advanced control & systems inc. - acs · acs consolidated operating income during 2016 was nt...

Stock Code: 5209

ADVANCED CONTROL & SYSTEMS INC.

2016 Annual Report

This English version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail.

Notice to readers

Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw 2016 annual report is available at: http://www.acs.com.tw Printed on April 30, 2016

Spokesperson Name: Hweinan Yih Title: Chairman Tel: 886-2-2785-3839 ext. 59101 E-mail: [email protected] Deputy Spokesperson Name: F.C. Hsieh Title: Director of Executive Management Office Tel: 886-2-2785-3839 ext. 59252 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: Eric Wu , Douglas Chang 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]�

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 ............................................................................................. 13 3.3 Implementation of Corporate Governance ............................................................................... 24 3.4 Public Expenses of CPA .............................................................................................................. 51 3.5 Information on replacement of CPA .......................................................................................... 52 3.6 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 ............................................................................................................................................ 52

3.7 Changes in Shareholding of Directors, Managers and Major Shareholders .............................. 52 3.8 Information Disclosing the Relationship between any of the Company’s Top Ten

Shareholders .............................................................................................................................. 53 3.9 Shareholdings of the Company Directors, Managements, and Direct and Indirect

Investments of the Company in Affiliated Companies .............................................................. 54 IV. Capital Overview 4.1 Capital and Shares ...................................................................................................................... 55 4.2 Issuance of Corporate Bonds ..................................................................................................... 60 4.3 Preferred Shares ........................................................................................................................ 60 4.4 Issuance of Depository Receipt .................................................................................................. 60 4.5 Employee Stock Options ............................................................................................................ 60 4.6 Limit Employee right with new shares ....................................................................................... 62 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions ......................... 62 4.8 Financing Plans and Implementation ......................................................................................... 62 V. Operational Highlights 5.1 Business Activities ...................................................................................................................... 63 5.2 Market and Sales Overview ....................................................................................................... 74 5.3 Human Resources ...................................................................................................................... 83 5.4 Environmental Protection Expenditure Information ................................................................. 85 5.5 Relations between labor and employer ..................................................................................... 85 5.6 Important Contracts ................................................................................................................... 88

VI. Financial Information 6.1 Five-Year Financial Summary ..................................................................................................... 89 6.2 Five-Year Financial Analysis ....................................................................................................... 96 6.3 Audit Committee’s Report in the Most Recent Year ............................................................... 101 6.4 Consolidated Financial Statements for the Years Ended December 31, 2015 and 2014

.................................................................................................................................................. 102 6.5 Non-Consolidated Financial Statements for the Years Ended December 31, 2015 and

2014.......................................................................................................................................... 102 6.6 Impact of the Financial Distress Occurred to the Company and Affiliates in the Recent

Years until the Annual Report being published ....................................................................... 102 VII. Review of Financial Conditions, Operating Results, and Risk Management 7.1 Analysis of Financial Status ...................................................................................................... 103 7.2 Analysis of Operation Results .................................................................................................. 105 7.3 Analysis of Cash Flow ............................................................................................................... 106 7.4 Major Capital Expenditure Items ............................................................................................. 106 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans

and the Investment Plans for the Coming Year ....................................................................... 106 7.6 Analysis of Risk Management .................................................................................................. 107 7.7 Other ........................................................................................................................................ 111 VIII. Special Disclosure 8.1 Summary of Affiliated Companies ........................................................................................... 112 8.2 Private Placement Securities in the Most Recent Years .......................................................... 114 8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent

Years ......................................................................................................................................... 114 8.4 Other Supplementary Information .......................................................................................... 115 Appendix I. Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015………116 II. Non-Consolidated Financial Statements for the Years Ended December 31, 2016 and

2015………………………………………………………………………………………………………………………………….164

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I. Letter to Shareholders

Dear Shareholders,

ACS consolidated operating income during 2016 was NT $1.139 billion, a decrease of 21.2%

compared to 2015. The after-tax net income was NT $72,408 thousand, a decrease of 9.21%

compared to 2015. The net profit margin of 2016 is higher than that of 2015 due to risk

management control of major projects during project execution and warranty periods. 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 2017, we 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 2017:

2017 Business Plan Overview

♦ Business Operation Policy In line with technology advances and market demand, the future business directions of ACS 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, ACS 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, ACS will actively promote business growth by providing pragmatic industry intelligence solutions on standardized and replicable applications.

4. Global Businesses: Focusing on target customers in mainland China and Southeast Asia's foreign-funded enterprises, ACS will promote IM and Smart E&M business

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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, ACS 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 the developed MES function modules to expand the market area and sales.

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. For railway projects, consistently follow up the bid for Taoyuan Green Line MRT and Taiwan Railway improvement work. High-tech plant mechanical and electrical: lock the important customers of the mainland expansion plant and the existing plant to improve the maintenance work. High-tech plant E&M work: Focus on the opportunities of key customers investment in China and the revamping works in domestic plants. Besides, we will promote our FMACS product (HVAC exquisite control and energy saving) and intelligent energy management solution in smart community, smart building businesses.

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. ACS 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 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.

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4. 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

ACS will continue to devote our R&D resources in accordance with business needs to develop the IT platform of industry 4.0. In 2017, the key R&D goals includes big data and cloud applications, develop VR / AR applications, etc., so as to increase the application modules of IM solutions..

Future Development Strategy To expand the foundation of business growth and sustainable development, provide customer performance enhancement services, ACS 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, ACS 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 ACS 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,

Chairman (Hwei-Nan Yih) President (Yin-Fan Liu)

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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.

5

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 “Appreciation letter of Taoyuan International Airport Navigation Facilities Upgrading Project” from Taoyuan Airport Corporation.

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.

Awarded “Appreciation letter of Satellites Mission Plan and Schedule System

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Project” from NSPO. Awarded “Best Quality Award in 2015” from Corning Incorporated. Awarded “Appreciation letter of Saudi Arabia IR-II Project” from Sabic to

recognize and appreciate the contribution of ICS work. Awarded “One million safe working hours Industrial Safety Achievement

Award” from Corning Incorporated. 2016: Awarded ISO14001 (environment protection) and OHSAS18001 (occupational

health and safety assessment) Certifications. Awarded “Distinguished Construction and Business Institution Award” from

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

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

British Standards institution. Awarded “Good Safety Contractor Award” from TPC North Construction

Department.

7

III. Corporate Governance Report 4.1 Organization

Organization Structure

Chairman

President

Auditing Office

Board of Directors

Management Strategy

Committe

Remuneration

C i Audit

Committ

Executive Manageme

nt Office

Smart Automation

Business

Intelligent Manufactur

ing

QM Office

Finance Departmen

t

HSEM Office

Procurement Departmen

Project Service Departmen

Legal Affairs & Contract Ad i

Accounting Departmen

General Services

D

HR Department

IT Department

Advanced Automatio

n

Smart M&E Departmen

t

Construction Departmen

t

Intelligent Manufactu

ring

Research and Developme

nt

Intelligent Manufactu

ring

8

1.2 Operations and functions of the various departments 1.Executive Management Office：

(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 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. e. Customer Satisfaction Survey.

2.Procurement Department a. In charge of the company-wide purchasing operations, including instrument, equipment

procurement, engineering subcontracting and insurance matters. 3.Project Service Department

a. Project budget and manpower management, payment planning assistance and cost review, cost and progress management and equity tracking in project execution stage.

b. Project Scheduling, progress tracking and schedule modification. c. Quotation cost analysis, quotation review and seal management, building and maintenance of

quotation and cost database. 4.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. 5.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

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distribution, direct sales market, as well as perfect after-sales service. (2) Smart M&E Departmentt

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 plant 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.

(3) Construction Service Department a. Implementation of project site construction, supervision and commissioning.

6. 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) Research and Development Department 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.

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

11

other measures. While making propositions or signing contracts with other companies in ACS 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 ACS 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 ACS 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 ACS 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 ACS 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 ACS 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

April 30, 2017

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 Hwei-Nan Yih (Rep. of CTCI Corporation)

2014.06.26 Man 3 1987.08.03 (1996.05.28)

11,444,842

48.72

11,444,842

144,968

48.72

0.62

0 0 0 0 -M.S. of Chemical Engineering National Taiwan University

-B.S. of Chemical Engineering National Chen-Kung University

- Vice Manager of Engineering CTCI

-Vice President ACS -Senior President Associate CTCI -Senior Vice President CTCI - President ACS

- Chairman of Advanced Control & Systems Co. Ltd. -Chairman of Advanced Control & Information Technologies Co. Ltd. - CENTURY AHEAD LIMITED Co. Ltd

- - -

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

2014.06.26 Man

3 1987.08.03 (1999.06.02)

11,444,842

48.72

11,444,842

72,022

48.72

0.31

0

0

0 0 -M.S. of Chemical Engineering, National Taiwan University -B.S. of Chemical Engineering, National Central University -Deputy Director , ACS Engineering Business Unit -Director , ACS Engineering Business Unit -Vice President, ACS

-President of, Advanced Control & Systems Co. Ltd. -Director, Advanced Control & Information Technologies Co. Ltd. -Director, CENTURY AHEAD LIMITED

- - -

Director Bao-Lang Chen

2014.06.26 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.

- - -

Director Charles Y. Huang

2014.06.26 Man

3 2008.06.13 0 0 0 0 0 0 0 0 -Pennsylvania Wharton School MBA

-University of Pennsylvania BS in Chemistry

-Director, EnTie Commercial Bank -Independent Director, San Fu Chemical Co.,LTD. -Director, Continental Holdings Corporation. - Independent Director, Taita Chemical Company, LTD. -Director, Hao Ran Foundation

- - -

Director Hung-I Chen 2014.06.26 Man

3 2013.06.26 364,000 1.55 401,000 1.71 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 - - -

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Title Name Date Elected

Gender

Term (Years

)

Date First lected (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 d e g r e e s o f k i n s h i p T i t l e N a m e R e l a t i o n

Director Hou-Sheng Chan

2014.06.26

Man

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

Department and Graduate Institute of Sociology, National Taiwan University

-Professor & Director, Graduate Institute of Social Welfare, Nationa 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.

- - -

Independent director

Ryh-Yan Chang

2014.06.26

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. -Supervisor, Roo Hsing Co., Ltd. - Independent Director, E.SUN BANK -Chairman, Diligence Financial Advisor Co., Ltd.


