24 Parent company

2 Taoyuan Airport Corp 281,859 21.07 None

Others 450,530 39.56 Others 691,393 51.69

Net Total Supplies 1,138,973 100.00 Net Total Supplies 1,337,655 100.00

B. Major Suppliers Information for the Last Two Calendar Years：N/A

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5.2.5 Production over the Last Two Years: N/A. 5.2.6 Shipments and Sales over the Last Two Years

Unit: NT$ thousands 2016 2017

Local Export Local Export Labor Income 955,878 69,044 949,765 203,186 Sales Income 114,051 0 184,704 0 Total 1,069,929 69,044 1,134,469 203,186

5.3 Human Resources 5.3.1 The information about employees employed for the most recent two fiscal years and up

to the date of printing of the annual report Year 2016 2017 2018 (As of March 31)

Number of Employees

Administrative staff 30 30 30 R & D and technical personnel 246 235 236

Total 276 265 266 Average Age 40.2 39.3 40.3 Average service seniority 10.1 8.9 9.9

Percentage of employees at each level of educational degree

Doctor 0.4 0.3 0.4 Master 34.4 33.5 32.8 Bachelor 62.0 62.7 63.4 Senior High School 3.2 3.5 3.4

5.3.2 Staff behavior or ethics rules 1. Establishment of the company work rules, employee handbook, new staff handbook, and set

a moral code of conduct for employees engaged as employees usually work and conduct of the compliance basis. The employees should abide by ethical codes of conduct are as follows :

B. The employees in the performance of their duties, should focus on team spirit, get rid of selfishness; and should abide by the principle of good faith and uphold the positive, serious and responsible attitude.

C. The employees shall not be due to gender, race, religion, political affiliation, sexual orientation, rank, nationality and age and other factors, and each other of any form of discrimination and exclusion.

D. The employees should work together to maintain health and safety of the working environment, without any sexual harassment or other violence, threats of acts of intimidation.

E. Our staff has the responsibility to maintain and increase access to the company's legitimate interests, and should be avoided:

a. Through the use of corporate property, information or by his position, resulting in himself or a third person the opportunity to obtain personal gain.

b. Compete with the company. F. To be fair to the employees of the business object；Related party transactions shall not

have special offers in the Republic. The employees in the performance of their duties, not to benefit himself or a third person, while required, period of contract, deliver or receive any form of gifts, hospitality, kickbacks, bribes or other improper behavior of interest.

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But as a gift or hospitality or social ritual practices allowed by company rules, unless. G. The employees informed of its position on any securities of the Company could

materially affect the trading price of the information, without prior public disclosure should be in accordance with the provisions of the Securities Exchange Act strictly confidential, and shall not use the information in insider trading.

H. The employees should respect each other privacy, not to spread rumors or slander. Its position known on matters or confidential information, should be carefully managed, non-disclosure by the Company or in carrying out their duties as providers of necessary and, shall not leak to others or use other than for work purposes; after leaving likewise.

I. The preceding paragraph shall be confidential information, including the Company's personnel and customer information, inventions, trade secrets, technical information, product design, manufacturing expertise, financial and accounting information, intellectual property and other information, may be competitors and all other use, or leakage or customers of the Company after the damage has not publicly disclosed information.

J. The employees should ensure that all forms of instruments through whom the information is accurate and complete, and properly kept.

K. The employees perform their duties, should avoid data, information systems, network equipment and other resources subject to theft, interference, damage and invasion of other violations, to protect the information of the Company's confidentiality, integrity and availability

L. The employees shall not in any way affect the other employees for political donations to support specific political parties or candidates, or participate in other political activities. In addition, working hours should be avoided in the workplace and engage in political activities.

M. The employees should respect the intellectual property rights laws prohibiting illegal use or copying of copyrighted intellectual property, including books, magazines and software, etc.

N. The company executives within the company should be widely publicized and moral values, and encourage employees to find a violation of laws and regulations or the Code of behavior, to be named, reported to the competent prosecution approach, the company and every effort should be kept confidential and protected the identity of those who reported that them from its threats.

2. The company provides maintenance of Gender Equality and employees from sexual harassment of working and service environment, setting sexual harassment prevention and treatment measures for all staff to follow.

3. Computer is the company's employees must have the tools to regulate the behavior of employees using electronic tools to develop management and use of the Internet has provided for all staff to follow.

4. This company is an Information system company, the use software and develops the software is closely related with the daily work for the protection of intellectual property rights, The Company have formulates the Ethical Commitment Contract and the Copyright Contract to regulated work of ethics by standard staff.

95

5.3.3 Working environment and safety measures to protect employees The Company based on the provisions of the Labor Safety and Health Act to develop of health and safety code of practice, by the prevention of occupational hazards, protection of labor safety and health.

1. To develop safety and health management organizations and labor organizations, personnel responsibilities, effective response to incidents and deal with.

2. The development of equipment maintenance and inspection of the content and methods, so that employees are familiar with the processes.

3. Details of the work safety rules and health standards for employees to memorize and follow. 4. Planning arrangements in accordance with general and professional education and training,

labor safety and first aid and rescue measures. 5. Regular surveys and analysis of implementation of disaster, the establishment of an accident

immediately notified the path, the first time to reduce injury. 6. According to different environments to provide the necessary protective equipment.

(Example: Setting fire-fighting equipment, escape door, evacuation lift and escape routes map in the office, set up warning signs in slippery places and immediately clear, set safety ropes stairwell, replacement of old or dangerous facilities. To provide and asked to wear helmets and safety shoes in the construction site, work place no smoking and set the warning signs in hazardous areas prohibited, etc.)

5.4 Environmental Protection Expenditure Information

Last year and as of report publication date, due to pollution damage suffered (including compensation) and the disposition of the total, and describe future countermeasures (including improvements) and possible expenses (including failure to take countermeasures possible losses, penalties and the estimated amount of compensation: None. the company is a systems integration technology services, implementation of the annual nature of the business because there is no environmental pollution and the European Union restriction of Hazardous Substances directive (ROHS) of the case, it is therefore not applicable to information disclosure of environmental protection expenditures.

5.5 Relations between labor and employer 5.5.1 The company's various employee welfare measures, education, training, retirement

system and its implementation of the case, and the labor agreement between the employees' interests with the case maintenance

1. Staff welfare measures (1) Labor Insurance

a. The company's employees to participate in labor insurance in accordance with law. b. Payment of labor insurance premiums should be handled in accordance with

government regulations. (2) National Health Insurance

a. The employees and their families have participated in the National Health Insurance law.

b. Health insurance premium payable in accordance with the relevant government regulations.

(3) Group insurance The Company employees reported for duty on the day of accession group accident insurance.

(4) Year bonus The Company allocates year bonus budget according to the annual operating status.

96

Personal bonus issued by personal work performance, attendance situation, and proportion of service.

(5) Employee Welfare Committee The company's employee benefits committee established by law. It in accordance with the provisions of welfare funds, organizes regular tourism, community activities, birthday gifts, end of year dinner, New Year gifts and other activities.

2. Staff training, training system To enable the company's various operations have encountered with the expertise of highly trained officers to ensure the quality of work and improve work efficiency. The company's employees in accordance with ISO standard procedure develop the spirit of education and training methods, and thus to provide the training programs and review the training result. (1) Annual training plan and provision of funds

Employees through education and training or work experience accumulated, in line with relevant expertise, qualification standards, the review by the immediate supervisor, department head approval granted by the relevant expertise. Department heads at each end of next year with the provision of operational requirements, planning staff annual training program, provision of training courses and training funds, including the business sector provision of technical training and provision of the Administrative Department of the Management Courses. Implementation of the education and training of new staff is divided into pre-service training and in-service training for employees.

(2) Training results of the review After the end of each quarter the Company for all departments to review the results of the season training, as training courses for the second quarter, and adjusted according to reference. And at year-end results for the annual review of training, annual training plan prepared as a second line of reference.

(3) 2017 annual employee training expenditures situation Company for the year a total of 2017 actual number of hours spent training the employees amounting to approximately 17,127 hours, annual expenditure amounting to approximately NT$ 870,000.

(4) 2018 Annual forecast staff training budget The company 2018 year to budgeted for annual employee training hours estimated that about 26,299 hours, annual training expenses amounting to approximately NT$ 1,760,000. Compare with the estimated actual data, training hours increased about 102.2% and training expenses decreased 14% approximately.

Information on training courses of Corporate Social Responsibility which managers participated in.

Title Name Study period Sponsoring Organization Course Training

hours

Chairman Chin-Chen Chen 2017/12/15 Taiwan Corporate

Governance Association How do directors fulfill their duty of loyalty

3.0

Chairman Chin-Chen Chen 2017/11/23 Taiwan Institute for

Sustainable Energy

Discovering sustainable opportunities for the country by SDGs

3.0


Governance Association


3.0


Governance Association Big data analysis, and prevention/detection of fraud.

3.0

97

Vice President

Chiang-Nan Tsai 2017/10/16 Taiwan Corporate


How to audit the financial statements by Directors and Supervisors without financial background

3.0

Vice President




3.0

Vice President


Governance Association Big data analysis, and prevention/detection of fraud.

3.0

Vice President

Tsung-Kung Shu 2017/10/16 Taiwan Corporate


How to audit the financial statements by Directors and Supervisors without financial background

3.0

Vice President

Tsung-Kung Shu 2017/08/11 Taiwan Corporate



3.0

Accounting Manager

Yu-Wan Hsu

2017/01/092017/01/10

Accounting Research and Development Foundation

Continued Professional Development of Principal Accounting Officers of Issuers, Securities Firms, and Securities Exchanges

12.0

Accounting Specialist

Chia-Hung Chu

2017/01/092017/01/10

Accounting Research and Development Foundation

Continued Professional Development of Principal Accounting Officers of Issuers, Securities Firms, and Securities Exchanges

12.0

Internal Audit Yo-ho Chen 2017/03/15 Securities & Futures

Institute

The new labor standards law (a one off) Excel aided calculation of real acting workshops

6.0

Internal Audit Yo-ho Chen 2017/09/29 Securities & Futures

Institute

Perspective of fraudulent practices in financial reporting seminars

6.0

Internal Audit

Wen-Hung CHIEN 2017/05/26 Securities & Futures

Institute

Perspective of fraudulent practices in financial reporting seminars

6.0

Internal Audit

Wen-Hung CHIEN 2017/09/25 Securities & Futures

Institute

Application Notes for Internal Declaration and Reference on Effectiveness of Internal Control

6.0

3. Retirement system and implementation thereof : The Company enforces the workers' retirement rules pursuant to the Labor Standard Law and allocates the pension reserve on a monthly basis. The rules are outlined as following: (1) All of the Company’s employees shall comply with the rights and obligations defined in

the workers’ retirement rules. (2) According to the Labor Standards Law, the Company has retirement rules for the formal

hiring of employees since November, 1987. The Company allocated the pension reserve equivalent to 7% of the total salary on a monthly basis. As the fund has exceeded the required actuarial, the percentage has changed to not less than 2% of the total salary on monthly basis. The pension reserve will be deposited to the exclusive account maintained at the Bank of Taiwan. As of July 2005, the Company has executed the new system

98

according to the employees’ will and choice, and allocated the pension fund according to the Labor Pension Act.

(3) Payment of pension fund: The Company paid the pension fund pursuant to the Labor Standard Act or Labor Pension Act pursuant to laws subject to the employees’ choice as of July 1, 2005.

4. Other important agreements : (1) The Company is engaged in the engineering service and possesses qualified personnel, a

definite management philosophy, and a well-founded management system. In addition to the ordinary organization and system, the communication channels also include employees’ forums and labor and employer meetings held on a scheduled or non-scheduled basis, and installation of a suggestions box, so as to establish common consensus and a harmonious relationship between the employees and employer through the various channels.

(2) The Company is engaged in the business where the Labor Standard Law may apply and, therefore, it shall operate in accordance with the Labor Standard Law.

5.5.2 Loss suffered by the Company due to dispute between labor and employer in the most recent three years: The Company is used to valuing the employees’ benefits and calling a labor and employer meeting and welfare committee meeting on a quarterly basis, and also installs the suggestions box to make a two-way communication channel available to employees. Therefore, the relationship between labor and employer is harmonious and no dispute over labor has arisen in the past. No material loss or punishment has been suffered by the Company due to dispute between labor and employer in the past three years. In the future, the Company will continue to adhere to the same principle and solidify the relationship between labor and employer further.

5.6 Important Contracts Agreement Counterparty Period Major Contents Restrictions

Distributor Agreement Intergraph 2003.03~(Note) Intergraph Software

Products According to contract content stipulation

Cooperation Agreement AspenTech 2017.12~2021.12

Energy Management and Advanced Control Systems

Taiwan only

Distributor Agreement ControlSoft 2007.05~(Note) INTUNE, MANTRA None

Distributor Agreement NovaTech 2018.01~2020.01

NovaTech LLC(DCS) Products and System maintenance/upgrade service

Greater China only

Distributor Agreement ICS2 2016.04~2018.03 Software Products

Taiwan, agreement in writing for region outside of Taiwan

Distributor Agreement IDEC 2017.06~2018.05

PLC、HMI、Relays、 Switches

Taiwan only

Distributor Agreement

Setsuyo Enterprise Co., Ltd

2017.07~2018.06 Mitsubishi Electric FA SCADA、PLC、VFD Taiwan only

Distributor Sheng Chin 2016.09~2018.09 Mitsubishi electric Taiwan only

99

Agreement Counterparty Period Major Contents Restrictions Agreement Trading Co., Ltd products Note：Any party wishes to terminate the contract, shall be terminated after written notice to the other.

~100~

VI. Financial Information 6.1 Five-Year Financial Summary 6.1.1 Condensed Balance Sheet and Comprehensive income – IFRS

1. Condensed Balance Sheet – IFRS - Consolidated Unit: NT$ thousands Year

Item

Five-Year Financial Summary

2013 2014 2015 2016 2017

Current assets 1,079,243 1,138,355 1,078,020 1,066,333 1,368,050 Property, plant and equipment 73,406 73,376 72,716 71,607 69,923

Intangible Assets 0 0 0 0 0

Other assets 22,224 24,278 20,439 15,320 14,331

Total assets 1,174,873 1,236,009 1,171,175 1,153,260 1,452,304

Current liabilities

Before distribution 638,211 722,463 640,975 613,055 895,305

After distribution 736,689 781,770 700,325 671,924 Note 1

Non-current Liabilities 34,576 5,762 13,809 16,443 17,004

Total liabilities



Equity attributable to parent company 502,086 507,784 516,391 523,762 539,995

Capital stock 229,805 233,375 234,695 234,915 234,915

Capital Reserves 87,715 100,468 103,904 104,546 104,546

Retained Earnings



Other Equity 77 (9,357) (18,274) (22,317) (22,351)

Treasury Stock 0 0 0 0 0

Non-controlling Equity 0 0 0 0 0

Total equity



Note 1: The 2017 earnings distribution has not been resolved by Shareholders’ Meeting and is not applicable.

~101~

2. Condensed Balance Sheet – IFRS – Non-Consolidated Unit: NT$ thousands Year

Item


2013 2014 2015 2016 2017

Current assets 1,062,347 1,113,264 1,046,364 1,038,562 1,340,501 Long-term equity investment accounted for under the equity method

16,109 23,918 29,551 26,711 25,830

Property, plant and equipment 72,988 72,958 72,442 71,364 69,687

Intangible Assets 0 0 0 0 0 Other assets 21,973 24,020 19,932 15,321 14,331 Total assets 1,173,132 1,234,160 1,168,289 1,151,958 1,450,349

Current liabilities



Non-current Liabilities 34,576 5,762 13,809 16,443 17,004

Total liabilities



Capital stock 229,805 233,375 234,695 234,915 234,915 Capital Reserves 87,715 100,468 103,904 104,546 104,546

Retained Earnings



Other Equity 77 (9,357) (18,274) (22,317) (22,351) Treasury Stock 0 0 0 0 0

Total equity



Note 1: The 2016 earnings distribution has not been resolved by Shareholders’ Meeting and is not

applicable.

~102~

3. Condensed Statement of Comprehensive Income – IFRS - Consolidated Unit: NT$ thousands

Year Item


2013 2014 2015 2016 2017 Operating revenues 1,122,980 1,353,826 1,445,914 1,138,973 1,337,655

Gross profit 219,896 175,105 192,772 198,129 205,816

Operating income 108,057 68,390 87,116 85,012 93,196 Non-operating income and expenses 9,754 23,577 11,429 (165) (236)

Income before income tax 117,811 91,967 98,545 84,847 93,432 Income from continuing operations before income tax 98,354 79,602 79,749 72,408 75,889

Loss from discontinued division 0 0 0 0 0

Net income 98,354 79,602 79,749 72,408 75,889

Other comprehensive income 11,862 10,854 (15,418) (6,549) (787) Total comprehensive income 110,216 90,456 64,331 65,859 75,102

Income attributable to parent company 98,354 79,602 79,749 72,408 75,889

Income attributable to Non-controlling Equity 0 0 0 0 0

Comprehensive income attributable to parent company

110,216 90,456 64,331 65,859 75,102

Comprehensive income attributable to Non-controlling Equity

0 0 0 0 0

Earnings per share 4.32 3.44 3.40 3.08 3.23 Note:The earnings per share of each year is calculated based on the weighted-average outstanding shares

of the current year, and is retroactively adjusted per the incremental shares of the capital increase arising from earnings and additional paid-in capital.

~103~

4.Condensed Statement of Comprehensive Income – IFRS – Non-Consolidated Unit: NT$ thousands

Year Item


2013 2014 2015 2016 2017 Operating revenues 1,113,685 1,308,263 1,405,126 1,118,554 1,306,025 Gross profit 214,213 162,674 178,495 189,758 200,058 Operating income 106,607 61,298 79,012 85,802 93,896 Non-operating income and expenses 11,204 30,451 17,436 (968) (669)

Income before income tax 117,811 91,749 96,448 84,834 93,227 Income from continuing operations before income tax

98,354 79,602 79,749 72,408 75,889

Loss from discontinued division 0 0 0 0 0

Net income 98,354 79,602 79,749 72,408 75,889 Other comprehensive income 11,862 10,854 (15,418) (6,549) (787)

Total comprehensive income 110,216 90,456 64,331 65,859 75,102

Income attributable to parent company 98,354 79,602 79,749 72,408 72,408

Income attributable to Non-controlling Equity 0 0 0 0 0

Comprehensive income attributable to parent company

110,216 90,456 64,331 65,859 75,102

Comprehensive income attributable to Non-controlling Equity

0 0 0 0 0

Earnings per share 4.32 3.44 3.40 3.08 3.23

Note: The earnings per share of each year is calculated based on the weighted-average outstanding shares of the current year, and is retroactively adjusted per the incremental shares of the capital increase arising from earnings and additional paid-in capital.

~104~

6.1.2 Auditors’ Opinions CPA Firm/Year 2013 2014 2015 2016 2017

PriceWaterhouseCoopers Jenny Yeh Jenny Yeh Jenny Yeh Eric Wu Eric Wu Eric Wu Douglas Chang Douglas Chang Douglas Chang Se-Kai Lin

Auditing Opinion unqualified opinion

unqualified opinion

modified unqualified opinion

unqualified opinion

unqualified opinion

6.2 Five-Year Financial Analysis 6.2.1 Five-Year Financial Analysis – IFRS

1. Five-Year Financial Analysis – IFRS - Consolidated

Year Item


2013 2014 2015 2016 2017

Financial Structure (%)

Debit of Assets Ratio 57.26 58.92 55.91 54.58 62.82 Long-term Funds to Properties, Plants and Equipment Ratio 731.09 699.88 729.14 754.40 796.59

Solvency(%)

Current Ratio 169.10 157.57 168.18 173.94 152.80

Quick Ratio 166.37 154.59 165.00 171.66 151.19

Time Interest Earned (times) 0.00 0.00 0.00 0.00 0.00

Operating Ability

Accounts Receivable Turnover (times) 3.95 3.31 2.70 2.04 2.26 Average Collection Days (days) 92.32 110.27 135.19 178.92 161.50

Inventory Turnover (times) 17.55 12.75 11.98 12.77 21.76

Accounts Payable Turnover (times) 3.15 3.32 3.10 2.85 3.44

Inventory Turnover Days (days) 20.79 28.63 30.47 28.58 16.77 Properties, Plants and Equipment Turnover (times) 15.30 18.45 19.79 15.78 18.90

Total Assets Turnover (times) 0.98 1.12 1.20 0.98 1.03

Profitability

Return on Assets (%) 8.55 6.60 6.63 6.23 5.83

Return on Equity (%) 19.50 15.76 15.57 13.92 14.27

Pre-tax income to Issued Capital (%) 51.27 39.41 41.99 36.12 39.77

Net Income Ratio (%) 8.76 5.88 5.52 6.36 5.67

Earnings Per Share (NT$) 4.32 3.44 3.40 3.08 3.23

Cash Flow

Cash Flow Ratio (%) 20.42 17.58 0.00 17.71 29.59

Cash Flow Adequacy Ratio (%) 179.55 128.39 63.99 93.14 157.95

Cash Reinvestment Ratio 6.27 5.08 0.00 8.28 33.58

Leverage Operating L Leverage 4.86 8.40 7.59 5.60 5.37

Financial Leverage 1.00 1.00 1.00 1.00 1.00

~105~

Note: 1. Financial Structure Analysis (1) Ratio of Liabilities to Assets = Total Liabilities / Total Assets. (2)Ratio of Long-term Funds to Properties, Plants and Equipment Ratio = (Shareholders’ Equity +

Long-term Liabilities) / Net Long-term Funds to Properties, Plants and Equipment Ratio. 2. Solvency Analysis (1) Current Ratio = Current Assets / Current Liabilities. (2)Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities. (3)Times Interest Earned Ratio = Earnings before Interest and Taxes / Interest Expenses. 3. Operating Ability Analysis (1) Accounts Receivable Turnover = Net Sales / Average Accounts Receivables. (2) Average Collection Period = 365 / Accounts Receivable Turnover. (3) Inventory Turnover = Cost of Sales / Average Inventory. (4) Average Days in Sales = 365 / Inventory Turnover. (5) Fixed Assets Turnover = Net Sales / Net Fixed Assets. (6) Total Assets Turnover = Net Sales / Total Assets. 4. Profitability Analysis (1) Return on Total Assets = (Net Income + Interest Expenses * (1 - Effective Tax Rate)) / Average Total Assets. (2) Return on Stockholders' Equity = Net Income / Average Stockholders' Equity. (3) Profit Ratio = Net Income / Net Sales. (4)Earnings per Share = (Net Income - Preferred Stock Dividend) / Weighted Average Number of Shares

Outstanding. 5. Cash Flow Analysis (1) Cash Flow Ratio = Net Cash Provided by Operating Activities / Current Liabilities. (2) Cash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year Sum of Capital

Expenditures, Inventory Additions, and Cash Dividend. (3) Cash Reinvestment Ratio = (Cash Provided by Operating Activities – Cash Dividends) / (Gross Fixed

Assets + Investments + Other Assets + Working Capital). 6. Leverage (1) Operating Leverage = (Net Sales - Variable Cost) / Operating Income. (2) Financial Leverage = Operating Income / (Operating Income - Interest Expenses).

~106~

2. Five-Year Financial Analysis – IFRS – Non-Consolidated

Year Item


2013 2014 2015 2016 2017

Financial Structure (%)

Debit of Assets Ratio 57.20 58.86 55.80 54.53 62.77

Long-term Funds to Properties, Plants and Equipment Ratio 735.27 703.89 731.90 756.97 799.29

Solvency (%)

Current Ratio 166.87 154.49 163.98 169.77 150.05

Quick Ratio 164.14 151.51 160.81 167.70 148.51

Time Interest Earned (times) 0.00 0.00 0.00 0.00 0.00

Operating Ability

Accounts Receivable Turnover (times) 3.98 3.23 1.36 2.02 2.22

Average Collection Days (days) 91.82 113.00 267.79 180.73 164.08

Inventory Turnover (times) 17.55 12.75 11.01 11.59 18.24

Accounts Payable Turnover (times) 3.13 3.23 3.04 2.81 3.36

Inventory Turnover Days (days) 20.79 28.63 33.14 31.51 20.01

Properties, Plants and Equipment Turnover (times) 15.27 17.93 19.33 15.56 18.52

Total Assets Turnover (times) 0.97 1.09 1.17 0.96 1.00

Profitability

Return on Assets (%) 8.56 6.61 6.64 6.24 5.83

Return on Equity (%) 19.50 15.76 15.57 13.92 14.27

Pre-tax income to Issued Capital (%) 51.27 39.31 41.10 36.11 39.69

Net Income Ratio (%) 8.83 6.08 5.68 6.47 5.81

Earnings Per Share (NT$) 4.32 3.44 3.40 3.08 3.23

Cash Flow

Cash Flow Ratio (%) 22.26 15.96 0.00 18.12 30.12

Cash Flow Adequacy Ratio (%) 184.14 129.53 64.65 93.10 157.29

Cash Reinvestment Ratio 6.69 2.94 0.00 9.10 35.85

Leverage Operating L Leverage 4.78 8.36 5.94 5.42 5.28

Financial Leverage 1.00 1.00 1.00 1.00 1.00

~107~

6.3 Audit Committee’s Review Report in the Most Recent Year

CTCI Advanced Systems Inc. Audit Committee’s Review Report

To: 2018 Annual General Meeting of Shareholders

The Board of Directors has prepared the Company’s 2017 Business Report, Financial

Statements (both consolidated and individual), and proposal for allocation of profits.

