ANNUAL REPORT

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2016

ANNUAL REPORT

SYSTEX CORPORATION Stock Code: 6214 Annual Report Website Market Observation Post System: http://mops.twse.com.tw Company Website: http://www.systex.com Printing Date: May 16, 2017

The Informantion of Company 1. Spokesperson & Deputy Spokesperson Spokesperson Name: Chung, Chih-Chun Title: CFO & Vice President Tel:886 -2-77201888 E-mail: [email protected] Deputy Spokesperson Name: Cheng, Deng-Yuan Title: Chief Strategy Officer & Senior Vice President Tel: 886-2-77201888 E-mail: [email protected] 2. Headquarters, Branches and Plant Headquarters: 318, Rueiguang Rd., Neihu District, Taipei, Taiwan, R.O.C Tel: 886-2- 77201888 Fuxing Branch: 12F. No.99, Guangfu N. Rd., Songshan Dist., Taipei City, Taiwan, R.O.C Tel: 886-2- 25149191 Hsinchu Branch: 3F.-2, No.295, Sec. 2, Guangfu Rd., East Dist., Hsinchu City, Taiwan, R.O.C Tel: 886-3- 5723322 Taichung Branch: 8F.-1, No.660, Sec. 3, Taiwan Blvd., Xitun Dist., Taichung City, Taiwan, R.O.C Tel: 886-4-24529698 Kaohsiung Branch: 25F.-1, No.2, Zhongshan 2nd Rd., Qianzhen Dist., Kaohsiung City, Taiwan , R.O.C Tel: 886-7-336-0680 3. Shares Transfer Agent Yuanta Securities Registrar and Transfer Agency Department Address: B1, No.210, Section3, Chengde Road, Taipei, Taiwan, R.O.C Website: http://www.yuanta.com.tw Tel: 886-2-25865859 4. Auditors Deloitte & Touche Accounting Firm Auditors: Lin, Shu-Wan ; Shue, Shiow-Ming Address: 12F, 156 Min Sheng East Road, Sec. 3 Taipei, Taiwan, R.O.C Website: http://www.deloitte.com.tw Tel: 886-2-25459988 5. Overseas Securities Exchange: None.

6. Company Website: http://www.systex.com

Contents I. Letter to Shareholders ............................................................................................................................... 1 II. Company Profile......................................................................................................................................... 4 2.1Date of Incorporation......................................................................................................................... 4 2.2 Company History .............................................................................................................................. 4 III. Corporate Governance .............................................................................................................................. 9 3.1 Organization ...................................................................................................................................... 9 3.2 Directors and Management Team.................................................................................................... 13 3.3 Remuneration of Directors and Management Team ....................................................................... 25 3.4 Implementation of Corporate Governance ...................................................................................... 32 3.5 Information Regarding the Company’s Audit Fee and Independence ............................................ 63 3.6 Information Regarding the Replacement of CPA ............................................................................ 64 3.7 Audit Independence.......................................................................................................................... 65 3.8 Changes in Shareholding of Directors, Managers and Major Shareholders.................................. 65 3.9 Relationship among the Top Ten Shareholders .............................................................................. 67 3.10 Ownership of Shares in Affiliated Enterprises .............................................................................. 68 IV. Capital Overview ........................................................................................................................................ 69 4.1 Capital and Shares ........................................................................................................................... 69 4.2 Corporate Bonds............................................................................................................................... 74 4.3 Preferred share ................................................................................................................................ 74 4.4 Global Depository Receipts .............................................................................................................. 74 4.5 Employee Stock Options ................................................................................................................... 75 4.6 Issuance of New Restricted Employee Shares ................................................................................ 78 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions ............................. 78 4.8 Financing Plans and Implementation .............................................................................................. 78 V. Operational Highlights ............................................................................................................................... 79 5.1 Business Activities............................................................................................................................ 79 5.2 Market, Production and Sales Outlook ............................................................................................ 93 5.3 Human Resources ............................................................................................................................ 99 5.4 Information on Environmental Protection Costs ............................................................................. 100 5.5 Labor Relations ................................................................................................................................ 100 5.6 Material Contracts ............................................................................................................................ 103 VI. Financial Information ............................................................................................................................... 104 6.1 Five-Year Financial Summary .......................................................................................................... 104 6.2 Five-Year Financial Analysis ............................................................................................................ 109 6.3 Audit Committee’s Report ................................................................................................................ 113 6.4 Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report ............................................................................................................................... 114

VII. Review of Financial Conditions, Operating Results, and Risk Management ......................................... 185 7.1 Analysis of Financial Status ............................................................................................................. 185 7.2 Analysis of Operating Results .......................................................................................................... 186 7.3 Analysis of Cash Flow ....................................................................................................................... 187 7.4 Major Capital Expenditure Items ..................................................................................................... 188 7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year ..................................................................................... 188 7.6 Analysis of Risk Management .......................................................................................................... 190 7.7 Other Major Risks ............................................................................................................................. 196 VIII. Special Disclosure .................................................................................................................................. 197 8.1 Summary of Affiliated Companies ................................................................................................... 197 8.2 Private Placement Securities in the Most Recent Years ................................................................. 206 8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years ............... 207 8.4 Other Necessary Supplement .......................................................................................................... 207 8.5 Any Events in 2016 and as of the Date of this Annual Report that Had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 3 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan .......................................................................................... 207

I. Letter to Shareholders Dear Shareholders, I.

Foreword The overall economy and domestic elections in 2016 resulted in a challenging year for SYSTEX. As the digital transformation of the new economy continues to accelerate, the hardware products become commodity, and software licensing procurement becomes increasingly cloud-based, it was inevitable that our profit margins in hardware and software procurement as well as maintenance services were affected. The overall financial market remains inactive as securities firms continue to consolidate their service locations. The deferral of public sector and telecommunication client budgets also pressured our business performance in 2016.

II. Summary of 2016 Operational Outcomes In 2016, SYSTEX achieved an operating revenue of NT$ (denomination) 5,733,038,000, a 6.03% decline from 2015. The net profit after tax in 2016 was $1,108,268,000. The consolidated revenue in 2016 was $16,210,380,000, a slight decrease of 0.63% from 2015. The consolidated net profit after tax in 2016 (excluding non-controlling interests)

was $1,108,268,000 and earnings per share were $4.50.

III. Summary of 2016 Business Operations and Services Despite mounting challenges, SYSTEX still achieved significant growth for the year 2016 in the new retail and multiple payment options market segments including one-stop services for e-commerce brands, government cloud services, digital voucher services, customer relationship management (CRM) for e-commerce platforms and multiple payment billing services etc. Intelligent financing, SYSTEX also helped clients in the financial industry such as online account opening platforms, online loan applications, Shenzhen-Hong Kong Stock Connect, FundRich Securities, cloud services for securities firms, cross-border foreign exchange platforms, and other projects acquire absolute leading positions in digital transformation and development. The Company moreover achieved substantial results in Telco Media Technology (TMT) market operations, including mobile video and audio services/e-commerce/payment, commercial platforms, and cybersecurity solutions. Other achievements include expansion in data processing for the insurance industry, insurance agencies, and financing operations. In the healthcare industry, the Company also expanded from public and veterans' hospital systems to private medical systems, whereas smart manufacturing and large scale cross-industry and cross-border APP projects in the Central and Southern Regions of Taiwan are also listed among our major achievements for 2016. In terms of business investment collaborations undertaken in 2016, SYSTEX invested in the leading electronic ticketing firm in Taiwan, intensified the Group's market share and influence in retail stores, and attained a leading position in the O2O electronic tickets market. In addition, the Company also continued to expand overseas collaboration and alliances including investment in Taiwan's first FinTech brand on the international market – INSTOMENT Inc., a service platform that provides C2C payment by installments, launched operations in the cross-border e-commerce market, and engaged in the development of cross-border APPs. All of these achievements demonstrate SYSTEX's success in advancing beyond traditional businesses and exploring new sectors of development. In addition to Taiwan market, SYSTEX also achieved substantial progress in the Greater China market. Revenue from the China market already makes up 20% of SYSTEX Group's revenue. Among them, the strategic investment in shares of Shenzhen Forms Syntron Information began to bear fruit last year and has generated NT$4 billion in profits for SYSTEX since the beginning of investment, a source of income that can be utilized as strong support for future business expansion. Investment in the smart hotel convergence platform has been gradually exhibiting positive outcomes and continues to grow at a steady pace. The number of partner hotels has reached 1,000, enabling our platform to become China's largest smart hotel services provider. The platform also obtained China's first video on demand (VOD) license and owns 30,000 hours of content, advantages that are

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I. Letter to Shareholders anticipated to widen the gap with competitors as revenue from advertisement show substantial growth. Continuous expansion to overseas markets including Taiwan and Japan will be the next steps taken. The Company teamed up with the founder of Splunk to establish Gemini, which had started out from the Silicon Valley and obtained international channels. It now has clients all over the world and succeeded in expansion into the European and American markets. IV. The effect of external competition, the legal environment, and the overall business environment Global political and economic changes have led to four major variables in the outlook of the 2017 global economy. These include US policy changes, Brexit developments, the rise of trade protectionism, and shifting political and economic trends in the European Union. In terms of domestic policies, lively discussions on the development of FinTech and third-party payment in 2016 continued as related strategies and solutions become major development operations for both public and private sectors in 2017. Rapid developments in the Internet of Things (IoT) and artificial intelligence (AI) will moreover become important factors in the driving of corporate growth. In conclusion, 2017 will be a year of both challenges and opportunities. V. The summary of the business plan for 2017 SYSTEX's goal this year is to become the "optimal partner in corporate digital transformation." To this end, the Company will focus on three major sectors, including "new retail - omni-channel multiple payment options," "intelligent finance," and "TMT" The Company shall continue to engage in innovative applications and increase the value of its services, lead the integration of the digital ecosystem, endeavor to acquire maximum client budgets in digital transformation and data value-added services, and increase profitability in digital transformation leadership and integration. To accomplish the goal of becoming the "optimal partner in corporate digital transformation," SYSTEX plans to reorganize the Group in 2017 and redefine the strategies of its three major business units: FBI(Financial Business Integration): As leader of FinTech, the Company shall develop intelligent financing centered on FinTech so as to accommodate the digital transformation plans of customers in the finance sector. It shall also adequately maintain relationships with large-scale FinTech customers and focus on major aspects of business such as mobile APP transition services, integrated investor services, and upgraded wealth management services etc. CBI(Consumer-Facing Business Integration): As leader in omni-channel multiple payment options services, the Company shall focus on the new retail sector and the provision of omni-channel multiple payment options services. It shall also focus on digital e-commerce and offer clients assistance with O2O operations for the realization of digital transformation. DBI(Data Technology Business Integration): As leader in data technologies, the Company shall provide comprehensive data technology product combinations and solutions and utilize data knowledge to play the role of the Data Enabler that drives corporate smart growth. In addition to obtaining stable profits in the China market, the Company shall also partner with local companies to expand independent operations. It shall also develop its own products by acquiring products and teams with forward-looking technologies that are compatible with market demands. The Company is also actively seeking investment opportunities in Internet +, IoT, and the cloud service sectors or participation in collaborative businesses with new industries in China to drive momentum for growth. VI. Future development strategy The world is undergoing changes at increasing speeds and intensities. With the prevalence of the new digital economy, all companies will require digital transformation because "data profits" can only be achieved through the continued accumulation of "data capital" and "data assets." SYSTEX will remain committed to investments in the five major strategic capabilities of digital transformation:

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I. Letter to Shareholders Cloud, Mobile, Social, Analytics, and Cybersecurity. It shall also cultivate talents in related sectors, develop innovative applications, maintain leading positions among digital transformation competitors, and continue to extend its scopes of data-based alliances, investments, and acquisitions. SYSTEX will be increasing investments in FinTech (including RegTech, InsurTech, MarTech), Omni-channel, Social 2.0: AR/VR/MR, Retail 4.0:

Live Streaming, EC 2.0:

IoT + AI, Hybrid Cloud, Cybersecurity, AI, and other key growth sectors and leading the

integration of the digital ecosystem through cross-sector collaboration. The Company shall also focus on the development of its three major core capabilities including software, data, and AI. With data technologies as its core capability and AI as the driving force for software application developments, SYSTEX will persist in creating new life experiences and increasing its value of services, thereby becoming the optimal partner for corporations seeking digital transformation.