His-Peng Lu

2014.06.26

Man 3 2014.06.26 0 0 0 0 0 0 0 0 - Ph.D., Industrial Engineering, U. of Wisconsin-Madison - The Dean of Management School, National Taiwan University of Science and Technology

- Professor, National Taiwan University of Science and Technology - Independent Director, YFY Inc.


Mei-Huei Li

2014.06.26

Woman

3 2014.06.26 0 0 0 0 0 0 0 0 Master of Political Science, National Taiwan University

Vice Chairman of CINEMARK

-Director of Cubee Entertainment Holding

-Vice Chairman of Sheen Chuen-Chi Cultural & Educational Foundation

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April 30, 2017 Major shareholders of the institutional shareholders

Name of institutional shareholders

Major shareholders of the institutional shareholders Shares %

CTCI Corporation

Chinatrust Commercial Bank Trust CTCI Foundation Fubon Life Insurance Co., Ltd. HSBC Hosted BlackRock Global Fund's Asian Growth Leader HSBC hosted American Development Fund Growth and Income Fund World. HSBC Hosting Han Asia Investment - Emerging Asian Securities Fund Chunghwa Post Co., Ltd. USI Corporation. Shin Kong Life Insurance Co., Ltd. Asia Polymer Corporation.

9.23 7.97 6.96 3.78 2.18

2.16

2.00 1.99 1.95 1.90

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Major shareholders of the major shareholders that are juridical persons

Name of juridical persons Major shareholders of the juridical persons Chinatrust Commercial Bank Trust N/A CTCI Foundation N/A Fubon Life Insurance Co., Ltd. Fubon Financial Holding Co., Ltd. HSBC Hosted BlackRock Global Fund's Asian Growth Leader

N/A

HSBC hosted American Development Fund Growth and Income Fund World.

N/A

HSBC Hosting Han Asia Investment - Emerging Asian Securities Fund

N/A

Chunghwa Post Co., Ltd. Ministry of Transportation and Communications

USI Corporation.

(25.28%), Asia Aggregate Co., Ltd. (8.53%), HSBC (Taiwan) Commercial Bank Co., Ltd. Trusted custody KGI (Hong Kong) Co., Ltd. Investment Special Account (3.67%), (1.70%), Lin Su Shan Shan (1.67%), Delta Chemical Industry Co., Ltd. (1.27%), Cathay Pacific Life Insurance Co., Ltd. (1.77%), Citigroup (Taiwan) Commercial Bank, Insurance Co., Ltd. (1.22%), Wu Shousong (1.12%), JP Morgan Chase Bank Taipei Branch Trusted Advanced Star Fund Company of the series of funds advanced total international stock index fund investment account (0.90%)

Shin Kong Life Insurance Co., Ltd Shin Kong Financial Holding Co., Ltd.

Asia Polymer Corporation.

(36.08%), Taiwan International Investment Co., Ltd. (3.78%), Cathay Life Insurance Company Limited (1.48%), Global Life Insurance Company Limited (1.36%), Standard Chartered International Commercial Bank (0.97%), Huayun Warehousing Industrial Co., Ltd. (0.89%), the United States JP Morgan Chase Bank Taipei Branch entrusted custody of the advanced star fund company's series of advanced fund total (0.89%), Citigroup (Taiwan) Commercial Bank is entrusted to the Vancouver Group, which is entrusted with the sales of the Vatican Group, (0.79%), Citigroup (Taiwan) Commercial Bank is entrusted to custody of the Norwegian central bank investment account (0.62%).

18

April 30, 2017

Professional qualifications and independence analysis of directors

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

Hwei-Nan Yih 0 Yin-Fan Liu 0 Bao-Lang Chen 0 Charles Y. Huang 2 Hou-Sheng Chan 1 Hung-I Chen 0 Ryh Yan Chang 3 Hsi-Peng Lu 1 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. 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

19

3.2.2 Management Team April 30, 2017

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 Yin-Fan Liu Man 2011.06.22 72,022 0.31 0 0 0 0 -M.S. OF CHEMICAL ENGINEERING, NATIONAL TAIWAN UNIVERSITY

-B.S. OF CHEMICAL ENGINEERING, NATIONAL CENTRAL UNIVERSITY -DEPUTY DIRECTOR , ACS ENGINEERING BUSINESS UNIT -DIRECTOR , ACS ENGINEERING BUSINESS UNIT -VICE PRESIDENT, ACS

- DIRECTOR, ADVANCED CONTROL &

INFORMATION TECHNOLOGIES CO., LTD.

-DIRECTOR, 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

-Director, Advanced Control & Information Technologies Co., Ltd.

- - -

Vice President

Chen-Chin Chen

Man 2011.06.22 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

-Director, Leading Energy Corporation - - -

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

-. - - -

Note 1: Accounting Manager Chuan-Ju Shen was discharged on Nov 5, 2015. Release on the job information only.

20

3.2.3 Remuneration of Directors, President, and Vice President Remuneration of Directors

Title

December 31st, 2016; Unit: NT$ thousands

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.)


Director Charles Y. Huang

Director Hou-Sheng Chan

Director Hung-I Chen Independent director

Ryh Yan Chang


Hsi-Peng Lu


Mei-Huei Li

8,010 8,010 0 0 619 619 312 312 12.35 12.35 9,063. 9,063 363 363 71 0 71 0 25.47 25.47 None

Note 1： It’s allocated to the pension plan in 2016.

21

Bracket

Name of Directors

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

ACS All Consolidated

Entities ACS

All Consolidated Entities

Under NT$ 2,000,000

Hwei-Nan Yih, Bao-Lang Chen, Yin-Fan Liu, Charles Y. Huang, Hou-Sheng Chan, Hung-I Chen, Ryh Yan Chang, Hsi-Peng Lu, Mei-Huei Li


Bao-Lang Chen, Charles Y. Huang, Hou-Sheng Chan, Hung-I Chen, Ryh Yan Chang, Hsi-Peng Lu, Mei-Huei Li

Bao-Lang Chen, Charles Y. Huang, Hou-Sheng Chan, Hung-I Chen, Ryh Yan Chang, Hsi-Peng Lu, Mei-Huei Li

NT$2,000,000 ~ NT$5,000,000 - - Yin-Fan Liu Yin-Fan Liu NT$5,000,000 ~ NT$10,000,000 - - Hwei-Nan Yih Hwei-Nan Yih 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

December 31st, 2016; Unit: NT$ thousands

Compensation of President and Executive Vice President

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 ACS All


ACS All


ACS All


ACS All

Consolidated Entities ACS

All Consolidated

Entities Cash Stock Cash Stock

President Yin-Fan Liu

4,817 4,817 455 455 4,144 4,144 77 0 77 0 13.11 13.11 None Vice President

Chiang-Nan Tsai

Vice President Chen-Chin Chen

Note 1：It’s allocated to the pension plan in 2015.

Bracket Name of President and Executive Vice President

ACS All Consolidated Entities

Under NT$ 2,000,000 - - NT$2,000,000 ~ NT$5,000,000 Yin-Fan Liu, Chiang-Nan Tsai, Chen-Chin Chen Yin-Fan Liu, Chiang-Nan Tsai, 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 Yin-Fan Liu, Chiang-Nan Tsai, Chen-Chin Chen Yin-Fan Liu, Chiang-Nan Tsai, Chen-Chin Chen

23

3.2.3 2015 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 Hwei-Nan Yih

0 112 112 0.15

President Yin-Fan Liu Vice President Chiang-Nan Tsai Vice President Chen-Chin Chen Finance Manager Pai-Chen Soong Accounting Manager Shirley Hsu

24

3.2.4 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. Comparison of Remuneration for Directors, President and Executive Vice Presidents in Most Recent Two Fiscal Years Unit: NT$ thousands

Year Title

ACS All Consolidated Entities 2016 2015 2016 2015

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

Directors 25.47 22.74 25.47 22.74 Presidents and Executive Vice President 13.11 11.72 13.11 11.72

2. The compensation of Directors

Referring to other the similar industry field to set Directors remuneration annually is compensation to Directors of natural persons NT $ 700,000 per person/per year, and other Directors remuneration NT 200,000 per person/per year. The traveling allowance is stipulated with reference to other public listed companies and the similar industry field that the standard set per month and per attendance honorarium of NT $ 6,000.

3.The compensation of President and Executive Vice Presidents The annual compensation includes payroll, awards, bonus and Director’s fee. Payroll is stipulated with the approval of the Personnel Committee referring to the Company operation, budgeted increase rate and personal key performance. The overall incremental rates for the recent years are around 3%. Award is stipulated with the approval of the Personnel Committee and the Board of Directors referring to the Company operation, budget and personal key performance. The award of the recent years is similar. Bonus is stipulated per the section of profit allocation in Article of Incorporation. The total sum of bonus is distributed in proportion to the overall payroll, which corresponds to the bonus distribution of all the other employees. The Director’s fee (applicable to all affiliates) is at fixed sum with reference to the average level of the industry field.

4. 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.

25

3.3 Implementation of Corporate Governance 3.3.1 Board of Directors Seven (7) meetings March 31 2016 ended the Board of Directors, the directors in attendance situation:

(Up to March 31, 2017)

Title Name Attendance in Person By Proxy Attendance

rate(%) Note

Chairman Hwei-Nan Yih(Rep. of CTCI Corp.) 7 0 100.0

Director Yin-Fan Liu(Rep. of CTCI Corp.) 7 0 100.0

Director Bao-Lang Chen 6 1 86.0

Director Charles Y. Huang 4 0 100.0 105.09.09 Dismissal

Director Hou-Sheng Chan 6 1 86.0

Director Hong-I Chen 7 0 100.0

Independent Director Chang, Ryh Yan 7 0 100.0

Independent Director Lu, Hsi-Peng 7 0 100.0

Independent Director Li, Mei-Huei 7 0 100.0

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：Hwei-Nan Yih, Yin-Fan Liu Content of Resolution： - The sixteenth meeting of the tenth term board of directors - The average salary of the

Company's employees. - The sixteenth meeting of the tenth term board of directors- Approval of the remuneration of

the executives of the Company. Causes for avoidance and voting should be specified：Chairman Hwei-Nan Yih and Director Yin-Fan Liu 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.