The CPA firm of PricewaterhouseCoopers was retained to audit ASI’s Financial

Statements and has issued an audit report relating to the Financial Statements. The

Business Report, Financial Statements, and profit allocation proposal have been

reviewed and determined to be correct and accurate by the Audit Committee

members of CTCI Advanced Systems Inc. According to Article 14-4 of the Securities

and Exchange Act and Article 219 of the Company Act, we hereby submit this report.

CTCI Advanced Systems Inc.

Chairman of the Audit Committee: Ray Chang

Dated March 7 th, 2018.

108

6.4 Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016 Please refer to Appendix I.

6.5 Non-Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016 Please refer to Appendix II.

6.6 Impact of the Financial Distress Occurred to the Company and Affiliates in the Recent Years until the Annual Report being published: None

109

VII. Review of Financial Conditions, Operating Results, and Risk Management 7.1 Analysis of Financial Status 7.1.1 Analysis of Financial Status

Unit: NT$ thousands Year

Item 2017 2016 Difference

Amount ％ Current assets 1,368,050 1,066,333 301,717 28.29 Non-Current assets 84,254 86,927 (2,673) (3.07) Total assets 1,452,304 1,153,260 299,044 25.93 Current liabilities 895,305 613,055 282,250 46.04 Non-Current liabilities 17,004 16,443 561 3.41 Total liabilities 912,309 629,498 282,811 44.93 Equity attributable to parent company

539,995 523,762 16,233 3.10

Non-controlling Equity 0 0 0 0 Total liabilities and equity

1,452,304 1,153,260 299,044 25.93

7.1.2 Major reasons for the major changes in assets, liabilities and shareholders' equity in the most recent

two years (changes in the period before and after a period of more than 20%, and the amount of change amounted to NT$10 million) are the main reasons and their impact and future accruals painting:

1) Current assets increased by RMB 301,717 million, mainly due to cash and cash equivalents increased by RMB 229,491 and accounts receivable increased by RMB 83,844.

2) Current liabilities increased by RMB 282,250. The increase in main accounts receivable due to accounts payable was RMB 84,303 and their advance receipts were greater than the increase of RMB 191,279 in construction.

110

7.1.3 The evaluation basis of the balance sheet valuation items

7.1.4 The methods and assumptions used to estimate the fair value of the above financial instruments are

summarized below：

1) The fair values of the short-term financial instruments, which include cash and cash equivalents, notes and accounts receivable, other receivables, notes and accounts payable, accrued expenses, and other payables are estimated based on the book value recognized in the balance sheet due to their short maturities.

2) The fair values of available-for-sale financial assets are based on the market value.

3) The fair values of the long-term financial instruments (e.g. refundable deposits, other assets-other and deposits-in) were based on the present value of expected cash flow amount. The discount rate was the one-year deposit rate of the Directorate General of Postal Remittances and Savings Bank.

4) The fair values of derivatives are estimated using information provided by the seller according to each individual contract; if information cannot be retrieved from the seller, then information from Reuters or Bloomberg’s valuation is used to calculate each individual contract’s fair value. The above-mentioned quoted data is the estimated data on the basis of consistence selling price.

Item B/S valuation item Evaluation reference Evaluation basis 1 Monetary assets

denominated in foreign currency

Spot rate on balance sheet date

Compute exchange gain or loss based on the spot rate

2 Financial instruments carried at fair value, available for sales and derivatives

Fair market value on balance sheet date

Evaluate based on the fair market value

3 Allowances for doubtful accounts

Historical records and credit references

Assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

4 Allowances for obsolescence and market value decline

Lower of aggregate cost or market value

a.25% for over 6 months and less than 12 months.

b.50% for over 12 months and less than 18 months.

c.75% for over 18 months and less than 24 months.

d.100% for over 24 months.

111

7.2 Analysis of Operating Results 1. Analysis of Operating Results

Unit: NT$ thousands Year

Item 2017 2016 Difference

Amount % Sales Revenue 1,337,655 1,138,973 198,682 17.44 Operating Costs (1,131,839) (940,844) (190,995) (20.30) Gross Profit 205,816 198,129 7,687 3.88 Operating Expenses (112,620) (113,117) 497 (0.44) Non-operating Income and Expenses 236 (165) 401 (243.03) Income Before Income Tax 93,432 84,847 8,585 10.12 Net Income 75,889 72,408 3,481 4.81

2. The analysis of the movements: (1) The operating revenues and costs in 2017 increased in comparison with the same period of last

year, the main reason is the large projects undertaken this year have been more widely recognized in the second half of the year according to the project schedule, it result in higher revenue than last year.

(2) The gross profit of 2017 is lower than the same period of last year, mainly due to the high gross profit projects of overseas customers in 2016 and some domestic large projects that completed most of the progress and released risk reserves in 2016. In the second half of 2017, although the revenue was higher than in 2016, the average project gross margin was lower than 2016.

(3) The non-operating income increased NTD$ 401 thousands compared with the same period of last year. The main reason is the increase of interest income of NTD 1,624 thousands and other income of NTD 685 thousands and foreign exchange loss of NTD 1,539 thousands than last year.

3. Mainly attributed factors of predetermined sales volume in the next year and anticipated sales volume

increasing and decreasing. In the coming year ASI will participate in the CTCI group MAC projects, especially in the Middle East and Southeast Asia. Main Automation Contractor (MAC), along with Electrical and Mechanical (E&M) Integration Services will still be ASI’s core businesses. In addition, ASI will take further steps in promoting new products to maintain corporate growth and to make up for impact caused by the decline in new plant construction. In Intelligent manufacturing (IM) business, ASI had, and will be developing more intelligent manufacturing solutions for continuous process industry and machine-oriented manufacturing industries. Due to customers’ ardent demand for Industrial 4.0 solutions, this field of business is expected to bring in growth much more significant to that of the previous year. Overall, the market for MAC and E&M integration services may seem sluggish, but with innovative products and solutions developing, ASI will continue to grow in operation and sustain in the current economic environment.

112

7.3 Analysis of Cash Flow 7.3.1 Analysis of Cash Liquidity

The cash outflow of Year 2017 is NT$ 229,491 Thousand Dollars. The cash balance in the end of the year is

NT$558,757 Thousand Dollars. Cash liquidity is fine.

7.3.2 Analysis of Cash Liquidity in year 2018 Unit: NT$ Thousands

Cash Balance at Beginning for the

Year

Expected Net Cash Outflow from

Operating Activities

Expected Cash Inflow (Outflow)

Expected Cash Surplus (Deficit)

Leverage of Expected Cash Deficit

Investment Plans

Financing Plans

558,757 101,387 (188,183) 370,574 - - 1. Analysis of change in cash flow in Year 2018:

(1) Operating activities: Because the construction is in the peak period for the large project this year, it needs for procurement spending. It will result in net cash outflow.

(2) Investing activities: N/A. (3) Financing activities: The expected cash outflow is mainly due to cash dividends distribution.

2. Liquidity analysis and remedial measures against cash deficit: N/A

7.4 Major Capital Expenditure Items: None

7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans and the Investment Plans for the Coming Year CTCI Advanced Systems Shanghai Inc. Loss after tax in 2017 is RMB106 thousand. The major cause is that some major projects were awarded after Q2 2017 which made the rising of revenue in 2017. However, the recognized revenue of ASSI is based on the actual invoice amount issued instead of the proportion completion of the projects. There is 5~10% lag of invoice amount issued with compared to the actual completion of the projects. It is expected those projects will be 100% completed in 2018 and the profit will be positive in 2018.

113

7.6 Analysis of Risk Management 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on Corporate Finance,

and Future Response Measures (1) Interest rate

Unit：NT$ Thousands Item 2017 2016

Interest Income 4,804 3,180 Interest Expense 0 0

Investment gain on money market fund 210 308 Sales 1,337,655 1,138,973

Net Income before Tax 93,432 84,847

A. The Company invests inactive money mainly stored in interest-rate commodities such as current deposit and time deposit.

B. The inactive money was increased in this year, interest income was NT$ 4,804 thousand, which was higher over 2016.

C. For inactive money, the Company will continue to look for higher-yield financial products with safety and proper liquidity to achieve the purpose of earning stable investment profits.

(2) Foreign exchange rates

Unit：NT$ Thousands

Item 2017 2016 Net Foreign Exchange

Gain/Loss(A) (7,269) (5,730)

Sales (B) 1,137,655 1,138,973 Net Income before Tax

(C) 93,432 84,847

A/B (%) -0.54 -0.50

A/C (%) -7.80 -6.75

D. D. The business line of the Company includes various services on advanced automation system, smart M&E, and IM, such as feasibility assessment, system planning, designing, and procurement. All business work can be separated into two parts as domestic projects and overseas projects according to its location. For cash-in side, domestic projects are usually signed in New Taiwan dollar, and sometimes in other foreign currencies; overseas projects are usually signed in US dollar and local currency. For cash-out side, the currencies of payment are usually decided by service location or procurement region. Therefore, the Company must keep appropriate foreign assets and liabilities to operate general activities. Thus the appreciation or depreciation of major currencies, like US dollar, will influence foreign exchange gain/loss of the Company.

E. Because TWD appreciated in 2017, net foreign exchange losses arised mainly from foreign currency

revaluation. F. To lower the influence on changes in foreign exchange rates, the Company has concrete methods to hedge FX

risks. a) To update trends of major currencies, and adjust FX position timely. b) To create internal hedge effect by netting foreign receivables and payables. c) For payment in foreign currencies, to forecast the direction of payment currencies and analyze the potential

profit and loss of foreign exchange, and then choose leads or lags strategy to hedge FX risks and achieve the goal of saving costs.

114

d) In order to allocate optimal capital position, to open foreign currency deposit accounts to collect foreign income and convert it into new Taiwan dollar or other strong currencies based on actual cash flow demand or FX tendency.

e) To use forward contracts or other tools to hedge FX risks. (3) Inflation

Item 2017 2016

CPI 100.62 100.00

Annual Change of CPI 0.62 1.4

Source：Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C.(Taiwan) A. The Consumer Price Indices of 2017 was 100.62, and the annual change rate was 0.62%. The main causes were

that the increased tobacco tax in 2017Q4 caused the miscellaneous category indices to rise by 2.18% and that rising prices of crude oil caused transportation and communication expenses to rise by 1.73%. DGBAS estimates the annual change of CPI of 2018 will be 1.21%. Taiwan Institute of Economic Research expects the CPI of 2018 will have roughly the same growth rate as that of 2017. It is mainly due to expanding private investment, government timely announced infrastructure plan and rising enterprise profit and labor wage driven consumption growth. It is expected that international raw material prices will remain stable and the domestic prices will hardly rise dramatically.

B. The Company would refer to price changes in domestic and overseas market to avoid huge operating cost fluctuations which may erode the Company’s profit.

7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to High-risk,

High-leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions The Company does not engage in high-risk, high-leveraged investment, and lending to others. As for guarantees and derivatives transactions all are executed according to the Company “Rules Governing Procedure for Making of Endorsements or Guarantees ” and “The Procedure for Acquisition and Disposition of Assets”.

7.6.3 Future Research & Development Projects and Corresponding Budget

In latest 3 years, the R&D (research and development) endeavors in ASI has been gradually arranged and focused on Industry 4.0 Intelligent operation and Industry Internet of Things (IIoT), such as Smart optical measurement system for traditional industries to improve quality control, Chemical plant P&ID for Process safety management application and Cyber-Physical Integration system with Digital Twin model which can be used to forecast and optimize process operation. The above R&D achievement can in time provide the valuable solutions for the factories. Please refer to「Technology and R&D Overview」 for related R&D expenses, achievements, progresses and future R&D projects.

7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and

Sales None

7.6.5 Effects of and Response to Changes in Technology and in Industry Relating to Corporate Finance and Sales

1.The popularity of wireless technologies: Wireless, mobile applications will become increasingly and widely used in market. There will be certain influence in financial and business aspects, depends on whether we have good solution for the demands or not. The R&D approaches in ASI have considered these trends. The new functions for wireless and mobile applications will fulfill client’s demands for sure.

2.The attention to energy saving and environmental protection: The global warming and environment

115

are continuing to deteriorate. People are enforced to increasingly focus on energy conservation and environmental issues. New product manufacturing or industrial plant expansion is as critical to ensure these issues successfully solved. The directions are identical to ASI long term development. It is positive to ASI in these new approaches. The company will take an active understanding of the technical features of the market demands, related systems, applications and limitations, to develop related products and business with the advanced technologies.

7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s

Response Measures None

7.6.7 Expected Benefits from, Risks Relating to and Response to Merger and Acquisition Plans

None

7.6.8 Expected Benefits from, Risks Relating to and Response to Factory Expansion Plans Not Applicable

7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive

Customer Concentration None

7.6.10 Effects of, Risks Relating to and Response to Large Share Transfers or Changes in Shareholdings by

Directors, Supervisors, or Shareholders with Shareholdings of over 10% None

7.6.11 Effects of, Risks Relating to and Response to Changes in Control over the Company

None

7.6.12 Litigation or Non-litigation Matters 1. Major ongoing lawsuits, non-lawsuits or administrative lawsuit : (Unit：NT$ Thousands)

(1) On May 17, 2005, the Company placed an order with Giantek Technology Corp. (GTC) for the Taipei Metro Sinzhuang/Luzhou line Passengers Information Display System (PIDS) LED hardware, PIDS software and PIDS computer hardware/software and had paid a deposit of $2,700 to GTC. However, GTC was often delayed in the delivery of the products to the Company. Accordingly, the Company sent a letter to GTC on April 15, 2008, expressing its intention to terminate the contract and encashed the promissory note of $2,700 issued by GTC as security deposit. GTC filed a lawsuit against the Company for the unjust enrichment of the Company, and requested the Company to return the security deposit of $2,700 and interest charges. The Company also filed a counter-claim, requesting GTC to indemnify the Company for its losses totalling $12,072 caused by prepayment of deposit and repurchase of the related products. Based on the opinion of the Company’s legal counsel, if the court renders a judgment that GTC wins the lawsuit, the Company should return to GTC the security deposit of $2,700. On the contrary, if GTC loses the lawsuit, then the Company can obtain the security deposit of $2,700. In respect of the counterclaim, if the court renders a judgment that the Company wins the lawsuit, then the Company can obtain an indemnity which would be decided by the court; however, if the Company loses the lawsuit, then the Company cannot be compensated for its losses caused by the repurchase of the related products. On July 29, 2010, the court’s first verdict was made. The verdict was for the Company to pay GTC $2,700 and statutory interest. The Company’s counter-claim was denied. Because the verdict entails a situation known as “surprise judgment”, upon discussion with legal counsel, the

116

Company proceeded to appeal the verdict. On July 13, 2011, the Taiwan High Court refuted GTC’s claim of unjust enrichment, and determined that GTC should pay $7,538. GTC disagreed with the verdict, and filed an appeal on August 12, 2011. Additionally, the Company’s request for compensation regarding the promissory note of $2,700 and additional research and development fees for the new Luzhou line of $4,593 was denied. After discussion with their legal counsel, the Company also filed an appeal for the previously mentioned items. The Supreme Court on December 9, 2011 rendered a judgment that the second ruling is invalid except for parts executed and returned the case. The Taiwan High Court has ordered GTC to pay $7,248 to the Company on July 21, 2015. Both Company and GTC appealed to the Supreme Court during August, 2015. The Supreme Court issued a second remand determination on March 2, 2016. The case now is under the trial of Taiwan High Court. Even though the result of the litigation is uncertain, the Company already included the possible loss from litigation of $2,700 in its financial statements.

2. Major ongoing lawsuits, non-lawsuits or administrative lawsuits caused by directors, supervisors or

shareholders with over 10% share holdings : (1) CTCI Corporation and Mitsubishi Heavy Industries, Ltd. were joint venture in the Kaohsiung

Country Ren-Wu Resource Recovery Plant Project. The project completed on February 19, 2000 and accepted by Environmental Protection Administration on May 16, 2000. CTCI claimed for release of the guarantee bond in the amount of NTD 141,690 thousands, Environmental Protection Administration, however, declined the request due to one unsolved dispute between Kaohsiung City Government and O&M Contractor. After CTCI remitted in NTD 73,253 thousands to bank for exempting from the execution of the guarantee bond and filed a lawsuit to Taiwan Kaohsiung District Court, Environmental Protection Administration returned the amount of NTD 9,299 thousands to CTCI. As a result, CTCI reduced the claim to NTD 63,954 thousands, with the interest in the amount of NTD 117 thousands and the liquated damages in the amount of NTD 2,421 thousands. CTCI was then awarded a winning adjudication except for the liquated damages in the amount of NTD 1,708 thousands has been rejected. Afterwards, the Environmental Protection Administration appealed to the Taiwan High Court but failed. Further, the Environmental Protection Administration continued to appeal to the Taiwan Supreme Court. This lawsuit is remanded by Taiwan Supreme Court twice and now is under the trial of Taiwan High Court. The judgment of Taiwan High Court didn’t sustain the claim of Environmental Protection Administration and appealed to Taiwan Supreme Court by Environmental Protection Administration. There is no material impact to CTCI’s finance as well as business development so far.

(2) CTCI Corporation, Ishikawajima-Harima Heavy Industries Co., Ltd., Resource Engineering Services Inc. and East Construction Industry Co., Ltd were joint venture in the CPC Northern LNG Receiving Terminal Project and entered into a contract on July 23, 2004. CTCI claimed for additional costs, including direct and indirect costs, in the total amount of NTD 82,390 thousands for delay resulted from CPC Corporation’s contractor for another project and filed a lawsuit to Taipei District Court on March 5, 2010. After reviewing related document itself, CTCI reduced the claim amount to NTD 71,448,016 on March 1, 2011. The judgments of Taipei District Court and Taiwan High Court were not awarded to CTCI. CTCI appealed to Taiwan Supreme Court. The judgment of Taiwan Supreme Court sustained CTCI’s appeal and remanded by Taiwan Supreme Court The lawsuit now is under the trial of Taiwan High Court. There is no material impact to CTCI’s finance as well as business development so far.

(3) CTCI Corporation, Ishikawajima-Harima Heavy Industries Co., Ltd., Resource Engineering Services Inc. and East Construction Industry Co., Ltd were joint venture in the CPC Northern LNG Receiving Terminal Project and entered into a contract on July 23, 2004. CPC Corporation alleged it has limited budget and cannot pay the compensation of the 2nd price escalation, so CTCI claimed for compensation of price escalation in the amount of USD 7,983 thousands and NTD 384,159

117

thousands and filed a lawsuit to Taipei District Court on March 5, 2010. The judgment of Taipei District Court is not awarded to CTCI. CTCI appealed to Taiwan High Court but was overruled. CTCI appealed to Taiwan Supreme Court. This lawsuit now is under the trial of Taiwan Supreme Court. There is no material impact to CTCI’s finance as well as business development so far.

7.6.13 Other Major Risks

None

7.7 Other: None

118

VIII. Special Disclosure

8.1 Summary of Affiliated Companies 8.1.1 Consolidated Business Report of Affiliates

(1) Organizational chart of the affiliates

100%

Century Ahead Limited

100% CTCI Advanced Systems

Shanghai Inc.


119

(2) General information of the affiliates:

Company Date of Incorporation Address Common Stock

Issued Major Business Activities

Century Ahead Limited 2000/10/12 Offshore Chambers, P.O. Box 217,Apia, Samoa

USD 750,000 Professional investment company


2001/09/21 7F, No. 26, Lane 168, Daduhe Road, Putuo District, Shanghai 200062, P. R. China

USD 750,000 1. R&D and design of computer application systems. 2. Agents and self-produced products sales. 3. Technical advisory services

(3) Common Shareholders of the Company and Its Subsidiaries or Its Affiliates with Actual of Deemed Control: None (4) Industries covered by the business operated by all affiliates:

The business of the Company and its subsidiaries and affiliates provided including sales, design, technical consultation and maintenance services of hardware, software, and computer network of miscellaneous control systems.

(5) Directors, supervisors, and general managers of the Company and affiliates

Company Title Name of Representative Shareholding

Shares %

Century Ahead Limited Director

CTCI Advanced Systems Inc. Representative: Chen-Chin Chen Chiang-Nan Tsai Ai-Cheng Ho

750,000

100%

CTCI Advanced Systems

Shanghai Inc.

Chairman Director Supervisor President

Century Ahead Limited Representative: Chen-Chin Chen Century Ahead Limited Representative: Chiang-Nan Tsai T.K. Shu Century Ahead Limited Representative: Ai-Cheng Ho T.K. Shu

Registered capital USD750,000

100%

120

8.1.2 Operation overview of the Company and affiliates Unit: NT$ thousands

Company Common Stock Issued Total Assets Total

Liabilities

Total Stockholders’

Equity

Total Operating Revenue

Operating Income (Loss)

Net Income (Loss) Earnings Per Share (NT$)

Century Ahead Limited 23,678 25,831 0 25,831 0 (81) (639) 0.00


24,150 27,762 3,095 24,667 46,679 (619) (478) Not applicable

8.1.3 The related information on the endorsements or guarantees for others, lending to others and derivative financial instruments of affiliates:

Lending to CTCI Corporation was NT$ 45,000 thousand. (as of March 31st ,2017) Endorsements or guarantees for Century Ahead Limited was NT$ 18,222 thousand. (as of March 31st ,2017)

8.2 Private Placement Securities in the Most Recent Years: None

8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years: None

121

8.4 Other Supplementary Information

8.4.1 KPI by industry: KPI Item Formula 2016 2017

Revenue per Employee

Yearly Revenue / Average No. of employee (NT$ thousands)

405.27 485.51

Traveling Expense KPI Yearly Revenue / Yearly Traveling Expense 39.44 52.20

Operating Expense KPI Yearly Revenue / Yearly Operating Expense 10.79 12.29

Operating Cost KPI Yearly Project Revenue / Yearly Operating Cost 1.19 1.15

Sales Expense KPI Yearly Sales Revenue / Yearly Sales Expense 4.52 6.89

8.4.2 Major trading items related information:

(1) Loan to others: Lending to CTCI Corporation was NT$ 45,000 thousand. (as of March 31st ,2018)

(2) Endorsement and guarantee for the affiliates: The loan guarantee amount for the affiliate, Century Ahead Limited, is NT$17,481 thousand. (as of March 31st ,2018)

(3) Engage in derivatives transaction: None 8.4.3 Material Event Impact on Shareholders' Equity or Share Price in Recent Years until the Annual

Report being published The 10th Term of the office of CTCI ASI Directors had expired in 2017, and 11th Term of the Directors had been elected in the 2017 AGM on 22th June, 2017. The new Directors and Independent Directors are as below: Directors: Chen,Chen-Chin , Representative of CTCI Corporation;

Lu, Hsi-Peng , Representative of CTCI Corporation; Lu, Shyue-Ching; Chan, Hou-Sheng; Chen, Bao-Lang; Chen, Hung-I;

Independent Director: Chang, Ryh Yan; Tsan, Wen-Nan; Li, Mei-Huei;

The original chairman of the company, Mr. Hwei-Nan Yih, had expired on June 22, 2017, and elected the first board of directors on the same day of the 11th Term of the Directors as the new chairman. Mr. Chen-Chin Chen was appointed as the new chairman and was appointed as the director of Chen-Chin Chen by the same board of directors, Chairman and President.

122

Appendix I Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016

~1~

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2017 AND 2016

----------------------------------------------------------------------------------------------------------------------------------------------------

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial

statements have been translated into English from the original Chinese version prepared and used in the Republic of China.

In the event of any discrepancy between the English version and the original Chinese version or any differences in the

interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

~2~

CTCI ADVANCED SYSTEMS INC.

Declaration of Consolidated Financial Statements of Affiliated Enterprises

For the year ended December 31, 2017, pursuant to “Criteria Governing Preparation of

Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements

of Affiliated Enterprises,” the company that is required to be included in the consolidated

financial statements of affiliates, is the same as the company required to be included in the

consolidated financial statements of parent and subsidiary companies under International

Financial Reporting Standard 10. If relevant information that should be disclosed in the

consolidated financial statements of affiliates has all been disclosed in the consolidated

financial statements of parent and subsidiary companies, it shall not be required to prepare

separate consolidated financial statements of affiliates.