Chairman

Huang, Tsong-Jen

President

Lin, Lung-Fen

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II. Company Profile 2.1 Date of Incorporation: January 7, 1997. 2.2 Company History In 2001

Became exclusive distributor for the Found Scan Internet security scan service manufactured by renowned US information security service company Foundstone. Launched the Security Operations Center (SOC) to provide Managed Security Services (MSS). Systex acquired Ching-Chi and officially entered the finance and mobile commerce sectors.

In 2002

Launched the Money Market System (MMS) securities and bonds transaction management system. Launched the newly updated "Finance Workshop" Internet DynaQuote (iDQ). Launched the mobile phone version of "Mobile Winner" finance services. Launched Taiwan's first "M-Loan Smart system for Mobile Bank Operations." Systex's SOC received Check Point MSP certification. Hosted the "Ultimate Hacking Seminar." Received the 2002 Software Industry Benchmark Enterprise Award from Commonwealth Magazine. Received the 2002 MIS Best Choice Award from the Institute for Information Industry as best outsourced information security service provider.

In 2003

Systex stocks are listed on the OTC market under stock code 6214. Acquired distribution rights for Nokia's complete series of Internet security equipment. Launched Taiwan's first interest rate exchange system denominated in NTD - the "Income Winner." Became the exclusive distributor for the financial Internet order placement system with the highest market share in Korea "Road to the Future" (RTF). The interest rate and futures version of Income Winner was launched and its official trading preceded the bond futures by two months. Taiwan's first roadside parking Internet payment system was launched in Taoyuan County. Became exclusive distributor for the AirDefense wireless Internet security equipment in the Asia Pacific Region. Received the 2003 MIS Best Choice Award from the Institute for Information Industry as best information security consultancy service provider.

In 2004

Launched Taiwan's first cross-strait Convertible Bond Pricing Analysis (CBPA). Acquired 100% of shares in Ucom through stock conversion. Hosted the "2004 Infosec Information Security Summit" across Mainland China, Taiwan, Hong Kong, and the Asia Pacific Region. Obtained distribution rights for Softnext Technologies' "Spam SQR Mail Filter and Management Platform" in Taiwan and China. Hosted the "2004 Fannie Mae Asset Securitization Summit" in Taipei and Shanghai. Security Operations Center (SOC) received BS7799 certification. Systex OSC consulting services launched outsourced management services for Oracle ERP systems. Became the largest enterprise performance strategy and management consultant service partner in Asia Pacific for the world's largest business process management (BPM) brand Hyperion. Received the 2004 MIS Best Choice Award from the Institute for Information Industry as best information security consultancy service provider for the third consecutive year.

In 2005

Merged with the most professional domestic information education training company - Ucom Co., Ltd. on January 1, the baseline date of the merger. Merged with the leading securities and bonds company in the domestic software market - Yu-Lung Co., Ltd. on June 1, the baseline date of the merger.

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II. Company Profile Acquired distribution rights for the Radware smart application switch solution in Taiwan. Acquired distribution rights for the CP Secure Internet anti-virus solution. Acquired exclusive distribution rights for the Business Objects (BO) Crystal Reports software in Taiwan. In 2006

The shareholders' meeting held on June 15 passed the merger with Ching-Yeh Co., Ltd., and Systex was the surviving company. The baseline date of the merger is January 1, 2007. Acquired the Business Intelligence (BI) team to integrate its capabilities in professional consulting and product sales, and to enter into the market for commercial intelligent software services. Collaborated with MAN Financial (world's largest derivatives broker) in the development of international quotation and transaction services for futures and options. Launched two electronic transaction systems including SGTP (web version) and GPM (AP version). Acquired exclusive distribution rights for world leading Business Intelligence (BI) software company Cognos.

In 2007

Acquired distribution rights for ArcSight in multiple nations throughout the Asia Pacific. Became Taiwan's first model company for the management and regulation of intellectual property by passing the TIPS certification. Acquired Taiwan Electronic Data Processing Corporation to formally enter the medical information sector as both companies create opportunities in the Asia Pacific medical information service market. Collaborated with Farglory Land Development in the creation of the first "Farglory U-City Digital Service Platform" in Taiwan to help Farglory Land Development provide residents with all-new digitized lifestyle convenience. Selected as "Enterprise with the Fourth Most Project Management Professional Certification (PMP) in Taiwan." Formed a strategic alliance with CA as exclusive distributor for its entire IT management software product line.

In 2008

Merged with Da-Shih Technology Co., Ltd. on January 1, the baseline date of the merger. Announced a strategic alliance with Splunk to acquire distribution rights for its enterprise grade IT search engine in the Asia Pacific Region. Acquired distribution rights for the high-level institutional financial electronic transaction solution of RTS Realtime Systems Group of Germany as the only distributor partner in Greater China. Acquired distribution rights for the BPM solution of internationally renowned business process management (BPM) software provider Ascentn AgilePoint. Launched "Money Link www.money-link.com.tw," the only professional finance portal that integrated Taichung Port financial information. Invested in Wealth Group and formally entered the media content industry. Became Taiwan's first company to acquire the business continuity management standard (BS25999-2: 2007) certification and became one of the first 20 businesses to acquire the certification. The "Systex Advanced Software Development and Integration Methodology" was awarded "Manufacturing Process Innovation" by the Ministry of Economic Affairs in 2008. Awarded the Enterprise Group Award in the "2008 Human Resource Innovation Awards" by the Council of Labor Affairs, Executive Yuan. Awarded the "2008 Industrial Excellence Award" by the Industrial Development Bureau, Ministry of Economic Affairs. Obtained "Capability Maturity Model Integration Level 3" certification and became the only local

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II. Company Profile enterprise with multiple sites for software development in Greater China.

In 2009

Created Taiwan's first smart analysis and prediction platform "First Winner" that offered research results and predictions on individual stocks of all major securities firms. Launched the first domestic research database monitoring system Systex DB Watch, which provides corporate databases with comprehensive protection. Acquired distribution rights for Tripwire's information change and auditing management solutions. Became the first provider of total solutions with the "Warrant Information Platform" and optimal market maker of the warrants market. The information security team and Kainan University forged academic-industrial collaboration and assisted the "Department of Information & Electronic Commerce" in establishing the "Information Security Laboratory." Collaborated with Samsung Anycall on its official website and provided the "Stock Market Pocket App" download service. Awarded "Enterprise with the Fourth Most Project Management Professional Certification (PMP) in Taiwan" and maintained its position as the local information service company with the most PMPs. Awarded "Annual Digitized Education Material Quality Advancement Prize"; "Western Painting Analysis" education material received the highest AAA certification.

In 2010

Collaborated with VMware in providing professional cloud technology consulting services for enterprises and became the first company in Mainland China, Taiwan, and Hong Kong to obtain VMware cloud service certification. UCOM Information Technology Education Center was awarded the "Best Red Hat Training Center" in Greater China. Collaborated with Shenzhen Forms Syntron Information and acquired 30% of its shares for entry into the outsourced financial service in China. Acquired 98.93% of shares in system integrator Taifon Computer Co., Ltd. which became a subsidiary of the Company. Systex subsidiary Taiwan Electronic Data Processing Corporation and U.S. Company Rimage established the joint venture Rimage Information Technology (Shanghai) Co., Ltd. to develop the healthcare market in China. Established the CAS Systex Corporation with the Institute of Computing Technology, Chinese Academy of Sciences. This was the first collaboration between a Mainland Chinese government research institute and Taiwanese company as the two parties worked together to forge the next generation of financial information platforms for the financial information market in China. Systex transferred its listing from the OTC market to the TWSE market; stocks began to be officially traded on December 30.

In 2011

Established the "Microsoft Customer Immersion Experience Center" to provide corporate clients with a full demonstration of the benefits of Microsoft's integrated corporate productivity platform solution. Formed a strategic partnership with GRG Banking, the leading ATM manufacturer in China, and acquired distribution rights for GRG Banking's ATMs in Taiwan. Collaborated with international innovation software development company Splunk in establishing the Splunk Innovation Center. Invested in Systemweb Technology to formulate one-stop services for financial asset management. Became exclusive distributor for Veloxum's virtual reality performance optimization solution, which

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II. Company Profile provides companies with "active and continuous optimization" technologies and increases server performance by at least 50%. Became Fujitsu's first licensed corporate IT product distributor in Taiwan and distributed ROR cloud-based management software, servers, and storage facilities. Awarded "Enterprise Project Management Benchmarking Award" and "Best Practice on Project Management Award" by the International Project Management Association. Conducted simplified merger with subsidiaries Ching-Ho Information Co., Ltd. and Ching-Feng Information Co., Ltd.; the baseline date of the merger was June 1. In 2012

The Information Management and Integration Service Department led the industry in acquiring Taiwan's first British Standards Institution (BSI) BS 10012 Personal Information Management System certification. Acquired distribution rights for the MobileIron mobile application security solution. Became the first Managed Mobility Services (MMS) partner certified by SAP. Became exclusive distributor for BlueCat Networks IP management solution, which helps enterprises painlessly integrate IPv4 and IPv6 and manage IP with ease. Developed the mobile payment market by acquiring 100% of shares in Nexsys Corporation. The Etu innovative big data platform product Etu Appliance was awarded the 2012 TAITRONICS Technology Innovation Quality Award. Systex's own brand Etu Appliance was awarded "Excellent Information Application and Product Award" in the 2012 IT Month and was the first big data processing platform to win the IT Month selection. Systex became the only company in the IT service industry to receive the "Enterprise Employment of Disabled Individual Exceeding Required Amount Certification" issued by the Bureau of Labor of Taipei City Government. Following Systex's collaboration with international big data firm Splunk in establishing the first Splunk Lab in Asia Pacific, the parties worked together again in establishing the first "Licensed Splunk Training Center" in Greater China. Systex became Apple's authorized corporate distributor and acquired the complete series of products from the global mobile device leader to provide enterprises with one-stop software and hardware services.

In 2013

Systex's UCOM Information Technology Education Center became the exclusive distributor for all international information security certification courses offered by EC-Council. Systex's own brand Etu was recognized by the Chinese media as the "Big Data Innovation Enterprise in 2012" and was the only original big data solution brand from Asia. Syspower Corporation of Systex Group established a distribution agreement with Yonyou Network, the largest management software company in China, for exclusive distribution rights in Taiwan's finance sector so as to forge definitive advantages for Taiwanese finance businesses in the Mainland China market. Etu received the "2013 Big Data Excellent Product Award" in China, the sixth award since its launch. Systex Software & Service Corporation of Systex Group became authorized reseller of Microsoft Surface for Business and teams up with Microsoft to develop the tablet market. Etu Recommender received the highest honor of Golden Award at the 2013 IT Month against hundreds of innovative new products. Systex became the only company who won awards at IT Month with different big data products in two consecutive years.