26

3.3.2 Audit Committee (Attendance of Supervisors for Board Meeting)

A. Implementation of Audit Committee (1). Seven (7) meetings March 31, 2017 ended the Audit Committee attendance situation:

(Up to March 31, 2017)

Title Name Attendance in Person By Proxy Attendance

rate(%) Note

Independent Director

Ryh Yan Chang 7 0 100.0


Hsi-Peng Lu 7 0 100.0


Mei-Huei Li 7 0 100.0

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. Communication between independent director, the company’s chief internal auditor and CPA: 1. The company’s chief internal auditor reported the audit report to the independent

directors via e-mail, and attended the board of the directors to report the audit result. All of the independent directors can catch on the internal audit status. Thus, the communication between the independent directors and the company’s chief internal auditor is fine, dissenting opinions were not revealed.

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.

27

3.3.3 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. If the Company has established corporate governance principles based on “Corporate Governance Best-Practice Principles for 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. Shareholding Structure & Shareholders’ Rights (1) Method of handling shareholders’ suggestions

or complaints (2) The Company’s possession of a list of major

shareholders and a list of ultimate owners of these major shareholders

(3) Risk management mechanism and “firewall”

between the Company and its affiliates

V

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.

(3) Pursuant to “Regulations Governing

Establishment of Internal Control Systems by Public Companies”, the Company has established “Procedure of supervision and

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. None

28

Item



Yes No Summary

(4)Whether the company set internal norms

prohibit the use of undisclosed insider information to trade securities on the market?

V

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

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

For short term and long term development strategy, the expertise has been considered while selection of the members of the Board of Directors. The Company has set up the Audit Committee in March of 2014 to substitute the supervisors, and the Remuneration Committee. The company also 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,

None None

29

Item



Yes No Summary

(3) Whether the company set board performance

assessment guide and regular annual performance appraisal?

(4) Regular evaluation of CPAs’ independence

V

V

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 did not set board performance assessment guide. Whether to set the guide will depend on future need.

(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 to the yearly board meeting. Accountants of Eric

None

30

Item



Yes No Summary

Wu and Douglas Chang from PwC Taiwan had been evaluated for their independence and adaptability and the results had been submitted to the 15th session of the First Audit Committee and the 17th session of the Tenth boarding meeting on 16 March 2017. Two accountants met requirements and thus are qualified to be certified public accountants of the company.

4. Communication channel with stakeholders V (1) Administration Department is responsible for the communication window of employees, investors and business partners.

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

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

None

5. 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

6. 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

31

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 Chairman Hwei-Nan Yih as the spokesperson, Director of EMO Feng-Chyuan Hsieh 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 directors and supervisors)

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 Relations section on the Company website to

None

32

Item



Yes No Summary

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 protecting the right and obligation of each other.

33

Item



Yes No Summary

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 2017.

None

34

3.3.4Composition, 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 Hsi-Peng Lu 1 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.

35

2. Operations of the Remuneration Committee 1) Three (3) meetings March 31, 2017 ended the Remuneration Committee:

(Up to Match 31st, 2017)

Title Name Actual attendance (B) Attendance

commissioned Actual attendance

rate (%)(B/A) Note

Convener Chang, Ryh Yan 3 0 100.0 Member Lu, Hsi-Peng 3 0 100.0

Member Li, Mei-Huei 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.

36

3.3.5 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)ACS 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

V

(1)As one of the community members, the

company devoted to carbon reduction efforts.

As the company is not a manufacturing plants, and

37

Item


Yes No Summary

have a low impact on the environment? (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

The company continued to pursue the 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)ACS has fully implemented e-business for many years, promoted electronic personal and project documents, a significant reduction in paper waste. For reduction paper waste, ACS 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, ACS 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.

therefore it does not apply to "the use of renewable materials". None None

3. Preserving Public Welfare (1)Does the company comply with relevant labor laws

V

(1)ACS respects the employees’ human rights,

None

38

Item


Yes No Summary

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

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

V

V

V

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)ACS 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.

(4)ACS has regular annual meeting such as 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,

None None None

39

Item


Yes No Summary

(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? (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

V

V

V

V

V

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)ACS 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. ACS 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 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

None None None None None

40

Item


Yes No Summary

have a significant impact on the environment and society, have the right to terminate or rescind the contract?

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.

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, MOPS (Market Observation Post System), and company's external website ACS 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. ACS has get seven consecutive transparency of information disclosure that is rated the highest level award and awarded the "Tenth Listed Companies Information Disclosure Evaluation" A++ level medals 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: ACS has established Corporate social responsibility principles based on “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies”. 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 ' ACS 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.

41

Item


Yes No Summary

6. Other important information to facilitate better understanding of the Company’s corporate social responsibility practices： 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 and 10,000TWD for Chinese Institute of Engineers and Value Management Institute of Taiwan respectively in

2016. 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. ACS employees participated Earth Hour event at home from 20:30 to 21:30 on 19 March 2016.

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.

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.

42

3.3.6 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

V

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

None

43

Item


Yes No Summary

conduct in contract? (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?

the business credibility rules. 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

None

44

Item


Yes No Summary

company's Web site. There is an “Opinion 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.

45

3.3.7 Corporate Governance Guidelines and Regulations

Please refer to the Company’s website at www.acs.com.tw

http://www.acs.com.tw/�

46

3.3.8 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 Hewi-Nan Yih

2014/6/26 2016/08/05 2016/08/05 Taiwan Corporate Governance Association

Enterprise Group Governance 3.0

2016/06/16 2016/06/16 Securities & Futures Institute

The second corporate governance evaluation ceremony and keynote speech

3.0

2016/05/06 2016/05/06 Taiwan Corporate Governance Association

Legal Liability of Directors and Supervisors arising in Mergers and Acquisitions

3.0

Director Liu, Yin-Fan 2014/6/26


Enterprise Group Governance 3.0



3.0



3.0


2014/6/26


The Mission 's Key Task in the Application of

Innovation Technology 3.0


Strengthen corporate governance blueprint and best practices as well as the recent major changes in the tax system parses the content Taiwan

3.0

Director Hou-Sheng, Chan

2014/6/26

2017/03/10 2017/03/10 Taiwan Financial Research Institute

Trust staff supervisor (including on-the-job) workshop 6.0



3.0

47



hours From TO


Corporate Governance Concept professional directors and board of directors effective energy Construction

3.0


How to protect trade secrets, fraud prevention and enhance Corporate Governance

3.0


Insider Trading and Corporate Social Responsibility

3.0

Director Hung-I Chen

2014/6/26


Interpretation of Corporate Performance Information

3.0


Corporate responsibility for corporate mergers and acquisitions

3.0


Chang, Ryh Yan

2014/06/26

2016/08/05 2016/08/05 Taiwan Corporate Governance Association Enterprise Group Governance 3.0


Legal Liability of Directors and Supervisors arising in Mergers and Acquisitions 3.0


Shareholder Rights Management and Shareholders' Meeting 3.0


The effectiveness and operation of the Board resolution

3.0


Lu, Hsi-Peng

2014/06/26

2017/02/15 2017/02/15 Taiwan Institute of Director Innovation and Challenge of Innovating Economic Rise 3.0



48



hours From TO

2016/04/28 2016/04/28 Taiwan Institute of Director Innovation and Challenge of Innovating Economic Rise

3.0


Li, Mei-Huei

2014/06/26



2016/01/26 2016/01/26 Securities & Futures Institute Insider Trading and Corporate Social Responsibility 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..

49

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

Advanced Control & Systems Inc. Statement of Internal Control System

Date: March 16th, 2017 Advanced Control & Systems Inc. (ACS) states the following with regard to its internal control system during fiscal year 2016, based on the findings of a self-evaluation:

1. ACS is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and management. ACS has established such a system aimed at providing reasonable assurance of the achievement of the following objectives：

(1) Effectiveness and efficiency of operations (including profits, performance, and safeguard of asset security).

(2) Reliability, timeliness, transparency, and regulatory compliance of reporting. (3) Compliance with applicable laws, regulations, and bylaws.

2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing the three goals mentioned above. Furthermore, the effectiveness of an internal control system may be subject to changes in environment or circumstances. The internal control system of ACS contains self-monitoring mechanisms, however, and ACS takes immediate remedial actions in response to any identified deficiencies.

3. ACS judges the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the “Regulations”). The criteria adopted by the Regulations divide internal control into five elements based on the process of management control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communications, and (5) monitoring activities. Each element further contains several items. Please refer to the Regulations for details.

4. ACS has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria.

5. Based on the findings of the evaluation mentioned in the preceding paragraph, ACS believes that, as of December 31, 2016, its internal control system (including its supervision and management of subsidiaries), encompassing internal controls for (1) knowing about the achievement degree of operational effectiveness and efficiency, (2) reliability timeliness, transparency, and regulatory compliance of reporting, and (3) compliance with applicable laws, regulations, and bylaws, is effectively designed and operating, and reasonably assures the achievement of the above-stated objectives.

6. This Statement will be a major part of ACS's Annual Report and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Act.

7. This Statement has been passed by the Board of Directors Meeting of ACS held on March 16, 2017, the eight attending directors all affirmed the content of this Statement.

Advanced Control & Systems Inc.

Chairman (Hwei-Nan Yih):

President (Yin-Fan Liu):

50

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

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

by Employees: None.

3.3.11 Major Resolutions of Shareholders’ Meeting and Board Meetings 1.June 29th, 2016-Major Resolutions of Shareholders’ Meeting and Implementation Status in 2015

Date Resolutions of Shareholder’s Meeting Executive Condition

2016.06.29

1. Approving and merging 2015 financial statements.

Resolutions are followed.

2. Approving distribution of 2015 profits.

Decided ex-vividend data for dividend on August 1, 2016 and base day for cash dividend on August 19st, 2016. Executed the resolutions of shareholders completed.