Hereby declare,

CTCI ADVANCED SYSTEMS INC. AND ITS SUBSIDIARIES

Chen, Chen-Chin

March 7, 2018

~3~

Report of Independent Accountants

PWCR17000256

To the Board of Directors and Stockholders of


Opinion

We have audited the accompanying consolidated balance sheets of CTCI Advanced Systems Inc. and subsidiaries (the “Group”) as at December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparations of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

~4~

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Group’s consolidated financial statements of the current period are stated as follows:

Engineering revenue recognition

Description

Please refer to Note 4(24) for accounting policies on revenue recognition, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on revenue recognition, and Note 6(15) for details of operating revenue.

The Group is primarily engaged in engineering research, plan, design, purchase, integration, manufacture, installation, adjustment, maintanence, and operation in separation and integration of different software and hardware within control systems . Engineering revenue should be recognised by reference to the stage of completion of the contract activity, using the percentage-of-completion method of accounting, over the contract term. Contract costs are expensed as incurred. The stage of completion of a contract is measured by the proportion of contract costs incurred for work performed to date to the estimated total costs for the contract. The engineering revenue recognition is affected by the accuracy of cost.

As the engineering revenue was recognised by reference to the stage of completion of the contract activity, we consider the engineering revenue estimate as a key audit matter.

~5~

How our audit addressed the matter

We performed the following audit procedures on the above key audit matter:

A. The total price of the contracts: we obtained the new significant engineering contracts and checked whether the total price of the contracts agreed with the total contract price to calculate engineering revenue and project income statement of current year;

B. Total costs for the contract: for the new significant engineering projects in the period, we randomly checked the project cost statements which were approved by project management, and relevant approval tables to ensure those were consistent with the estimated total costs on project income statements of current year;

C. Input costs of the period: we obtained the details of current cost, and selected samples from relevant evidences to verify against the carrying amounts to ensure the accuracy of input cost of current year on project income statements, and recalculated the stage of completion; and

D. Revenue recognised in the current period: we recalculated whether the amount of revenue which was recognised by reference to the stage of completion, was consistent with the amount on project income statements of current year.

Assessment on allowance for uncollectible accounts, accounts receivable Description

Please refer to Note 4(9) for accounting policies on accounts receivable, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on allowance for uncollectible accounts, accounts receivable, and Note 6(4) for details of accounts receivable.

The Group manages the collections of accounts receivable and overdue accounts and took on relevant credit risk. The management periodically assessed the credit quality and collection of customers, and adequately adjusted the credit policies for customers. In addition, the management provisioned allowance for uncollectible accounts in accordance with its policy and periodically assessed the appropriateness of the rate of allowance for uncollectible accounts. The assessment took into account factors that may influence customers’ ability to pay, including the historical data of bad debt and the financial and economic situations of customers.

~6~

As the amount of accounts receivable was material and the rate of allowance for uncollectible accounts was subjected to management’s judgement, thus we consider the estimates of allowance for uncollectible accounts as a key audit matter.



A. We obtained an understanding of the provision policies on the allowance for uncollectible accounts and checked whether the provision policies were consistently applied in the reporting periods.

B. We assessed the appropriateness of the provision rate of allowance for uncollectible accounts, and obtained and examined relevant data which were provided by management.

C. We tested the changes in accounts receivable aging and checked the due dates of accounts receivable to ensure the accuracy of the accounts receivable aging classification.

D. We reviewed the reason why the accounts receivable that were past due but not yet impaired, examined the subsequent collections and discussed the adequacy of allowance for uncollectible accounts with management.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of CTCI Advanced Systems Inc. as at and for the years ended December 31, 2017 and 2016.

Responsibilities of management and those charged with governance for 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 Preparations of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

~7~

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

A. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

B. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

C. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

~8~

D. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

E. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

F. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

~9~

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Wu, Yu-Lung Lin, Se-Kai

For and on behalf of PricewaterhouseCoopers, Taiwan

March 7, 2018

---------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

~10~

December 31, 2017 December 31, 2016 Assets Notes Amount % Amount %

Current assets

1100 Cash and cash equivalents 6(1) $ 558,757 38 $ 329,266 29

1110 Financial assets at fair value

through profit or loss - current

6(2)

80,052 6 67,548 6

1125 Available-for-sale financial assets

- current

6(3)

70,460 5 98,113 8

1150 Notes receivable, net - - 127 -

1170 Accounts receivable, net 6(4) 352,668 24 171,061 15

1180 Accounts receivable - related

parties, net

7

279,813 19 377,576 33

1200 Other receivables 7 8,858 1 5,233 -

1220 Current income tax assets 6(20) 3,021 - 3,438 -

130X Inventories, net 6(5) 6,875 - 5,641 -

1410 Prepayments 7,546 1 8,330 1

11XX Total current assets 1,368,050 94 1,066,333 92

Non-current assets

1600 Property, plant and equipment,

net

6(6)

69,923 5 71,607 6

1840 Deferred income tax assets 6(20) 10,808 1 12,004 1

1900 Other non-current assets 3,523 - 3,316 1

15XX Total non-current assets 84,254 6 86,927 8

1XXX Total assets $ 1,452,304 100 $ 1,153,260 100

(Continued)

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS


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

~11~

December 31, 2017 December 31, 2016 Liabilities and Equity Notes Amount % Amount %

Current liabilities

2150 Notes payable $ 547 - $ 34 -

2170 Accounts payable 370,058 26 286,765 25

2180 Accounts payable - related parties 7 1,035 - 25 -

2200 Other payables 6(7) and 7 95,682 7 97,036 8

2230 Current income tax liabilities 6(20) 14,769 1 6,864 1

2300 Other current liabilities 6(8) and 7 413,214 28 222,331 19

21XX Total current liabilities 895,305 62 613,055 53

Non-current liabilities

2570 Deferred income tax liabilities 6(20) 63 - 60 -

2600 Other non-current liabilities 6(9) 16,941 1 16,383 2

25XX Total non-current liabilities 17,004 1 16,443 2

2XXX Total liabilities 912,309 63 629,498 55

Equity attributable to owners of

the parent

Share capital 6(11)

3110 Common stock 234,915 16 234,915 20

Capital surplus 6(12)

3200 Capital surplus 104,546 7 104,546 9

Retained earnings 6(13)

3310 Legal reserve 125,432 9 118,442 10

3320 Special reserve 22,317 1 18,274 2

3350 Unappropriated retained earnings 6(20) 75,136 5 69,902 6

Other equity interest 6(3)(14)

3400 Other equity interest ( 22,351) ( 1) ( 22,317) ( 2)

31XX Total equity attributable to

owners of the parent

539,995 37 523,762 45

3XXX Total equity 539,995 37 523,762 45

Significant contingent liabilities

and unrecognised contract

commitments

9

3X2X Total liabilities and equity $ 1,452,304 100 $ 1,153,260 100

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS)


~12~

Years ended December 31 2017 2016

Items Notes Amount % Amount %4000 Operating revenue 6(15) and 7 $ 1,337,655 100 $ 1,138,973 1005000 Operating costs 6(5)(18)(19) and 7 ( 1,131,839) ( 85) ( 940,844) ( 83)5950 Gross profit, net 205,816 15 198,129 17 Operating expenses 6(18)(19) and 7 6100 Selling expenses ( 24,174) ( 2) ( 23,493) ( 2)6200 General and administrative

expenses

( 80,143) ( 6) ( 77,009) ( 7)6300 Research and development

expenses

( 8,303) - ( 12,615) ( 1)6000 Total operating expenses ( 112,620) ( 8) ( 113,117) ( 10)6900 Operating income 93,196 7 85,012 7 Non-operating income and

expenses

7010 Other income 6(16) and 7 7,277 1 5,373 -7020 Other gains and losses 6(17) ( 7,041) ( 1) ( 5,538) -7000 Total non-operating income

and expenses

236 - ( 165) -7900 Profit before income tax 93,432 7 84,847 77950 Income tax expense 6(20) ( 17,543) ( 1) ( 12,439) ( 1)8200 Profit for the year $ 75,889 6 $ 72,408 6

Other comprehensive income Income that will not be

reclassified to profit or loss

8311 Remeasurement of defined

benefit plan

($ 907) - ($ 3,019) -8349 Income tax of item that will not

be reclassified to profit or loss

154 - 513 -8310 Total loss that will not be


( 753) - ( 2,506) - Income that will be reclassified to

profit or loss

8361 Cumulative translation

differences of foreign operations 6(14)

( 242) - ( 2,071) -8362 Unrealized losses on valuation

of available-for-sale financial assets

6(14)

265 - ( 1,787) -8399 Income tax of items that will be

reclassified to profit or loss 6(14)(20)

( 57) - ( 185) -8360 Total loss that will be


( 34) - ( 4,043) -8500 Total comprehensive income for

the year

$ 75,102 6 $ 65,859 6

Gross profit attributable to: 8610 Owners of the parent $ 75,889 6 $ 72,408 6

Comprehensive income attributable to:

8710 Owners of the parent $ 75,102 6 $ 65,859 6

9750 Basic earnings per share

(in dollars) 6(21)

$ 3.23 $ 3.08

9850 Diluted earnings per share

(in dollars) 6(21)

$ 3.22 $ 3.07

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Equity attributable to owners of the parent Share Capital Capital Surplus Retained Earnings Other Equity Interest

Notes Common

stock

Advance Receipts for

Share Capital

Additional Paid-in Capital

Gain on Sale of Assets

Employee Stock

WarrantsLegal

ReserveSpecial Reserve

UnappropriatedRetained Earnings

CumulativeTranslationDifferences of Foreign operations

Unrealized Gain or Loss on Available-

for-sale Financial

Assets Total equity


~13~

Year ended December 31, 2016 Balance at January 1, 2016 $ 234,695 $ - $ 79,297 $ 154 $ 24,453 $ 111,060 $ 11,182 $ 73,824 $ 544 ($ 18,818 ) $ 516,391 Distribution of 2015 earnings 6(13) Provision for legal reserve - - - - - 7,382 - ( 7,382 ) - - - Provision for special reserve - - - - - - 7,092 ( 7,092 ) - - - Cash dividends - - - - - - - ( 59,350 ) - - ( 59,350 ) Common stock issued for

employee stock options 6(11)

220 ( 862 ) 642 - - - - - - - - Exercise of employee stock

warrants 6(11)

- 862 - - - - - - - - 862 Overdue of employee stock

options - - 3,846 - ( 3,846 ) - - - - - - Profit for 2016 - - - - - - - 72,408 - - 72,408 Other comprehensive loss for

2016 6(14)

- - - - - - - ( 2,506 ) ( 2,071 ) ( 1,972 ) ( 6,549 ) Balance at December 31, 2016 $ 234,915 $ - $ 83,785 $ 154 $ 20,607 $ 118,442 $ 18,274 $ 69,902 ($ 1,527 ) ($ 20,790 ) $ 523,762

Year ended December 31, 2017 Balance at January 1, 2017 $ 234,915 $ - $ 83,785 $ 154 $ 20,607 $ 118,442 $ 18,274 $ 69,902 ($ 1,527 ) ($ 20,790 ) $ 523,762 Distribution of 2016 earnings 6(13) Provision for legal reserve - - - - - 6,990 - ( 6,990 ) - - - Provision for special reserve - - - - - - 4,043 ( 4,043 ) - - - Cash dividends - - - - - - - ( 58,869 ) - - ( 58,869 ) Overdue of employee stock


2017 6(14)

- - - - - - - ( 753 ) ( 242 ) 208 ( 787 )

Balance at December 31, 2017 $ 234,915 $ - $ 104,392 $ 154 $ - $ 125,432 $ 22,317 $ 75,136 ($ 1,769 ) ($ 20,582 ) $ 539,995

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


NotesYears ended December 31,

2017 2016

~14~

CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax $ 93,432 $ 84,847

Adjustments Adjustments to reconcile profit (loss) Reversal of doubtful accounts 6(4)(16) ( 324 ) ( 836 )

Depreciation on property, plant and equipment 6(6)(18) 3,750 3,948

Amortisation 6(18) - 525

Net income on financial assets and liabilities at fair value through profit or loss

6(2) ( 197 ) ( 190 )

Interest income 6(16) ( 4,804 ) ( 3,180 )

Dividend income 6(16) ( 1,198 ) ( 1,099 )

Loss on disposal of property, plant and equipment 6(17) 7 ( 2 )

Loss on disposal of investments 6(17) ( 66 ) -

Adjustments in exchange rate for financial instruments of foreign bonds

1,700 4,481

Changes in operating assets and liabilities Changes in operating assets Financial assets at fair value through profit or loss ( 12,306 ) 31,793

Notes receivable, net 127 1,632

Accounts receivable, net ( 181,283 ) 12,814

Accounts receivable - related parties, net 97,763 4,304

Other receivables ( 3,638 ) ( 1,716 )

Inventories ( 1,234 ) 2,050

Prepayments 784 4,397

Changes in operating liabilities Notes payable 513 34

Accounts payable 83,293 ( 87,331 )

Accounts payable - related parties 1,010 ( 367 )

Other payables ( 1,354 ) 5,245

Other current liabilities 190,883 47,899

Net defined benefit liabilities ( 15 ) ( 30 )

Cash inflow generated from operations 266,843 109,218

Interest received 4,816 3,234

Dividend received 1,198 1,099

Income tax paid 6(20) ( 7,925 ) ( 4,988 )

Net cash flows from operating activities 264,932 108,563

(Continued)

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS



2017 2016


~15~

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of available-for-sale financial

assets

$ 26,283 $ -

Acquisition of property, plant and equipment 6(6) ( 2,122 ) ( 2,861 )

Proceeds from disposal of property, plant and equipment 47 4

(Increase) decrease in refundable deposits ( 206 ) 576

Net cash flows from (used in) investing activities 24,002 ( 2,281 )

CASH FLOWS FROM FINANCING ACTIVITIES

Decrease in guarantee deposits received ( 334 ) ( 299 )

Cash dividends paid 6(13) ( 58,869 ) ( 59,350 )

Proceeds from exercise of employee stock options 6(11) - 862

Net cash flows used in financing activities ( 59,203 ) ( 58,787 )

Effect of exchange rate changes on cash and cash equivalents ( 240 ) ( 2,051 )

Net increase in cash and cash equivalents 229,491 45,444

Cash and cash equivalents at beginning of year 6(1) 329,266 283,822

Cash and cash equivalents at end of year 6(1) $ 558,757 $ 329,266

~16~

CTCI ADVANCED SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,

EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

CTCI Advanced Systems Inc. (the “Company”) was incorporated under the provisions of the Company Law of the Republic of China (R.O.C.) on August 3, 1987, and started its operations on August 26, 1987. The Company’s common stock has been listed on the GreTai Securities Market since February 25, 2002. The main activities of the Company and its subsidiaries (collectively referred herein as the “Group”) are engineering research, plan, design, purchase, integration, manufacture, installation, adjustment, maintanence, and operation in separation and integration of different software and hardware within control systems, sales of computers and computer peripherals, water treatment and detection and analysis of environmental pollution consultancy service, wholesaling of telecommunications equipment and information software. CTCI Corporation, which is the ultimate holding company, owns 48.72% of the Company.

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were authorised for issuance by the Board of Directors on March 7, 2018.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRSs”) as endorsed by the Financial Supervisory Commission (“FSC”)

New standards, interpretations and amendments endorsed by the FSC effective from 2017 are as follows:

New Standards, Interpretations and Amendments

Effective date by International Accounting Standards Board

Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities: applying the consolidation exception’

January 1, 2016

Amendments to IFRS 11, ‘Accounting for acquisition of interests in joint operations’

January 1, 2016

IFRS 14,‘Regulatory deferral accounts’ January 1, 2016

~17~


Effective date by International Accounting Standards Board

Amendments to IAS 1, ‘Disclosure initiative’ January 1, 2016

Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable methods of depreciation and amortisation’

January 1, 2016

Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’ January 1, 2016

Amendments to IAS 19, ‘Defined benefit plans: employee contributions’

July 1, 2014

Amendments to IAS 27, ‘Equity method in separate financial statements’

January 1, 2016

Amendments to IAS 36, ‘Recoverable amount disclosures for non-financial assets’

January 1, 2014

Amendments to IAS 39, ‘Novation of derivatives and continuation of hedge accounting’

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014

Annual improvements to IFRSs 2010-2012 cycle July 1, 2014


Annual improvements to IFRSs 2012-2014 cycle January 1, 2016

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group



Effective date by

International Accounting

Standards Board

Amendments to IFRS 2, ‘Classification and measurement of share-based payment transactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018

IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018

~18~


Effective date by


Standards Board

Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from contracts with customers’

January 1, 2018


Amendments to IAS 12, ‘Recognition of deferred tax assets for unrealised losses’

January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018

IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS 1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS 12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IAS 28, ‘Investments in associates and joint ventures’

January 1, 2018

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:


Effective date by


Standards Board

Amendments to IFRS 9, ‘Prepayment features with negative compensation’

January 1, 2019

Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between an investor and its associate or joint venture’

To be determined by International Accounting

Standards Board

IFRS 16, ‘Leases’ January 1, 2019

IFRS 17, ‘Insurance contracts’ January 1, 2021

~19~


Effective date by


Standards Board

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

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019


Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. The quantitative impact will be disclosed when the assessment is complete.

IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

(2) Basis of preparation

A. Except for the following items, the consolidated financial statements have been prepared under the historical cost convention:

(a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

(b) Available-for-sale financial assets measured at fair value.

~20~

(c) Liabilities on cash-settled share-based payment arrangements measured at fair value.

(d) Defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation.

B. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its Judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements:

a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.

b) Inter-Group transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.

e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a

~21~

subsidiary, all gains or losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

B. Subsidiaries included in the consolidated financial statements: Ownership (%)

December December

Name of Investor Name of Subsidiary Main Business Activities 31, 2017 31, 2016 Description

CTCI Advanced Systems Inc. CENTURY AHEAD

LIMITED

Investment Group 100 100 Note

CENTURY AHEAD

LIMITED

Advanced Control & Information Technologies Co., Ltd.

Computer technical service 100 100 Note

Note: Derived from the assessment and disclosures in annual audited financial statements issued by the Group’s independent accountants.

C. Subsidiaries not included in the consolidated financial statements:

None.

D. Adjustments for subsidiaries with different balance sheet dates:

None.

E. Significant restrictions:

Cash and cash equivalents of $16,626 deposited in Mainland China are under local foreign exchange control which restricts the capital to be remitted outside its borders (excluding those for normal divided distribution).

F. Subsidiaries that have non-controlling interests that are material to the Group:

None.

(4) Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and the Group’s presentation currency.

A. Foreign currency transactions and balances

(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences

~22~

arising upon re-translation at the balance sheet date are recognised in profit or loss.

(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

(d) All other foreign exchange gains and losses based on the nature of those transactions are presented in the statement of comprehensive income within ‘other gains and losses’.

B. Translation of foreign operations

(a) The operating results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and

iii. All resulting exchange differences are recognised in other comprehensive income.

(b) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, even when the Group still retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(5) Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

(a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;

(b) Assets held mainly for trading purposes;

(c) Assets that are expected to be realised within twelve months from the balance sheet date;

~23~

(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

(a) Liabilities that are expected to be settled within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

(c) Liabilities that are to be settled within twelve months from the balance sheet date;

(d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(6) Cash equivalents

Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. Time deposits that meet the above criteria and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.

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

A. Financial assets at fair value through profit or loss are financial assets held for trading. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term.

B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are using trade date accounting.

C. Financial assets at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in profit or loss.

(8) Available-for-sale financial assets

A. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

B. On a regular way purchase or sale basis, available-for-sale financial assets are recognised and derecognised using trade date accounting.

~24~

C. Available-for-sale financial assets are initially recognised at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in other comprehensive income.

(9) Loans and receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognised at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, for short-term accounts receivable without bearing interest, as the effect of discount is insignificant, they are measured subsequently at original invoice amount.

(10) Impairment of financial assets

A. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

B. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:

(a) Significant financial difficulty of the issuer or debtor;

(b) A breach of contract, such as a default or delinquency in interest or principal payments;

(c) The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granted the borrower a concession that a lender would not otherwise consider;

(d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

(e) The disappearance of an active market for that financial asset because of financial difficulties;

(f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

(g) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or

~25~

(h) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

C. When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

(a) Financial assets measured at amortized cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(b) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset’s acquisition cost (less any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, and is reclassified from ‘other comprehensive income’ to ‘profit or loss’. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognised, such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognised in profit or loss shall not be reversed through profit or loss. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(11) Derecognition of financial assets

The Group derecognises a financial asset when the contractual rights to receive the cash flows from the financial asset expire.

~26~

(12) Inventories

Inventories are stated at the lower of cost and net realisable value. The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(13) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.

B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings 2~55 years

Machinery and equipment 3 years

Office equipment 3~5 years

Other equipment 3~6 years

(14) Leases (lessor and lessee)

A. Operating leases refer to any lease other than finance leases. Lease income (net of any incentives received from the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

~27~

B. Payments (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.

(15) Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognising impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

(16) Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as effect of discounting is immaterial.

(17) Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability specified in the contract is discharged or cancelled or expires.

(18) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(19) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognised as expense in that period when the employees render service.

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B. Pensions

(a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expense when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plans

i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past service costs. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds of a currency and term consistent with the currency and term of the employment benefit obligations.

ii. Remeasurement arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

iii. Past service costs are recognised immediately in profit or loss.

C. Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Group recognises expense as it can no longer withdraw an offer of termination benefits or it recognises relating restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

D. Employees’ compensation and directors’ and supervisors’ remuneration

Employees’ compensation and directors’ and supervisors’ remuneration are recognised as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employee compensation is distributed by shares, the Group calculates the number of shares based on the closing price at the previous day of the board meeting resolution.

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(20) Employee share-based payment

For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

(21) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.

B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

C. Deferred tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

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D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.

E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.

F. A deferred tax asset shall be recognised for the carryforward of unused tax credits resulting from research and development expenditures that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

(22) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

(23) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are resolved by the Company’s shareholders. Cash dividends are recorded as liabilities.

(24) Revenue recognition

A. Sales of goods

Revenue arising from the sales of goods should be recognised when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

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B. Revenue recognition

The Group estimated the total cost based on project nature and each objective factors. The revenue recognition was estimated based on the percentage of input cost and the Group periodically examines the reasonableness of estimates. Due to changes in the industry and the stage of completion, the expected total cost would change and thus affect the amount of revenue recognition.

(25) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker. The Group’s Chief Operating Decision-Maker, who is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgements in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below:

(1) Critical judgements in applying the Group’s accounting policies

Financial assets—impairment of equity investments

The Group follows the guidance of IAS 39 to determine whether a financial asset—equity investment is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

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(2) Critical accounting estimates and assumptions

A. Assessment on allowance for uncollectible accounts, accounts receivable

The Group manages the collections of accounts receivable and overdue accounts and took on relevant credit risk. The management periodically assessed the credit quality and collection of customers, and adequately adjusted the credit policies for customers. In addition, the management provisioned allowance for uncollectible accounts in accordance with its policy, and periodically assessed the appropriateness of the rate of allowance for uncollectible accounts. The assessment took into account factors that may influence customers’ ability to pay, including the historical data of bad debt and the financial and economic situations of customers. The assessment was a reasonable expectation concerning future events based on the situation on balance sheet date. However, assumptions and estimates may differ from the actual results which would probably cause material changes.

As of December 31, 2017, the carrying amount of accounts receivable was $352,668.


The Group considers the projects’ specifications and other objective factors in estimating the total project completion cost. The recognised revenue is calculated based on the percentage of the input cost, which the Group regularly assesses the reasonableness. Effects of changes in industry environment and construction status may also affect the total estimated project completion cost and further affect the Group’s revenue recognition.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

December 31, 2017 December 31, 2016Cash: Cash on hand and petty cash (revolving funds) 1,579$ 578$ Checking accounts and demand deposits 112,805 97,486 Cash equivalents: Time deposits 444,373 231,202 Total 558,757$ 329,266$

A. The Group transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

B. The Group has no cash and cash equivalents pledged to others.

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Items December 31, 2017 December 31, 2016Current items: Financial assets held for trading Beneficiary certificate-currency fund 80,033$ 67,517$ Valuation adjustment 19 31 Total 80,052$ 67,548$

A. The Group recognised net income of $263 and $190 on financial assets held for trading for the years ended December 31, 2017 and 2016, respectively.