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II. Company Profile In 2014

Systex provided exclusive sponsorship for Taiwan's first "information science program" as Etu joined forces with Code for Tomorrow to form Taiwan's first formal data science program team in. Systex allied with global application network technology leader A10 Networks to provide comprehensive corporate network information security products. Systex teamed up with Amiya, a Japanese company that specializes in corporate information security and audit management, to embrace the dynamic and high-security network and IT management services for "concurrent backup with 4G and cable transmission" made possible through 4G transmission. Syspower Corporation of Systex Group teamed up with international Business Intelligence (BI) firm Qlik to train big data management talent and established the first "Qlik Authorized Training Center" in Taiwan. UCOM Information Technology Education Center of Systex Group partnered with Cloudera, leading provider of Hadoop solutions for analyzing big data, and introduced Hadoop training courses. Systex worked with global data visualization leader Tableau to provide visualization analysis solutions.

In 2015

Systex and Chunghwa Telecom joined forces in the development of the corporate information security product "EyeQuila," which became a leading product on the market. Systex established the App Center and Mobile Creativity Incubation Center in Taichung. Systex Software & Service Corporation of Systex Group teamed up with Gridow for development of the evPlay corporate cloud video service. Systex teamed up with Sunlight Technology, China's largest smart hotel cloud service platform, to build a brand new hotel cloud service platform for hotels with four or more stars. Systex launched the "securities online account opening platform," Taiwan's first online securities account opening solution that integrated "video certification" and "CA certification."

In 2016

UCOM Information Technology Education Center launched the Amazon Web Services (AWS) series courses and became Taiwan's only AWS authorized training center. Systex subsidiary Medincom Technology launched the "External Hospital Information Upload Workstation" to simplify the procedures for integrating information between hospitals, effectively reducing 80% of tasks previously required for importing images from external hospitals. Systex launched the "FundRich Securities" fund platform which became Taiwan's first successful real-world FinTech application. Systex partnered with Far Eastern Group to construct an O2O retail ecosphere and launched the "Market Shopping" platform on the friDay Wallet app. Systex Software & Service Corporation of Systex Group maintained its leading position in providing Microsoft services to large corporate clients; the Company won the Microsoft Partner Hero Award for the 12th consecutive year.

In 2017

Launched the Starbucks electronic coupon service.

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III.Corporate Governance 3.1 Organization 3.1.1 Organizational Chart As of April 1, 2017

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III.Corporate Governance 3.1.2 Major Corporate Functions Department Audit Division

Functions Audit Division conducts independent and objective assessment of the effectiveness of the Company's internal control system, follows up on improvement of irregularities, reviews the self-assessment procedures in the internal control system, and reasonably ensures compliance with company policies and regulations.

Legal Department

Legal Department is responsible for reviewing various commercial contracts, providing recommendations and control items for contract formulation/amendment, processing litigation/non-litigation, managing intellectual property rights affairs, providing the management team and managerial officers with necessary legal consultation, and conducting training on related legal knowledge.

CFO Office

CFO Office is responsible for financial accounting, management accounting, budget planning, investment management, fund management, Board of Directors meetings, shareholder services, and ensuring compliance with regulations stipulated by competent authorities. The CFO Office is also in charge of supervising the financial accounting departments of domestic and overseas business units for the purpose of establishing a consistent domestic and overseas financial accounting management system and institution.

Human Resources

Human Resources Division is responsible for planning human resource policies,

Division

regulations, and operating procedures including: human resources planning, organizational design and planning, recruitment and appointment, training and development, salary and benefits, performance management, promotion of employee relations and corporate culture etc. It is also responsible for the supervision of departments that oversee human resource management in affiliate enterprises as well as the planning and management of property security, cleaning, catering, electrical and mechanical appliances, air conditioning, machinery and equipment, and telecommunications systems.

Business Management Business Management Division is responsible for related services in support of Division

commercial operations including: trading, procurement, material control and warehousing, accounts, sales support, planning and execution of information procedures, and establishment of finance related information systems. It also supervises receivables in sales, inventory, daily tasks in shipment preparation and borrowing, and risk management of material and irregular transactions. The Commerce

Department

also

supports

the

strategic

plans,

performance

management and follow-up, investment performance analysis, public relations, and marketing events for the entire Group. Financial Business

Financial Business Integration provides comprehensive, cross-border financial

Integration

content and information services for multiple markets including securities, futures,

(Note 1)

warrants, bonds, bills, foreign exchange, and funds as well as secure information transaction platforms for multiple financial products in order to satisfy the business application software and solution requirements of financial institution clients and investors, including information, trading, operations and management, finance, wealth management, risk management, asset management, and IT management.

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III.Corporate Governance Department

Functions In response to trends in cloud, mobility, and artificial intelligence, Financial Business Integration also uses the professional finance transaction network as the basic cloud development model to provide the finance industry with quick selections in the formulation of finance information and professional transaction services. At the same time, it also creates and develops mobile services with leading clients in various industries to successfully forge new applications in portal sites, financial holding,

securities

and

futures,

investment

consulting,

insurance,

telecommunications, logistics and transportation, and medical facilities etc. and create new standards for corporate services. Consumer-Facing

Consumer-Facing Business Integration provides products and services for the

Business Integration

consumer market and helps industrial clients in retail, banking, insurance, and the

(Note 2)

government adopt the latest IT technologies to face challenges in the dynamic environment. It also integrates innovative business philosophies to develop various daily life and financial services for consumers and actively creates advantages in corporate competition so as to enhance service quality and increase operating profits. Its main services include development and operation services for e-commerce platforms, smart finance solutions, all-payment services, electronic ticketing customer guidance services, smart retail, integrated insurance policy printing services, interactive electronic billing, and e-government.

Data Technology

Data Technology Business Integration continues to operate in the digital ecosphere

Business Integration

and serves as agent/distributor of world-class DT software/hardware product

(Note 3)

combinations and solutions. It also provides end-to-end solutions required for clients' business operations through added-value services, thus helping companies use innovative applications for advancing digital transformation and increasing company profits. The Digital Technology Business Unit uses the latest technologies to connect to the world and develops data-based products and intelligent services to help companies carry out their digital transformation and accumulate data capital.

Headquarters of

Headquarters of China distributes world-class software, added-value technologies,

China

capabilities and professional services. It also employs intensified system integration

(Note 4)

capabilities to provide large-scale clients with customized services and become their long-term partners. The team also seeks out investment opportunities in new sectors in the Chinese market to develop products and services native to the finance sector on both sides of the strait. It is also responsible for integrating the related

administrative and management affairs of subsidiaries in China. Note1: Financial Business Integration is covering subsidiaries,including:Softmobile Technology Corp., Syspower Corp., Naturint Ltd., Concord System Management Corp., Taiwan Electronic Data Processing Corp. and Mendincom Technology Corp. Note 2: Consumer-Facing Business Integration is covering subsidiaries, including:Nexsys Corp.and Systex Solutions Corp. Note 3: Data Technology Business Integration is covering subsidiaries,including:Systex Software & Service Corp. , ETU Corp. , Taifon Computer Co., Ltd. and Sysware Singapore Pte. Ltd. Note 4: Headquarters of China is covering subsidiaries in China(Hong Kong) , including: Ucom Information Ltd. (Shanghai), Systek Information (Shanghai) Ltd. , Sysware Shenglong Information Systems Co., Ltd., Systex Group(China) Ltd., Systex Rainbow Tech Inc., Systex Ucom(Shanghai) Information

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III.Corporate Governance Ltd.Co.,Systex Information(H.K.) Ltd. and Ranibow Tech Information (HK) Limited. 3.1.3 Informantion of Subsidiaries: Please refer to pages 197-206.

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III.Corporate Governance 3.2 Directors and Management Team 3.2.1 Directors

Male

June 17, 2016

3

June 15, 2006

Shares

20,755,750

%

7.70

Current Shareholding

Spouse & Minor Shareholding

Shares

Shares

%

20,755,750 7.70

2,008,634

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%

0.75

Shares

-

Experience (Education)

Other Position (Note 2)

%

-

Title

Ph.D. in Computer Science, University of Wisconsin

Chairman of Ching Pu Investment Corp. (Note3) Asiavest Capital Co., Ltd Director of Kimo.com (BVI) Corp. (Note 3) Systex Capital Group, Inc. (Note 3) Taiwan Hopax Chems. Mfg. Co., Ltd.,

Name Relation Within one degree of kinship

R. O. C.

Shareholding when Elected

Huang, Ting-Rong、 Huang, Chi-Rong

Chairman/ Huang, Tsong-Jen

Nationality Date Term Date First / Country Gender Elected (Years) Elected of Origin

As of April 18, 2017 Executives, Directors who are spouses or within two degrees of kinship

Director

Title/Name (Note1)

Shareholding by Nominee Arrangemen

III.Corporate Governance Title/Name (Note1)

Director/ Lin, Lung-Fen

Nationality Date Term Date First / Country Gender Elected (Years) Elected of Origin

R. O. C.

Male

June 17, 2016

3

March 28, 2002

Shareholding when Elected Shares

1,374,762

%

0.51

Current Shareholding

Spouse & Minor Shareholding

Shares

Shares

%

1,374,762 0.51

-14-

263

%

-

Shareholding by Nominee Arrangemen Shares

-

Experience (Education)

Other Position (Note 2)

%

-

As of April 18, 2017 Executives, Directors who are spouses or within two degrees of kinship Title

Chairman of Golden Bridge Information Corp. (Note 3) Systex Software & Service Corp. (Note 3) Etu Corp. (Note 3) Taiwan Electronic Data Processing Corp. (Note 3) Mendincom Technology Corp. (Note 3) Sysware Singapore Pte. Ltd. (Note 3) Director of Ching Pu Investment Corp. EMBA, CEIBS (Note 3) Concord System Management Corp. (Note 3) Master's SoftMobile Technology Corp. degree in (Note 3) Computer Systex Solutions Corp. (Note 3) Science, Syspower Corp. (Note 3) University of Nexsys Corp. (Note 3) the Pacific Naturint Ltd. (Note 3) Systex Information (Shanghai) Ltd. (Note 3) Ucom Information Ltd. (Shanghai) (Note 3) Sysware Shenglong Information Systems Co., Ltd. (Note 3) Systex Group (China) Ltd. (Note 3) Shenzhen Forms Syntron Information Co Ltd (Note 3) Forms Syntron Information (HK) Limited (Note 3) Kimo.com (BVI) Corp.(Note 3) Systex Capital Group, Inc. (Note 3) Systex Solutions (HK) Ltd. (Note 3)

-

Name Relation

-

-

III.Corporate Governance Title/Name (Note1)

Director/ Cheng, Deng-Yuan

Nationality Date Term Date First / Country Gender Elected (Years) Elected of Origin

R. O. C.

Male

June 17, 2016

3

March 28, 2002

Shareholding when Elected Shares

263,152

%

0.10

Current Shareholding

Spouse & Minor Shareholding

Shares

Shares

%

223,152 0.08

-

%

-

Shareholding by Nominee Arrangemen Shares

-

Experience (Education)

Other Position (Note 2)

%

-

As of April 18, 2017 Executives, Directors who are spouses or within two degrees of kinship Title

Chairman of Systex Information (H.K.) Ltd. (Note 3) Systex Information (Shanghai) Ltd. (Note 3) Ucom Information Ltd. (Shanghai) (Note 3) EMBA, Fudan Systex Group (China) Ltd. (Note 3) University Systex Rainbow Tech Inc. (Note 3) Director of Sysware Shenglong Information Fu Jen Systems Co., Ltd. (Note 3) University, Ranibow Tech Information (HK) Dept. of Limited (Note 3) Accounting Shenzhen Sunlight Technology Co., Ltd.