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

passed unanimity by all present directors. 2016.03.17 in the 11th meeting of the 10th term Board of Directors：

The status of “The proposal for improving financial statements preparation abilities” Approval of 2015 compensation of directors and employee bonus Approval of 2015 Business Report, Financial Statements and Consolidated Financial Statements Approval of 2015 profit distribution Approval of the “2015 Internal Control Plan” Approval of Application for Loaning of Company Funds Approval of adjustment of certified public accountants of PwC firm Approval of adoption the convening of the 2016 Annual General Meeting Approval of the amendment opinions from shareholders to the 2016 Annual General Meeting

2016.05.04 in the 12th meeting of the 10th term Board of Directors： Report the Company’s consolidated financial statements for Q1. Approval of the modification of Company’s “Internal Control Systems” and “Internal Audit System”

2016.06.30 in the 13th meeting of the 10th term Board of Directors： Report the status of “The proposal for improving financial statements preparation abilities” implementation. Approval of ex-dividend date of 2015 Approval of the modification of Company’s “Internal Control Systems” and “Internal Audit System”

2016.08.04 in the 14th meeting of the 10th term Board of Directors： Report the Company’s consolidated financial statements in the first half year of 2016. Report the status of “The proposal for improving financial statements preparation abilities” implementation. Approval of paid-in capital modification

51

2016.11.02 in the 15th meeting of the 10th term Board of Directors： Report the Company’s consolidated financial statements for Q3. Report the personnel change of Director Charles Y. Huang Approval of the modification of Corporate Governance Best Practice Principles

2016.12.12 in the 16th meeting of the 10th term Board of Directors： Report the status of “The proposal for improving financial statements preparation abilities” implementation Report the status of “Ethical Management” implementation Approval of the Business Budget in 2017 Approval of the Audit Plan in 2017 Approval of the personnel change of Audit Manager Approval of the “Board of Directors performance evaluation” Approval of the average pay rises of the Company in 2017 Approval of the salary paid to executive officers

2017.03.17 in the 17th meeting of the 10th term Board of Directors： 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 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

3.3.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors: None

3.3.13 Resignation or Dismissal of Personnel Involved in Preparation of Financial Reports: Up to May 01, 2017

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

Audit Manager Hui-Chen Yin 2006.01.01 2016.12.31 Job Rotation

52

3.4 Public Expenses of CPA 3.4.1 Information of CPA

Accounting Firm Name of CPA Audit Period Note PriceWaterHouseCoopers Eric Wu Douglas Chang 2016.01.01-2016.12.31 -

3.4.2 Public Expenses of CPA

Unit: NT$ thousands

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

1 Less than 2,000,000 656 656

2 2,000,000 ~ 4,000,000 (inclusive of 2,000,000) 2,418 2,418 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 2,418 0 0 0 656 656 2016.01.01-2016.12.31 Note Douglas

Chang Note: The Non-audit fees (Other) includes (in NT$ thousands): transfer-pricing report service fee 340 and idated financial statements Template Consult fee 215

and profit tax administrative relief fee 100. 3.4.3 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. 3.4.4 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.

53

3.5 Information on replacement of CPA: (1) Year 2016：None. (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. 3.6 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 3.7 Changes in Shareholding of Directors, Managers and Major Shareholders 3.7.1 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

2016 As of April. 26, 2017

Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Chairman Hwei-Nan Yih (Rep. of CTCI Corporation) 0 0 0 0

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

Chairman Hwei-Nan Yih 0 0 0 0

Director Bao-Lang Chen 0 0 0 0

Director Charles Y. Huang 0 0 0 0

Director Hou-Sheng Chan 0 0 0 0

Director Yin-Fan Liu 0 0 0 0

Director Hong-I Chen 37,000 0 0 0 Independent Director Chang, Ryh Yan 0 0 0 0

Independent Director Lu, Hsi-Peng 0 0 0 0

Independent Director Li, Mei-Huei 0 0 0 0

President Yin-Fan Liu 0 0 0 0 Vice President Chiang-Nan Tsai 22,000 0 0 0

Vice President Chen-Chin Chen 0 0 0 0

Finance Manager Pai-Chen Soong 0 0 0 0

Accounting Manager Shirley Hsu 0 0 0 0

3.7.2 Shares Trading with Related Parties: None 3.7.3 Shares Pledge with Related Parties: None

54

3.8 Information Disclosing the Relationship between any of the Company’s Top Ten Shareholders Up to May 01, 2016

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

1,142,000 4.86 0 0 0 0 -- --

Representative:Ben-Yuan Cheng

0 0 0 0 0 0 -- --

Hu-Fang-Yu Chen 1,017,000 4.33 0 0 0 0 Hong-I Chen Mother & Son

Hong-I Chen 401,000 1.71 7,000 0.03 0 0 Hu-Fang-Yu Chen Mother & Son

BING-XIAN Yu 340,000 1.45 0 0 0 0

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 223,169 0.95 0 0 0 0 -- --

Kam-chuen Lin 163,000 0.69 0 0 0 0 -- --

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

Chiang-Nan Tsai 129,548 0.55 0 0 0 0 -- --

55

3.9 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%

Advanced Control & Information Technologies Co., Ltd.

Note 1 100% 0 0 Note 1 100%

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

56

IV. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital 1. Issued Shares

Up to Apr. 30th, 2017

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 04/30/2016

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

57

4.1.3 Shareholding Distribution Status 2. Common Shares (The par value for each share is NT$10)

As of 04/30/2017

Class of Shareholding (Unit : Share)

Number of Shareholders Shareholding (Shares) Percentage

1 ~ 999 734 87,899 0.37 1,000 ~ 5,000 1,166 2,307,646 9.82

5,001 ~ 10,000 161 1,243,408 5.29 10,001 ~ 15,000 57 728,334 3.10 15,001 ~ 20,000 34 630,728 2.68 20,001 ~ 30,000 27 686,358 2.92 30,001 ~ 40,000 9 331,094 1.41 40,001 ~ 50,000 6 274,384 1.17

50,001 ~ 100,000 21 1,513,705 6.44 100,001 ~ 200,000 6 795,516 3.39 200,001 ~ 400,000 3 887,586 3.78 400,001 ~ 600,000 1 401,000 1.71 600,001 ~ 800,000 0 0 0

800,001 ~~ 1,000,000 0 0 0 1,000,001 or over 3 13,603,842 57.92

Total 2,228 23,491,500 100.00 2. Preferred stocks: The Company does not issue preferred stock 4.1.4 List of Major Shareholders

As of 04/30/2017

Shareholder's Name Shareholding

Shares Percentage CTCI Corporation 11,444,842 48.72 Fubon Life Insurance Co., Ltd 1,142,000 4.86 Fang-Yu Chen Xu 1,017,000 4.33

Nan Shan Life Insurance Company, Ltd 401,000 1.71

Hung-I Chen 340,000 1.45

GRQ Investment Corporation 324,417 1.38 South China Insurance Co., LTD 223,169 0.95 Xian-Hua Mo 163,000 0.69 Kam-chuen Lin 144,968 0.62 Hwei-Nan Yih 129,548 0.55

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

Item 2015 2016 As of March 31, 2017 Market Price per Share

Highest Market Price 56.40 44.50 44.40 Lowest Market Price 38.20 38.00 40.00 Average Market Price 48.40 40.27 40.94

Net Worth per Share Before Distribution 22.05 22.31 22.99 After Distribution 19.51 - -

Earnings per Share Weighted Average Shares 23,422,000 23,478,000 23,492,000 Diluted Earnings Per Share 3.40 3.08 0.76

Dividends per Share Cash Dividends 2.528 2.505 -

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

Accumulated Undistributed Dividends - - - Return on Investment

Price / Earnings Ratio 14.24 13.07 - Price / Dividend Ratio 19.15 16.08 - Cash Dividend Yield Rate 0.05 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 16 March 2017, the Company has decided to distribute the cash dividends NT$ 58,869,031 (NT$ 2.505 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 2016 Approved in Board of Directors Meeting for Employee Remuneration and Directors’ Remuneration (a) Recommended Distribution of Directors’ Remuneration is NT$618,852, and Employee

Remuneration in cash is NT$2,557,356. (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$2.505 per share

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(d) Earnings per share with consideration of the proposed employee remuneration and warrants: employee remuneration is distributed via cash, so earning per share is not changed.

(4) Information of 2015 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) 2,263,776 2,263,776 0

Remuneration for Directors (Cash) 650,000 650,000 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 2014:

Name Title Amount(NT$) Hwei-Nan Yih Chairman

228,121

Yin-Fan Liu President Chiang-Nan Tsai Vice President Feng-Chyuan Hsieh Director Jen-Chwan Lee Business Director Albert Tsao Business Director Chin-Cheng Lin Manager Chen-Chin Chen Vice President Bruce Lin Chief Engineer Kuo-Chun Chang Chief Engineer

Other Employees 2,035,655 Total 2,263,776

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 04/30/2016

Type of Stock Option 1st Tranche 2nd Tranche 3rd Tranche 4th Tranche 5th Tranche

Regulatory approval date

2007/09/10 2008/08/27 2009/06/12 2010/06/22 2011/06/17

Issue date 2007/10/01 2008/10/17 2009/08/14 2010/06/23 2011/06/22

Units issued 600 units 600 units 600 units 600 units 600 units

Option shares to be issued as a percentage of outstanding shares

2.55695 2.55695 2.55695 2.55695 2.55695

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 523,000 shares 573,000 shares 548,500 shares 396,750 shares 145,250 shares

Exercised amount NT$ 12,322,125 NT$ 7,371,525 NT$11,665,450 NT$17,840,025 NT$ 7,291,675 Number of shares yet to be converted

0 shares 0 shares 0 shares 0 shares 454,750 shares

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

None None None None NT$ 42.0

Unexercised shares as a percentage of total issued shares

0 0 0 0 1.93762

Impact on possible dilution of shareholdings

Dilution to Shareholders’ Equity is limited.

Note 1：The 1st Tranche to the 2013.9.30 credentials deadline, The 2nd Tranche to the 2014.10.16 credentials deadline, The 3th Tranche to the 2015.8.13 credentials deadline, The 4th Tranche to the 2016.10.16 credentials deadline. (The expiration date is 22nd Jun. 2016, the exercise date rescheduled to April 29th 2016, due to 2015 shareholders’ meeting)。

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4.5.2 List of Executives Receiving Employee Stock Options and the Top 10 Employees: As of 04/30/2016

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 Hwei-Nan Yih 143,000 0.61 40,000

4th: NT$39.2

NT$44.9 ~ NT$42.0

926,000 0.17 55,000

5th: NT$42.0

2,310,000 0.23

President Yin-Fan Liu 88,000 0.38 73,000 1,819,550 0.31 15,000 630,000 0.06 Vice

President Chiang-Nan

Tsai 81,000 0.35 69,000 1,676,325 0.29 12,000 504,000 0.05

Director Feng-Chyuan Hsieh 60,000 0.26 56,250 1,671,725 0.24 3,750 157,500 0.016

Director K.C. Chang 54,000 0.23 51,250 1,536,150 0.22 2,750 115,500 0.012 Manager Chin-Cheng Lin 51,000 0.22 45,750 1,310,775 0.21 2,250 94,500 0.010

Chief Engineer

Ting-Shun Chuang 48,000 0.21 36,750 725,400 0.16 6,000 502,875 0.025

Principal Engineer James Chou 48,000 0.21 34,000 640,650 0.15 5,000 210,000 0.021

Chief Engineer Jack Lee 47,000 0.20 39,000 936,825 0.17 3,000 126,000 0.013

Vice Chief Engineer Rui-Hong Lin 46,000 0.20 39,000 919,600 0.17 7,000 294,000 0.029

Vice Chief Engineer Shi-xin Kang 44,000 0.19 37,250 960,900 0.16 3,750 157,500 0.016

Vice Chief Engineer Xin-zhi Huang 42,000 0.18 39,250 974,000 0.17 2,750 115,500 0.012

Vice Chief Engineer

Zhiling Chen 31,000 0.13 28,000 1,054,900 0.12 3,000 126,000 0.013

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 Airport Baggage Handling System, E&M System and ICT System 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) Energy saving includes energy-saving, and CO2 emission reduction or recycling solution services.