B. Due to the global financial crisis in 2008, the Group, in accordance with IAS No. 39, paragraph 50 (c), reclassified certain listed stocks previously classified as financial assets at fair value through profit or loss into available-for-sale financial assets amounting to $36,462. The detailed information is set forth below:

(a) As of December 31, 2017 and 2016, the available-for-sale financial assets are as follows: December 31, 2017 December 31, 2016

Book value/ Book value/fair value fair value

Listed stocks - TSE 30,107$ 29,033$ (b) For the above listed stocks-TSE, the Group has recognized change in fair value as profit or

loss for the period and as other comprehensive income of $0 and $1,074 for the year ended December 31, 2017, $0 and $6,484 for the year ended December 31, 2016, and $0 and ($4,497) for the years before 2016.

C. The Group has no financial assets at fair value through profit or loss pledged to others.


Items December 31, 2017 December 31, 2016Current items Listed stocks 63,518$ 63,518$ Foreign bonds 27,583 55,501 Valuation adjustment 20,641)( 20,906)( Total 70,460$ 98,113$

A. The Group recognised $208 and ($1,972) in other comprehensive income for fair value change for the years ended December 31, 2017 and 2016, respectively. For the years ended December 31, 2017 and 2016, the gains on disposals of available-for-sale financial assets amounted to $66 and $0, respectively.

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B. The Group’s counterparties of investments in debt instrument the Group invests in have good credit quality.

C. The Group recognised interest income of $1,382 and $2,123 on debt instruments held for the years ended December 31, 2017 and 2016, respectively.

(4) Accounts receivable

December 31, 2017 December 31, 2016Accounts receivable 112,133$ 83,348$ Project payment receivables, net 241,371 88,873

353,504 172,221 Less: Allowance for bad debts 836)( 1,160)( Net 352,668$ 171,061$

Project payments collectible 1,022,733$ 556,710$ Less: Payments collected 781,362)( 467,837)( Net 241,371$ 88,873$

A. As of December 31, 2017 and 2016, none of accounts receivable were past due but not impaired.

B. Movement analysis of financial assets that were impaired is as follows:

(a) As of December 31, 2017 and 2016, the Group’s accounts receivable that were impaired amounted to $43,692 and $49,145, respectively.

(b) Movements on the Group’s provision for impairment of accounts receivable are as follows:

Individual Groupprovision provision Total

At January 1 -$ 1,160)($ 1,160)($ Reversal for impairment - 324 324 At December 31 -$ 836)($ 836)($

2017

Individual Groupprovision provision Total

At January 1 -$ 1,996)($ 1,996)($ Reversal for impairment - 836 836 At December 31 -$ 1,160)($ 1,160)($

2016

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C. The credit quality of accounts receivable (including related parties, please refer to Note 7(2)) that were neither past due nor impaired was in the following categories based on the Group’s Credit Quality Control Policy:

December 31, 2017 December 31, 2016Group 1 279,813$ 377,576$ Group 2 50,192 43,260 Group 3 58,608 24,152 Group 4 201,012 55,664 Net 589,625$ 500,652$

Note:

Group 1: Associates

Group 2: Government institutions

Group 3: Listed companies

Group 4: Others

D. The Group does not hold any collateral as security.

(5) Inventories

Allowance forCost valuation loss Book value

Merchandise inventory 7,326$ 451)($ 6,875$



December 31, 2017

December 31, 2016

The cost of inventories recognised as expense for the period:

For the year ended For the year endedDecember 31, 2017 December 31, 2016

Cost of goods sold 136,037$ 86,517$ Loss (gain from price recovery) on market price decline and obsolete inventory 115 11)( Cost of services rendered 995,687 854,338

1,131,839$ 940,844$

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Land Buildings Machinery Office

equipment Others Total

At January 1, 2017

Cost 41,077$ 58,323$ 15,453$ 4,647$ 6,194$ 125,694$ Accumulated depreciation and impairment - 33,820)( 10,286)( 4,279)( 5,702)( 54,087)(

41,077$ 24,503$ 5,167$ 368$ 492$ 71,607$

2017

Opening net book amount 41,077$ 24,503$ 5,167$ 368$ 492$ 71,607$

Additions - - 1,721 306 95 2,122

Disposals - - 38)( 16)( - 54)(

Depreciation charge - 878)( 2,419)( 177)( 276)( 3,750)( Net exchange differences - - - 2)( - 2)(

Closing net book amount 41,077$ 23,625$ 4,431$ 479$ 311$ 69,923$

At December 31, 2017

Cost 41,077$ 58,323$ 16,608$ 4,685$ 5,817$ 126,510$ Accumulated depreciation and impairment - 34,698)( 12,177)( 4,206)( 5,506)( 56,587)(

41,077$ 23,625$ 4,431$ 479$ 311$ 69,923$



At January 1, 2016

Cost 41,077$ 58,458$ 14,245$ 4,718$ 6,887$ 125,385$

Accumulated depreciation and impairment - 33,043)( 9,415)( 4,192)( 6,019)( 52,669)(

41,077$ 25,415$ 4,830$ 526$ 868$ 72,716$

2016


Additions - - 2,648 85 128 2,861

Disposals - - 1)( 1)( - 2)(

Depreciation charge - 912)( 2,310)( 222)( 504)( 3,948)(

Net exchange differences - - - 20)( - 20)(



Cost 41,077$ 58,323$ 15,453$ 4,647$ 6,194$ 125,694$


41,077$ 24,503$ 5,167$ 368$ 492$ 71,607$ No interest was capitalized in property, plant and equipment for the years ended December 31, 2017 and 2016.

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(7) Other payables December 31, 2017 December 31, 2016

Salaries and bonuses payable 48,500$ 49,809$ Employees' leave expense payable 10,511 10,210 Insurance payable 3,442 3,388 Employees' compensation and directors’ and supervisors’ remuneration payable 2,935 3,176 Pension payable 2,031 2,757 Others 28,263 27,696

95,682$ 97,036$

(8) Other current liabilities

December 31, 2017 December 31, 2016Project payments received in advance, net 412,881$ 221,601$ Sales revenue received in advance 333 730

413,214$ 222,331$

Project payments received 2,233,398$ 5,143,903$ Less: Payments collectible 1,820,517)( 4,922,302)( Net 412,881$ 221,601$

(9) Pensions

A.(a)The Company has a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee Also, the Company would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contributions for the deficit by next March.

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(b) The amounts recognised in the balance sheet are as follows: December 31, 2017 December 31, 2016

Present value of defined benefit obligations 143,244)($ 156,352)($ Fair value of plan assets 126,816 140,817 Net defined benefit liability 16,428)($ 15,535)($

(c) Movements in net defined benefit liabilities are as follows: Present value ofdefined benefit Fair value of Net defined

obligations Plan assets benefit liabilityYear ended December 31, 2017Balance at January 1 156,352)($ 140,817$ 15,535)($ Current service cost 2,837)( - 2,837)( Interest (expense) income 2,033)( 1,831 202)(

161,222)( 142,648 18,574)( Remeasurements:Return on plan assets (excluding amounts included in interest income or expense) - 892)( 892)(

Change in financial assumptions 4,754)( - 4,754)( Experience adjustments 4,739 - 4,739

15)( 892)( 907)( Pension fund contribution - 3,053 3,053 Paid pension 17,993 17,993)( - Balance at December 31 143,244)($ 126,816$ 16,428)($

Present value ofdefined benefit Fair value of Net defined

obligations Plan assets benefit liability

Year ended December 31, 2016Balance at January 1 175,299)($ 162,753$ 12,546)($ Current service cost 3,003)( - 3,003)( Interest (expense) income 2,981)( 2,767 214)(

181,283)( 165,520 15,763)(

Remeasurements:Return on plan assets (excluding amounts included in interest income or expense) - 1,706)( 1,706)(


1,313)( 1,706)( 3,019)( Pension fund contribution - 3,247 3,247 Paid pension 26,244 26,244)( - Balance at December 31 156,352)($ 140,817 15,535)($

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(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and 2016, is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

(e) The principal actuarial assumptions used were as follows: Year ended Year ended

December 31, 2017 December 31, 2016Discount rate 0.90% 1.30%Future salary increases 2.50% 2.50% Assumptions regarding future mortality experience are set based on the 5th Taiwan Standard Ordinary Experience Mortality Table.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

Increase 0.25% Decrease 0.25% Increase 0.25% Decrease 0.25%December 31, 2017Effect on present value of defined benefit obligation

3,000)($ 3,099$ 2,686$ 2,618)($

December 31, 2016Effect on present value of defined benefit obligation

3,217)($ 3,325$ 2,889$ 2,813)($

Discount rate Future salary increases

The sensitivity analysis above is based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

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The method and types of assumptions used in preparing the seusitivity analysis did not change compared to the previous period.

(f) Expected contributions to the defined benefit pension plans of the Company for the year ending December 31, 2018 amounts to $3,039.

B. (a) Effective July 1, 2005, the Company has established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Group and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.

(b)The Company’s Mainland China subsidiary, Advanced Control & Information Technologies Co., Ltd. has a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentage of employees’ monthly salaries and wages. The contribution percentage for the years ended December 31, 2017 and 2016 was 12% for the subsidiary. Other than the monthly contributions, the Company has no further obligations.

(c) The pension costs under defined contribution pension plans of the Group for the years ended December 31, 2017 and 2016 were $10,969 and $10,612, respectively.

(10) Share-based payment

A. For the years ended December 31, 2017 and 2016, the Group’s share-based payment arrangements were as follows:

Type of Arrangement Grant date Quantity granted Contract period Vesting conditions

Employee stock options-IV 2010.6.23 600 6 years 2~4 years’ serviceEmployee stock options-V 2011.6.22 600 6 years 2~4 years’ service

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B. Details of the share-based payment arrangements are as follows:

(a) Employee stock options-IV

Weighted-average Weighted-averageExercise price Exercise price

No. of Options (in dollars) No. of Options (in dollars)

Options outstanding at January 1, - -$ 193.00 39.20$ Options granted - - - - Distribution of stock dividends/ adjustments for number of shares granted for one unit of option - - - - Options forfeited - - - - Options exercised - - 22.00)( 39.20 Options expired - - 171.00)( - Options outstanding at December 31, - -$ - -$ Options exercisable at December 31, - -$ - -$

December 31, 2017 December 31, 2016

(b) Employee stock options-V



Options outstanding at January 1, 387.25 44.90$ 398.00 44.90$ Options granted - - - - Distribution of stock dividends/ adjustments for number of shares granted for one unit of option - - - - Options forfeited 4.00)( 44.90 10.75)( 44.90 Options exercised - - - - Options expired 383.25)( - - - Options outstanding at December 31, - -$ 387.25 44.90$ Options exercisable at December 31, - -$ 387.25 44.90$


C. During the year ended December 31, 2017, there was no stock option being exercised. The weighted-average stock price of stock options at exercise dates for the year ended December 31, 2016 was $40.59.

D. As of December 31, 2017 and 2016, the range of exercise prices of stock options outstanding both were $44.90 (in dollars); the weighted-average remaining contractual period was 0 years and 0 ~0.50 years, respectively.

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E. The incremental fair value measured by using the Black-Scholes option-pricing model is as follows:

Expected Fair value

Type of Share price Exercise price Price Expected Expected Risk-free per unit

Arrangement Grant date (in dollars) (in dollars) volatility option life dividends interest rate (in dollars)

Employee stock options-IV 2010.6.23 58.10 58.10 45.68% 4.55 years - 0.93% 22.49

Employee stock options-V 2011.6.22 63.40 63.40 44.41% 4.50 years - 1.07% 23.95

F. Expenses arising from share-based payment transactions are shown below:


Equity-settled -$ -$

(11) Share capital

A. As of December 31, 2017, the Company’s authorised capital was $300,000 (including employee stock options of $30,000), and the paid-in capital was $234,915 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

Movements in the number of the Company’s ordinary shares outstanding are as follows:

2017 2016At January 1 23,492 23,470 Employee stock options exercised - 22 At December 31 23,492 23,492

Unit：Thousand shares

B. In 2016, the Company’s employees exercised employee stock options amounting to 22,000 shares, at an average subscription price of $39.20 per share. The registration has been completed.

(12) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

Please refer to Note 6(10) for employee stock options information.

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(13) Retained earnings

A. The Company's Articles of Incorporation sets out the distribution of earning as follows:

Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be used to pay all taxes and offset the accumulated deficit from prior years, then 10% of the remaining amount shall be set aside as legal reserve. Where the legal reserve reaches total amount of paid-in capital, this provision does not apply. In addition, special reserve shall be appropriated in compliance with the laws or related regulations from competent authority. The reversal amount of special reserve along with the accumulated unappropriated retained earnings from previous years is considered as distributable earnings, which is under the resolution of shareholders’ meeting.

B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company’s paid-in capital.

C. (a) In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

(b) The amounts previously set aside by the Company as special reserve of $1,825 on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently.

D. The appropriation of earnings:

(a) The appropriation of 2016 and 2015 earnings had been resolved at the stockholders’ meeting on June 22, 2017 and June 29, 2016, respectively. Details are summarized below:

Weighted-average Weighted-averagedividends per dividends per

Amount share (in dollars) Amount share (in dollars)

Legal reserve 6,990$ 7,382$ Special reserve 4,043 7,092 Cash dividends 58,869 2.51$ 59,350 2.53$

69,902$ 73,824$


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(b) The appropriation of 2017 earnings had been proposed by the Board of Directors on March 7, 2018. Details are summarized below:

Weighted-averagedividends per

Amount share (in dollars)

Legal reserve 7,514$ Special reserve 34 Cash dividends 67,588 2.88$

75,136$

December 31, 2017

E. On June 22, 2017, the abovementioned 2016 earnings appropriation were approved by the Board of Directors with the issue date on August 1, 2017. As for the 2015 earnings appropriation, due to employee stock options exercised which would result in a change in outstanding common stock, the Board of Directors amended the dividend ratio from $2.528 per share to $2.526 per share.

F. For information relating to employees’ compensation and directors’ and supervisors’ remuneration, please refer to Note 6(19).

(14) Other equity items

Available-for-sale Currencyinvestments translation Total

At January 1, 2017 20,790)($ 1,527)($ 22,317)($ Revaluation-gross 265 - 265 Revaluation-tax 57)( - 57)( Currency translation differences -Group: - 242)( 242)( At December 31, 2017 20,582)($ 1,769)($ 22,351)($


At January 1, 2016 18,818)($ 544$ 18,274)($ Revaluation-gross 1,787)( - 1,787)( Revaluation-tax 185)( - 185)( Currency translation differences -Group: - 2,071)( 2,071)( At December 31, 2016 20,790)($ 1,527)($ 22,317)($

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(15) Operating revenue

Year ended Year endedDecember 31, 2017 December 31, 2016

Sales revenue 184,704$ 114,051$ Service revenue 1,152,951 1,024,922

1,337,655$ 1,138,973$

(16) Other income


Rental revenue 151$ 143$ Interest income: Interest income from bank deposits 3,355 1,057 Interest income from foreign bonds 1,382 2,123 Interest income from others 67 - Dividend income 1,198 1,099 Gain on reversal of bad debts 324 836 Other income 800 115

7,277$ 5,373$

(17) Other gains and losses


Net gains on financial assets at fair value through profit or loss 197$ 190$ Gains on disposal of investments 66 - Net currency exchange losses 7,269)( 5,730)( (Losses) gains on disposal of property, plant and equipment 7)( 2 Other payout 28)( -

7,041)($ 5,538)($

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(18) Expenses by nature


Purchase expenses 576,864$ 451,841$ Employee benefit expenses 340,176 337,175 Project sub-contracting 260,547 211,412 Travel expenses 26,308 29,467 Operating lease payments 12,743 11,665 Depreciation charges on property, plant and equipment 3,750 3,948 Amortisation charges on intangible assets - 525 Other expenses 24,071 7,928 Total 1,244,459$ 1,053,961$

(19) Employee benefit expenses


Wages and salaries 291,383$ 288,890$ Labor and health insurance fees 21,475 20,655 Pension costs 14,008 13,829 Other personnel expenses 13,310 13,801

340,176$ 337,175$

A. In accordance with the Articles of Incorporation of the Company, a ratio of distributable profit of the current year after covering accumulated losses, shall be distributed as employees' compensation and directors’ and supervisors’ remuneration. The ratio shall not be lower than 2% for employees’ compensation and shall not be higher than 2% for directors’ and supervisors’ remuneration.

B. For the years ended December 31, 2017 and 2016, employees’ compensation was accrued at $2,385 and $2,557, respectively; while directors’ and supervisors’ remuneration was accrued at $550 and $619, respectively. The aforementioned amounts were recognised in salary expenses and other expenses.

The employees’ compensation and directors’ and supervisors’ remuneration were estimated and accrued based on 2.48% and 0.57% of distributable profit of current year for the year ended December 31, 2017. The employees’ compensation and directors’ and supervisors’ remuneration resolved by the Board of Directors were $2,385 and $550, respectively, and the employees’ compensation will be distributed in the form of cash.

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Employees’ compensation and directors’ and supervisors’ remuneration of 2016 as resolved by the shareholders at the shareholders’ meeting were in agreement with those amounts recognised in the profit or loss of 2016.

Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors and shareholders at the shareholders’ meeting will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(20) Income tax

A. Income tax expense

(a) Components of income tax expense: Year ended Year ended

December 31, 2017 December 31, 2016Current tax:Current tax liabilities 14,769$ 6,864$ Income tax payable of prior years 4,961)( 1,402)( Current tax on profits for the year 9,808 5,462 Current income tax assets 3,021)( 3,438)( Income tax refund receivable for the period 3,021 3,021 Prior year income tax under (over) estimation 1,769 1,870)( Prepaid and withholding income tax 4,670 4,975 Total current tax 16,247 8,150 Deferred tax: Origination and reversal of temporary differences 1,296 4,289 Income tax expense 17,543$ 12,439$

(b) The income tax expense relating to components of other comprehensive income is as follows:

2017 2016Remeasurement of defined benefit obligations 154)($ 513)($ Fair value gains/losses on available-for-salefinancial 57 185

97)($ 328)($

Years ended December 31,

(c) The Group did not have income tax charged/(credited) to equity for the years ended December 31, 2017 and 2016.

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B. Reconciliation between income tax expense and accounting profit


Tax calculated based on profit before tax and statutory tax rate (Note) 16,054$ 14,422$ Expenses disallowed by tax regulation 280)( 113)( Prior year income tax under (over)estimation 1,769 1,870)( Income tax expense 17,543$ 12,439$

Note: The Company’s applicable business income tax rate was 17% for the years ended December 31, 2017 and 2016. Under the amendments to the Income Tax Act which were promulgated by the President of the Republic of China in February 2018, the Company’s tax rate will be raised from 17% to 20% while the taxable rate on undistributed surplus earnings will be lowered from 10% to 5% effective from January 1, 2018.

C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

Recognised

in other

Recognised comprehensive RecognisedJanuary 1 in profit or loss income in equity December 31

Temporary differences:

-Deferred tax assets:

Effect of pension 1,845$ -$ 154$ -$ 1,999$

Unrealised loss on service contracts 6,856 413)( - - 6,443

Unrealised cost of employees on leave 1,734 53 - - 1,787

Unrealised loss on obsolete inventories 58 19 - - 77

Unrealised foreign exchange (gain) loss 1,395 952)( - - 443

Other comprehensive income -Available-for-sale 116 - 57)( - 59

12,004$ 1,293)($ 97 -$ 10,808$

-Deferred tax liabilities: Prepaid pension expenses 60$ 3$ -$ -$ 63$

11,944$ 1,296)($ 97$ -$ 10,745$

2017

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Recognised

in other





Unrealised loss on service contracts 12,404 5,548)( - - 6,856

Unrealised cost of employees on leave 1,687 47 - - 1,734

Unrealised loss on obsolete inventories 60 2)( - - 58

Unrealised foreign exchange (gain) loss 237 1,158 - - 1,395

Other comprehensive income -Available-for-sale 301 - 185)( - 116

16,021$ 4,345)($ 328 -$ 12,004$

-Deferred tax liabilities: Prepaid pension expenses 116$ 56)($ -$ -$ 60$

15,905$ 4,289)($ 328$ -$ 11,944$

2016

D. Income tax assessment

(a) The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

(b) For the years ended December 31, 2012, 2013 and 2014, the Company accrued $3,558, ($1,021) and $1,403 of backlog on tax payable and tax deduction (refund) according to the Tax Authority’s assessment. The Company filed for a statutory recheck in July 2017, September 2015 and October 2016, respectively, by contesting on the ground that the Company’s five-year entitlement to tax exemption was interpreted inconsistently.

E. With the abolishment of the imputation tax system under the amendments to the Income Tax Act promulgated by the President of the Republic of China in February, 2018, the information on unappropriated retained earnings and the balance of the imputation credit account as of December 31, 2017, as well as the estimated creditable tax rate for the year ended December 31, 2017 is no longer disclosed.

Unappropriated retained earnings on December 31, 2016: December 31, 2016

Earnings generated in and after 1998 69,902$ F. As of December 31, 2016, the balance of the imputation tax credit account was $4,676. The

creditable tax rate was 11.94% for the year ended December 31, 2016.

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(21) Earnings per share

Weighted averagenumber of ordinary Earningsshares outstanding per share

Amount after tax (share in thousands) (in dollars)Basic earnings per share Profit attributable to the parent 75,889$ 23,492 3.23$ Diluted earnings per share Profit attributable to ordinary shareholders of the parent 75,889$ 23,492 Assumed conversion of all dilutive potential ordinary shares Employee stock warrants - - Employees’ bonus - 51 Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 75,889$ 23,543 3.22$

Year ended December 31, 2017


Amount after tax (share in thousands) (in dollars)Basic earnings per share Profit attributable to the parent 72,408$ 23,478 3.08$ Diluted earnings per share Profit attributable to ordinary shareholders of the parent 72,408$ 23,478 Assumed conversion of all dilutive potential ordinary shares Employee stock warrants - 6 Employees’ bonus - 73 Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 72,408$ 23,557 3.07$


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(22) Major service contracts % of costs Accumulated

Contract Estimated incurred to Estimated recognized Contract no. amount total cost total costs year gain (loss) Remark

1 2,208,669$ 1,333,445$ 100.00% 2018 875,224$ 2 1,961,822 1,961,822 0.32% 2024 - Note3 892,350 897,847 85.93% 2021 5,497)( 4 761,959 741,789 100.00% 2018 20,170 5 529,246 670,690 81.73% 2021 141,444)( 6 521,031 490,201 1.36% 2019 420 7 415,065 405,090 31.57% 2020 3,149 8 322,107 294,048 99.90% 2018 28,031

Note: On November 8, 2017, the Company and Tai Tung Communication Co., Ltd. (“Tai Tung”) were jointly commissioned for the construction of the information and telecommunication system in Terminal 3, Taiwan Taoyuan International Airport. The contract price totalled $2,238,142, of which the commission is divided into 87.654% and 12.346% assumed by the Company and Tai Tung, respectively. The Company’s share of the total contract price is $1,961,822.

7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party

The Company is controlled by CTCI Corporation, which owns 48.72% of the Company’s shares. The remaining 51.28% of the shares are widely held. The parent and ultimate parent of the Company is CTCI Corporation.

(2) Names of related parties and relationship

Names of related parties Relationship with the Group

CTCI Corporation The Company’s parent and ultimate parent company

CTCI Foundation Entity has significant effect on the Company’s ultimate parent company

Cinda Engineering & Construction Pvt., Ltd. Fellow subsidiary

CTCI Machinery Corporation Fellow subsidiary

ECOVE Waste Management Corporation Fellow subsidiary

CTCI Smart Engineering Corporation Fellow subsidiary

HD Resources Management Corporation Fellow subsidiary

CTCI Resources Engineering Inc. Fellow subsidiary

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ZHEJIANG Boretech Environmental Engineering Co., Ltd.

Other associate

Boretech Resource Recovery Engineering Co., Ltd.

Other associate

All directors, general manager and key management

The Company’s key management and governing body

(3) Significant related party transactions and balances

A. Operating revenue:

2017 2016CTCI Corporation 364,403$ 688,443$ Other related parties 44,447 12,481

408,850$ 700,924$


The collection terms were 40~60 days for related parties depending on the contract schedule, as of December 31, 2017 and 2016, the collection terms were both 60~120 days for third parties. Revenue from service with related parties was based on cost-plus agreement and the profit margin was approximately 10~15%.

B. Purchases of services:

2017 2016CTCI Corporation 2,063$ 2,490$ Other related parties 3,330 490

5,393$ 2,980$


The payment terms were 40~60 days for related parties depending on the contract schedule, and 40~60 days for third parties.