Name Relation

-

-

-

-

-

-

-

-

-

Supervisor of Forms Syntron Information (HK) Limited (Note 3) Suntex Technology (Shenzhen) Co., Ltd. (Note 3) Director/ Lu, Ta-Wei

Director/ Shaw, Shung-Ho

R. O. C.

R. O. C.

Male

Male

June 17, 2016

June 17, 2016

3

3

June 13, 2007

March 28, 2002

765,656

861,475

0.28

0.32

765,656 0.28

921,475 0.34

1,700,390

229,201

-15-

0.63

0.09

-

-

-

Tunghai University, Dept. of Chemistry

-

Chairman of Liang Hsin Finance Corp. MBA, National Director of Chengchi Scientech Corp. University WPG Holdings Limited. GENUINE C&C INC. GCS Holdings, Inc.

Chairman of Firstweb Limited

III.Corporate Governance

Femal June 17, e 2016

R. O. C.

Male

June 17, 2016

Male

June 17, 2016

R. O. C.

3

June 17, 2016

3

June 17, 2016

3

June 13, 2007

3

June 13, 2007

20,000

242,152

633,780

482,309

482,309

0.01

0.09

0.24

0.18

0.18

Shares

%

20,000 0.01

242,152 0.09

633,780 0.24

482,309 0.18

482,309 0.18

-16-

-

-

-

-

-

%

-

-

-

-

-

Shares

-

-

-

-

-

Other Position (Note 2)

%

Title

Name Relation

-

Master Degree in Graduate of East Asian Studies, NCCU

Chairman of Wealth Media Corp. (Note 3) Investment Media Ltd. (Note 3) Genetinfo Inc. (Note 3) Wealth Magazine Co., Ltd. (Note 3) Business Today Publisher (Note 3) Business Today Co., Ltd. Director of Cashbox Partyworld Co., Ltd. (Note 3) Business Today Marketing Corp. (Note 3) Diancan Art & Collection Ltd.

-

MBA, Waseda University

Independent Director of Chipbond Technology Corp. Executive Director of Asiavest Capital Co., Ltd

-

Wharton School of the University of Pennsylvania, Dept. of Economics

Executive Director of Asiavest Capital Co., Ltd Director of Sundia Meditech Group (Note 3) Supervisor of Taiwan Hopax Chems. Mfg. Co., Ltd. (Note 3)

-

Soochow University, Dept. of Accounting

CPA, Grand H&C CPAs Firm Independent Director of Taiwan Hopax Chems. Mfg. Co., Ltd.

-

-

National Taiwan University, Dept. of Law

Director of Hanmore Investment Corp. (Note 3)

-

-

-

-

-

Wuthin one degree of kinship

R. O. C.

June 18, 2010

Shares

Experience (Education)

Within one degree of kinship

Director/ Huang, Yi-Shiung (Representative of Joway Investment Co., Ltd) Director/ Lin, Chih-Min (Representative of Joway Investment Co., Ltd)

R. O. C.

Femal June 17, e 2016

3

%

Spouse & Minor Shareholding

Huang, Tsong-Jen

Director/ Huang, Chi-Rong

Male

Shares

Current Shareholding

Huang, Tsong-Jen

Director/ Huang, Ting-Rong

June 17, 2016

R. O. C.

Shareholding when Elected

Chairman

Director/ Hsieh, Chin-Ho

Nationality Date Term Date First / Country Gender Elected (Years) Elected of Origin

As of April 18, 2017 Executives, Directors who are spouses or within two degrees of kinship

Chairman

Title/Name (Note1)

Shareholding by Nominee Arrangemen

-

-

-

III.Corporate Governance Title/Name (Note1)

Nationality Date Term Date First / Country Gender Elected (Years) Elected of Origin

Shareholding when Elected Shares

%

Current Shareholding

Spouse & Minor Shareholding

Shares

Shares

%

%

Shareholding by Nominee Arrangemen Shares

Experience (Education)

Other Position (Note 2)

%

As of April 18, 2017 Executives, Directors who are spouses or within two degrees of kinship Title

Name Relation

Partner lawer, Jones Day Independent Director/ Huang, Jih-Tsan

Independent Director/ Cheng, Huang-Yen Independent Director/ Cheng, Wen-Feng

R. O. C.

R. O. C.

R. O. C.

Male

June 17, 2016

Male

June 17, 2016

Male

June 17, 2016

3

June 13, 2007

3

June 13, 2007

3

June 21, 2013

-

-

-

-

-

-

-

-

-

-

122,017

-

0.05

-

-

-

845

-

-

-

-

-

-

-

Ph.D. in Law, Harvard University

Tamkang University, Dept. of Accounting Master Degree in Chemical Engineering, National Tsing Hua University

Independent Director of WPG Holdings Limited. Taiwan Mobile Co., Ltd. CTCI Corporation Director, Yulon Motor Co., Ltd.(Note 3)

-

-

-

CPA, FORMOSA AND CO. Independent Director of Tung Ho Textile Co., Ltd.

-

-

-

Chairman & President of Boardtek Electronics Corp. Chairman of Chipboard Technology Corp. (Note 3)

-

-

-

Note 1: Institutional representatives shall indicate the names of the institutional shareholders and fill in the information specified in Table 1 below. Note 2: Concurrent positions as of the date of publication of the annual report. Note 3: Institutional representative. Table1- Major shareholders of the institutional shareholders As of April 18, 2017 Name Major Shareholders Ho, Mei-Yii (25.72%)、Huang, Ting-Rong (25.32%)、 Joway Investment Co.,Ltd Huang, Chi-Rong (25.32%)、Huang, Tsong-Jen (22.91%)、 Joray CO., LTD (0.73%) Table2- Major shareholders of the Company’s major institutional shareholders As of April 18, 2017 Name Major Shareholders Ho, Mei-Yii (34.97%)、Huang, Ting-Rong (29.84%)、 Joray CO.,LTD Huang, Chi-Rong (29.47%)、Huang, Tsong-Jen (5.35%)、 Lai Hsueh, Fen-Fang (0.37%)

-17-

III.Corporate Governance As of April 18, 2017 Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience An Instructor or A Judge, Public Have Work Experience in Higher Position in a Prosecutor, Attorney, the Areas of Commerce, Department of Certified Public Law, Finance, or Commerce, Law, Accountant, or Other Accounting, or Otherwise Necessary for the Criteria Finance, Accounting, Professional or or Other Academic Technical Specialist Business of the Company Name Department Related Who has Passed a to the Business National Examination Needs of the and been Awarded a Company in a Public Certificate in a or Private Junior Profession Necessary College, College or for the Business of the University Company Huang, Tsong-Jen V Lin, Lung-Fen V Cheng, Deng-Yuan V Lu, Ta-Wei V Shaw, Shung-Ho V Hsieh, Chin-Ho V Huang, Ting-Rong V Huang, Chi-Rong V Huang, Yi-Shiung (Representative of V V Joway Investment Co.,Ltd) Lin, Chih-Min (Representative of V Joway Investment Co.,Ltd) Independent Director V V Huang, Jih-Tsan Independent Director V V Cheng, Huang-Yen Independent Director V Cheng, Wen-Feng

-18-

Independence Criteria(Note)

1

2

3

4

5

6

7

8

V V V V

V V V V V

V V V V V V V

V V V V V

V V V V V V V

V V V V

V V V V V V V

V V V V V

V

V

V

V

V

V

V

V V

V

9

V V V V V V V V

Number of Other Public Companies in Which the Individual is Concurrently Serving as an 10 Independent Director

V V V V V V V V

0 0 0 0 0 0 1 0

V

V

1

V

V

0

V

V

V

V

V

V

V

V

V

V

3

V

V

V

V

V

V

V

V

V

V

1

V

V

V

V

V

V

V

V

V

V

0

III.Corporate Governance

Note: Please tick the corresponding boxes that apply to the directors or supervisors during the two years prior to being elected or during the term of office. 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. Not applicable 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 who directly holds 5% or more of the total number of outstanding shares of the Company or who holds shares ranking in the top five holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution which has a financial or business relationship with the Company. 7. Not a professional individual who is 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. These restrictions do not apply to any member of the remuneration committee who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Remuneration Committees of Companies whose Stock is Listed on the TWSE or Traded on the TPEx“. 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.

-19-

III.Corporate Governance 3.2.2 Management Team

Title/ Name

Nationality / Country Gender of Origin

Shareholding Date Effective Shares

%

Spouse & Shareholding Minor by Nominee Shareholding Arrangement Shares

%

Share s

Experience (Education)

Other Position

%

As of April 18, 2017 Managers who are Spouses or Within two degrees of kinship Title

Name Relation

Chairman of

Golden Bridge Information Corp.

EMBA, CEIBS President/ Lin, Lung-Fen

R.O.C.

Male

2009.10

1,374,762 0.51

263

-

-

-20-

-

Master's degree in Computer Science, University of the Pacific

(Note 2) Systex Software & Service Corp. (Note 2) Etu Corp. (Note 2) Taiwan Electronic Data Processing Corp. (Note 2) Mendincom Technology Corp. (Note 2) Director of Ching Pu Investment Corp. (Note 2) Concord System Management Corp. (Note 2) SoftMobile Technology Corp. (Note 2) Systex Solutions Corp. (Note 2) Syspower Corp. (Note 2) Nexsys Corp. (Note 2) Naturint Ltd. (Note 2) Systex Information (Shanghai) Ltd. (Note 2) Ucom Information Ltd. (Shanghai) (Note 2) Sysware Shenglong Information Systems Co., Ltd. (Note 2) Systex Group (China) Ltd. (Note 2) Shenzhen Forms Syntron Information Co Ltd (Note 2) Forms Syntron Information (HK) Limited (Note 2) Kimo.com (BVI) Corp. (Note 2) Systex Capital Group, Inc. (Note 2) Systex Solutions (HK) Ltd. (Note 2) Sysware Singapore Pte. Ltd. (Note 2)

-

-

-

III.Corporate Governance

Title/ Name

Chief Strategy Officer & Senior Vice President / Cheng, Deng-Yuan

Nationality / Country Gender of Origin

Shareholding Date Effective Shares

%

Spouse & Shareholding Minor by Nominee Shareholding Arrangement Shares

%

Share s

Experience (Education)

%

Title

EMBA, Fudan University R.O.C.

Male

2001.08

223,152 0.09

-

-

-

Fu Jen University, Dept. of Accounting

-21-

Other Position

As of April 18, 2017 Managers who are Spouses or Within two degrees of kinship

Chairman of Systex Information(H.K.) Ltd. (Note 2) Systex Information (Shanghai) Ltd. (Note 2) Ucom Information Ltd. (Shanghai) (Note 2) Systex Group (China) Ltd. (Note 2) Systex Rainbow Tech Inc. (Note 2) Director of Sysware Shenglong Information Systems Co., Ltd. (Note 2) Ranibow Tech Information (HK) Limited (Note 2) Shenzhen Sunlight Technology Co., Ltd. Supervisor of Shenzhen Forms Syntron Information Co Ltd (Note 2) Suntex Technology (Shenzhen) Co., Ltd (Note 2)

-

Name Relation

-

-

III.Corporate Governance

Title/ Name

CFO & Vice President/ Chung, Chih-Chun

CHO & Vice President / Huang, Yu-Jen

Nationality / Country Gender of Origin

R.O.C.