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(2) Revenue distribution

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

Y 2016 Unit；NT$ thousands

PRODUCT/SERVICE ITEM SALES AMOUNT % Engineering service 1,024,922 89.99 Product sales 114,051 10.01 Total 1,138,973 100.00

(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.

AspenTech product sales agents and maintenance services to provide high-level application production process.

Industrial equipment (distribution, agency product): Provides customer-related control system products contain as Novatech D/3, Supcon 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 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

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

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

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

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(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 ACS 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 ACS describes as follows:

(1) The overall economic environment According to the international economic institutions estimate that the global economy will gradually recover in 2017. The IMF predicted that the global economic growth rate of 3.4%, higher than last year's 3.1%, mainly because of advanced economies will slowly recover, emerging economies are gradually stabilized. In addition, due to the major countries have gradually get rid of deflationary pressures, long-term monetary easing policy to reduce the marginal utility, fiscal policy will replace monetary policy as the main tool for countries to stimulate economic growth. The global economy is expected to recover, but the United States new economic and trade policy could be a new rising of trade protectionism. Coupled with the European anti-institutional political trends, emerging market debt crisis. Together with the Chinese mainland economic uncertainty trends, and other potential risks, will affect the pace of global economic growth, follow-up development still need to be concerned about. In the domestic economy, the economic growth rate in the fourth quarter of 2016 estimated 2.58%, the economy looks recovery slowly. To the future,most institutions this year's estimation, Taiwan's economic growth rate will range between 1.5% to 2.0%. It higher than 2016's 1.40%. Among them, the Government forecast is expected this year the economy growth is 1.87%, mainly because the export is expected to pick up with the international boom. The domestic demand is benefited from the semiconductor advanced process investment is expected to continue, and the government actively promote the "Five plus Two Industry Innovation Program "," The Expanding Investment programs "and so on, will help stimulate private investment momentum. The private consumption is also expected to rebound with the economy to maintain moderate growth. To strengthen the boom recovery momentum, and promote the transformation and upgrading of Taiwan's industry, boost the domestic economy is the government's most important task this year. The Government will take advantage of the opportunity to revive the economy from the "accelerated transformation of the structure" and the "comprehensive expansion of infrastructure investment", to create a new model for Taiwan's economic

(2) Industrial development and the current situations Recent industrial market that Industry 4.0 is emerging, Industry 4.0 core 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 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 gradually go into the peak of the construction in 2017, ACS focuses on the airport mechanical and electrical engineering industry development has substantial opportunities. ACS is listed in IT service industry classification of system integrator. Company has always been

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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 sevices 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 ACS 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

In accordance with United States Energy Information Administration predicted that looking forward to the future global energy demand is still rising, until to 2040 , the usage will surge 56% more than in 2010, demand of energy management systems usage is promising. According to the Navigant report Research in 2014, the Industry Energy Management System market outputs from $ 11.3 billion in 2013, with a compound annual growth rate of 10.3%, will reach to $ 22.4 billion in 2020.

Smart City will booming the development of IoT Along with the promulgation of the national master plan for energy saving and carbon reduction policy, as well as software, hardware and services vendors actively entering Taiwan for internet associated with smart city market, Taiwan academia more increased their attention to this area, and began a series of implementation. Including smart cities, and intelligent manufacturing topics, will be in development focus. Worth noting is that the rise of the Internet market, in addition to attract not also many non-traditional information services companies but also a number of industry applications join the market to promote it and many information services companies through strategic alliances, such as research and development. According to IDC survey, in response to the trend of intelligence, 2017 global IoT market size will be more than 9,30 billion US dollars, higher than last year, increased by 100 billion. 3 years later, the market is expected to reach the scale of 1.46 trillion dollars, nearly double the growth.

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 industrial upgrading and restructuring.

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(b) Competitiveness situations ACS 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 affects 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, ACS 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.

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 2012 2013 2014 2015 2016 2017/3/31 Operating Revenue

1,384,203 1,122,980 1,353,826 1,445,914 1,138,973 180,745

R&D Expense 19,309 14,948 16,290 17,040 12,615 1,903 R&D Expense as percentage of Operating Revenue (%)

1.39 1.33 1.20 1.18 1.11 1.05

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, every year the annual R&D expenses are of maintaining a certain level.

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

Year R&D Achievements

2012

Mr. Safety revised version – Simplified version and English version – Network version – Dow Chemical index – SIL Pre-verify – FMEA – Online HazOp Mr. Energy 50001 (Energy Information Management Platform)

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.

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Year R&D Achievements 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.

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.

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

Facility Management Air Side Control System(Phase III – High tech Fab large scale Makeup Air Unit (MAU) modeling and control：Use rigorous psychrometric model in continuation of phase II to develop large-scale semiconductor plants Service MAU simulation in order to provide operation optimization and recommendations.

Process Safety Management – Management Of Change (MOC), an automated workflow engine that provides process change management, including process chemicals, technology, equipment, operating procedures, scale or changes to process facilities in

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the workplace, and process safety information , Standard operating procedures or specifications of the update; and cover the temporary and permanent process changes. The above changes are subject to computer-aided standard methods, procedures and procedures to perform and track and control, in order to avoid improper changes caused the accident.

3D printing cyber physical production system: the physical layer: the establishment of 3D printing machine network production line. Automation layer: integrated open source 3D printing management system Repetier, responsible for machine work, monitoring 3D printing network production line. Intelligent layer: the integration of ACS CIP-D (device side) solution, responsible for printing machine process data acquisition and CIP-M (management) solution, responsible for 3D printing process big data storage, visualization, analysis modeling, intelligent Optimization of scheduling.

Industry 4.0 smart cabinet：integrate IIoT(industrial internet of things)、big data analytics、data visualization technologies， packing them into a readymade solution for rapid provisioning。Industry 4.0 smart cabinet adopts an architecture of virtualized, layered, scalable clusters. It is divided into three different types of service nodes. IIoT node plays the role of sensing and transmission； Big Data node plays the role of brain for real time decision making； Application node plays the role of hands and feet for real time action and external interaction.

Abnormal noises monitoring of rotary equipment：By combined the diagnosis of acoustic and big data analysis, we can see the sign of upcoming malfunction of rotary equipment in factory. Through this diagnosis function, to prevent the damages from unexpected and suddenly shutdown and to reduce your expenditure due to the accident.

Smart Positioning & Security Control Platform：By combined the smart tracker and LoRa communication technology to trace the moving objects. The specific region setting can be done for specific objects. To provide the real-time locating information helps administrators to manage objects such as cars, employees, workers, etc.

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(3)The progress of ongoing R&D projects (up to 3/31/2017 only)

R&D Project Name Current Progress

Further Investment (in unit of thousand dollars)

Planned Completion

Date

Major factors to effect project’s success

Facility Management Air Side Control System(Phase III)

80 500 2017.06.30 Optimization algorithm performance cannot meet real time requirements.

Process safety information system

25 3,000 2017.12.31 Collections of raw process safety documentation are not enough.

3D printing cyber physical production system

25 2,460 2017.12.31 Seeking to meet the industry 4.0 little variety of manufacturing models with the manufacturers of practical cases.

Industry 4.0 Smart Cabinet 50 4,500 2017.12.31 Effectiveness and efficiency of machine learning.

Abnormal noises monitoring of rotary equipments

25 1,800 2017.12.31 Analyze the signature of abnormal noise of rotary equipment, and collect the sufficient experimental database.

Smart Positioning & Security Control Platform

25 3,000 2017.12.31 Trackers with long-term power supply and the APP user interface on Android/ iOS mobile devices.

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

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 2017 Year 2018 Year 2019

R&D Investment 27,500 29,990 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 ACS owned products to high up Mr. Safety 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. Safety 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

2016 Amount %

Overseas 69,044 6.06 Domestic 1,069,929 93.94

Total 1,138,973 100.00

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

Year Area

2016 Amount %

MAC 672,486 59.04 Transportation E&M 277,542 24.37

IM 177,093 15.55 Industrial

Products Sales 11,852 1.04

total 1,138,973 100.00

2. Market Share The company engages in system integration market. Industrial control as the core, ACS 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. Too much capacity in petrochemical industry is the whole problem in 2015, and could not be eased in 2015. On the premise of production capacity significantly greater than the demand, average of the petrochemical products have further to fall. Oil market supply and demand imbalance of the structure is expected to remain in 2016, OPEC in order to maintain the market capacity ,will keep the production, oil price is hard to rebound. Oil and petrochemical raw materials prices continued weak, that to influence the market which wishes to invest

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and build factories, actively looking for an old factory to update the business may be a good business opportunity.

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. ACS 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. 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.

c. 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 (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. ACS 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.

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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 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 ACS can assess how to enhance industrial safety service and expand fighting for such opportunity.

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b. Oil Market uncertainty reduce investment Recently international oil prices fell sharply, most large-scale petrochemical or shut down or face a review of green energy investment construction, affect investment and business opportunities, market uncertainty has spiked, must find a new way 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 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.

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 Mechanical and Electrical Products

Providing customers with power equipment protection devices.

IDEC Auto Control Devices

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

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Major Products Usage 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, 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 software SmartSketch ®.

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 Compressors (GPS-Compressor)

To guide plants’ staffs to operate process compressors for achieving better performance, energy conservation and emission reduction.