C. Accounts receivable:

December 31, 2017 December 31, 2016Receivables from related parties:-CTCI Corporation 239,554$ 374,382$ -Other related parties 40,259 3,194

279,813$ 377,576$

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D. Other receivables

The Company accrued $3,079 and $0 of other payables as a result of payments on behalf of other related parties as of December 31, 2017 and 2016, respectively.

E. Accounts payable: December 31, 2017 December 31, 2016

Payables to related parties:-CTCI Corporation -$ 25$ -Other related parties 1,035 -

1,035$ 25$

F. Other payables

The other payables arising from the payments made by related parties on behalf of the Company were $236 and $0 as of December 31, 2017 and 2016, respectively.

G. Advance collections (shown as other current liabilities)

December 31, 2017 December 31, 2016Collections from related parties:-CTCI Corporation 45,766$ 53,019$ -Other related parties 2,157 2,485

47,923$ 55,504$

H. Loans to/from related parties

(a) Loans to related parties

Interest income:

2017 2016CTCI Corporation 67$ -$


Please refer to Note 13(1) for details about loans to others. According to the contract terms, the loan to related parties was revolving credit facility, carrying 0.81% interest rate per annum and repayment before the contract maturity date. The loan was then settled in May 2017.

I. Rental expense

Lessor Payment terms 2017 2016CTCI Corporation Office $265/per month/paid

quarterly; Parking space $3/per month/paid monthly 3,218$ 3,218$


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J. Temporary transfer of employee costs (shown as other operating expenses)

2017 2016-CTCI Corporation 3,699$ 7,735$ -Other related parties 416 -

4,115$ 7,735$


As of December 31, 2017 and 2016, the aforementioned transactions led to other payables of $1,825 and $826, respectively.

(4) Key management compensation

2017 2016Salaries and other short-term employee benefits 14,873$ 13,990$ Post-employment benefits 450 664

15,323$ 14,654$


8. PLEDGED ASSETS

None.

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT COMMITMENTS

In addition to the commitments stated in Note 6(22), as of December 31, 2017, the Group had the following commitments and contingent liabilities:

(1) The Group issued letters of guarantee for service contracts with several banks. The letters of guarantee issued amounted to $957,006.

(2) The Group had issued promissory notes for service contracts amounting to $266,225.

(3) The Group had outstanding commitments on purchase inventory contracts amounting to $168,440.

(4) The Group had outstanding commitments on service subcontracts, net of prepaid and accrued payables, for next year amounting to $388,668.

(5) The Group leased offices from others for operation. The leasing term lasts 1~5 years. For the years ended December 31, 2017 and 2016, the recognised rental expense was $12,743 and $11,665, respectively. The minimum rents payable arising from the irrevocable contracts amounted to:

2017 2016Not later than one year 4,329$ 3,716$ Later than one year but not later than five years 2,804 748

7,133$ 4,464$


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(6) A. On May 17, 2005, the Company ordered a set of LED hardware for the travelers information of MRT Sinzhung/Luzhou line and PIDS hardware & software from Giantek Technology Corp. (hereafter GTC) and made a prepayment at $2,700 thousand. Because GTC repeatedly delayed its obligation to deliver the goods, the Company expressed its intention to terminate the contract in writing to GTC and cash the promissory note of the performance bond amounting to $2,700 thousand. The Company also filed a counterclaim concerning this case, asking a remedy for the prepayment and another placement of order totaling $12,072 thousand from GTC. GTC later sued the Company on the ground of unjust enrichment for the return of the performance bond of $2,700 thousand accompanying with the interest. The Company’s assigned attorney indicated that if the court decided in favor of GTC with an affirmed verdict, the Company is obliged to return the performance bond of $2,700 thousand to GTC. However, in case GTC loses the case, the Company earns the interest of the performance bond $2,700 thousand. As for the counterclaim, in case the court decides in favor of the Company, the Company will be awarded with the indemnity under the court’s decision. If the Company loses the case, the Company’s loss due to another placement of order cannot be compensated. On July 24, 2009, Taiwan Taipei District Court ordered the Company to pay GTC $2,700 thousand along with statutory interest and dismissed the Company’s counterclaim. After discussing with the assigned attorney, the Company appealed on the ground of illegality as the first instance’s decision is a chance verdict. On July 13, 2010, Taiwan High Court dismissed the request filed by GTC concerning unjust enrichment of $2,700 and ordered GTC to pay $7,538 thousand to the Company. On August 12, 2010, GTC then appealed to the third instance court. On August 13, 2010, the Company also appealed because the court dismissed the Company’s request for partial compensation, which is against the laws based on the attorney’s opinion as the Company had made prepayment of $2,700 thousand and incurred additional cost of $4,593 thousand for the software R&D of MRT Sinzhung/Luzhou line. On December 9, 2010, the Supreme Court revoked the second instance’s decision excluding the provisional execution. On July 21, 2015, Taiwan High court ordered GTC to pay $7,248 thousand and interest calculated from October 21, 2008 till the debt is repaid at 5% per annum. In August 2015, both parties individually appealed to the third instance court for the unfavorable part of the decision. On March 2, 2016, the Supreme Court ruled a retrial, and currently the Taiwan High court is deliberating on the case. Although the court has not yet rendered the final decision, the Company has recognised the probable loss of $2,700 thousand.

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B. On December 9, 2010, when GTC was informed of the decision rendered by the Supreme Court, it filed another lawsuit in Taiwan Shilin District Court, claiming it was entitled to terminate the contract because of the Company’s delay in receiving the ordered PIDS software and hardware. Meanwhile, GTC requested a compensation totaling $13,150 thousand including the expected interest of $6,772 thousand that may be derived from performing the contract and the R&D expense of $6,378 thousand that has been spent. Under the ruling, the case was transferred to the Taiwan Taipei District Court for deliberation. In May 2011, the district court dismissed GTC’s request for indemnity. GTC then appealed. The Taiwan High Court upheld the previous decision and dismissed the appeal by the end of March 2013. GTC objected by appealing to the third instance court. In March 2013, the Supreme Court ruled a retrial and then the Taiwan High Court dismissed the case in June 2016. Later in mid-July, GTC appealed to the third instance court for the second time. By the end of November 2016, the appeal was dismissed by the Supreme Court in a final decision. In June 2017, GTC filed a motion of retrial claiming there was evidence which has not been deliberated by the court in preceding instances. In October 2017, the Taiwan High Court dismissed the motion after finding it to be groundless. Because GTC did not appeal to the Supreme Court within 20 days of peremptory period, the court decision is final.

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

(1) Details of the appropriation of 2017 earnings as proposed and approved by the Board of Directors on March 7, 2018 are provided in Note 6(14).

(2) On December 14, 2017, the Board of Directors resolved to issue 600 units of employee stock options in several instalments. Every unit grants the right to purchase one thousand common shares of the Company. Since 600 thousand common shares in total is expected to be issued from exercised stock options, the issuance of shares was approved by the competent authority on January 9, 2018.

(3) Please refer to Note 6(20) for the information on the effect of amendments to the Income Tax Act which was promulgated by the President of the Republic of China in February 2018.

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12. OTHERS

(1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital.

During the year ended December 31, 2017, the Group’s strategy, which was unchanged from 2016. The gearing ratios at December 31, 2017 and 2016 were 63% and 55%, respectively.

(2) Financial instruments

A. Fair value information of financial instruments

Except for those listed in the table below, the carrying amounts of the Group’s cash and cash equivalents, financial instruments at amortised cost (including notes receivable, accounts receivable (including related parties), other receivables, other non-current assets-guarantee deposits paid, notes payable, accounts payable (including related parties), other payables and other non-current liabilities-guarantee deposits received) are approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).

B. Financial risk management policies

(a) The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial position and financial performance.

(b) Risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board of Directors. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

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C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk

A. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

B. Management has set up a policy to require group entities to manage their foreign exchange risk against their functional currency. The group entities are required to hedge their entire foreign exchange risk exposure with the Group treasury. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward foreign exchange contracts, transacted with Group treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

C. The Group’s businesses involve some non-functional currency operations (the Group’s and certain subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: RMB). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

Foreign CurrencyAmount Exchange Book Value

(in thousands) Rate (NTD)(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 6,295$ 29.85 187,906$ AUD:NTD 27 23.26 628 RMB:NTD 11,605 4.58 53,151 Financial liabilities Monetary items USD:NTD 2,440$ 29.85 72,834$ EUR:NTD 116 35.67 4,138 AUD:NTD 27 23.26 628

December 31, 2017

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(in thousands) Rate (NTD)(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 3,807$ 32.20 122,585$ RMB:NTD 11,861 4.62 54,798 AUD:NTD 55 23.31 1,282 Financial liabilities Monetary items USD:NTD 2,041$ 32.20 65,720$ EUR:NTD 121 33.92 4,104

December 31, 2016

D. The exchange loss (including realised and unrealised) arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2017 and 2016, amounted to $7,269 and $5,729, respectively.

E. Analysis of foreign currency market risk arising from significant foreign exchange variation:

Effect on otherDegree of Effect on profit comprehensivevariation or loss income

(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 1% 1,879$ -$ AUD:NTD 1% 6 - RMB:NTD 1% 532 - Financial liabilities Monetary items USD:NTD 1% 728$ -$ EUR:NTD 1% 41 - AUD:NTD 1% 6 -

Year ended December 31, 2017Sensitivity analysis

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(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 1% 1,226$ -$ RMB:NTD 1% 548 - AUD:NTD 1% 13 - Financial liabilities Monetary items USD:NTD 1% 657$ -$ EUR:NTD 1% 41 -


Price risk

The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet either as available-for-sale or at fair value through profit or loss. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.

The Group’s investments in beneficiary certifiates and equity securities comprise domestic listed and unlisted stocks. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 1% with all other variables held constant, post-tax profit for the years ended December 31, 2017 and 2016 would have increased/decreased by $801 and $675, respectively, as a result of gains/losses on equity securities classified as at fair value through profit or loss. Other components of equity would have increased/decreased by $705 and $981, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk

For fixed interest rate bond investments held by the Group classified as available-for-sale financial assets, changes in market interest rates would affect their fair values. At December 31, 2017 and 2016, if market interest rates had been 0.1% higher/lower with all other variables held constant, other comprehensive income for the years ended December 31, 2017 and 2016 would have been $28 and $56 lower/higher, respectively.

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(b) Credit risk

i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.

ii. No credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.

iii. For the information on the credit quality information of financial assets that are neither past due nor impaired, please refer to Note 6 (4) C.

(c) Liquidity risk

i. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group treasury. Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs.

ii. Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group treasury. Group treasury invests surplus cash in financial assets measured at fair value through profit or loss and available-for-sale financial assets, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.

iii. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

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BetweenLess than 3 months and3 months 1 year Over 1 year Total

Non-derivative financial liabilities:December 31, 2017 Notes payable 547$ -$ -$ 547$ Accounts payable 81,567 284,733 3,758 370,058 Accounts payable-related parties - 1,035 - 1,035 Other payables 72,204 20,778 2,700 95,682


Non-derivative financial liabilities:December 31, 2016 Notes payable 34$ -$ -$ 34$ Accounts payable 64,034 210,658 12,073 286,765 Accounts payable-related parties - 25 - 25 Other payables 72,969 21,367 2,700 97,036

(3) Fair value information

A. Details of the fair value of the Group’s financial assets and financial liabilities not measured at fair value are provided in Note 12(2) A.

B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in listed stocks and beneficiary certificates is included in Level 1.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at December 31, 2017 and 2016 is as follows:

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December 31, 2017 Level 1 Level 2 Level 3 TotalAssets:Recurring fair value measurements Financial assets at fair value through profit or loss Beneficiary certificates 80,052$ -$ -$ 80,052$ Available-for-sale financial assets Equity securities 43,226 - - 43,226 Debt securities - 27,234 - 27,234

123,278$ 27,234$ -$ 150,512$


110,842$ 54,819$ -$ 165,661$ D. The methods and assumptions the Group used to measure fair value are as follows:

(a) The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

Listed shares Open-end fund

Market quoted price Closing price Net asset value

(b) Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.

(c) The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.

B. Provision of endorsements and guarantees to others: Please refer to table 2.

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C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.

D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: Please refer to table 4.

E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 5.

H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 6.

I. Trading in derivative instruments undertaken during the reporting periods: None.

J. Significant inter-company transactions during the reporting periods: None.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

(3) Information on investments in Mainland China

A.Basic information: Please refer to table 8.

B.Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: No significant transaction.

14. SEGMENT INFORMATION

(1) General information

Management has determined the reportable operating segments based on the reports reviewed by the Chief Operating Decision-Maker, that are used to make strategic decisions.

The Chief Operating Decision-Maker considers the business from a product type perspective, and the reportable operating segments are separated into service department and sales department. Service department includes system maintenance, system planning, computer software design and system integration. Sales department includes sales of computer system software product integration.

(2) Measurement of segment information

A. The accounting policies of the operating segments are in agreement with Note 2 of the consolidated financial statements. The Chief Operating Decision-Maker evaluates each operating segment’s performance based on segments’ gross profit.

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B. The Group did not provide total assets and total liabilities to the Chief Operating Decision-Maker for making strategic decisions.

(3) Information about segment profit or loss, assets and liabilities

A. As of December 31, 2017, the segment information provided to the Chief Operating Decision-Maker for the reportable segments is as follows:

Adjustment andService Sales write-off Total

Revenue from external customers 1,152,951$ 184,704$ -$ 1,337,655$ Inter-segment revenue 15,049 - 15,049)( - Total segment revenue 1,168,000$ 184,704$ 15,049)($ 1,337,655$ Segment gross profit 157,264$ 48,552$ -$ 205,816$

B. As of December 31, 2016, the segment information provided to the Chief Operating Decision-Maker for the reportable segments is as follows:

Adjustment andService Sales write-off Total

Revenue from external customers 1,024,922$ 114,051$ -$ 1,138,973$ Inter-segment revenue 1,914 - 1,914)( - Total segment revenue 1,026,836$ 114,051$ 1,914)($ 1,138,973$ Segment gross profit 169,232$ 28,897$ -$ 198,129$

(4) Reconciliation for segment income (loss)

Sales between segments are carried out at arm’s length. The revenue from external parties reported to the Chief Operating Decision-Maker is measured in a manner consistent with that in the statement of comprehensive income.

A reconciliation of reportable segments’ gross profit and the profit before tax of continuing operations for the years ended December 31, 2017 and 2016 is provided as follows:


Segment gross profit 205,816$ 198,129$ Reconciling items: Operating expenses 112,620)( 113,117)( Other income 7,277 5,373 Other profit 7,041)( 5,538)( Profit before tax of continuing operations 93,432$ 84,847$

~66~

(5) Information on products and services

Revenues from external customers mainly derived from service income and sales of software products for the years ended December 31, 2017 and 2016 are as follows:

2017 2016Revenue from service income 1,152,951$ 1,024,922$ Revenue from sales of software products 184,704 114,051 Revenue from external customers 1,337,655$ 1,138,973$

(6) Geographical information

Geographical information for the years ended December 31, 2017 and 2016 is as follows:

Non-current Non-currentassets assets

Taiwan 1,134,469$ 69,687$ 1,069,929$ 71,364$ Asia (excluding Taiwan) 170,045 236 60,381 243 Others 33,141 - 8,663 -

1,337,655$ 69,923$ 1,138,973$ 71,607$

Revenue Revenue

Year ended December 31, 2017 Year ended December 31, 2016

Note: The non-current assets do not include financial instruments and deferred income tax assets.

(7) Information on major customers

Major customer information of the Group that represents over 10% of consolidated revenue for the years ended December 31, 2017 and 2016 is as follows:

Non-current Non-currentRevenue assets Revenue assets

A 364,403$ Service Dept. 688,443$ Service Dept.B 281,859 Service Dept. 61,792 Service Dept.

Year ended December 31, 2017 Year ended December 31, 2016

Item Value0 CTCI

AdvancedSystems

Inc.

CTCI Corporation Otherreceivables

from relatedparties

Yes 49,000$ 45,000$ -$ - 2 -$ Working capital

-$ None -$ 54,000$ 215,998$ -

Note 1: The description of the number column is as follows

(1) Number 0 represents the Company.

(2) The investee company is numbered by the number of the Arabic numerals.

Note 2: The relationship between the enterprise, the receivables, the shareholders of the transaction, the advance payment, the temporary payment ... and so on, if the loan and the nature of the person are required to fill in this field.

Note 3: Maximum outstanding balance during the year ended December 31, 2017.

Note 4: The description of the loan and nature of the funds is as follows

(1) Business transaction.

(2) Short-term financing of the necessary

Note 5: The amount of business transactions shall be the amount of business transactions, and the amount of business transactions shall refer to the amount of business transactions between the company that lends funds and the credit and object of the past year.

Note 6: Capital loan and nature are necessary for short-term financing, should specify the necessary reasons for the loan and the funds and the use of funds and objects, such as: repayment of borrowing, purchase of equipment, business turnover ... and so on.

Note 7: In accordance with the Company’s “Procedures for Provision of Loans”, calculation for limit on loans and its amount is as follows:

(1) Companies with business relations: Limit on total loans is 10% of the Company’s net assets and limit on loans to a single party is the value of purchasing and selling during the latest year and 10% of the Company’s net assets.

(2) Limit on total loans granted to others is 40% of the Company’s net assets.

Note 8: If the company is in accordance with the provisions of Article 14 (1) of the Guidelines on the Loan and Endorsement of the Listed Company, the loan and the resolution of the board of directors shall not be allocated,

and the amount of the resolution of the board of directors shall be included in the balance of the announcement to expose Take risks

But after the subsequent financial repayment, it should be exposed after the repayment of the balance to adjust the risk of response. If the Public Offering Company is authorized by the Board of Directors pursuant to Article 14 (2) of the Processing

Guidelines, the Chairman has allocated or circulated in a certain amount and a one-year period,

the amount of the loan and quota approved by the board of directors shall be declared as the balance of the declared amount of the funds and the amount of the loan and the amount of the funds passed by the board of directors.

CTCI Advanced Systems Inc. And SubsidiariesLoans to others


Table 1 Expressed in thousands of NTD

(Except as otherwise indicated)

Reasonfor short-term

financing (Note 6)

No.(Note 1) Creditor Borrower

Generalledger

account(Note 2)

Is arelatedparty

Maximumoutstanding

balance during theyear ended

December 31,2017

(Note 3)

Balance atDecember 31,

2017(Note 8)

Actualamount

drawn downInterest

rate

Nature ofloan

(Note 4)

Amount oftransactions

with theborrower (Note 5)

Allowancefor

doubtfulaccounts

Collateral

Limit on loansgranted to

a single party(Note 7)

Ceiling ontotal loans

granted(Note 7) Footnote

Table 1

Company name

Relationship withthe endorser/

guarantor(Note 2)

0 CTCI Advanced Systems Inc.

CENTURY AHEAD LTD.

2 539,995$ 18,904$ 17,909$ -$ -$ 3.32 1,079,990$ Y N N

Note 1: The numbers filled in for the endorsements/guarantees provided by the Company or subsidiaries are as follows:

(1)The Company is ‘0’.

(2)The subsidiaries are numbered in order starting from ‘1’.

Note 2: Relationship between the endorser/guarantor and the party being endorsed/guaranteed is classified into the following six categories; fill in the number of category each case belongs to:

(1)Having business relationship.

(2)The endorser/guarantor parent company owns directly more than 50% voting shares of the endorsed/guaranteed subsidiary.

(3)The endorser/guarantor parent company and its subsidiaries jointly own more than 50% voting shares of the endorsed/guaranteed company.

(4)The endorsed/guaranteed parent company directly or indirectly owns more than 50% voting shares of the endorser/guarantor subsidiary.

(5)Mutual guarantee of the trade as required by the construction contract.

(6)Due to joint venture, each shareholder provides endorsements/guarantees to the endorsed/guaranteed company in proportion to its ownership.

Note 3: The total amount of the Company’s provision of endorsements/guarantees must not exceed twice of the Company’s net worth of reporting period. The provision for individual entity must not exceed the Company’s net worth of reporting period, which is

in accordance with the latest financial statements audited or reviewed by independent accountants.

Outstandingendorsement/

guarantee amount atDecember 31,

2017

CTCI Advanced Systems Inc. And Subsidiaries

Provision of endorsements and guarantees to others




Number(Note 1)

Endorser/guarantor

Party beingendorsed/guaranteed

Limit onendorsements/

guaranteesprovided for a

single party(Note 3)

Maximumoutstanding

endorsement/guarantee

amount as ofDecember 31,

2017

Provision ofendorsements/guarantees tothe party inMainland

China FootnoteActual amountdrawn down

Amount ofendorsements

/guarantees

secured withcollateral

Ratio ofaccumulatedendorsement/

guarantee amountto net asset valueof the endorser/

guarantor company

Ceiling ontotal amount ofendorsements/

guaranteesprovided(Note 3)

Provision ofendorsements/guarantees by

parentcompany tosubsidiary

Provision ofendorsements/guarantees bysubsidiary to

parentcompany

Table 2

Number of shares Book value Ownership

(%) Fair valueCTCI Advanced Systems Inc. FSITC Taiwan Money Market

Fund- Financial assets at fair value

through profit or loss - current3,945,577.30 60,000$ - 60,001$

CTCI Advanced Systems Inc. Jih Sun Money Market Fund - Financial assets at fair valuethrough profit or loss - current

1,361,458.15 20,033 - 20,051

Adjustment of financial assets heldfor trading 19 - Total 80,052$ 80,052$

CTCI Advanced Systems Inc. Taiwan Cement Corp. Note 2 Available-for-sale financial assets -current

825,980 33,530$ - 30,107$

CTCI Advanced Systems Inc. Ginteck Energy Corp. Note 3 Available-for-sale financial assets -current

737,000 29,988 - 13,119

CTCI Advanced Systems Inc. Bank of China Ltd. Paris - Available-for-sale financial assets -current

6,000,000 27,583 - 27,234 Note 4

CTCI Advanced Systems Inc. Adjustment of available-for-salefinancial assets 20,641)( - Total 70,460$ 70,460$

Note 1: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities within the scope of IAS 39 ‘Financial instruments : recognition and measurement.’

Note 2: The director of the Company is the Chairman of CTCI.

Note 3: The chairman of the Company is the director of CTCI.

Note 4: Prices are denominated in RMB.

Footnote


Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)




Securities held byMarketable securities

(Note 1)

Relationshipwith the

securities issuerGeneral

ledger account

As of December 31, 2017

Table 3

Number of shares Amount


Number of shares Selling price Book value

Gain (loss)on disposal

Number ofshares Amount


FSITC Taiwan Money Market Fund

Financial assets at fair value through profit or loss-current

- - 3,613,297.60 $ 54,715 12,567,201.40 $ 198,810 12,234,921.70 $ 185,642 $ 185,525 $ 117 3,945,577.30 $ 60,000


Jih Sun Money Market Fund


- - - - 10,937,338.73 160,870 9,575,880.58 140,895 140,837 58 1,361,458.15 20,033

Note : Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities.

Balance as at December 31, 2017


Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company's paid-in capital




Investor

Marketable securities

(Note)General

ledger account CounterpartyRelationship with

the investor

Balance as at January 1, 2017 Addition Disposal

Table 4

Purchases(sales) Amount

Percentage oftotal purchases

(sales) Credit term Unit price Credit term Balance

Percentage oftotal notes/accounts

receivable (payable)

CTCI Advanced Systems Inc. CTCI Corporation Parent company (Sales) ($ 364,403) ( 28%) Based on servicecontract

40-60 days

Based on servicecontract

Normal clients60-120 days

$ 239,554 38%

TransactionDifferences in transaction terms

compared to third party transactions Notes/accounts receivable (payable)

Footnote


Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more




Purchaser/seller CounterpartyRelationship withthe counterparty

Table 5

Table 6

Amount Action takenCTCI Advanced Systems Inc. CTCI Corporation Parent company 239,554$ 1.19 -$ - 89,252$ -$

Turnover rate

Overdue receivables Amount collectedsubsequent to the

balance sheet dateAllowance for

doubtful accounts


Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more


Expressed in thousands of NTD


Creditor CounterpartyRelationship

with the counterpartyBalance as at

December 31, 2017

Table 6

Balanceas at December 31,

2017 (Note 1)


2017 (Note 1) Number of sharesOwnership

(%) Book valueCTCI Advanced Systems Inc. CENTURY AHEAD

LIMITEDSamoa Investment company 25,097$ 25,097$ 750,000 100 25,830$ 639)($ 639)($ Note 2

Note 1: Converted using the historical exchange rate.Note 2: Derived from the latest audited financial statements of the investee company issued by the Company's independent accountants.