R.O.C.

Male

Male

Shareholding Date Effective Shares

2014.05

2017.03

-

-

%

-

-

Spouse & Shareholding Minor by Nominee Shareholding Arrangement Shares

-

-

%

-

-

Share s

-

-

-22-

Experience (Education)

Other Position

%

As of April 18, 2017 Managers who are Spouses or Within two degrees of kinship Title

-

Master's degree in Banking and Finance, Tamkang University

Director of Ching Pu Investment Corp. (Note 2) Golden Bridge Information Corp. (Note 2) Mendincom Technology Corp. (Note 2) Systemweb Technologies Co., Ltd (Note 2) Enova Technology Corp. (Note 2) Systex Group (China) Ltd. (Note 2) Systex Infopro Corp. Ltd. (Note 2) Systex Solutions (HK) Ltd. (Note 2) Supervisor of Concord System Management Corp. (Note 2) Taifon Computer Co.,Ltd. (Note 2) Systex Solutions Corp. (Note 2) SoftMobile Technology Corp. (Note 2) Nexsys Corp. (Note 2) Naturint Ltd. (Note 2) Far Eastern Electronic Toll Collection Corp. (Note 2) Eastern Integrated Marketing,Inc. (Note 2) Etu Corp. Investment Media Ltd. Taiwan Electronic Data Processing Corp. Hanmore Investment Corp.

-

Master's degree in Graduate Institute of Human Resource Management, National Central University

None

Name Relation

-

-

-

-

-

-

III.Corporate Governance

Title/ Name

Nationality / Country Gender of Origin

Shareholding Date Effective Shares

Senior Vice President/ Yang, Shih-Chung

R.O.C.

Male

2007.01

Senior Vice President/ Fan, Jee-Der

R.O.C.

Male

2007.01

1,225

%

-

200,743 0.07

Spouse & Shareholding Minor by Nominee Shareholding Arrangement Shares

-

952

%

Share s

Experience (Education)

%

-

-

-

-

-

-

Title

National Cheng Kung University Dept. of Mathematics

Soochow University, Dept. of Business

Mathematics

Senior Vice President/ Su, Kou-Lin

R.O.C.

Male

2005.01

Vice President/ Chang, Huang-Yu

R.O.C.

Male

2005.06

Vice President/ Yeh, Chen-Min

R.O.C.

Male

2007.01

-

-

-

-

-

-

72,312 0.03

-

-

-

-

289,000 0.11

-

-

-

-

-23-

Other Position

As of April 18, 2017 Managers who are Spouses or Within two degrees of kinship

Master's degree in, Environmental Engineering, National Chung Hsing University Feng Chia University, Dept. of Information Nanya Engineering College Dept. of Mechanical

Director of Nexsys Corp. (Note 2) Eastern Integrated Marketing, Inc. (Note 2) Far Eastern Electronic Toll Collection Corp. (Note 2) Mohist web technology Co.,Ltd. (Note 2) Chairman of SoftMobile Technology Corp. (Note 2) Naturint Ltd. (Note 2) Syspower Corp. (Note 2) Sysware Shenglong Information Systems Co., Ltd. (Note 2) Director of Taiwan Electronic Data Processing Corp. (Note 2) Mendincom Technology Corp. (Note 2) Investment Media Ltd. (Note 2) Systemweb Technologies Co., Ltd (Note 2) Sanfran Technology Inc (Note 2) ICT- Systex Information Systems Corporation Ltd (Note 2)

Name Relation

-

-

-

-

-

-

None

-

-

-

None

-

-

-

None

-

-

-

III.Corporate Governance

Title/ Name

Nationality / Country Gender of Origin

Shareholding Date Effective Shares

%

Vice President/ Chang, Ying-Chin

R.O.C.

Female

2007.01

75,599 0.03

Vice President/ Lin, Wen-Kuei

R.O.C.

Male

2007.01

275,221 0.10

Vice President/ Lee, Su-Yue

R.O.C.

Female

2012.01

-

Vice President/ Hsiao, Wei-Chun

R.O.C.

Male

2017.03

-

Vice President/ Tang, Yin-Soon

R.O.C.

Male

2012.01

Accounting Manager/ Cheng, Yuan-Yih

R.O.C.

Male

2008.12

Audit Manager/ Tsai, Chun-Hsiung

R.O.C.

Male

2007.01

Shares

%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

4,000

-

Experience (Education)

Other Position

%

-

32,144 0.01

2,023

Share s

-

26,031 0.01

8,285

Spouse & Shareholding Minor by Nominee Shareholding Arrangement

Title National Taichun College Dept. of Banking and Insurance Lunghwa Engineering College Dept. of Electronic Engeering Hsing Wu Business College Dept. of Accounting Fu Jen University, Dept. of Information Management Master's degree in Computer, The City University of New York

-

-

-

None

-

-

-

Director of Systex Software & Service Corp. (Note 2)

-

-

-

None

-

-

-

-

-

-

-

-

-

None

-

-

-

-

National Chung Hsing University, Dept. of Accounting

-

-

-

-

Tunghai University, Dept. of Business Administeration

None

-24-

Name Relation

Director of Investment Media Ltd. (Note 2)

Director of Hanmore Investment Corp. (Note 2) Taiwan Electronic Data Processing Corp. (Note 2) Supervisor of Ching Pu Investment Corp. (Note 2) Golden Bridge Information Corp. (Note 2) Systex Software & Service Corp. (Note 2) Mendincom Technology Corp. (Note 2) Syspower Corp. (Note 2)

Note 1: Concurrent positions as of the date of publication of the annual report. Note 2: Institutional representative.

As of April 18, 2017 Managers who are Spouses or Within two degrees of kinship

III.Corporate Governance 3.3 Remuneration of Directors and Management Team 3.3.1 Remuneration of Directors Unit: NT$ thousands As of Decmber 31, 2016 Relevant Remuneration Received by Directors Who are Also Employees Compensation Ratio of Total Paid to Compensation Base Compensation Profit SharingBonus to Salary, Bonuses, and (A+B+C+D+E+F+G) to Directors from (A) Severance Pay (B) Allowances (D) Severance Pay (F) Employee Bonus (G) Directors (C) Allowances (E) an Invested Net Income (%) (Note 2) (Note 2) Company The Consolidated The Consolidated The Consolidated The Consolidated The Consolidated The Consolidated The Consolidated The Consolidated Company The Consolidated Other than the Entities Company’s Company Entities Company Entities Company Entities Company Entities Company Entities Company Entities Company Entities Company Entities Cash Stock Cash Stock Subsidiary Remuneration

Title

Name

Ratio of Total Remuneration (A+B+C+D) to Net Income (%)

Huang, Tsong-Jen Lin, Director Lung-Fen Cheng, Director Deng-Yuan Director Lu, Ta-Wei Shaw, Director Shung-Ho Hsieh, Director Chin-Ho Huang, Director Ting-Rong (Note 4) 735 735 22,035 22,035 705 705 2.12 2.12 25,602 26,073 320 320 114 Huang, Director Chi-Rong (Note 4) Huang, Director Yi-Shiung (Note 4) Lin, Chih-Min Director (Note 4) Independent Huang, Director Jih-Tsan Independent Cheng, Director Huang-Yen Independent Cheng, Director Wen-Feng Other than disclosure in the above table, Directors remunerations earned by providing services (i.e. non-employee consulting services) to companies which are listed in financial reports in 2016: None. Chairman

-

114

-

4.47

4.51

Note 1: The amount of remuneration received by Directors shall be determined by the Board of Directors according to the contribution of the individual and extent of involvement in the Company's operations; general remuneration standards within the domestic and international industries are also duly referenced. The acquisition cost of vehicles allocated to Directors was NT$10,169 thousands, and the annual salary of drivers amounted to NT$1,731 thousands. Note 2: The 2016 Directors’ and Employees’ remuneration distribution plan is NT$22,035 thousands andNT$1,102 thousands had been approved by Borad of Director. Note 3: The consolidated net profit after tax in 2016 (excluding non-controlling interests) was NT$1,108,268 thousands. Note 4: Representative of Joway Investment Co.,Ltd.,.The comprehensive election of Directors was held on June 17, 2016 Huang, Ting-Rong and Huang, Chi-Rong(term expired on June 16, 2016), originally representatives of institutional director Joway Investment Co.,Ltd., were elected under their own names (their terms started on June 17, 2016).

-25-

-

III.Corporate Governance Name of Directors Total of (A+B+C+D)

Range of Remuneration The Company

Under NT$ 2,000,000

NT$2,000,000 ~ NT$5,000,000

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

The Company

Consolidated Entities

Lin, Lung-Fen,

Lin, Lung-Fen,

Hsieh, Chin-Ho,

Hsieh, Chin-Ho,

Cheng, Deng-Yuan,

Cheng, Deng-Yuan,

Shaw, Shung-Ho,

Shaw, Shung-Ho,

Hsieh, Chin-Ho,

Hsieh, Chin-Ho,

Lu, Ta-Wei,

Lu, Ta-Wei,

Shaw, Shung-Ho,

Shaw, Shung-Ho,

Huang, Ting-Rong (Note),

Huang, Ting-Rong (Note),

Lu, Ta-Wei,

Lu, Ta-Wei,

Huang, Chi-Rong (Note),

Huang, Chi-Rong (Note),

Huang, Ting-Rong (Note),

Huang, Ting-Rong (Note),

Huang, Yi-Shiung (Note),

Huang, Yi-Shiung (Note),

Huang, Chi-Rong (Note),

Huang, Chi-Rong (Note),

Lin, Chih-Min (Note)

Lin, Chih-Min (Note)

Huang, Yi-Shiung (Note),

Huang, Yi-Shiung (Note),

Lin, Chih-Min (Note)

Lin, Chih-Min (Note)

Huang, Tsong-Jen,

Huang, Tsong-Jen,

Huang, Tsong-Jen,

Huang, Tsong-Jen,

Huang, Jih-Tsan,

Huang, Jih-Tsan,

Huang, Jih-Tsan,

Huang, Jih-Tsan,

Cheng, Huang-Yen,

Cheng, Huang-Yen,

Cheng, Huang-Yen,

Cheng, Huang-Yen,

Cheng, Wen-Feng

Cheng, Wen-Feng

Cheng, Wen-Feng

Cheng, Wen-Feng

Cheng, Deng-Yuan

Cheng, Deng-Yuan

Lin, Lung-Fen

Lin, Lung-Fen

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

13

13

13

13

Note: Representative of Joway Investment Co.,Ltd.,.The comprehensive election of Directors was held on June 17, 2016 Huang, Ting-Rong and Huang, Chi-Rong(term expired on June 16, 2016), originally representatives of institutional director Joway Investment Co.,Ltd., were elected under their own names (their terms started on June 17, 2016).