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

2015 2016 2017 (As of March 31)

Company Name Amount Percent

Relation with

Issuer


Relation with

Issuer


Relation with

Issuer

1 CTCI Corp 788,023 54.50 Parent company CTCI Corp 688,443 60.44 Parent

company CTCI Corp 55,051 30.46 Parent company

2 Taoyuan Airport Corp 233,560 16.15 ─ Taoyuan

Airport Corp N/A Taoyuan Airport Corp

N/A

Others 424,331 29.35 ─ Others 450,530 39.56 Others 125,694 69.54

Net Total Supplies 1,445,914 100.00 Net Total

Supplies 1,138,973 100.00 Net Total Supplies 180,745 100.00

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 2015 2016

Local Export Local Export Labor Income 1,207,146 83,322 955,878 69,044 Sales Income 155,446 0 114,051 0 Total 1,362,592 83,322 1,069,929 69,044

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 2015 2016 2017 (As of March 31)

Number of Employees

Administrative staff 33 30 29 R & D and technical personnel 237 246 244

Total 270 276 273 Average Age 39.3 40.22 40.1 Average service seniority 8.9 10.1 9.9

Percentage of employees at each level of educational degree

Doctor 0.9 0.4 0.4 Master 31.1 34.4 34.1 Bachelor 62.7 62.0 62.3 Senior High School 5.3 3.2 3.2

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.

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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.

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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) 2016 annual employee training expenditures situation Company for the year a total of 2016 actual number of hours spent training the employees amounting to approximately 21,159 hours, annual expenditure amounting to approximately NT$ 2,290,000.

(4) 2017 Annual forecast staff training budget The company 2017 year to budgeted for annual employee training hours estimated that about 19,183 hours, annual training expenses amounting to approximately NT$ 1,970,000. Compare with the estimated actual data, training hours decreased about 9% 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

President Yin-Fan Liu 2016/08/05 Taiwan Corporate Governance Association Enterprise Group Governance 3.0

President Yin-Fan Liu 2016/06/16 Securities & Futures Institute


3.0

President Yin-Fan Liu 2016/05/06 Taiwan Corporate Governance Association


3.0

Vice President

Chiang-Nan Tsai 2016/08/05 Taiwan Corporate

Governance Association Enterprise Group Governance 3.0

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Vice President

Chiang-Nan Tsai 2016/05/06 Taiwan Corporate

Governance Association


3.0

Vice President

Chen-Chin Chen 2016/08/05 Taiwan Corporate

Governance Association Enterprise Group Governance 3.0

Accounting Manager

Yu-Wan Hsu 2016/12/08 FSC/TWSE/TPEx IFRS Seminar 4.0

Accounting Manager

Yu-Wan Hsu

2016/03/142016/03/23

Accounting Research and Development Foundation

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

30

Accounting Manager

Yu-Wan Hsu 2015/09/22 FSC/TWSE/TPEx IFRS Seminar 4.0

Accounting Specialist

Chia-Hung Chu 2016/12/08 FSC/TWSE/TPEx IFRS Seminar 6.0


Chia-Hung Chu

2016/11/072016/11/08

Accounting Research and Development Foundation

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

12.0


Chia-Hung Chu 2015/09/22 FSC/TWSE/TPEx IFRS Seminar 3.0

Internal Audit Yo-ho Chen 2016/03/15 Securities & Futures

Institute

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

6.0

Internal Audit

Hui-Chen Yin 2016/12/08 The Institute of Internal

Auditors-Chinese Taiwan IFRS 15 Customer contract revenue 6.0

Internal Audit

Hui-Chen Yin 2016/12/12 Securities & Futures

Institute Retail sales and procurement cycle audit practice workshop 6.0

Internal Audit

Wen-Hung CHIEN 2016/06/27 Securities & Futures

Institute

Enterprise resource management act follows the auditing workshop

6.0

Internal Audit

Wen-Hung CHIEN 2016/03/07 The Institute of Internal

Auditors-Chinese Taiwan

Internal Auditors how to perform the Act regulatory compliance audits

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 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

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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 2013.12~2017.12

Energy Management and Advanced Control Systems

Taiwan only

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

Distributor Agreement NovaTech 2012.12~2017.12

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 2016.06~2017.05

PLC、HMI、Relays、 Switches

Taiwan only

Distributor Agreement

Setsuyo Enterprise Co., Ltd

2016.07~2017.06 Mitsubishi Electric FA SCADA、PLC、VFD Taiwan only

Distributor Agreement

Sheng Chin Trading Co., Ltd 2016.09~2018.09 Mitsubishi electric

products Taiwan only

Note：Any party wishes to terminate the contract, shall be terminated after written notice to the other.

~92~

VI. Financial Information 6.1 Five-Year Financial Summary 6.1.1 Condensed Balance Sheet and Comprehensive income – IFRS 6.1.1.1 Condensed Balance Sheet – IFRS - Consolidated Unit: NT$ thousands

Year Item

Five-Year Financial Summary Until 2017/3/31 2012 2013 2014 2015 2016

Current assets 1,032,464 1,079,243 1,138,355 1,078,020 1,066,333 978,760 Property, plant and equipment 73,348 73,406 73,376 72,716 71,607 70,736

Intangible Assets 0 0 0 0 0 0

Other assets 21,037 22,224 24,278 20,439 15,320 15,099

Total assets 1,126,849 1,174,873 1,236,009 1,171,175 1,153,260 1,064,595

Current liabilities

Before distribution 617,402 638,211 722,463 640,975 613,055 508,000

After distribution 720,100 736,689 781,770 700,325 Note 1 Note 1

Non-current Liabilities 2,896 34,576 5,762 13,809 16,443 16,430

Total liabilities



Equity attributable to parent company 506,551 502,086 507,784 516,391 523,762 540,165

Capital stock 224,760 229,805 233,375 234,695 234,915 234,915

Capital Reserves 76,300 87,715 100,468 103,904 104,546 104,546

Retained Earnings



Other Equity (11,785) 77 (9,357) (18,274) (22,317) (23,755)

Treasury Stock 0 0 0 0 0 0

Non-controlling Equity 0 0 0 0 0 0

Total equity



Note 1: The 2016 earnings distribution has not been resolved by Shareholders’ Meeting and is not applicable.

~93~

6.1.1.2 Condensed Balance Sheet – IFRS – Non-Consolidated Unit: NT$ thousands Year

Item

Five-Year Financial Summary

2012 2013 2014 2015 2016

Current assets 1,018,234 1,062,347 1,113,264 1,046,364 1,038,562 Long-term equity investment accounted for under the equity method

14,032 16,109 23,918 29,551 26,711

Property, plant and equipment 72,913 72,988 72,958 72,442 71,364

Intangible Assets 0 0 0 0 0 Other assets 20,845 21,973 24,020 19,932 15,321 Total assets 1,126,024 1,173,132 1,234,160 1,168,289 1,151,958

Current liabilities

Before distribution 616,577 636,470 720,614 638,089 611,753

After distribution 719,274 734,948 779,921 697,439 Note 1

Non-current Liabilities 2,896 34,576 5,762 13,809 16,443

Total liabilities



Capital stock 224,760 229,805 233,375 234,695 234,915 Capital Reserves 76,300 87,715 100,468 103,904 104,546

Retained Earnings



Other Equity (11,785) 77 (9,357) (18,274) (22,317) 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.

~94~

6.1.1.3 Condensed Statement of Comprehensive Income – IFRS - Consolidated Unit: NT$ thousands

Year Item

Five-Year Financial Summary Until 2017/3/31

2012 2013 2014 2015 2016 Operating revenues 1,384,203 1,122,980 1,353,826 1,445,914 1,138,973 180,745

Gross profit 249,594 219,896 175,105 192,772 198,129 54,524

Operating income 134,173 108,057 68,390 87,116 85,012 27,688 Non-operating income and expenses 1,641 9,754 23,577 11,429 (165) (5,958)

Income before income tax 135,814 117,811 91,967 98,545 84,847 21,730 Income from continuing operations before income tax

119,256 98,354 79,602 79,749 72,408 17,841

Loss from discontinued division 0 0 0 0 0 0

Net income 119,256 98,354 79,602 79,749 72,408 17,841 Other comprehensive income (4,256) 11,862 10,854 (15,418) (6,549) (1,438)

Total comprehensive income 115,000 110,216 90,456 64,331 65,859 16,403

Income attributable to parent company 119,255 98,354 79,602 79,749 72,408 17,841

Income attributable to Non-controlling Equity 1 0 0 0 0 0

Comprehensive income attributable to parent company

114,999 110,216 90,456 64,331 65,859 16,403

Comprehensive income attributable to Non-controlling Equity

1 0 0 0 0 0

Earnings per share 5.37 4.32 3.44 3.40 3.08 0.76 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.

~95~

6.1.1.4 Condensed Statement of Comprehensive Income – IFRS – Non-Consolidated Unit: NT$ thousands

Year Item


2012 2013 2014 2015 2016 Operating revenues 1,378,520 1,113,685 1,308,263 1,405,126 1,118,554 Gross profit 249,439 214,213 162,674 178,495 189,758 Operating income 137,935 106,607 61,298 79,012 85,802 Non-operating income and expenses (2,122) 11,204 30,451 17,436 (968)

Income before income tax 135,813 117,811 91,749 96,448 84,834 Income from continuing operations before income tax

135,813 98,354 79,602 79,749 72,408

Loss from discontinued division 0 0 0 0 0

Net income 119,255 98,354 79,602 79,749 72,408 Other comprehensive income (4,256) 11,862 10,854 (15,418) (6,549)

Total comprehensive income 114,999 110,216 90,456 64,331 65,859

Income attributable to parent company 119,255 98,354 79,602 79,749 72,408

Income attributable to Non-controlling Equity 0 0 0 0 0

Comprehensive income attributable to parent company

114,999 110,216 90,456 64,331 65,859

Comprehensive income attributable to Non-controlling Equity

0 0 0 0 0

Earnings per share 5.37 4.32 3.44 3.40 3.08

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.