Footnote

CTCI Advanced Systems Inc. And SubsidiariesInformation on investees

Year ended December 31, 2017Table 7 Expressed in thousands of NTD


Investor Investee Location Main business activities

Initial investment amount Shares held as at December 31, 2017

Net profit (loss) of the investee for

year endedDecember 31,

2017

Investmentincome(loss)

recognised by theCompany for the


2017

Table 7

Remitted toMainland China

Remitted back toTaiwan


Computer technical services

22,388$ 2 22,388$ -$ -$ 22,388$ 478)($ 100 478)($ 24,667$ -$

Note 1: Investment methods are classified into the following three categories; fill in the number of category each case belongs to:

(1) Directly invest in a company in Mainland China.

(2) Through investing in an existing company in the third area, which then invested in the investee in Mainland China. (The investee: CENTURY AHEAD LIMITED)

(3) Others.

Note 2: Investment income (loss) recognised by the Company for the reporting period was based on the disclosure on the investee’s financial reports audited or reviewed by independent accountants.

Note 3: Converted using the exchange rate in 2017 of US:NT=1:29.85.

Company name

Accumulatedamount of

remittance fromTaiwan to

Mainland China asof December 31,

2017(Note 2)

Investment amountapproved by the

InvestmentCommission of the

Ministry ofEconomic Affairs

(MOEA)(Note 2)

Ceiling oninvestments in

Mainland Chinaimposed by the

InvestmentCommission of

MOEA(Note 1)

CTCI Advanced SystemsInc.

$ 22,388 $ 22,388 $ 323,997

Note 1: Represents 60% of the Company’s equity net value .



investment incomeremitted back to

Taiwan as ofDecember 31,

2017 FootnoteInvestment method

（Note 1）



Mainland Chinaas of January 1,

2017(Note 3)

Amount remitted from Taiwan toMainland China/Amount remitted back

to Taiwan for the year ended December 31, 2017

Accumulatedamount

of remittance fromTaiwan to


2017(Note 3)

Net income ofinvestee as ofDecember 31,

2017

Ownership held bythe Company

(direct or ndirect)


Information on investments in Mainland China




Investee in Mainland China Main business

activitiesPaid-in capital

(Note 3)

Investment income(loss) recognisedby the Company

for the yearended December

31, 2017(Note 2)

Book value ofinvestments in


2017

Table 8

123

Appendix II Non-Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016

~1~

CTCI ADVANCED SYSTEMS INC. NON-CONSOLIDATED FINANCIAL

STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS


----------------------------------------------------------------------------------------------------------------------------------------------------

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial

statements have been translated into English from the original Chinese version prepared and used in the Republic of China.

In the event of any discrepancy between the English version and the original Chinese version or any differences in the

interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

.

~2~

Report of Independent Accountants

PWCR17000257

To the Board of Directors and Stockholders of


Opinion

We have audited the accompanying non-consolidated balance sheets of CTCI Advanced Systems Inc. as at December 31, 2017 and 2016, and the related non-consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the non-consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying non-consolidated financial statements present fairly, in all material respects, the non-consolidated financial position of the Company as at December 31, 2017 and 2016, and its non-consolidated financial performance and its non-consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparations of Financial Reports by Securities Issuers”.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Non-Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

~3~

Key audit matters in relation to the non-consolidated financial statements for the year ended December 31, 2017 are outlined as follows:

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the non-consolidated financial statements of the current period. These matters were addressed in the context of our audit of the non-consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Engineering revenue recognition Description

Please refer to Note 4(24) for accounting policies on revenue recognition, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on revenue recognition, and Note 6(16) for details of operating revenue.

The Company is primarily engaged in engineering research, plan, design, purchase, integration, manufacture, installation, adjustment, maintenance and operation in separation and integration of different software and hardware within control systems. Engineering revenue should be recognised by reference to the stage of completion of the contract activity, using the percentage-of-completion method of accounting, over the contract term. Contract costs are expensed as incurred. The stage of completion of a contract is measured by the proportion of contract costs incurred for work performed to date to the estimated total costs for the contract. The engineering revenue recognition is affected by the accuracy of cost.

As the engineering revenue was recognised by reference to the stage of completion of the contract activity, we consider the engineering revenue estimate as a key audit matter.



~4~

A. The total price of the contracts: we obtained the new significant engineering contracts and checked whether the total price of the contracts agreed with the total contract price to calculate engineering revenue and project income statement of current year;

B. Total costs for the contract: for the new significant engineering projects in the period, we randomly checked the project cost statements which were approved by project management, and relevant approval tables to ensure those were consistent with the estimated total costs on project income statements of current year;

C. Input costs of the period: we obtained the details of current cost, and selected samples from relevant evidences to verify against the carrying amounts to ensure the accuracy of input cost of current year on project income statements, and recalculated the stage of completion; and

D. Revenue recognised in the current period: we recalculated whether the amount of revenue which was recognised by reference to the stage of completion, was consistent with the amount on project income statements of current year.

Assessment on allowance for uncollectible accounts, accounts receivable Description

Please refer to Note 4(8) for accounting policies on accounts receivable, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on allowance for uncollectible accounts, accounts receivable, and Note 6(4) for details of accounts receivable.

The Company manages the collections of accounts receivable and overdue accounts and took on relevant credit risk. The management periodically assessed the credit quality and collection of customers, and adequately adjusted the credit policies for customers. In addition, the management provisioned allowance for uncollectible accounts in accordance with its policy, and periodically assessed the appropriateness of the rate of allowance for uncollectible accounts. The assessment took into account factors that may influence customers’ ability to pay, including the historical data of bad debt and the financial and economic situations of customers.

~5~

As the amount of accounts receivable was material and the rate of allowance for uncollectible accounts was subjected to management’s judgement, thus we consider the estimates of allowance for uncollectible accounts as a key audit matter.



A. We obtained an understanding of the provision policies on the allowance for uncollectible accounts and checked whether the provision policies were consistently applied in the reporting periods.

B. We assessed the appropriateness of the provision rate of allowance for uncollectible accounts, and obtained and examined relevant data which were provided by management.

C. We tested the changes in accounts receivable ages and checked the corroboration of due dates of accounts receivable to ensure the accuracy of the accounts receivable aging classification.

D. We reviewed the reason why the accounts receivable that were past due but not yet impaired, examined the subsequent collections and discussed the adequacy of allowance for uncollectible accounts with management.

Responsibilities of management and those charged with governance for the non-consolidated financial statements

Management is responsible for the preparation and fair presentation of the non-consolidated financial statements in accordance with the “Regulations Governing the Preparations of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of non-consolidated financial statements that are free from material misstatement, whether due to fraud or error.

~6~

In preparing the non-consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including audit committee, are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the non-consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the non-consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these non-consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

A. Identify and assess the risks of material misstatement of the non-consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

B. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

C. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

~7~

D. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the non-consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

E. Evaluate the overall presentation, structure and content of the non-consolidated financial statements, including the disclosures, and whether the non-consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

F. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the non-consolidated financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

~8~

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the non-consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Wu, Yu-Lung

Lin, Se-Kai

For and on behalf of PricewaterhouseCoopers, Taiwan

March 7, 2018

---------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying non-consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying non-consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

CTCI ADVANCED SYSTEMS INC. NON-CONSOLIDATED BALANCE SHEETS


~9~

December 31, 2017 December 31, 2016 Assets Notes Amount % Amount %

Current assets

1100 Cash and cash equivalents 6(1) $ 541,001 37 $ 307,080 27

1110 Financial assets at fair value

through profit or loss - current

6(2)

80,052 6 67,548 6

1125 Available-for-sale financial assets

- current

6(3)

70,460 5 98,113 9

1150 Notes receivable, net - - 127 -

1170 Accounts receivable, net 6(4) 342,475 24 167,088 14

1180 Accounts receivable - related

parties, net

7

280,953 19 377,707 33

1200 Other receivables 7 8,775 1 5,230 -

1220 Current income tax assets 6(21) 3,021 - 3,021 -

130X Inventories, net 6(5) 6,875 - 5,641 -

1410 Prepayments 6,889 - 7,007 1

11XX Total current assets 1,340,501 92 1,038,562 90

Non-current assets

1550 Investments accounted for under

equity method

6(6)

25,830 2 26,711 3

1600 Property, plant and equipment 6(7) 69,687 5 71,364 6

1840 Deferred income tax assets 6(21) 10,808 1 12,004 1

1900 Other non-current assets 3,523 - 3,317 -

15XX Total non-current assets 109,848 8 113,396 10

1XXX Total assets $ 1,450,349 100 $ 1,151,958 100

(Continued)

CTCI ADVANCED SYSTEMS INC. NON-CONSOLIDATED BALANCE SHEETS


The accompanying notes are an integral part of these non-consolidated financial statements.

~10~

December 31, 2017 December 31, 2016 Liabilities and Equity Notes Amount % Amount %

Current liabilities

2150 Notes payable $ 547 - $ 34 -

2170 Accounts payable 370,058 26 286,754 25

2180 Accounts payable - related parties 7 1,035 - 25 -

2200 Other payables 6(8) and 7 93,798 6 95,745 8

2230 Current income tax liabilities 6(21) 14,698 1 6,864 1

2300 Other current liabilities 6(9) and 7 413,214 29 222,331 19

21XX Total current liabilities 893,350 62 611,753 53

Non-current liabilities

2570 Deferred income tax liabilities 6(21) 63 - 60 -

2600 Other non-current liabilities 6(10) 16,941 1 16,383 2

25XX Total non-current liabilities 17,004 1 16,443 2

2XXX Total Liabilities 910,354 63 628,196 55

Equity

Share capital 6(12)

3110 Common stock 234,915 16 234,915 20

Capital surplus 6(13)

3200 Capital surplus 104,546 7 104,546 9

Retained earnings 6(14)

3310 Legal reserve 125,432 9 118,442 10

3320 Special reserve 22,317 1 18,274 2

3350 Unappropriated retained earnings 6(21) 75,136 5 69,902 6

Other equity interest 6(3)(6)(15)

3400 Other equity interest ( 22,351) ( 1) ( 22,317) ( 2)

3XXX Total equity 539,995 37 523,762 45

Significant contingent liabilities

and unrecognised contract

commitments

9

Significant events after the

balance sheet date 11

3X2X Total liabilities and equity $ 1,450,349 100 $ 1,151,958 100

CTCI ADVANCED SYSTEMS INC. NON-CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS)


~11~

Years ended December 31 2017 2016

Items Notes Amount % Amount %4000 Operating revenues 6(16) and 7 $ 1,306,025 100 $ 1,118,554 1005000 Operating costs 6(5)(19)(20) and 7 ( 1,105,967) ( 85) ( 928,796) ( 83)5950 Gross profit, net 200,058 15 189,758 17 Operating expenses 6(19)(20) and 7 6100 Selling expenses ( 24,174) ( 2) ( 23,493) ( 2)6200 General and administrative

expenses

( 73,685) ( 5) ( 67,848) ( 6)6300 Research and development

expenses

( 8,303) ( 1) ( 12,615) ( 1)6000 Total operating expenses ( 106,162) ( 8) ( 103,956) ( 9)6900 Operating income 93,896 7 85,802 8 Non-operating income and

expenses

7010 Other income 6(17) 6,875 1 5,309 -7020 Other gains and losses 6(18) ( 6,905) ( 1) ( 5,508) -7070 Share of profit in subsidiaries,

associates and joint ventures accounted for under equity method

6(6)

( 639) - ( 769) -7000 Total non-operating income

and expenses

( 669) - ( 968) -7900 Profit before income tax 93,227 7 84,834 87950 Income tax expense 6(21) ( 17,338) ( 1) ( 12,426) ( 1)8200 Profit for the year $ 75,889 6 $ 72,408 7

Other comprehensive income Income that will not be


8311 Remeasurements of defined

benefit plans 6(10)

($ 907) - ($ 3,019) -8349 Income tax of item that will not

be reclassified to profit or loss 6(21)

154 - 513 -8310 Total loss that will not be


( 753) - ( 2,506) - Income that will be reclassified to

profit or loss

8361 Cumulative translation

differences of foreign operations 6(15)

( 242) - ( 2,071) ( 1)8362 Unrealised loss on valuation of

available-for-sale financial assets

6(15)

265 - ( 1,787) -8399 Income tax of items that will be

reclassified to profit or loss 6(21)

( 57) - ( 185) -8360 Total loss that will be


( 34) - ( 4,043) ( 1)8500 Total comprehensive income for

the year

$ 75,102 6 $ 65,859 6

9750 Basic earnings per share

(in dollars) 6(22)

$ 3.23 $ 3.08

9850 Diluted earnings per share(in dollars)

6(22) $ 3.22 $ 3.07

CTCI ADVANCED SYSTEMS INC. NON-CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Share Capital Capital Surplus Retained Earnings Other Equity Interest

Notes Common

stock

Advance receipts for

share capital

Additional paid-in capital

Gain on sale of assets

Employee stock

warrants Legal reserveSpecial reserve

Unappropriatedretained earnings

Cumulativetranslation

differences offoreign

operations

Unrealized gain or loss

on available-for-sale financial

assets Total


~12~

Year ended December 31, 2016 Balance at January 1, 2016 $ 234,695 $ - $ 79,297 $ 154 $ 24,453 $ 111,060 $ 11,182 $ 73,824 $ 544 ($ 18,818 ) $ 516,391 Distribution of 2015 earnings 6(14) Provision for legal reserve - - - - - 7,382 - ( 7,382 ) - - - Provision for special reserve - - - - - - 7,092 ( 7,092 ) - - - Cash dividends - - - - - - - ( 59,350 ) - - ( 59,350 ) Common stock issued for

employee stock options 6(12)

220 ( 862 ) 642 - - - - - - - - Exercise of employee stock

warrants 6(12)

- 862 - - - - - - - - 862 Overdue of employee stock


2016 6(15)

- - - - - - - ( 2,506 ) ( 2,071 ) ( 1,972 ) ( 6,549 )

Balance at December 31, 2016 $ 234,915 $ - $ 83,785 $ 154 $ 20,607 $ 118,442 $ 18,274 $ 69,902 ($ 1,527 ) ($ 20,790 ) $ 523,762

Year ended December 31, 2017 Balance at January 1, 2017 $ 234,915 $ - $ 83,785 $ 154 $ 20,607 $ 118,442 $ 18,274 $ 69,902 ($ 1,527 ) ($ 20,790 ) $ 523,762 Distribution of 2016 earnings 6(14) Provision for legal reserve - - - - - 6,990 - ( 6,990 ) - - - Provision for special reserve - - - - - - 4,043 ( 4,043 ) - - - Cash dividends - - - - - - - ( 58,869 ) - - ( 58,869 ) Overdue of employee stock


2017 6(15)

- - - - - - - ( 753 ) ( 242 ) 208 ( 787 ) Balance at December 31, 2017 $ 234,915 $ - $ 104,392 $ 154 $ - $ 125,432 $ 22,317 $ 75,136 ($ 1,769 ) ($ 20,582 ) $ 539,995

CTCI ADVANCED SYSTEMS INC. NON-CONSOLIDATED STATEMENTS OF CASH FLOWS



2017 2016

~13~

CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax $ 93,227 $ 84,834 Adjustments to reconcile profit before tax to net cash

provided by operating activities:

Reversal of doubtful accounts 6(4)(17) ( 324 ) ( 836 ) Investment loss recognized under equity method 6(6) 639 769 Depreciation on property, plant and equipment 6(7)(19) 3,693 3,853 Amortisation 6(19) - 525 Net income on financial assets at fair value through

profit or loss 6(2)(18)

( 197 ) ( 190 ) Interest income 6(17) ( 4,403 ) ( 3,129 ) Dividend income 6(17) ( 1,198 ) ( 1,099 ) Gain on disposal of property, plant and equipment 6(18) ( 11 ) ( 3 ) Gain on disposal of investment 6(18) ( 66 ) - Adjustments in exchange rate for financial instruments

of foreign bonds

1,700 4,481 Changes in operating assets and liabilities Changes in operating assets Financial assets at fair value through profit or loss ( 12,306 ) 31,793 Notes receivable, net 127 1,632 Accounts receivable, net ( 175,063 ) 9,431 Accounts receivable - related parties, net 96,754 6,379 Other receivables ( 3,556 ) ( 1,914 ) Inventories ( 1,234 ) 2,050 Prepayments 118 5,542 Changes in operating liabilities Notes payable 513 34 Accounts payable 83,304 ( 86,007 ) Accounts payable - related parties 1,010 ( 367 ) Other payables ( 1,947 ) 5,505 Other current liabilities 190,883 47,899 Net defined benefit liability ( 15 ) ( 30 ) Cash inflow generated from operations 271,648 111,152 Interest received 4,414 3,182 Dividend income received 1,198 1,099 Income tax paid ( 8,208 ) ( 4,558 )

Net cash flows from operating activities 269,052 110,875

(Continued)

CTCI ADVANCED SYSTEMS INC. NON-CONSOLIDATED STATEMENTS OF CASH FLOWS



2017 2016


~14~

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of available-for-sale financial

assets

$ 26,283 $ -

Acquisition of property, plant and equipment 6(7) ( 2,054 ) ( 2,776 )

Proceeds from disposal of property, plant and equipment 49 4

(Increase) decrease in refundable deposits ( 206 ) 69

Net cash flows from (used in) investing activities 24,072 ( 2,703 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from exercise of employee stock options 6(12) - 862

(Decrease) increase in guarantee deposits received ( 334 ) ( 299 )

Payment of cash dividends 6(14) ( 58,869 ) ( 59,350 )

Net cash flows used in financing activities ( 59,203 ) ( 58,787 )

Net increase in cash and cash equivalents 233,921 49,385

Cash and cash equivalents at beginning of year 6(1) 307,080 257,695

Cash and cash equivalents at end of year 6(1) $ 541,001 $ 307,080

~15~

CTCI ADVANCED SYSTEMS INC.

NON-CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,

EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

CTCI Advanced Systems Inc. (the “Company”) was incorporated under the provisions of the Company Law of the Republic of China (R.O.C.) on August 3, 1987, and started its operations on August 26, 1987. The main activities of the Company are engineering research, plan, design, purchase, integration, manufacture, installation, adjustment, maintenance and operation in separation and integration of different software and hardware within control systems, sales of computers and computer peripherals, water treatment and detection and analysis of environmental pollution consultancy service, wholesaling of telecommunications equipment and information software. The Company's common stock has been listed on the GreTai Securities Market since February 25, 2002. CTCI Corporation, which is the ultimate holding company, owns 48.72% of the Company.

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE NON-CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORISATION

These non-consolidated financial statements were authorised for issuance by the Board of Directors on March 7, 2018.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRSs”) as endorsed by the Financial Supervisory Commission (“FSC”)


Effective date by


Standards Board

Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities: applying the consolidation exception’

January 1, 2016

Amendments to IFRS 11, ‘Accounting for acquisition of interests in joint operations’

January 1, 2016

IFRS 14,‘Regulatory deferral accounts’ January 1, 2016


~16~


Effective date by


Standards Board

Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable methods of depreciation and amortisation’

January 1, 2016

Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’ January 1, 2016

Amendments to IAS 19, ‘Defined benefit plans: employee contributions’

July 1, 2014

Amendments to IAS 27, ‘Equity method in separate financial statements’

January 1, 2016

Amendments to IAS 36, ‘Recoverable amount disclosures for non-financial assets’

January 1, 2014

Amendments to IAS 39, ‘Novation of derivatives and continuation of hedge accounting’

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014




The above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Company



Effective date by


Standards Board

Amendments to IFRS 2, ‘Classification and measurement of share-based payment transactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018

~17~


Effective date by


Standards Board

IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018

Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from contracts with customers’

January 1, 2018


Amendments to IAS 12, ‘Recognition of deferred tax assets for unrealised losses’

January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018

IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS 1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS 12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IAS 28, ‘Investments in associates and joint ventures’

January 1, 2018

The above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendment issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:


Effective date by


Standards Board

Amendments to IFRS 9, ‘Prepayment features with negative compensation’

January 1, 2019

Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between an investor and its associate or joint venture’

To be determined by International Accounting

Standards Board

IFRS 16, ‘Leases’ January 1, 2019

~18~


Effective date by


Standards Board

IFRS 17, ‘Insurance contracts’ January 1, 2021

Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2021

Amendments to IAS 28, ‘Long-term interests in associates and joint ventures’

January 1, 2019

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019


Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment. The quantitative impact will be disclosed when the assessment is complete.

IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these non-consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

These non-consolidated financial statements are prepared by the Company in accordance with the “Rules Governing the Preparation of Financial Statements by Securities Issuers”.

(2) Basis of preparation

A. Except for the following items, these non-consolidated financial statements have been prepared under the historical cost convention:

(a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

~19~

(b) Available-for-sale financial assets measured at fair value.

(c) Liabilities on cash-settled share-based payment arrangements measured at fair value.

(d) Defined benefit liabilities recognised based on the net amount of pension fund assets present value of defined benefit obligation.

B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the non-consolidated financial statements are disclosed in Note 5.

(3) Foreign currency translation

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The non-consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and presentation currency.

A. Foreign currency transactions and balances

(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.

(c) Non-monetary assets and liabilities denominated in foreign currencies are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

(d) Foreign exchange gains and losses that relate to cash and cash equivalents are presented in the statement of comprehensive income within ‘other gains and losses’.

~20~

B. Translation of foreign operations

(a)The operating results and financial position of all the company entities, associate and joint arrangements that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;

ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and

iii. All resulting exchange differences are recognised in other comprehensive income.

(b) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, if the Company still retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(4) Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

(a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;

(b) Assets held mainly for trading purposes;

(c) Assets that are expected to be realised within twelve months from the balance sheet date;

(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

(a) Liabilities that are expected to be settled within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

(c) Liabilities that are to be settled within twelve months from the balance sheet date;

(d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

~21~

(5) Cash equivalents

Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. Time deposits that meet the above criteria and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.


A. Financial assets at fair value through profit or loss are financial assets held for trading. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term.

B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are using trade date accounting.

C. Financial assets at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in profit or loss.


A. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

B. On a regular way purchase or sale basis, available-for-sale financial assets are recognised and derecognised using trade date accounting.

C. Available-for-sale financial assets are initially recognised at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in other comprehensive income.

(8) Loans and receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognised at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, for short-term accounts receivable without bearing interest, as the effect of discount is insignificant, they are measured subsequently at original invoice amount.

~22~

(9) Impairment of financial assets

A. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a gorup of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

B. The criteria that the Company uses to determine whether there is objective evidence of an impairment loss is as follows:

(a) Significant financial difficulty of the issuer or debtor;

(b) A breach of contract, such as a default or delinquency in interest or principal payments;

(c) The Company, for economic or legal reasons relating to the borrower’s financial difficulty, granted the borrower a concession that a lender would not otherwise consider;

(d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

(e) The disappearance of an active market for that financial asset because of financial difficulties;

(f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

(g) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or

(h) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

C. When the Company assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

(a) Financial assets measured at amortised cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is

~23~

recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(b) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset’s acquisition cost (less any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, and is reclassified from ‘other comprehensive income’ to ‘profit or loss’. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognised, such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognised in profit or loss shall not be reversed through profit or loss. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(10) Derecognition of financial assets

The Company derecognises a financial asset when the contractual rights to receive the cash flows from the financial asset expire.

(11) Inventories

Inventories are stated at the lower of cost and net realisable value. The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(12) Investments accounted under the equity method / subsidiaries, associates and joint ventures

A. Subsidiaries are all entities (including structured entities) controlled by the Company. The Company controls an entity when the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

B. Unrealised profit (loss) arising from the transactions between the Company and its subsidiaries have been offset. The accounting policies of the subsidiaries have been adjusted where necessary to ensure consistency with the Company’s accounting policies.

~24~

C. The Company’s share of its subsidiaries’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Company’s share of losses in a subsidiary equals or exceeds its interest in the subsidiary, the Company continues to recognise losses proportionate to its ownership.

D. Pursuant to the “Regulations Governing the Preparation of Financial Reports by Securities Issuers,” profit (loss) of the current period and other comprehensive income in the non-consolidated financial statements shall be equal to the amount attributable to owners of the parent in the consolidated financial statements. Owners’ equity in the non-consolidated financial statements shall be equal to equity attributable to owners of the parent in the consolidated financial statements.


A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalised.

B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. If each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings 2~55 years

Machinery and equipment 3 years

Office equipment 3~5 years

Other equipment 3~6 years

~25~

(14) Leases (lessor and lessee)

A. Operating leases refer to any lease other than finance leases. Lease income (net of any incentives received from the lessee) is recognised in profit or loss on a straight-line basis over the lease term.

B. Payments (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.

(15) Impairment of non-financial assets

The Company assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognising impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

(16) Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as effect of discounting is immaterial.

(17) Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability specified in the contract is discharged or cancelled or expires.

(18) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

~26~

(19) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognised as expense in that period when the employees render service.