-26-

III.Corporate Governance 3.3.2 Remuneration of Management Team

Salary (A) Title

Severance Pay (B)

Bonuses and Allowances (C)

Name The Consolidated The Consolidated The Consolidated Company Entities Company Entities Company Entities

President Chief Strategy Officer & Senior Vice President CFO & Vice President Senior Vice President Senior Vice President Senior Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President

Unit: NT$ thousands As of Decmber 31, 2016 Ratio of total Other Profit Sharing- Employee Bonus (D) compensation (A+B+C+D) Compensations to net income (%) from Consolidated The Company The Consolidated non-subsidiary Entities affiliates Company Entities Cash Stock Cash Stock

Lin, Lung-Fen Cheng, Deng-Yuan Chung, Chih-Chun Yang, Shih-Chung Fan, Jee-Der Su, Kou-Lin Chang, Huang-Yu Yeh, Chen-Min Chang, Ying-Chin Lin, Wen-Kuei Lee, Su-Yue Tang, Yin-Soon Fu, Hsiao-Chi (Note3) Hsieh, Shu-Heng (Note 3) Huang, Chun-Chieh (Note 3)

33,237

35,647

10,698

10,982

42,423

-27-

50,186

119

-

119

-

7.80

8.75

444

III.Corporate Governance Note 1: The 2016 Employees’ remuneration distribution plan is NT$1,102 thousands had been approved by Borad of Director. Note 2: The consolidated net profit after tax in 2016 (excluding non-controlling interests) was NT$1,108,268 thousands. Note 3: Remuneration for the President and Vice Presidents is determined by their personal performance and their contribution to the Company's overall operations; general remuneration standards within the domestic and international industries are also duly referenced. The acquisition cost of vehicles allocated to Managers was NT$5,084 thousands, and the annual salary of drivers amounted to NT$831 thousands. Fu, Hsiao-Chi left in 2016.10, Hsieh, Shu-Heng retired in 2016.12, Huang, Chun-Chieh left in 2017.02.

Name of President and Vice Presidents Range of Remuneration Under NT$ 2,000,000

NT$2,000,000 ~ NT$5,000,000

The Company Chang, Ying-Chin, Lee, Su-Yue

Chang, Ying-Chin

Su, Kou-Lin, Chang, Huang-Yu,

Su, Kou-Lin, Chang, Huang-Yu,

Yeh, Chen-Min, Lin, Wen-Kuei,

Yeh, Chen-Min, Lin, Wen-Kuei,

Tang, Yin-Soon,

Tang, Yin-Soon,

Fu, Hsiao-Chi (Note),

Fu, Hsiao-Chi (Note),

Huang, Chun-Chieh (Note)

Huang, Chun-Chieh (Note) Cheng, Deng-Yuan,

Cheng, Deng-Yuan, NT$5,000,000 ~ NT$10,000,000

Consolidated Entities

Chung, Chih-Chun,

Chung, Chih-Chun,

Yang, Shih-Chung,

Yang, Shih-Chung,

Fan, Jee-Der,

Fan, Jee-Der

Lee, Su-Yue

NT$10,000,000 ~ NT$15,000,000

Hsieh, Shu-Heng (Note)

Hsieh, Shu-Heng (Note)

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

Lin, Lung-Fen

Lin, Lung-Fen

NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Total

15

15

Note: Fu, Hsiao-Chi left in 2016.10, Hsieh, Shu-Heng retired in 2016.12, Huang, Chun-Chieh left in 2017.02.

-28-

III.Corporate Governance 3.3.3 Employees’ remuneration Unit: NT$ thousands

Title

President Chief Strategy Officer & Senior Vice President CFO &

Management Team

Vice Presidents

Name

Stock (Note1)

Cash (Note 1)

Total

Ratio of Total Amount to Net Income (%) (Note 2)

-

120

120

0.01

Lin, Lung-Fen Cheng, Deng-Yuan Chung, Chih-Chun

Senior Vice President

Yang, Shih-Chung

Senior Vice President

Fan, Jee-Der

Senior Vice President

Su, Kou-Lin

Vice Presidents

Chang, Huang-Yu

Vice Presidents

Yeh, Chen-Min

Vice Presidents

Chang, Ying-Chin

Vice Presidents

Lin, Wen-Kuei

Vice Presidents

Lee, Su-Yue

Vice Presidents

Tang, Yin-Soon

Accounting Manager

As of January 1, 2017

Cheng, Yuan-Yih Huang,

Vice Presidents

Chun-Chieh

(Note3) Note 1: The 2016 Employees’ remuneration distribution plan is NT$1,102 thousands had been approved by Borad of Director. Note 2: The consolidated net profit after tax in 2016 (excluding non-controlling interests) was NT$1,108,268 thousands. Note 3: Huang, Chun-Chieh left in 2017.02.

-29-

III.Corporate Governance 3.3.4 Comparison of Remuneration for Directors, Presidents and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Presidents and Vice Presidents A. The ratio of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the two most recent fiscal years to directors, presidents and vice presidents of the Company, to the net income. Ratio of total remuneration paid to directors, presidents and vice presidents to net income (%) Title

2015

2016

The Company

Consolidated Entities

The Company

Consolidated Entities

Directors

6.68

6.77

4.47

4.51

President and Vice Presidents

13.68

15.38

7.80

8.75

B. Policies, standards, and combination of remuneration payment to firectors, President, and Vice President, the remuneration determination procedure, and the relationship between operation performance and future risk. (a) The Directors are remunerated in accordance with the Company's current Articles of Incorporation. The Company has also established the Regulations on Director Remuneration to calculate their remuneration in accordance with the base numbers established by their contribution to the Company and whether they are Independent Directors. Director remuneration includes remuneration, salary, and travel expenses etc. Independent Directors are paid fixed amounts of remuneration every quarter in accordance with the resolutions of Board of Directors meetings. Travel expenses are paid each time Directors attend Board of Directors or functional committee meetings in person. The Company's remuneration for employees and Directors shall be no lower than 0.1% and under 2% of the earnings before tax of the year and before deducting remuneration for employees and Directors. (b) Remuneration for the President and Vice Presidents are paid in accordance with the Company's related human resources policies. The remuneration mainly includes basic salary, rewards, and employee remuneration. Rewards and bonuses are distributed based on the overall operating performance of the Company and in accordance with the Regulations on the Distribution of Year-End Bonus, Regulations on the Distribution of Performance Bonus, Regulations on the Distribution of Group Performance Bonus and Employee Bonus, and Regulations on Employee Share Subscription Certification. C. Methods of remuneration payment to the President and Vice President of the Company and relationship between operation performance and future risk are stipulated as follows: (a) The Company's Director remuneration payment policy is established in the Articles of Incorporation. The distribution is carried out after approval from the Board of Directors and the distribution status is reported to the shareholders' meeting. In addition, the Board of Directors may resolve to pay remuneration for Directors in each quarter in accordance with the Articles of Incorporation. The amount of remuneration received by Directors shall be determined by the Board of Directors according to the contribution of the individual and extent of involvement in the Company's operations, taking into account the general remuneration standards within the domestic and international industry. (b) The Company has established a Remuneration Committee to be in charge of the performance evaluation of Directors and managerial officers, set and reviewing the remuneration policy, system standards and structure, and conduct periodic review on the accomplishment of performance targets in order to build a comprehensive remuneration system for the Company's Directors and managerial officers.

-30-

III.Corporate Governance D. Procedures for payment and relevance with operation performance and future risk exposure. (a) Director remuneration shall be determined by the business performance of the Company and its profitability, while taking into account existing affairs that may cause risks in the Company's future liabilities, obligations, or debt. According to the Company's Articles of Incorporation, director remuneration may only be distributed when the Company generates profits. The remuneration shall be in positive correlation to the Company's business performance while taking into account its future operating risks. (b) Remuneration for the President and Vice Presidents are distributed based on the achievement rate of their personal targets, performance, and their contribution to the Company's overall operations. Rewards and bonuses are distributed based on the overall operating performance of the Company and in accordance with the Regulations on the Distribution of Year-End Bonus, Regulations on the Distribution of Performance Bonus, Regulations on the Distribution of Group Performance Bonus and Employee Bonus, and Regulations on Employee Share Subscription Certification. The distribution of remuneration shall be in positive correlation to the operating performance.

-31-

III.Corporate Governance 3.4 Implementation of Corporate Governance 3.4.1 Board of Directors A total of 2 (A) meetings of the Board of Directors (Seventh) were held in the previous period. The attendance of director were as follows: Title

Name

Attendance in Person (B)

By Proxy

Attendance Rate (%) 【B/A】

Chairman

Huang, Tsong-Jen

2

0

100%

Director

Lin, Lung-Fen

2

0

100%

Director

Cheng, Deng-Yuan

2

0

100%

Director

Lu, Ta-Wei

2

0

100%

Director

Shaw, Shung-Ho

2

0

100%

Director

Hsieh, Chin-Ho

2

0

100%

2

0

100%

2

0

100%

2

0

100%

2

0

100%

Huang, Jih-Tsan

2

0

100%

Cheng, Wen-Feng

2

0

100%

Cheng, Huang-Yen

2

0

100%

Director

Director

Director

Director Independent Director Independent Director Independent Director

Huang, Yi-Shiung (Representative of Joway Investment Co.,Ltd) Lin, Chih-Min (Representative of Joway Investment Co.,Ltd) Huang, Ting-Rong (Representative of Joway Investment Co.,Ltd) Huang, Chi-Rong (Representative of Joway Investment Co.,Ltd)

-32-

Remarks

III.Corporate Governance A total of 6 (A) meetings of the Board of Directors (Eigth) were held in the previous period. The attendance of director were as follows: Title

Name

Attendance in Person (B)

By Proxy

Attendance Rate (%) 【B/A】

Chairman

Huang, Tsong-Jen

6

0

100%

Director

Lin, Lung-Fen

6

0

100%

Director

Cheng, Deng-Yuan

6

0

100%

Director

Lu, Ta-Wei

6

0

100%

Director

Shaw, Shung-Ho

6

0

100%

Director

Hsieh, Chin-Ho

5

1

83%

Director

Huang, Ting-Rong

6

0

100%

Director

Huang, Chi-Rong

6

0

100%

6

0

100%

6

0

100%

Huang, Jih-Tsan

6

0

100%

Cheng, Wen-Feng

6

0

100%

Cheng, Huang-Yen

6

0

100%

Director

Director Independent Director Independent Director Independent Director

Huang, Yi-Shiung (Representative of Joway Investment Co.,Ltd) Lin, Chih-Min (Representative of Joway Investment Co.,Ltd)

-33-

Remarks

III.Corporate Governance Other mentionable items: 1. The date of the Board meeting, the term, contents of the proposals, opinions of all Independent Directors, and the Company's handling of opinions of Independent Directors shall be recorded under the following circumstances in the operations of the Board of Directors meeting: (1) Items listed in Article 14-3 of the Securities and Exchange Act: Not applicable, since the Company has already established the Audit Committee. (2) With the exception of the aforementioned items, resolutions adopted by the Board of Directors, to which an Independent Director has a dissenting or qualified opinion that is on record or stated in a written statement: Not applicable. 2. Directors abstaining in certain proposals for being a stakeholder (the name of the Director(s), the content of the proposal, reasons for abstentions and the results of voting counts shall be stated): (1) The results of the performance review of the Company's managerial officers in the second half of 2015, the distribution of non-financial indicator bonus, the year-end bonus of the Company's managerial officers for 2015, and the first group performance reward and annual remuneration were discussed in the Board meeting on March 22, 2016. As Directors Lin, Lung-Fen and Cheng, Deng-Yuan serve concurrently as the Company's managerial officers, they recused themselves when the discussion involved their interest and the other Directors in attendance passed the proposal unanimously. (2) The results of the performance review of the Company's managerial officers in the first half of 2016, the distribution of non-financial indicator bonus, the group performance reward of the Company's managerial officers for 2015, and the second employee bonus distribution were discussed in the Board meeting on August 11, 2016. As Directors Lin, Lung-Fen and Cheng, Deng-Yuan serve concurrently as the Company's managerial officers, they recused themselves when the discussion involved their interest and the other Directors in attendance passed the proposal unanimously. 3. Measures taken to strengthen the functionality of the board: (1)The Company reelected three Independent Directors in the election of the 8th-term Board of Directors in the general shareholders' meeting on June 17, 2016 and established the Audit Committee on the same day. The Audit Committee held 5 meetings in 2016 to review related proposals. (2)The Company conducted the election of the 8th-term Board of Directors in the general shareholders' meeting on June 17, 2016 and established the Remuneration Committee on the same day. The Committee is composed of three Independent Directors and is vested with the purpose to professionally and objectively evaluate the salary and remuneration policy of the Directors and managerial officers and then provide its recommendation to the Board of Directors. The current term Remuneration Committee held 2 meetings in 2016 to review related proposals.