~96~

6.1.2 Condensed Balance Sheet and Income– GAAP 6.1.2.1 Condensed Balance Sheet – GAAP – Consolidated Unit: NT$ thousands

Year Item


2012 2013 2014 2015 2016

Current assets 1,048,982 N/A N/A N/A N/A Funds and Investments 0 N/A N/A N/A N/A Fixed assets 73,348 N/A N/A N/A N/A Intangible Assets 0 N/A N/A N/A N/A Other assets 4,178 N/A N/A N/A N/A Total assets 1,126,508 N/A N/A N/A N/A

Current liabilities

Before distribution 617,403 N/A N/A N/A N/A

After distribution 720,100 N/A N/A N/A N/A Long-term liabilities 0 N/A N/A N/A N/A Other liabilities 3,102 N/A N/A N/A N/A

Total liabilities


After distribution 723,202 N/A N/A N/A N/A Capital stock 224,760 N/A N/A N/A N/A Capital Reserves 76,300 N/A N/A N/A N/A

Retained Earnings


After distribution 108,045 N/A N/A N/A N/A Unrealized gain or loss on financial instruments (11,341) N/A N/A N/A N/A

Cumulative translation adjustments 1,381 N/A N/A N/A N/A

Unrecognized pension cost 0 N/A N/A N/A N/A Total shareholders’ equity


After distribution 403,306 N/A N/A N/A N/A

~97~

6.1.2.2Condensed Balance Sheet – GAAP – Non-Consolidated Unit: NT$ thousands Year

Item


2012 2013 2014 2015 2016

Current assets 1,034,751 N/A N/A N/A N/A Funds and Investments 14,032 N/A N/A N/A N/A Fixed assets 72,913 N/A N/A N/A N/A Intangible Assets 0 N/A N/A N/A N/A Other assets 3,986 N/A N/A N/A N/A Total assets 1,125,682 N/A N/A N/A N/A

Current liabilities


After distribution 719,274 N/A N/A N/A N/A Long-term liabilities 0 N/A N/A N/A N/A Other liabilities 3,102 N/A N/A N/A N/A

Total liabilities


After distribution 722,376 N/A N/A N/A N/A Capital stock 224,760 N/A N/A N/A N/A Capital Reserves 76,300 N/A N/A N/A N/A

Retained Earnings


After distribution 108,045 N/A N/A N/A N/A Unrealized gain or loss on financial instruments (11,341) N/A N/A N/A N/A

Cumulative translation adjustments 1,381 N/A N/A N/A N/A

Unrecognized pension cost 0 N/A N/A N/A N/A Total shareholders’ equity


After distribution 403,306 N/A N/A N/A N/A

~98~

6.1.2.3 Condensed Income Statement – GAAP - Consolidated Unit: NT$ thousands

Year

Item


2012 2013 2014 2015 2016

Operating revenue 1,384,203 N/A N/A N/A N/A Gross profit 249,594 N/A N/A N/A N/A Income from operations 134,234 N/A N/A N/A N/A Non-operating income 8,230 N/A N/A N/A N/A Non-operating expenses (6,589) N/A N/A N/A N/A Income from operations of continued segments - before tax 135,875 N/A N/A N/A N/A

Income from operations of continued segments - after tax 119,307 N/A N/A N/A N/A

Income from discontinued departments 0 N/A N/A N/A N/A

Extraordinary gain or loss 0 N/A N/A N/A N/A Cumulative effect of accounting principle changes 0 N/A N/A N/A N/A

Net income 119,307 N/A N/A N/A N/A Earnings per share 5.38 N/A N/A N/A N/A

6.1.2.3 Condensed Income Statement – GAAP – Non-Consolidated Unit: NT$ thousands

Year

Item


2012 2013 2014 2015 2016

Operating revenue 1,378,250 N/A N/A N/A N/A Gross profit 249,439 N/A N/A N/A N/A Income from operations 137,996 N/A N/A N/A N/A Non-operating income 8,203 N/A N/A N/A N/A Non-operating expenses (10,325) N/A N/A N/A N/A Income from operations of continued segments - before tax 135,874 N/A N/A N/A N/A

Income from operations of continued segments - after tax 119,306 N/A N/A N/A N/A

Income from discontinued departments 0 N/A N/A N/A N/A

Extraordinary gain or loss 0 N/A N/A N/A N/A

~99~

Cumulative effect of accounting principle changes 0 N/A N/A N/A N/A

Net income 119,306 N/A N/A N/A N/A Earnings per share 5.38 N/A N/A N/A N/A 6.1.3 Auditors’ Opinions

CPA Firm/Year 2012 2013 2014 2015 2016

PriceWaterhouseCoopers Jenny Yeh Jenny Yeh Jenny Yeh Jenny Yeh Eric Wu Eric Wu Eric Wu Douglas Chang Douglas Chang Douglas Chang

Auditing Opinion unqualified opinion

unqualified opinion

unqualified opinion

modified unqualified opinion

unqualified opinion

6.2 Five-Year Financial Analysis 6.2.1 Five-Year Financial Analysis – IFRS 6.2.1.1 Five-Year Financial Analysis – IFRS - Consolidated

Year Item

Five-Year Financial Summary Until 2017/3/31 2012 2013 2014 2015 2016

Financial Structure (%)

Debit of Assets Ratio 55.05 57.26 58.92 55.91 54.58 49.26

Long-term Funds to Properties, Plants and Equipment Ratio 694.56 731.09 699.88 729.14 754.40 786.86

Solvency(%)

Current Ratio 167.45 169.10 157.57 168.18 173.94 192.67

Quick Ratio 166.05 166.37 154.59 165.00 171.66 190.48

Time Interest Earned (times) 0.00 0.00 0.00 0.00 0.00 0.00

Operating Ability

Accounts Receivable Turnover (times) 4.48 3.95 3.31 2.70 2.04 3.99

Average Collection Days (days) 81.51 92.32 110.27 135.19 178.92 91.48

Inventory Turnover (times) 17.58 17.55 12.75 11.98 12.77 10.52

Accounts Payable Turnover (times) 3.08 3.15 3.32 3.10 2.85 1.93

Inventory Turnover Days (days) 20.76 20.79 28.63 30.47 28.58 34.70

Properties, Plants and Equipment Turnover (times) 18.62 15.30 18.45 19.79 15.78 10.16

Total Assets Turnover (times) 1.06 0.98 1.12 1.20 0.98 0.65

Profitability

Return on Assets (%) 9.14 8.55 6.60 6.63 6.23 6.44

Return on Equity (%) 23.95 19.50 15.76 15.57 13.92 13.42

Pre-tax income to Issued Capital (%) 60.43 51.27 39.41 41.99 36.12 37.00

Net Income Ratio (%) 8.62 8.76 5.88 5.52 6.36 9.87

~100~

Earnings Per Share (NT$) 5.37 4.32 3.44 3.40 3.08 0.76

Cash Flow

Cash Flow Ratio (%) 9.24 20.42 17.58 0.00 17.71 22.91

Cash Flow Adequacy Ratio (%) 207.7 179.55 128.39 63.99 93.14 118.21

Cash Reinvestment Ratio 0.00 6.27 5.08 0.00 8.28 19.03

Leverage Operating L Leverage 4.68 4.86 8.40 7.59 5.60 4.37

Financial Leverage 1.00 1.00 1.00 1.00 1.00 1.00 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).

~101~

. 6.2.1.2 Five-Year Financial Analysis – IFRS – Non-Consolidated

Year Item


2012 2013 2014 2015 2016


Debit of Assets Ratio 55.01 57.20 58.86 55.80 54.53

Long-term Funds to Properties, Plants and Equipment Ratio 698.71 735.27 703.89 731.90 756.97

Solvency (%)

Current Ratio 165.14 166.87 154.49 163.98 169.77

Quick Ratio 163.76 164.14 151.51 160.81 167.70

Time Interest Earned (times) 0.00 0.00 0.00 0.00 0.00

Operating Ability

Accounts Receivable Turnover (times) 4.46 3.98 3.23 1.36 2.02

Average Collection Days (days) 81.90 91.82 113.00 267.79 180.73

Inventory Turnover (times) 17.58 17.55 12.75 11.01 11.59

Accounts Payable Turnover (times) 3.07 3.13 3.23 3.04 2.81

Inventory Turnover Days (days) 20.76 20.79 28.63 33.14 31.51

Properties, Plants and Equipment Turnover (times) 18.68 15.27 17.93 19.33 15.56

Total Assets Turnover (times) 1.06 0.97 1.09 1.17 0.96

Profitability

Return on Assets (%) 9.17 8.56 6.61 6.64 6.24

Return on Equity (%) 23.95 19.50 15.76 15.57 13.92

Pre-tax income to Issued Capital (%) 60.43 51.27 39.31 41.10 36.11

Net Income Ratio (%) 8.65 8.83 6.08 5.68 6.47

Earnings Per Share (NT$) 5.37 4.32 3.44 3.40 3.08

Cash Flow

Cash Flow Ratio (%) 10.35 22.26 15.96 0.00 18.12

Cash Flow Adequacy Ratio (%) 214.81 184.14 129.53 64.65 93.10

Cash Reinvestment Ratio 0.00 6.69 2.94 0.00 9.10

Leverage Operating L Leverage 4.64 4.78 8.36 5.94 5.42

Financial Leverage 1.00 1.00 1.00 1.00 1.00

~102~

6.2.2 Five-Year Financial Analysis – GAAP 6.2.2.1 Five-Year Financial Analysis – GAAP- Consolidated

Year Item


2012 2013 2014 2015 2016


Debit of Assets Ratio 55.08 N/A N/A N/A N/A

Long-term Funds to Fixed assets 689.87 N/A N/A N/A N/A

Solvency (%)

Current Ratio 169.90 N/A N/A N/A N/A

Quick Ratio 165.83 N/A N/A N/A N/A

Time Interest Earned (times) 0 N/A N/A N/A N/A

Operating Ability

Accounts Receivable Turnover (times) 4.48 N/A N/A N/A N/A

Average Collection Days (days) 81.51 N/A N/A N/A N/A

Inventory Turnover (times) 17.58 N/A N/A N/A N/A

Accounts Payable Turnover (times) 3.08 N/A N/A N/A N/A

Inventory Turnover Days (days) 20.76 N/A N/A N/A N/A

Properties, Plants and Equipment Turnover (times) 18.62 N/A N/A N/A N/A

Total Assets Turnover (times) 1.06 N/A N/A N/A N/A

Profitability

Return on Assets (%) 9.15 N/A N/A N/A N/A

Return on Equity (%) 23.88 N/A N/A N/A N/A

Ratio to issued capital (%)