B. Pensions

(a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expense when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plans

i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Company in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds of a currency and term consistent with the currency and term of the employment benefit obligations.

ii. Remeasurement arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

iii. Past service costs are recognised immediately in profit or loss.

C. Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Company’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Company recognizes expense as it can no longer withdraw an offer of termination benefits or it recognises relating restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

~27~

D. Employees’, directors’ and supervisors’ remuneration

Employees’ compensation and directors’ and supervisors’ remuneration are recognised as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employee compensation is distributed by shares, the Company calculates the number of shares based on the closing price at the previous day of the board meeting resolution.

(20) Employee share-based payment

For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

(21) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.

B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

~28~

C. Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.

E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.

F. A deferred tax asset shall be recognised for the carryforward of unused tax credits resulting from research and development expenditures to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

(22) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

(23) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are resolved by the Company’s shareholders. Cash dividends are recorded as liabilities.

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(24) Revenue recognition

A .Sales of goods

Revenue arising from the sales of goods should be recognised when the Company has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

B. Service revenue

Service revenues and costs are recognized based on the percentage-of-completion basis. The excess of the cost of service contracts receivable over partial service contracts received in advance is recorded as current asset while the excess of partial service contracts received in advance over the cost of service contracts receivable is recorded as current liability.

A loss reserve for the service contract is provided when the estimated total cost of completion exceeds the total contract price.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these non-consolidated financial statements requires management to make critical judgements in applying the Company’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below:

(1) Critical judgements in applying the Company’s accounting policies

Financial assets—impairment of equity investments

The Company follows the guidance of IAS 39 to determine whether a financial asset—equity investment is impaired. This determination requires significant judgement. In making this judgement, the Company evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

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(2) Critical accounting estimates and assumptions

A. Assessment on allowance for uncollectible accounts, accounts receivable

The Company manages the collections of accounts receivable and overdue accounts and took on relevant credit risk. The management periodically assessed the credit quality and collection of customers, and adequately adjusted the credit policies for customers. In addition, the management provisioned allowance for uncollectible accounts in accordance with its policy, and periodically assessed the appropriateness of the rate of allowance for uncollectible accounts. The assessment took into account factors that may influence customers’ ability to pay, including the historical data of bad debt and the financial and economic situations of customers. The assessment was a reasonable expectation concerning future events based on the situation on balance sheet date. However, assumptions and estimates may differ from the actual results which would probably cause material changes.

As of December 31, 2017, the carrying amount of accounts receivable was $342,475.


The Company considers the projects’ specifications and other objective factors in estimating the total project completion cost. The recognised revenue is calculated based on the percentage of the input cost, which the Group regularly assesses the reasonableness. Effects of changes in industry environment and construction status may also affect the total estimated project completion cost and further affect the Group’s revenue recognition.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

December 31, 2017 December 31, 2016Cash:Cash on hand and petty cash (revolving funds) 251$ 393$ Checking accounts and demand deposits 99,682 88,266 Cash equivalents:Time deposits 441,068 218,421 Total 541,001$ 307,080$

A. The Company transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

B. The Company has no cash and cash equivalents pledged to others.

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Items December 31, 2017 December 31, 2016Current items: Financial assets held for trading Beneficiary certificate-currency fund 80,033$ 67,517$ Valuation adjustment 19 31 Total 80,052$ 67,548$

A. The Company recognised net gain of $197 and $190 on financial assets held for trading for the years ended December 31, 2017 and 2016, respectively.

B. Due to the global financial crisis in 2008, the Company, in accordance with IAS No. 39, paragraph 50 (c), reclassified certain listed stocks previously classified as financial assets at fair value through profit or loss into available-for-sale financial assets amounting to $36,462. The detailed information is set forth below:

(a) As of December 31, 2017 and 2016, the available-for-sale financial assets are as follows: December 31, 2017 December 31, 2016

Book value/ Book value/fair value fair value

Listed stocks - TSE 30,107$ 29,033$ (b) For the above listed stocks-TSE, the Company has recognized change in fair value as profit or

loss for the period and as other comprehensive income of $0 and $1,074 for the year ended December 31, 2017, $0 and $6,484 for the year ended December 31, 2016, and $0 and ($4,497) for the years before 2016.

C. The Company has no financial assets at fair value through profit or loss pledged to others.


Items December 31, 2017 December 31, 2016Current items Listed stocks 63,518$ 63,518$ Foreign bonds 27,583 55,501 Valuation adjustment 20,641)( 20,906)( Total 70,460$ 98,113$

A. The Company recognised $208 and ($1,972) in other comprehensive income for fair value change for the years ended December 31, 2017 and 2016, respectively. For the years ended December 31, 2017 and 2016, the gains on disposals of available-for-sale financial assets amounted to $66 and $0, respectively.

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B. The Company invests in debt financial instruments all with high credit quality.

C. The Company recognised interest income of $1,382 and $2,123 on debt instruments held for the years ended December 31, 2017 and 2016, respectively.

(4) Accounts receivable

December 31, 2017 December 31, 2016Accounts receivable 101,940$ 79,375$ Project payment receivables, net 241,371 88,873

343,311 168,248 Less: Allowance for bad debts 836)( 1,160)( Net 342,475$ 167,088$

Project payment collectible 1,022,733$ 556,710$ Less: Payments collected 781,362)( 467,837)( Net 241,371$ 88,873$

A. As of December 31, 2017 and 2016, none of accounts receivable were past due but not impaired.

B. Movement analysis of financial assets that were impaired is as follows:

(a) As of December 31, 2017 and 2016, the Company’s accounts receivable that were impaired amounted to $40,446 and $47,186, respectively.

(b) Movements on the Company’s provision for impairment of accounts receivable are as follows:

Individual provision Group provision Total

At January 1 -$ 1,160)($ 1,160)($ Provision for impairment - 324 324 At December 31 -$ 836)($ 836)($

2017

Individual provision Group provision Total

At January 1 -$ 1,996)($ 1,996)($ Provision for impairment - 836 836 At December 31 -$ 1,160)($ 1,160)($

2016

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C. The credit quality of accounts receivable (including related parties, please refer to Note 7(2)) that were neither past due nor impaired was in the following categories based on the Company’s Credit Quality Control Policy:

December 31, 2017 December 31, 2016Group 1 280,953$ 377,707$ Group 2 50,192 43,260 Group 3 58,608 24,152 Group 4 194,065 53,650 Net 583,818$ 498,769$

Note:

Group 1: Associates

Group 2: Government institutions

Group 3: Listed companies

Group 4: Others

D. The Company does not hold any collateral as security.

(5) Inventories





December 31, 2017

December 31, 2016

Inventory related expenses recognized during the period:


Cost of inventory sold 114,039$ 82,549$ Loss (gain from price recovery) on market price decline and obsolete inventory 115 11)( Cost of services rendered 991,813 846,258

1,105,967$ 928,796$

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(6) Investments accounted for under the equity method

December 31, 2017 December 31, 2016At January 1 26,711$ 29,551$ Share of loss of investments accounted for using equity method 639)( 769)( Changes in other equity items (Note 6(15)) 242)( 2,071)( At December 31 25,830$ 26,711$

December 31, 2017 December 31, 2016CENTURY AHEAD LTD. 25,830$ 26,711$

Please refer to Note 4(3) of the consolidated financial statements for the information on subsidiaries.




At January 1, 2017

Cost 41,077$ 58,323$ 15,453$ 2,798$ 6,194$ 123,845$


41,077$ 24,503$ 5,167$ 125$ 492$ 71,364$

2017


Additions - - 1,721 238 95 2,054

Disposals - - 38)( - - 38)(




Cost 41,077$ 58,323$ 16,608$ 2,973$ 5,818$ 124,799$


41,077$ 23,625$ 4,431$ 243$ 311$ 69,687$

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At January 1, 2016

Cost 41,077$ 58,458$ 14,245$ 2,798$ 6,887$ 123,465$


41,077$ 25,415$ 4,830$ 252$ 868$ 72,442$

2016


Additions - - 2,648 - 128 2,776

Disposals - - 1)( - - 1)(




Cost 41,077$ 58,323$ 15,453$ 2,798$ 6,194$ 123,845$


41,077$ 24,503$ 5,167$ 125$ 492$ 71,364$ No interest was capitalized in property, plant and equipment for the years ended December 31, 2017 and 2016.

(8) Other payables December 31, 2017 December 31, 2016

Salaries and bonuses payable 48,500$ 49,809$ Employees' leave expense payable 10,511 10,210 Insurance payable 3,442 3,388 Employees' compensation and directors’ and supervisors’ remuneration payable 2,935 3,176 Pension payable 2,031 2,757 Others 26,379 26,405

93,798$ 95,745$

(9) Other current liabilities

December 31, 2017 December 31, 2016Project payments received in advance, net 412,881$ 221,601$ Sales revenue received in advance 333 730

413,214$ 222,331$

Project payments received 2,233,398$ 5,143,903$ Less: Payments collectible 1,820,517)( 4,922,302)( Net 412,881$ 221,601$

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(10) Pensions

A. (a)The Company and its domestic subsidiaries have a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contributions for the deficit by next March.

(b)The amounts recognised in the balance sheet are as follows: December 31, 2017 December 31, 2016

Present value of defined benefit obligations 143,244)($ 156,352)($ Fair value of plan assets 126,816 140,817 Net defined benefit liability 16,428)($ 15,535)($

(c) Movements in net defined benefit liabilities are as follows: Present value ofdefined benefit Fair value of Net defined



161,222)( 142,648 18,574)(

Remeasurements:Return on plan assets (excluding amounts included in interest income or expense) - 892)( 892)(


15)( 892)( 907)( Pension fund contribution - 3,053 3,053 Paid pension 17,993 17,993)( - Balance at December 31 143,244)($ 126,816 16,428)($

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Present value ofdefined benefit Fair value of Net defined



181,283)( 165,520 15,763)(

Remeasurements:Return on plan assets (excluding amounts included in interest income or expense) - 1,706)( 1,706)(


1,313)( 1,706)( 3,019)( Pension fund contribution - 3,247 3,247 Paid pension 26,244 26,244)( - Balance at December 31 156,352)($ 140,817 15,535)($

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan asset fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and 2016, is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

(e) The principal actuarial assumptions used were as follows: 2017 2016

Discount rate 0.90% 1.30%Future salary increases 2.50% 2.50% Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience in each territory.

Because the main actuarial assumption changed, the present value of defined benefit

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obligation is affected. The analysis was as follows:

Increase 0.25% Decrease 0.25% Increase 0.25% Decrease 0.25%

December 31, 2017Effect on present value of defined benefit obligation 3,000)($ 3,099$ 2,686$ 2,618)($ December 31, 2016Effect on present value of defined benefit obligation 3,217)($ 3,325$ 2,889$ 2,813)($

Discount rate Future salary increases

The sensitivity analysis above is based on one assumption which changed with the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

(f) Expected contributions to the defined benefit pension plans of the Company for the year ending December 31, 2018 amounts to $3,039.

B. (a) Effective July 1, 2005, the Company has established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.

(b) The pension costs under defined contribution pension plans of the Company for the years ended December 31, 2017 and 2016 were $10,534 and $10,328, respectively.

(11) Share-based payment

A. For the years ended December 31, 2017 and 2016, the Company’s share-based payment arrangements were as follows:

Type of Arrangement Grant date Quantitygranted

Contract period

Vestingconditions

Employee stock options-IV 2010.6.23 600 6 years 2~4 years’ service

Employee stock options-V 2011.6.22 600 6 years 2~4 years’ service

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B. Details of the share-based payment arrangements are as follows:

(a) Employee stock options-IV



Options outstanding at January 1, - - 193.00 39.20$ Options granted - - - - Distribution of stock dividends/ adjustments for number of shares granted for one unit of option - - - - Options forfeited - - - - Options exercised - - 22.00)( 39.20 Options expired - - 171.00)( 39.20 Options outstanding at December 31, - -$ - -$ Options exercisable at December 31, - -$ - -$


(b) Employee stock options-V



Options outstanding at January 1, 387.25 44.90$ 398.00 44.90$ Options granted - - - - Distribution of stock dividends/ adjustments for number of shares granted for one unit of option - - - - Options forfeited 4.00)( 44.90 10.75)( 44.90 Options exercised - - - - Options expired 383.25)( - - - Options outstanding at December 31, - -$ 387.25 44.90$ Options exercisable at December 31, - -$ 387.25 44.90$


C. During the year ended December 31, 2017, there was no stock option being exercised. The weighted-average stock price of stock options at exercise dates for the year ended December 31, 2016 was $40.59.

D. As of December 31, 2017 and 2016, the range of exercise prices of stock options outstanding both were $44.90 (in dollars); the weighted-average remaining contractual period was 0~0.50 years and 0~0.50 years, respectively.

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E. The incremental fair value measured by using the Black-Scholes option-pricing model is as follows:

Expected Fair valueType of Share price Exercise price Price Expected Expected Risk-free per unit

Arrangement Grant date (in dollars) (in dollars) volatility option life dividends interest rate (in dollars)

Employee stock options-IV 2010.6.23 58.10 58.10 45.68% 4.55 years - 0.93% 22.49

Employee stock options-V 2011.6.22 63.40 63.40 44.41% 4.50 years - 1.07% 23.95

F. Expenses incurred on share-based payment transactions are shown below:


Equity-settled -$ -$

(12) Share capital

A. As of December 31, 2017, the Company’s authorised capital was $300,000 (including employee stock options of $30,000), and the paid-in capital was $234,915 with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

Movements in the number of the Company’s ordinary shares outstanding are as follows:

Unit：Thousand shares2017 2016

At January 1 23,492 23,470 Employee stock options exercised - 22 At December 31 23,492 23,492

B. In 2016, the Company’s employees exercised employee stock options amounting to 22,000 shares, at an average subscription price of $39.20 per share. The registration has been completed.

(13) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.

Please refer to Note 6(11) for employee stock options information.

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(14) Retained earnings

A. The Company's Articles of Incorporation sets out the distribution of earnings as follows:

Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be used to pay all taxes and offset the accumulated deficit from prior years, then 10% of the remaining amount shall be set aside as legal reserve. Where the legal reserve reaches total amount of paid-in capital, this provision does not apply. In addition, special reserve shall be appropriated in compliance with the laws or related regulations from competent authority. The reversal amount of special reserve along with the accumulated unappropriated retained earnings from previous years is considered as distributable earnings, which is under the resolution of shareholders’ meeting.

B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company’s paid-in capital.

C. (a) In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.

(b) The amounts previously set aside by the Company as special reserve of $1,825 on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently.

D. The appropriation of earnings:

(a) The appropriation of 2016 and 2015 earnings had been resolved at the stockholders’ meeting on June 22, 2017 and June 29, 2016, respectively. Details are summarized below:

Weighted-average Weighted-averagedividends per dividends per

Amount share (in dollars) Amount share (in dollars)

Legal reserve 6,990$ 7,382$ Special reserve 4,043 7,092 Cash dividends 58,869 2.51$ 59,350 2.53$

69,902$ 73,824$


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(b) The appropriation of 2017 earnings had been proposed by the Board of Directors on March 7, 2018. Details are summarized below:

Weighted-averagedividends per

Amount share (in dollars)

Legal reserve 7,514$ Special reserve 34 Cash dividends 67,588 2.88$

75,136$

December 31, 2017

E. On June 22, 2017, the abovementioned 2016 earnings appropriation was approved by the Board of Directors with the issue date on August 1, 2017. As for the 2015 earnings appropriation, due to employee stock options exercised which would result in a change in outstanding common stock, the Board of Directors amended the dividend ratio from $2.528 per share to $2.526 per share.

F. For information relating to employees’ compensation and directors’ and supervisors’ remuneration, please refer to Note 6(20).

(15) Operating equity items


At January 1, 2017 20,790)($ 1,527)($ 22,317)($ Revaluation-gross 265 - 265 Revaluation-tax 57)( - 57)( Currency translation differences: -Group - 242)( 242)( At December 31, 2017 20,582)($ 1,769)($ 22,351)($


At January 1, 2016 18,818)($ 544$ 18,274)($ Revaluation-gross 1,787)( - 1,787)( Revaluation-tax 185)( - 185)( Currency translation differences: -Group - 2,071)( 2,071)( At December 31, 2016 20,790)($ 1,527)($ 22,317)($

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(16) Operating revenue


Sales revenue 166,438$ 106,146$ Service revenue 1,139,587 1,012,408

1,306,025$ 1,118,554$

(17) Other income


Rental revenue 151$ 143$ Interest income: Interest income from bank deposits 2,954 1,006 Interest income from foreign bonds 1,382 2,123 Interest income from others 67 - Gain on reversal of bad debts 324 836 Dividend income 1,198 1,099 Other income 799 102

6,875$ 5,309$

(18) Other gains and losses


Net gains on financial assets at fair value through profit or loss 197$ 190$ Gains on disposal of investments 66 - Net currency exchange losses 7,174)( 5,701)( Gains on disposal of property, plant and equipment 11 3 Other payout 5)( -

6,905)($ 5,508)($

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(19) Expenses by nature


Purchase expenses 559,674$ 449,585$ Employee benefit expenses 327,904 329,662 Project sub-contracting 250,280 204,024 Travel expenses 25,019 28,360 Operating lease payments 9,671 9,285 Depreciation charges on property, plant and equipment 3,693 3,853 Amortisation charges on intangible assets - 525 Other expenses 35,888 7,458 Total 1,212,129$ 1,032,752$

(20) Employee benefit expenses


Wages and salaries 279,964$ 282,096$ Labor and health insurance fees 21,251 20,449 Pension costs 13,573 13,545 Other personnel expenses 13,116 13,572

327,904$ 329,662$

Note: As of December 31, 2017 and 2016, the Company had 277 and 285 employees, respectively.

A. In accordance with the Articles of Incorporation of the Company, a ratio of distributable profit of the current year, after covering accumulated losses, shall be distributed as employees' compensation and directors’ and supervisors’ remuneration. The ratio shall not be lower than 2% for employees’ compensation and shall not be higher than 2% for directors’ and supervisors’ remuneration.

B. For the years ended December 31, 2017 and 2016, employees’ compensation (bonus) was accrued at $2,385 and $2,557, respectively; while directors’ and supervisors’ remuneration was accrued at $550 and $619, respectively. The while aforementioned amounts were recognized in salary expenses.

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The employees’ compensation and directors’ and supervisors’ remuneration were estimated and accrued based on 2.48% and 0.57%, of distributable profit of current year for the year ended December 31, 2017. The employees’ compensation and directors’ and supervisors’ remuneration resolved by the Board of Directors were $2,385 and $550, respectively, and the employees’ compensation will be distributed in the form of cash.

Employees’ compensation and directors’ and supervisors’ remuneration of 2016 as resolved by the shareholders at the shareholders’ meeting were in agreement with those amounts recognised in the profit or loss of 2016.

Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors and shareholders at the shareholders’ meeting will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(21) Income tax

A. Income tax expense

(a) Components of income tax expense: Year ended Year ended

December 31, 2017 December 31, 2016Current tax:Income tax on profits of the year 14,698$ 6,864$ Income tax payable of prior years 4,961)( 1,402)( Current tax on profits for the year 9,737 5,462 Current income tax assets 3,021)( 3,021)( Income tax refund receivable for the prior year 3,021 3,021 Pior year income tax under (over) estimation 1,769 1,883)( Prepaid and withholding income tax 4,536 4,558 Total current tax 16,042 8,137 Deferred tax: Origination and reversal of temporary differences 1,296 4,289 Income tax expense 17,338$ 12,426$

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(b) The income tax expense relating to components of other comprehensive income is as follows:

2017 2016Remeasurement of defined benefit obligations 154)($ 513)($ Fair value gains/losses on available-for-sale financial assets 57 185

97)($ 328)($


B. Reconciliation between accounting income and income tax expense

2017 2016Tax calculated based on profit before tax and statutory tax rate (Note) 15,849$ 14,422$ Expenses disallowed by tax regulation 280)( 113)( Prior year income tax under (over) estimation 1,769 1,883)( Income tax expense 17,338$ 12,426$


Note: The Company’s applicable business income tax rate was 17% for the years ended December 31, 2017 and 2016. Under the amendments to the Income Tax Act which were promulgated by the President of the Republic of China in February 2018, the Company’s tax rate will be raised from 17% to 20% while the taxable rate on undistributed surplus earnings will be lowered from 10% to 5% effective from January 1, 2018.

C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

Recognised

in other





Unrealised loss on service contracts 6,856 413)( - - 6,443

Unrealised cost of employees on leave 1,734 53 - - 1,787 Unrealised loss on obsolete inventories (reversal of impairment loss) 58 19 - - 77

Unrealised foreign exchange (gain) oss 1,395 952)( - - 443 Other comprehensive income -Available-for-sale 116 - 57)( - 59

12,004$ 1,293)($ 97$ -$ 10,808$

-Deferred tax liabilities: Prepaid pension expenses 60$ 3$ -$ -$ 63$

11,944$ 1,296)($ 97$ -$ 10,745$


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Recognised

in other





Unrealised loss on service contracts 12,404 5,548)( - - 6,856

Unrealised cost of employees on leave 1,687 47 - - 1,734 Unrealised loss on obsolete inventories (reversal of impairment loss) 60 2)( - - 58

Unrealised foreign exchange (gain) loss 237 1,158 - - 1,395 Other comprehensive income -Available-for-sale 301 - 185)( - 116

16,021$ 4,345)($ 328$ -$ 12,004$

-Deferred tax liabilities: Prepaid pension expenses 116$ 56)($ -$ -$ 60$

15,905$ 4,289)($ 328$ -$ 11,944$


D. Income tax assessment

(a) The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

(b) For the years ended December 31, 2012, 2013 and 2014, the Company accrued $3,558, ($1,021) and $1,403 of backlog on tax payable and tax deduction (refund) according to the Tax Authority’s assessment. The Company filed for a statutory recheck in July 2017, September 2015 and October 2016, respectively, by contesting on the ground that the Company’s five-year entitlement to tax exemption was interpreted inconsistently.

E. With the abolishment of the imputation tax system under the amendments to the Income Tax Act promulgated by the President of the Republic of China in February, 2018, the information on unappropriated retained earnings and the balance of the imputation credit account as of December 31, 2017, as well as the estimated creditable tax rate for the year ended December 31, 2017 is no longer disclosed.

Unappropriated retained earnings on December 31, 2016: December 31, 2016

Earnings generated in and after 1998 69,902$ F. As of December 31, 2016, the balance of the imputation tax credit account was $4,676. The

creditable tax rate was 11.94% for the year ended December 31, 2016.

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(22) Earnings per share


Amount after tax (share in thousands) (in dollars)Basic earnings per share Profit attributable to the parent 75,889$ 23,492 3.23$ Diluted earnings per share Profit attributable to ordinary shareholders of the parent 75,889$ 23,492 Assumed conversion of all dilutive potential ordinary shares Employee stock warrants - - Employees’ bonus - 51 Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 75,889$ 23,543 3.22$



Amount after tax (share in thousands) (in dollars)Basic earnings per share Profit attributable to the parent 72,408$ 23,478 3.08$ Diluted earnings per share Profit attributable to ordinary shareholders of the parent 72,408$ 23,478 Assumed conversion of all dilutive potential ordinary shares Employee stock warrants - 6 Employees’ bonus - 73 Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares 72,408$ 23,557 3.07$


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(23) Major service contracts % of costs Accumulated

Contract Estimated incurred to Estimated recognized Contract no. amount total cost total costs year gain (loss) Remark

1 2,208,669$ 1,333,445$ 100.00% 2018 875,224$ 2 1,961,822 1,961,822 0.32% 2024 - Note3 892,350 897,847 85.93% 2021 5,497)( 4 761,959 741,789 100.00% 2018 20,170 5 529,246 670,690 81.73% 2021 141,444)( 6 521,031 490,201 1.36% 2019 420 7 415,065 405,090 31.57% 2020 3,149 8 322,107 294,048 99.90% 2018 28,031

Note: On November 8, 2017, the Company and Tai Tung Communication Co., Ltd. (“Tai Tung”) were jointly commissioned for the construction of the information and telecommunication system in Terminal 3, Taiwan Taoyuan International Airport. The contract price totalled $2,238,142, of which the commission is divided into 87.654% and 12.346% assumed by the Company and Tai Tung, respectively. The Company’s share of the total contract price is $1,961,822.

7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party

The Company is controlled by CTCI Corporation, which owns 48.72% of the Company’s shares. The remaining 51.28% of the shares are widely held. The parent and ultimate parent of the Company is CTCI Corporation.