-34-

III.Corporate Governance 3.4.2 Audit Committee A total of 3 (A) meetings of Audit Committee of the Seventh Board of Directors were held in the previous period. The attendance of the independent directors was as follows: Attendance in Title Name By Proxy Person (B) Independent Huang, Jih-Tsan 3 0 director Independent Cheng, Wen-Feng 3 0 director Independent Cheng, Huang-Yen 3 0 director

Attendance Rate (%) 【B/A】

Remarks

100% 100% 100%

A total of 5 (A) meetings of Audit Committee of the Eighth Board of Directors were held in the previous period. The attendance of the independent directors was as follows: Attendance in Title Name By Proxy Person (B) Independent Huang, Jih-Tsan 5 0 director Independent Cheng, Wen-Feng 5 0 director Independent Cheng, Huang-Yen 5 0 director

-35-

Attendance Rate (%) 【B/A】 100% 100% 100%

Remarks

III.Corporate Governance

Other mentionable items: 1. The date of the Board meeting, the term, contents of the proposals, resolutions of the Audit Committee, and the Company's handling of the resolutions of the Audit Committee shall be recorded under the following circumstances in the operations of the Audit Committee meeting: (1) Items specified in Article 14-5 of the Securities and Exchange Act:

Meeting Dates

March 22, 2016

May 5, 2016

August 11, 2016

Contents Proposed

Amended the Company's "Operating Procedures for Fund Lending." The proposed endorsement guarantee for Systex Group (China) Ltd. The proposed endorsement guarantee for Systex Ucom (Shanghai) Information Technology Co., Ltd. The proposed endorsement guarantee for Systex Group (China) Ltd. by Systex Information (Shanghai) Ltd. and Systex Ucom Software Co., Ltd. The proposed endorsement guarantee for Systex Software & Service Corporation.

December 22, 2016

Resolutions of the Audit Committee

Any Independent Director had a Dissenting Opinion or Qualified Opinion

Approved

N/A

Approved

N/A

Approved

N/A

Approved

N/A

Approved

N/A

The proposed endorsement guarantee for Systex Solutions Corporation. (2) With the exception of the aforementioned items, any issues that are not agreed by the Audit Committee but passed by more than two-thirds of all Directors: No such occurrences. 2. If there are independent directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified: None. 3. Communications between the independent directors, the Company's chief internal auditor and CPAs (e.g. the items, methods and results of audits of corporate finance or operations, etc.) (1) The Company's Audit Committee shall be solely composed of Independent Directors and meetings shall be convened at least once a quarter. Ad-hoc meetings shall be held whenever necessary. (2) Communication between the chief internal auditor and the Audit Committee: a. Periodic: Report the findings in audits and the status of improvement on irregularities to the Audit Committee; respond to all questions submitted by the Independent Directors, and enhance the contents of auditing tasks in accordance with their instructions to ensure the effectiveness of the internal control system. Specific items include: Item Communication Content Results Exercise Reports to the Audit Reassess internal regulations and enhance supervisory Committee on irregularities management of inventory, information functions in the audit. security, and personnel attendance. Apply appropriate amendments to related regulations to continue the optimization of operating procedures.

-36-

III.Corporate Governance b. Non-periodic: Use telephone, email, or face-to-face communication to communicate discoveries in the audits and how to continuously increase the value of audits. In the event of material violation, the Independent Directors shall be notified immediately. c. Summaries of communication in 2016: Date Communication Content

Results

The implementation of audit program for January to March, 2016.

March 22, 2016

The 2015 "Statement on Internal Control."

May 5, 2016 August 11, 2016

The implementation of audit

The independent directors of the

program for April, 2016.

Company have a good communication

The implementation of audit

situation in the implementation of the

program for May to July, 2016.

audit business and the results.

The implementation of audit December 22, 2016

program for November to December, 2016. The 2017 Internal Control Plan.

(3) Communication between the CPAs and the Audit Committee: a. Periodic: The CPAs shall communicate with the Audit Committee on the audit plan, execution status, and results in the periods before and after the semi-annual and annual audit reports. b. Non-periodic: Meetings may be arranged in the event that operations or internal controls require immediate communication on related cases. c. Summaries of communication in 2016: Item Communication Content Date March 22, 2016 Financial Statement Consolidated and for Year 2015 Separate Financial Statements for Year 2015

Mobile Commerce service - Line Gift Shop

New Service in year 2016-Whether the recognition of Revenue in the mobile commerce service is complied with the accounting principle?

Impairment of cost method

Some certain investments of Systex Group recognized by cost method have been impaired to a balance figure of 0. Does the Company have any plan for disposal of these investments?

-37-

Results Report the audited adjustments of Year 2015 Financial Statement. We discuss and communicate the applicability of certain accounting principles. Systex is willing to take responsibility for the risk of operation, legal, financial and tax. In order to comply with the accounting principle, we use gross sales and gross cost as Revenue and Cost. Some investments recognized by cost method have been impaired because of the poor management. However, we don’t get any document of liquidation or capital deduction for taxation, that’s why the investments still remain on the accounts. We will remove the

III.Corporate Governance

August 11, 2016

Financial Statements for the Second Quarter Ended June 30, 2016

Consolidated Financial Statements for the Second Quarter Ended June 30, 2016

impact of the Anti-Avoidance Rule

The Legislative Yuan passed the amendment of "Income Tax Act" on July 12, 2016 and added the Anti-Avoidance Rule. The Rule stipulates that the earnings from controlled foreign companies (CFC) , which the shareholders holds 50% or more of shares, shall be incorporate with “the profit-seeking enterprise income tax”. So we need to prepare in advance. Since Year 2016, the preparation of the financial statement has adopted No. 57, "audit reporting on financial statements", of the Statement on Auditing Standards.

impact of newly-announced audit report on financial statements

-38-

accounts in accordance with the circumstances of liquidation or capital deduction. Report the adjustments of financial statements for the Second Quarter Ended June 30, 2016. We discuss and communicate the newly-announced “Statements on Auditing Standards” and the amendment of decree. The Anti-Avoidance Rule will influence the CFC that place of Effective Management(PEM)in Taiwan primarily. We need to keep noticing the change of interrelated decree and sub-decree and to lessen the impact of taxation since the Anti-Avoidance Rule Implements.

The disclosure in financial reports is complied with the regulation of No.57 and CPA's audit report.

III.Corporate Governance 3.4.3 Corporate Governance Implementation Status and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies” Implementation Status Item 1. If the Company established and disclosed Corporate Governance Principles in accordance with Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies?

2. Shareholding Structure & Shareholders’ Rights (1) If the Company established internal procedures to handle shareholder suggestions, proposals, complaints and litigation and execute accordingly? (2) If the Company maintained of a list of major shareholders and a list of ultimate owners of these major shareholders? (3) If risk management mechanism and “firewall” between the Company and its affiliates are in place?

(4) If the Company established internal policies that forbid insiders from trading based on non-disclosed information?

Reason for Non-implement Yes No V

Summary Description The Company's "Corporate Governance Best Practice Principles" have been established and disclosed on the company website in accordance with regulations. None

V

(1) The Company has established the "Rules and Procedures for Shareholders' Meetings" in accordance with regulations and shareholders may file suggestions in the shareholders' meeting. The Company also established a spokesperson and acting spokesperson system to process shareholder suggestions or disputes.

V

(2) The Company's shareholder agency institute can provide a list of major shareholders that have actual control over the Company and a list of ultimate owners of those major shareholders in a timely manner for the Company to understand its shareholding structure. (3) The Company has established the "Rules Governing Operations, Business and Financial Matters with Specific Companies, Group Enterprises, and Related Parties" to strictly control and monitor subsidiaries' rights to conduct loans, endorsements, guarantees, and operations in derivatives in order to ensure the enforcement of internal controls and internal auditing for the purpose of risk management and maintenance of a firewall system. (4) The Company has established "Procedures for Handling Material Internal Information" and educated the internal staff on the restriction of trading securities based on information that has not been disclosed on the market.

V

V

-39-

None

III.Corporate Governance Implementation Status Item 3. Structure of Board of Directors and its responsibility (1) Does the Board of Directors set and implement a diversification policy?

Reason for Non-implement Yes No

V

(2) If the Company established any other functional committee in addition to Compensation Committee,Audit Committee as required by law? (3) If the Company established methods and procedures to assess the performance of the Board and conduct assessment on annual basis? (4) If the Company assess the independence of CPA periodically?

V

V

V

Summary Description

(1) The members of the Company's Board of Directors shall be selected for their knowledge, skills, and competencies required for executing their duties based on existing operations and actual requirements in order enhance the capabilities of the Board of Directors. (2) The Company has established the Remuneration Committee and Audit Committee but no other functional committees.

(3) Although the Company has not yet established guidelines for evaluating board performance, it nevertheless conducts periodic follow-up and maintains records of the attendance rate of Directors, the required number of hours in continued studies, communication with the CPA and Company management, audits of the Company's finances and audit reports. (4) The Audit Committee shall regularly evaluate the independence of the certifying accountant in accordance with its organization regulations. The Company is assessed by the CFO Office in December each year for the independence of the CPA. Inspections have shown that the appointment of the CPA is not involved in financial interests, financing, guarantees, and close business relations with the Company, non-auditing businesses, or violation of independence of the CPA. In addition, the CPA does not hold any of the Company's stocks, nor is the CPA hired by the Company or serves in the Company or a violation of the Certified Public Accountant Act or Article 37 of the Securities and Exchange Act those results in penalty by the Financial Supervisory Commission. After inspections, the Company's certifying accountant has been verified to be in compliance with requirements for independence as specified in the Certified Public Accountant Act and related regulations.

-40-

However, the "Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies" and related regulations shall apply where there are regulatory or actual requirements.

III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes No

4. Should the listed company establish a department dedicated to corporate governance on a part-time basis, or assign the responsibility of monitoring corporate governance and related affairs to a person (including but not limited to providing directors and supervisors with the necessary materials for executing their business responsbilities, handling of matters related to the Board of Directors Meeting and the Shareholders' Meeting pursuant to the relevant laws and regulations, handling of company registration and changes in registration status, and Preparation of the meeting minutes of the Board of Directors Meeting and the Shareholders' Meeting etc.)?

V

5. If the Company established communication channel with interested parties (Including but not limited to shareholders, employees, customers and suppliers, etc.) and disclosed key corporate social responsibility issues frequently enquired by stakeholders on the designated area of the corporate website?

V

6. If the Company engaged professional transfer agent to host

V

Summary Description The CFO Office is in charge of related affairs regarding corporate governance in the Company including changes in company registration, shareholders' meeting, Board meeting affairs, formulation of meeting minutes, providing Directors with business information etc.

None

The Company has established a stakeholder area on the company website and assigned a contact window to be directly responsible for communications with stakeholders. The Company respects and maintains their legal rights and they may contact the Company through telephone or email at any time. None

The Company has appointed the Department of Stock Affairs at Yuanta Securities Co., Ltd. to process affairs related to shareholders' meetings.