Operating income 59.72 N/A N/A N/A N/A Pre-tax income 60.46 N/A N/A N/A N/A

Net Income Ratio (%) 8.62 N/A N/A N/A N/A

Earnings Per Share (NT$) 5.38 N/A N/A N/A N/A

Cash Flow

Cash Flow Ratio (%) 9.24 N/A N/A N/A N/A

Cash Flow Adequacy Ratio (%) 207.70 N/A N/A N/A N/A

Cash Reinvestment Ratio 0 N/A N/A N/A N/A

Leverage Operating L Leverage 4.51 N/A N/A N/A N/A

Financial Leverage 1.00 N/A N/A N/A N/A

~103~

6.2.2.2 Five-Year Financial Analysis – GAAP- Non-Consolidated

Year Item


2012 2013 2014 2015 2016


Debit of Assets Ratio 55.05 N/A N/A N/A N/A

Long-term Funds to Fixed assets 693.98 N/A N/A N/A N/A

Solvency (%)

Current Ratio 167.82 N/A N/A N/A N/A

Quick Ratio 166.49 N/A N/A N/A N/A

Time Interest Earned (times) 0 N/A N/A N/A N/A

Operating Ability

Accounts Receivable Turnover (times) 4.46 N/A N/A N/A N/A

Average Collection Days (days) 81.90 N/A N/A N/A N/A

Inventory Turnover (times) 16.12 N/A N/A N/A N/A

Accounts Payable Turnover (times) 3.08 N/A N/A N/A N/A

Inventory Turnover Days (days) 22.64 N/A N/A N/A N/A

Properties, Plants and Equipment Turnover (times) 18.68 N/A N/A N/A N/A

Total Assets Turnover (times) 1.06 N/A N/A N/A N/A

Profitability

Return on Assets (%) 9.17 N/A N/A N/A N/A

Return on Equity (%) 23.99 N/A N/A N/A N/A

Ratio to issued capital (%)

Operating income 53.08 N/A N/A N/A N/A Pre-tax income 60.45 N/A N/A N/A N/A

Net Income Ratio (%) 8.66 N/A N/A N/A N/A

Earnings Per Share (NT$) 5.38 N/A N/A N/A N/A

Cash Flow

Cash Flow Ratio (%) 10.35 N/A N/A N/A N/A

Cash Flow Adequacy Ratio (%) 214.81 N/A N/A N/A N/A

Cash Reinvestment Ratio 0 0 N/A N/A N/A

Leverage Operating L Leverage 4.51 N/A N/A N/A N/A

Financial Leverage 1.00 N/A N/A N/A N/A

~104~

6.3 Audit Committee’s Review Report in the Most Recent Year

Advanced Control & Systems Inc. Audit Committee’s Review Report

To: 2017 Annual General Meeting of Shareholders

The Board of Directors has prepared the Company’s 2016 Business Report, Financial

Statements (both consolidated and individual), and proposal for allocation of profits.

The CPA firm of PricewaterhouseCoopers was retained to audit ACS’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 Advanced Control & 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.


Chairman of the Audit Committee: Ray Chang

Dated March 16th, 2017.

105

6.4 Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015 Please refer to Appendix I.

6.5 Non-Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015 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

106

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 2016 2015 Difference

Amount ％ Current assets 1,066,333 1,078,020 (11,687) (1.08) Non-Current assets 86,927 93,155 (6,228) (6.69) Total assets 1,153,260 1,171,175 (17,915) (1.53) Current liabilities 613,055 640,975 (27,920) (4.36) Non-Current liabilities 16,443 13,809 2,634 19.08 Total liabilities 629,498 654,784 (25,286) (3.86) Equity attributable to parent company

523,762 516,391 7,371 1.43

Non-controlling Equity 0 0 0 0 Total liabilities and equity

1,153,260 1,171,175 (17,915) (1.53)

107

7.1.2 The evaluation basis of the balance sheet valuation items

7.1.3 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.

108

7.2 Analysis of Operating Results 1. Analysis of Operating Results

Unit: NT$ thousands Year

Item 2016 2015 Difference

Amount % Sales Revenue 1,138,973 1,445,914 (306,941) (21.23) Operating Costs (940,844) (1,253,142) 312,298 (24.92) Gross Profit 198,129 192,772 5,357 2.78 Operating Expenses (113,117) (105,656) (7,461) 7.06 Non-operating Income and Expenses (165) 11,429 (11,594) (101.44) Income Before Income Tax 84,847 98,545 (13,698) (13.90) Net Income 72,408 79,749 (7,343) (9.21)

2. The analysis of the movements: (1) The operating revenues and costs in 2016 decreased in comparison with the same period of last

year, the main reason is the awarding of new projects is behind of expected schedule. (2) The gross profit of 2016 is higher than the same period last year, mainly due to several large

projects close to the completion stage, efforts to control the risk to reduce the derivative costs of warranty so that the cost could be gradually released from the warranty budget. The increase in operating expenses is mainly due to the increase in the quotation cost and the increase in the cost of IM marketing manpower and expense.

(3) The non-operating income decreased NTD$ 11,594 thousands compared with the same period of last year. The main reason is the reduction of foreign exchange gain of NTD 6,852 thousands and interest income of NTD$ 3,118 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 ACS 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 ACS’s core businesses. In addition, ACS 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, ACS 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, ACS will continue to grow in operation and sustain in the current economic environment.

109

7.3 Analysis of Cash Flow 7.3.1 Analysis of Cash Liquidity

The cash outflow of Year 2016 is NT$ 45,444 Thousand Dollars. The cash balance in the end of the year is

NT$329,266 Thousand Dollars. Cash liquidity is fine.

7.3.2 Analysis of Cash Liquidity in year 2016

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

329,266 199,439 (91,994) 237,272 - - 1. Analysis of change in cash flow in Year 2016:

(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 Advanced Control & Information Technologies Co., Ltd. Net Income in 2016 is RMB147 Thousands. Major cause is undertaking high-tech plants, food plants related business and promote sales Mr. Safety industrial safety solutions. For expanding business in 2017, ACIT will pursuit automation turnkey business and business of establishing high-tech plants in Mainland China. Accompanies with Taiwanese investing in petrochemical industry in southeast China, Mr. Safety and Mr. Energy launched into China market, it has taken the responsibility of expanding business in Mainland China. By establishing various capacities and services, and investing labor force in China business, predict that the business shall step up in the next year.

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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

A. Use of idle funds of the company, mainly deposited in living and fixed deposit interest rates of such goods.

B. In 2016, the total amount of NII is TWD$3,180 thousand, which is lower than year 2015 due to idle funds reduction.

(2) Foreign exchange rates

Unit：NT$ Thousands

Item 2016 2015 Net Foreign Exchange

Gain/Loss(A) (5,730) 1,122

Sales (B) 1,138,973 1,445,914 Net Income before Tax

(C) 84,847 98,545

A/B (%) -0.5 0.08

A/C (%) -6.75 1.14

A. ACS provides system planning, design, integration and engineering services for various IT systems. 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 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 profit/loss of the Company.

B. Because of TWD depreciation in 2016, there was gain from cash balance of foreign currencies. C. 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.

Item 2016 2015

Net Interest Income/Expense 3,180 6,298

Sales 1,138,973 1,445,914

Net Income before Tax 84,847 98,545

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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 2016 2015

CPI 105.10 103.65

Annual Change of CPI 1.4 -0.31

Source：Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C. (Taiwan)/ Base year 2011

A. The consumer price index of 2016 is up to 105.10, and the annual growth rate is -0.31%. DGBAS estimates CPI of 2017 will be 1.08%. But Taiwan Institute of Economic Research view on CPI of 2016 will not have a significant growth due to a downtrend of international raw materials price.

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 ACS has been gradually arranged and focused on Industry 4.0 oriented Intelligent Manufacturing solution, such as Utility On-line Monitoring and Energy Conservation System, Petrochemical Processes Operation Intelligence and Energy Consumption Analysis, Processes Safety Information System, Intelligent Production Planning and Scheduling. 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 ACS 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

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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 ACS long term development. It is positive to ACS 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 $12,001 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

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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) After being notified of the verdict on December 9, 2011 by the Supreme Court, GTC immediately

filed a case with the Shilin local court regarding the same purchase contract. Citing GTC had no choice but to end the contract because of the Company’s delay in acceptance of the PIDS software and hardware equipment, and sued for damages, including GTC’s projected profit of $6,772 and invested R&D expenses of $6,378, totalling $13,150. This case has been transferred to the local court in Taipei. On May 13, 2011, the local court in Taipei rendered a judgment that GTC lost the lawsuit, and denied the request for compensation. GTC disagreed with the verdict and has filed an appeal and the Taiwan High Court dismissed it at the end of March, 2013. GTC has then filed an appeal to the Supreme Court, and the case was remanded to Taiwan High Court on March 14, 2014. The debate session is supposed to be held during May, 2016. The result of the litigation is uncertain, therefore, the Company has not included the possible loss from litigation 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,

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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 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

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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%

Advanced Control & Information Technologies Co., Ltd.


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(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

Advanced Control & Information Technologies Co., Ltd

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

Advanced Control & Systems Inc. Representative: Hwei-Nan Yih Yin-Fan Liu Ai-Cheng Ho

750,000

100%


Chairman Director President

Century Ahead Limited Representative: Hwei-Nan Yih Century Ahead Limited Representative: Yin-Fan Liu Chiang-Nan Tsai T.K. Shu

Registered capital USD750,000

100%

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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 26,711 0 26,711 0 (34) (769) 0.00


24,150 26,688 (1,301) 25,387 22,334 (723) (713) 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$ 49,000 thousand. (as of March 31st ,2016) Endorsements or guarantees for Century Ahead Limited was NT$ 19,308 thousand. (as of March 31st ,2016)

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

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8.4 Other Supplementary Information

8.4.1 KPI by industry: KPI Item Formula 2015 2016

Revenue per Employee

Yearly Revenue / Average No. of employee (NT$ thousands)

512.74 405.27

Traveling Expense KPI Yearly Revenue / Yearly Traveling Expense 55.15 39.44

Operating Expense KPI Yearly Revenue / Yearly Operating Expense 13.69 10.79

Operating Cost KPI Yearly Project Revenue / Yearly Operating Cost 1.13 1.19

Sales Expense KPI Yearly Sales Revenue / Yearly Sales Expense 5.94 4.52

8.4.2 Major trading items related information:

(1) Loan to others: None (2) Endorsement and guarantee for the affiliates:

The loan guarantee amount for the affiliate, Century Ahead Limited, is NT$19,737 thousand in 2015.

(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 None

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Appendix I Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015

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Appendix II Non-Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015

advanced control & systems inc. - acs · acs consolidated operating income during 2016 was nt...

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