(2) Names of related parties and relationship


CTCI Corporation The Company’s parent and ultimate parent company

CTCI Foundation Entity has significant effect on the Company’s ultimate parent company

CTCI Advanced Systems Shanghai Inc. The Company’s subsidiary

Cinda Engineering & Construction Pvt., Ltd. Fellow subsidiary

CTCI Machinery Corporation Fellow subsidiary

ECOVE Waste Management Corporation Fellow subsidiary

CTCI Smart Engineering Corporation Fellow subsidiary

HD Resources Management Corporation Fellow subsidiary

~50~


CTCI Resources Engineering Inc. Fellow subsidiary

ZHEJIANG Boretech Environmental Engineering Co., Ltd.

Other associate

Boretech Resource Recovery Engineering Co., Ltd.

Other associate

All directors, general manager and key management

The Company’s key management and governing body

(3) Significant related party transactions and balances

A. Sales of goods:

2017 2016CTCI Corporation 364,403$ 688,443$ Other related parties 44,447 12,481 Subsidiaries 1,867 1,914

410,717$ 702,838$


The collection terms were 40 ~ 60 days for related parties depending on the contract schedule, as of December 31, 2017 and 2016, the collection terms were both 60~120 days for third parties. Revenue from service with related parties was based on cost-plus agreement and the profit margin was approximately 10~15%

B. Purchases of services:

2017 2016CTCI Corporation 2,063$ 2,490$ Other related parties 3,330 490 Subsidiaries 21,165 -

26,558$ 2,980$


The payment terms were 40~60 days for related parties depending on the contract schedule, and 40~60 days for third parties.

~51~

C. Accounts receivable:

December 31, 2017 December 31, 2016Receivables from related parties:-CTCI Corporation 239,554$ 374,382$ -Other related parites 40,259 3,194 -Subsidiaries 1,140 131

280,953$ 377,707$

D. Other receivables

The Company accrued $3,079 and $0 of other payables as a result of payments on behalf of other related parties as of December 31, 2017 and 2016, respectively.

E. Accounts payable: December 31, 2017 December 31, 2016

Payables from related parties:-CTCI Corporation -$ 25$ -Other related parites 1,035 -

1,035$ 25$

F. Other payables

The other payables arising from the payments made by related parties on behalf of the Company was $236 and $0 as of December 31, 2017 and 2016, respectively.

G. Advance collections (Shown as other current liabilities)

December 31, 2017 December 31, 2016Collections from related parties:-CTCI Corporation 45,766$ 53,019$ -Other related parites 2,157 2,485 -Subsidiaries 344 878

48,267$ 56,382$

H. Loans to/from related parties (a) Loans to related parties

Interest income:

2017 2016CTCI Corporation 67$ -$


Please refer to Note 13(1) for details about loans to others. According to the contract terms, the loan to related parties was revolving credit facility, carrying 0.81% interest rate per annum and repayment before the contract maturity date. The loan was then settled in May 2017.

~52~

I. Rental expense

Lessor Payment terms 2017 2016CTCI Corporation Office $265/per month/paid

quarterly; Parking space $3/per month/paid monthly 3,218$ 3,218$


J. Temporary transfer of employee costs (shown as operating costs and operating expenses)

2017 2016CTCI Corporation 3,699$ 7,735$ Other related parties 416 -

4,115$ 7,735$


As of December 31, 2017 and 2016, the aforementioned transactions led to accounts payable of $1,825 and $826, respectively.

(4) Key management compensation

2017 2016Salaries and other short-term employee benefits 14,873$ 13,990$ Post-employment benefits 450 664

15,323$ 14,654$


8. PLEDGED ASSETS

None.

9. SIGNIFICANT AND CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT COMMITMENTS

In addition to the commitments stated in Note 6(23), as of December 31, 2017, the Company had the following commitments and contingent liabilities:

(1) The Company issued letters of guarantee for service contracts with several banks. The letters of guarantee issued amounted to $957,006.

(2) The Company had issued promissory notes for service contracts totaling $266,255.

(3) The Company had outstanding commitments on purchase inventory contracts totaling $168,440.

(4) The Company had outstanding commitments on service subcontracts for next year totaling $388,688.

~53~

(5) The Company leased offices from others for operation. The leasing term lasts 1~5 years. For the years ended December 31, 2017 and 2016, the recognised rental expense was $9,671 and $9,285, respectively. The minimum rents payable arising from the irrevocable contracts amounted to:

2017 2016Not later than one year 2,852$ 2,686$ Later than one year but not later than five years 2,632 319

5,484$ 3,005$


(6) A. On May 17, 2005, the Company ordered a set of LED hardware for the travelers information of MRT Sinzhung/Luzhou line and PIDS hardware & software from Giantek Technology Corp. (hereafter GTC) and made a prepayment at $2,700 thousand. Because GTC repeatedly delayed its obligation to deliver the goods, the Company expressed its intention to terminate the contract in writing to GTC and cash the promissory note of the performance bond amounting to $2,700 thousand. The Company also filed a counterclaim concerning this case, asking a remedy for the prepayment and another placement of order totaling $12,072 thousand from GTC. GTC later sued the Company on the ground of unjust enrichment for the return of the performance bond of $2,700 thousand accompanying with the interest. The Company’s assigned attorney indicated that if the court decided in favor of GTC with an affirmed verdict, the Company is obliged to return the performance bond of $2,700 thousand to GTC. However, in case GTC loses the case, the Company earns the interest of the performance bond $2,700 thousand. As for the counterclaim, in case the court decides in favor of the Company, the Company will be awarded with the indemnity under the court’s decision. If the Company loses the case, the Company’s loss due to another placement of order cannot be compensated. On July 24, 2009, Taiwan Taipei District Court ordered the Company to pay GTC $2,700 thousand along with statutory interest and dismissed the Company’s counterclaim. After discussing with the assigned attorney, the Company appealed on the ground of illegality as the first instance’s decision is a chance verdict. On July 13, 2010, Taiwan High Court dismissed the request filed by GTC concerning unjust enrichment of $2,700 and ordered GTC to pay $7,538 thousand to the Company. On August 12, 2010, GTC then appealed to the third instance court. On August 13, 2010, the Company also appealed because the court dismissed the Company’s request for partial compensation, which is against the laws based on the attorney’s opinion as the Company had made prepayment of $2,700 thousand and incurred additional cost of $4,593 thousand for the software R&D of MRT Sinzhung/Luzhou line. On December 9, 2010, the Supreme Court revoked the second instance’s decision excluding the provisional execution. On July 21, 2015, Taiwan High court ordered GTC to pay $7,248 thousand and interest calculated from October 21, 2008 till the debt is repaid at 5% per annum. In August 2015, both parties individually appealed to the third instance court for the unfavorable part of the decision. On March 2, 2016, the Supreme Court ruled a retrial,

~54~

and currently the Taiwan High court is deliberating on the case. Although the court has not yet rendered the final decision, the Company has recognised the probable loss of $2,700 thousand.

B. On December 9, 2010, when GTC was informed of the decision rendered by the Supreme Court, it filed another lawsuit in Taiwan Shilin District Court, claiming it was entitled to terminate the contract because of the Company’s delay in receiving the ordered PIDS software and hardware. Meanwhile, GTC requested a compensation totaling $13,150 thousand including the expected interest of $6,772 thousand that may be derived from performing the contract and the R&D expense of $6,378 thousand that has been spent. Under the ruling, the case was transferred to the Taiwan Taipei District Court for deliberation. In May 2011, the district court dismissed GTC’s request for indemnity. GTC then appealed. The Taiwan High Court upheld the previous decision and dismissed the appeal by the end of March 2013. GTC objected by appealing to the third instance court. In March 2014, the Supreme Court ruled a retrial and then the Taiwan High Court dismissed the case in June 2016. Later in mid-July, GTC appealed to the third instance court for the second time. By the end of November 2016, the appeal was dismissed by the Supreme Court in a final decision. In June 2017, GTC filed a motion of retrial claiming there was evidence which has not been deliberated by the court in preceding instances. In October 2017, the Taiwan High Court dismissed the motion after finding it to be groundless. Because GTC did not appeal to the Supreme Court within 20 days of peremptory period, the court decision is final.

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

(1) Details of the appropriation of 2017 earnings as proposed and approved by the Board of Directors on March 7, 2018 are provided in Note 6(14).

(2) On December 14, 2017, the Board of Directors resolved to issue 600 units of employee stock options in several instalments. Every unit grants the right to purchase one thousand common shares of the Company. Since 600 thousand common shares in total is expected to be issued from exercised stock options, the issuance of shares was approved by the competent authority on January 9, 2018.

(3) Please refer to Note 6(21) for the information on the effect of amendments to the Income Tax Act which was promulgated by the President of the Republic of China in February 2018.

~55~

12. OTHERS

(1) Capital management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital.

During the year ended December 31, 2017, the Company’s strategy, which was unchanged from 2016. The gearing ratios at December 31, 2017 and 2016 were 63% and 55%, respectively.

(2) Financial instruments

A. Fair value information of financial instruments

Except for those listed in the table below, the carrying amounts of the Company’s cash and cash equivalents, financial instruments at amortised cost (including notes receivable, accounts receivable (including related parties), other receivables, accounts payable (including related parties) and other payables) are approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).

B. Financial risk management policies

(a) The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial position and financial performance.

(b) Risk management is carried out by a treasury department (Company treasury) under policies approved by the Board of Directors. Company treasury identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of non-derivative financial instruments, and investment of excess liquidity.

~56~

C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk

A. The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

B. Management has set up a policy to require Company entities to manage their foreign exchange risk against their functional currency. The Company entities are required to hedge their entire foreign exchange risk exposure with the Company treasury. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities of the Company use forward foreign exchange contracts, transacted with Company treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

C. The Company’s businesses involve some non-functional currency operations (the Company’s functional currency: NTD). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:


(in thousands) Rate (NTD)(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 6,257$ 29.85 186,771$ RMB:NTD 11,605 4.58 53,151 AUD:NTD 27 23.26 628 Financial liabilities Monetary items USD:NTD 2,440$ 29.85 72,834$ EUR:NTD 116 35.67 4,138 AUD:NTD 27 23.26 628

December 31, 2017

~57~


(in thousands) Rate (NTD)(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 3,805$ 32.20 122,521$ RMB:NTD 11,861 4.62 54,798 AUD:NTD 55 23.31 1,282 Financial liabilities Monetary items USD:NTD 2,041$ 32.20 65,720$ EUR:NTD 121 33.92 4,104

December 31, 2016

D. The exchange loss (including realised and unrealised) arising from significant foreign exchange variation on the monetary items held by the Company for the years ended December 31, 2017 and 2016, amounted to $7,174 and $5,701, respectively.

E. Analysis of foreign currency market risk arising from significant foreign exchange variation:


(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 1% 1,868$ -$ RMB:NTD 1% 532 - AUD:NTD 1% 6 - Financial liabilities Monetary items USD:NTD 1% 728$ -$ EUR:NTD 1% 41 - AUD:NTD 1% 6 -


~58~


(Foreign currency: functional currency)Financial assets Monetary items USD:NTD 1% 1,225$ -$ RMB:NTD 1% 548 - AUD:NTD 1% 13 Financial liabilities Monetary items USD:NTD 1% 657$ -$ EUR:NTD 1% 41 -


Price risk

A. The Company is exposed to equity securities price risk because of investments held by the Company and classified on the non-consolidated balance sheet either as available-for-sale or at fair value through profit or loss. To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company.

B. The Company’s investments in beneficiary certifiates and equity securities comprise domestic listed and unlisted stocks. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 1% with all other variables held constant, post-tax profit for the years ended December 31, 2017 and 2016 would have increased/decreased by $801 and $675, respectively, as a result of gains/losses on equity securities classified as at fair value through profit or loss. Other components of equity would have increased/decreased by $705 and $981, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk

For fixed interest rate bond investments held by the Company classified as available-for-sale financial assets, changes in market interest rates would affect their fair values. At December 31, 2017 and 2016, if market interest rates had been 0.1% higher/lower with all other variables held constant, other comprehensive income for the years ended December 31, 2017 and 2016 would have been $28 and $56 lower/higher, respectively.

~59~

(b) Credit risk

i. Credit risk refers to the risk of financial loss to the Company arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board of Directors. The utilisation of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions.

ii. No credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.

iii. For the information on the credit quality information of financial assets that are neither past due nor impaired, please refer to Note 6 (4) C.

(c) Liquidity risk

i. Cash flow forecasting is performed in the operating entities of the Company and aggregated by Company treasury. Company treasury monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs.

ii. Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Company treasury. Company treasury invests surplus cash in financial assets measured at fair value through profit or loss and available-for-sale financial assets, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.

iii. The table below analyses the Company’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

~60~


Non-derivative financial liabilities:December 31, 2017 Notes payable 547$ -$ -$ 547$ Accounts payable 81,567 284,733 3,758 370,058 Accounts payable-related parties - 1,035 - 1,035 Other payables 70,320 20,778 2,700 93,798


Non-derivative financial liabilities:December 31, 2016 Notes payable 34$ -$ -$ 34$ Accounts payable 64,023 210,658 12,073 286,754 Accounts payable-related parties - 25 - 25 Other payables 71,678 21,367 2,700 95,745

(3) Fair value information

A. Details of the fair value of the Company’s financial assets and financial liabilities not measured at fair value are provided in Note 12(2) A.

B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Company’s investment in listed stocks and beneficiary certificates is included in Level 1.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability

C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at December 31, 2017 and 2016 are as follows:

~61~


123,278$ 27,234$ -$ 150,512$


110,842$ 54,819$ -$ 165,661$

D. The methods and assumptions the Company used to measure fair value are as follows:

(a) The instruments the Company used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

Listed shares Open-end fund

Market quoted price Closing price Net asset value

(b) Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the non-consolidated balance sheet date.

(c) The Company takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Company’s credit quality.

~62~

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.

B. Provision of endorsements and guarantees to others: Please refer to table 2.

C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.

D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: Please refer to table 4.

E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 5.

H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 6.

I. Trading in derivative instruments undertaken during the reporting periods: None.

J. Significant inter-company transactions during the reporting periods: None.

(2)Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

(3)Information on investments in Mainland China

A. Basic information: Please refer to table 8.

B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: No significant transactions.

14. SEGMENT INFORMATION

Not applicable.

Item Value0 CTCI

AdvancedSystems

Inc.

CTCI Corporation Otherreceivables

from relatedparties

Yes 49,000$ 45,000$ -$ - 2 -$ Working capital

-$ None -$ 54,000$ 215,998$ -

Note 1: The description of the number column is as follows

(1) Number 0 represents the Company.

(2) The investee company is numbered by the number of the Arabic numerals.

Note 2: The relationship between the enterprise, the receivables, the shareholders of the transaction, the advance payment, the temporary payment ... and so on, if the loan and the nature of the person are required to fill in this field.

Note 3: Maximum outstanding balance during the year ended December 31, 2017.

Note 4: The description of the loan and nature of the funds is as follows

(1) Business transaction.

(2) Short-term financing of the necessary

Note 5: The amount of business transactions shall be the amount of business transactions, and the amount of business transactions shall refer to the amount of business transactions between the company that lends funds and the credit and object of the past year.

Note 6: Capital loan and nature are necessary for short-term financing, should specify the necessary reasons for the loan and the funds and the use of funds and objects, such as: repayment of borrowing, purchase of equipment, business turnover ... and so on.

Note 7: In accordance with the Company’s “Procedures for Provision of Loans”, calculation for limit on loans and its amount is as follows:

(1) Companies with business relations: Limit on total loans is 10% of the Company’s net assets and limit on loans to a single party is the value of purchasing and selling during the latest year and 10% of the Company’s net assets.

(2) Limit on total loans granted to others is 40% of the Company’s net assets.

Note 8: If the company is in accordance with the provisions of Article 14 (1) of the Guidelines on the Loan and Endorsement of the Listed Company, the loan and the resolution of the board of directors shall not be allocated,

and the amount of the resolution of the board of directors shall be included in the balance of the announcement to expose Take risks

But after the subsequent financial repayment, it should be exposed after the repayment of the balance to adjust the risk of response. If the Public Offering Company is authorized by the Board of Directors pursuant to Article 14 (2) of the Processing

Guidelines, the Chairman has allocated or circulated in a certain amount and a one-year period,

the amount of the loan and quota approved by the board of directors shall be declared as the balance of the declared amount of the funds and the amount of the loan and the amount of the funds passed by the board of directors.

Ceiling ontotal loans

granted(Note 7) Footnote

Amount oftransactions

with theborrower (Note 5)

Reasonfor short-term

financing (Note 6)

Allowancefor

doubtfulaccounts

Collateral

Limit on loansgranted to

a single party(Note 7)

Maximumoutstanding

balance during theyear ended

December 31,2017

(Note 3)

Balance atDecember 31,

2017(Note 8)

Actualamount

drawn downInterest

rate

Nature ofloan

(Note 4)No.

(Note 1) Creditor Borrower

Generalledger

account(Note 2)

Is arelatedparty

CTCI Advanced Systems Inc.Loans to others




Table 1

Company name

Relationship withthe endorser/

guarantor(Note 2)

0 CTCI Advanced Systems Inc.

CENTURY AHEAD LTD.

2 539,995$ 18,904$ 17,909$ -$ -$ 3.32 1,079,990$ Y N N

Note 1: The numbers filled in for the endorsements/guarantees provided by the Company or subsidiaries are as follows:

(1)The Company is ‘0’.

(2)The subsidiaries are numbered in order starting from ‘1’.

Note 2: Relationship between the endorser/guarantor and the party being endorsed/guaranteed is classified into the following six categories; fill in the number of category each case belongs to:

(1)Having business relationship.

(2)The endorser/guarantor parent company owns directly more than 50% voting shares of the endorsed/guaranteed subsidiary.

(3)The endorser/guarantor parent company and its subsidiaries jointly own more than 50% voting shares of the endorsed/guaranteed company.

(4)The endorsed/guaranteed parent company directly or indirectly owns more than 50% voting shares of the endorser/guarantor subsidiary.

(5)Mutual guarantee of the trade as required by the construction contract.

(6)Due to joint venture, each shareholder provides endorsements/guarantees to the endorsed/guaranteed company in proportion to its ownership.

Note 3: The total amount of the Company’s provision of endorsements/guarantees must not exceed twice of the Company’s net worth of reporting period. The provision for individual entity must not exceed the Company’s net worth of reporting period, which is

in accordance with the latest financial statements audited or reviewed by independent accountants.

Provision ofendorsements/guarantees by

parentcompany tosubsidiary

Provision ofendorsements/guarantees bysubsidiary to

parentcompany

Provision ofendorsements/guarantees tothe party inMainland

China Footnote

Outstandingendorsement/

guarantee amount atDecember 31,

2017Actual amountdrawn down

Amount ofendorsements

/guarantees

secured withcollateral

Ratio ofaccumulatedendorsement/

guarantee amountto net asset valueof the endorser/

guarantor company

Ceiling ontotal amount ofendorsements/

guaranteesprovided(Note 3)

Number(Note 1)

Endorser/guarantor

Party beingendorsed/guaranteed

Limit onendorsements/

guaranteesprovided for a

single party(Note 3)

Maximumoutstanding

endorsement/guarantee

amount as ofDecember 31,

2017


Provision of endorsements and guarantees to others




Table 2

Number of shares Book value Ownership

(%) Fair valueCTCI Advanced Systems Inc. FSITC Taiwan Money Market

Fund- Financial assets at fair value

through profit or loss - current3,945,577.30 60,000$ - 60,001$

CTCI Advanced Systems Inc. Jih Sun Money Market Fund - Financial assets at fair valuethrough profit or loss - current

1,361,458.15 20,033 - 20,051

Adjustment of financial assets heldfor trading 19 - Total 80,052$ 80,052$

CTCI Advanced Systems Inc. Taiwan Cement Corp. Note 2 Available-for-sale financial assets -current

825,980 33,530$ - 30,107$

CTCI Advanced Systems Inc. Ginteck Energy Corp. Note 3 Available-for-sale financial assets -current

737,000 29,988 - 13,119

CTCI Advanced Systems Inc. Bank of China Ltd. Paris - Available-for-sale financial assets -current

6,000,000 27,583 - 27,234 Note 4

CTCI Advanced Systems Inc. Adjustment of available-for-salefinancial assets 20,641)( - Total 70,460$ 70,460$

Note 1: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities within the scope of IAS 39 ‘Financial instruments : recognition and measurement.’

Note 2: The director of the Company is the Chairman of CTCI.

Note 3: The chairman of the Company is the director of CTCI.

Note 4: Prices are denominated in RMB.

Generalledger account

As of December 31, 2017

Footnote


Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)




Securities held byMarketable securities

(Note 1)

Relationshipwith the

securities issuer

Table 3



Number of shares Selling price Book value

Gain (loss)on disposal

Number ofshares Amount


FSITC Taiwan Money Market Fund


- - 3,613,297.60 $ 54,715 12,567,201.40 $ 198,810 12,234,921.70 $ 185,642 $ 185,525 $ 117 3,945,577.30 $ 60,000


Jih Sun Money Market Fund


- - - - 10,937,338.73 160,870 9,575,880.58 140,895 140,837 58 1,361,458.15 20,033

Note : Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities.


Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company's paid-in capital




Investor

Marketable securities

(Note)General

ledger account CounterpartyRelationship with

the investor

Balance as at January 1, 2017 Addition Disposal Balance as at December 31, 2017

Table 4

Purchases(sales) Amount

Percentage oftotal purchases

(sales) Credit term Unit price Credit term Balance

Percentage oftotal notes/accounts

receivable (payable)

CTCI Advanced Systems Inc. CTCI Corporation Parent company (Sales) ($ 364,403) ( 28%) Based on servicecontract

40-60 days

Based on servicecontract

Normal clients60-120 days

$ 239,554 38%


Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more




Purchaser/seller CounterpartyRelationship withthe counterparty

TransactionDifferences in transaction terms

compared to third party transactions Notes/accounts receivable (payable)

Footnote

Table 5

Table 6

Amount Action takenCTCI Advanced Systems Inc. CTCI Corporation Parent company 239,554$ 1.19 -$ - 89,252$ -$


Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more


Expressed in thousands of NTD


Creditor CounterpartyRelationship

with the counterpartyBalance as at

December 31, 2017 Turnover rate

Overdue receivables Amount collectedsubsequent to the

balance sheet dateAllowance for

doubtful accounts

Table 6


2017 (Note 1)


2017 (Note 1) Number of sharesOwnership

(%) Book valueCTCI Advanced Systems Inc. CENTURY AHEAD

LIMITEDSamoa Investment company 25,097$ 25,097$ 750,000 100 25,830$ 639)($ 639)($ Note 2

Note 1: Converted using the historical exchange rate.Note 2: Derived from the latest audited financial statements of the investee company issued by the Company's independent accountants.

CTCI Advanced Systems Inc.Information on investees

Year ended December 31, 2017Table 7 Expressed in thousands of NTD


Investor Investee Location Main business activities

Initial investment amount Shares held as at December 31, 2017

Net profit (loss) of the investee for


2017

Investmentincome(loss)

recognised by theCompany for the


2017 Footnote

Table 7

Remitted toMainland China

Remitted back toTaiwan


Computer technical services

22,388$ 2 22,388$ -$ -$ 22,388$ 478)($ 100 478)($ 24,667$ -$

Note 1: Investment methods are classified into the following three categories; fill in the number of category each case belongs to:

(1) Directly invest in a company in Mainland China.

(2) Through investing in an existing company in the third area, which then invested in the investee in Mainland China. (The investee: CENTURY AHEAD LIMITED)

(3) Others.

Note 2: Investment income (loss) recognised by the Company for the reporting period was based on the disclosure on the investee’s financial reports audited or reviewed by independent accountants.


Company name




2017(Note 2)

Investment amountapproved by the

InvestmentCommission of the

Ministry ofEconomic Affairs

(MOEA)(Note 2)

Ceiling oninvestments in

Mainland Chinaimposed by the

InvestmentCommission of

MOEA(Note 1)

CTCI Advanced SystemsInc.

$ 22,388 $ 22,388 $ 323,997

Note 1: Represents 60% of the Company’s equity net value .


Amount remitted from Taiwan toMainland China/Amount remitted back

to Taiwan for the year ended December 31, 2017

Accumulatedamount

of remittance fromTaiwan to


2017(Note 3)

Net income ofinvestee as ofDecember 31,

2017

Ownership held bythe Company

(direct or ndirect)

Investment income(loss) recognisedby the Company

for the yearended December

31, 2017(Note 2)

Book value ofinvestments in


2017


investment incomeremitted back to

Taiwan as ofDecember 31,

2017 Footnote


Information on investments in Mainland China




Investee in Mainland China Main business

activitiesPaid-in capital

(Note 3)Investment method

（Note 1）



Mainland Chinaas of January 1,

2017(Note 3)

Table 8

ctci annual report - acs · the following section reports the operating plan and outlines the...

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