-41-

None

III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes No

Summary Description

annual general shareholders’ meeting? 7. Information Disclosure (1) If the Company set up a corporate website to disclose information regarding the Company’s finance, business and corporate governance? (2) If the Company adopted any other information disclosure channels (e.g., maintaining an English-language website, appointing designated personnel to handle information collection and disclosure, appointing spokespersons, webcasting investors conference, etc)? 8. If the Company had other important information to facilitate better understanding of the Company’s corporate governance practices (including but not limited to 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

V

(1) The Company has established a corporate website. Disclosed information can also be found on the Market Observation Post System.

V

(2) The Company's website is available in Traditional Chinese and English. The Company has designated a unit responsible for the collection and disclosure of company information and implemented a spokesperson system.

V

(1) Employee benefits and care: In addition to following the regulations in the Labor Standards Act and related laws, the Company also established an Employee Welfare Committee to provide various subsidies and organize events. Please refer to pages 99-103. (2) Investor relations: The Company has established a spokesperson and shareholder service department to announce information on behalf of the Company. The Company also established an investor service area on the company website for shareholders to find information on the Company's operating status at any time. (3) Supplier relations and stakeholder rights: The Company maintains good relations as well as open and effective communication channels with suppliers, financial institutions, other creditors, and clients. The Company has established a stakeholder area on the company website and assigned a contact window to be directly responsible for communications with stakeholders. The Company respects and maintains their legal rights. (4) Directors' continued studies:

-42-

None

None

III.Corporate Governance Implementation Status Item supervisors)?

Reason for Non-implement Yes No

Summary Description Title

Chairman

Name Huang,

Course

Hours

Liabilities of Directors and Supervisors in

3

Merger and Acquisition

Tsong-Jen Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in Director

Lin,

3

Merger and Acquisition

Lung-Fen Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in Director

Cheng,

3

Merger and Acquisition

Deng-Yuan Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in Director

Shaw,

3

Merger and Acquisition

Shung-Ho Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in Director

Hsieh, Chin-Ho

3

Merger and Acquisition Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in Director

Huang,

3

Merger and Acquisition

Ting-Rong Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in Director

Huang, Chi-Rong

3

Merger and Acquisition Analysis and Impact of Taiwan's Anti-Tax Avoidance Laws

-43-

3

III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes No

Summary Description 2016 Corporate Governance Forum Series Insider Director

Huang, Yi-Shiung

Trading

and

Corporate

3

Social

Responsibility Seminar Liabilities of Directors and Supervisors in

3

Merger and Acquisition Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in Director

Lin, Chih-Min

3

Merger and Acquisition Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in

3

Merger and Acquisition Independent director

Cheng,

(Taipei)

Applications

and

Evaluation

of

3

Analysis and Impact of Taiwan's Anti-Tax

3

Huang-Yen Stock-Related Talent Retention Tools Avoidance Laws Liabilities of Directors and Supervisors in

Independent director

Cheng,

3

Merger and Acquisition

Wen-Feng Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Title

Name

Teaching Course

Hours

Corporate Governance Trends - Six Major

3

Issues in the Board of Directors Meeting in 2016 Independent

Huang,

director

Jih-Tsan

A Game that could Totally Transform Enterprise

3

in Taiwan Corporate

Governance

Framework

Strategies of the Board of Directors

-44-

and

3

III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes No

Summary Description (5)The Company's managerial officers' participation in related corporate governance studies: Title Vice President/ CFO

Name Chung,

Course

Hours

Liabilities of Directors and Supervisors in

3

Merger and Acquisition

Chih-Chun Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Liabilities of Directors and Supervisors in

3

Merger and Acquisition Accounting

Cheng,

Manager

Yuan-Yih

Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Ongoing Education for Securities Issuers,

12

Securities Firms, and TWSE Chief Accounting Officer Liabilities of Directors and Supervisors in

3

Merger and Acquisition Analysis and Impact of Taiwan's Anti-Tax

3

Avoidance Laws Audit Manager

Tsai,

Practice and Case Analysis of Accounting and

6

Chun-Hsiung Taxation Audits for Taiwanese Companies in China "Sales and Receivables Cycle" in Computerized

6

Auditing in Practice for the Internal Auditing Staff

(6) The implementation of risk management policies and risk evaluation measures: The Company has established the "Risk Assessment Board (RAB)" to review the Company's major transactions to reduce risks. Please refer to pages 190-196 for other risk management policies. (7) Customer protection policy: The Company is an information service company and provides service lines for various service items to protect customer interests.

-45-

III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes No

Summary Description (8) Liability Insurance for Directors: The Company has purchased liability insurance for Directors and managerial officers in 2017 and reported to the Borad Meeting on March 23, 2017.

9. Please describe the improvements of the corporate governance evaluation results released by the corporate governance center of the Taiwan Stock Exchange Corporation in the last year, and propose priority matters or measures to strengthen areas yet unimproved. (No need to be filled in by companies that were not subject to evaluation). (1) The Company continues to update and optimize related information on corporate governance on the company website to provide investors with the actual operations and corporate governance of the Company. (2) The Company shall provide related information for the shareholders' meetings in English for reference by foreign investors in order to increase shareholder attendance rates at shareholder meetings and to ensure that shareholders may exercise their rights at such meetings in accordance with the law.

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III.Corporate Governance 3.4.4 Composition, Responsibilities and Operations of the Remuneration Committee A. Professional Qualifications and Independence Analysis of Remuneration Committee Members Meets One of the Following Professional Qualification Criteria Requirements, Together with at Least Five Years’ Work Experience Independence Criteria (Note)

Title

Name

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

Has 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

Number of Other Public Companies in Which the Individual is Concurrently Serving as an 8 Remuneration Committee Member

Remarks

Independent Huang, Jih-Tsan V V V V V V V V V V 3 N/A director Independent Cheng, Huang-Yen V V V V V V V V V V 1 N/A director Independent V V V V V V V V V 0 N/A Cheng, Wen-Feng director Note: Please tick the corresponding boxes that apply to a member during the two years prior to being elected or during the term(s) of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of affiliated companies. Not applicable in cases where the person is an independent director of the 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 sub-paragraphs. 5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company, or who holds shares ranking in the top five holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has a financial or business relationship with the Company. 7. Not a professional individual, who is 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 a person of any conditions defined in Article 30 of the Company Law.

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III.Corporate Governance B. Attendance of Members at Remuneration Committee Meetings The Compensation Committee comprised of 3 members. A total of 1 (A) Remuneration Committee meeting of the Seventh Board of Directors were held in the previous period. The attendance record of the Remuneration Committee members was as follows: Attendance in Attendance Rate (%) Title Name By Proxy Remarks Person(B) 【B/A】 Convener Committee Member Committee Member

Cheng, Huang-Yen

1

0

100%

Huang, Jih-Tsan

1

0

100%

Cheng, Wen-Feng

1

0

100%

A total of 2 (A) Remuneration Committee meetings of the Eigth Board of Directors were held in the previous period. The attendance record of the Remuneration Committee members was as follows: Attendance in Attendance Rate (%) Title Name By Proxy Remarks Person(B) 【B/A】 Convener Committee Member Committee Member

Cheng, Huang-Yen

2

0

100%

Huang, Jih-Tsan

2

0

100%

Cheng, Wen-Feng

2

0

100%

Other mentionable items: 1. If the board of directors declines to adopt or modifies a recommendation of the remuneration committee, it should specify the date of the meeting, session, content of the motion, resolution by the board of directors, and the Company’s response to the remuneration committee’s opinion (eg., the remuneration passed by the Board of Directors exceeds the recommendation of the remuneration committee, the circumstances and cause for the difference shall be specified): None. 2. Resolutions of the remuneration committee objected to by members or subject to a qualified opinion and recorded or declared in writing, the date of the meeting, session, content of the motion, all members’ opinions and the response to members’ opinion should be specified: None.

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III.Corporate Governance 3.4.5 Implementation of Corporate Social Responsibility Implementation Status Reason for Non-implement

Item Yes 1. Exercising Corporate Governance (1) If the Company established corporate social responsibility (“CSR”) policy or system and reviewed its implementation and effectiveness?

(2) If the Company conducted CSR related trainings?

(3) If the Company set up a unit exclusively or concurrently to execute CSR policies and if the Board appointed member(s) of management team to supervise and report its implementation status to the Board?

V

V

V

No

Summary Description (1) The Company discloses and publicizes related CSR performance results on the corporate website. It also includes corporate governance, customer and supplier relations, employee relations, workplace environment, social welfare, and honest information disclosure related to CSR into the Company's "Employee Code of Conduct," "Internal Material Information Disclosure Operating Guidelines" and review the effects of implementation. (2) The Company sponsors the social enterprise Data for Social Good Corporation (DSP) in organizing multiple training sessions to help enterprises, nonprofit organizations, and government organizations cultivate cross-disciplinary data science talents that help society harness the power of data and resolve social issues. The Company organizes the periodic Youth IT Leader Training Camp each year to provide youths with training courses and opportunities for actual operations. The program helps recent graduates gain advance knowledge of the environment and culture in their future careers in order to help them adapt to new life in the workplace from life on campus. The Company cultivates youth IT talents to intensify the development of the competitiveness of Taiwan's future technologies, economy, and talents. The Company organizes the programming competition in the Young Turing Program (YTP) to provide resources and encourage Taiwanese youths to join the software industry. Employees actively participated as instructors to educate students by themselves in order to cultivate future software talents for Taiwan. (3) The Company's Human Resources Department, Commerce Department, and its Marketing Planning and Public Relations Division are also responsible for advancing and promoting various CSR activities.

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None

III.Corporate Governance Implementation Status Item (4) If the Company adopted appropriate remuneration policies, integrated employee performance appraisal with CSR policies, and established a clear and effective incentive and discipline system?

2. Fostering a Sustainable Environment (1) If the Company endeavored to utilize resources more efficiently and utilized renewable materials which have a lower impact on the environment?

(2) If the Company established proper environment management system based on the characteristics of the industry where the Company belongs to?

Reason for Non-implement Yes

No

Summary Description

V

(4) The Company's remuneration policy meets requirements in laws and regulations and is based on a policy of "high performance, high contribution, and high remuneration." The Company also included CSR into the "Systex Corporation and Affiliate Enterprise Employee Code of Conduct" and "Internal Material Information Disclosure Operating Guidelines." For instance, relations with customers and suppliers shall comply with anti-corruption values and employees may not accept inappropriate gifts or conduct private sales to become the Company's suppliers. Violations shall be punished in accordance with Work Rules and periodic education shall be adopted to increase employees' recognition and implementation of CSR.

V

(1) a. Paper recycle and destruction procedures: In addition to daily recycling and waste classification, the Company also adopts a waste paper recycling method for paper that do not contain confidential or personal information. Documents with personal or confidential information are periodically gathered to be delivered by a designated transportation company to a contracted professional document destruction plant after approval by the supervisor. The destruction and recycling shall be conducted on site and photographs shall be taken for records to comply with regulations in the Personal Information Protection Act and the environmentally friendly resource recycling principles. b. Processing discarded computers: Contents in media with personal information (such as hard drives) shall be deleted before physical destruction and discarding; computers without hard drives shall be delivered directly to a recycling plant after completion of discarding procedures. c.The Company adopts systematic and digitized forms to replace paper application forms with the goal of reducing produced waste by 10% this year. (2) SYSTEX is an information service company, there is not applicable ISO 14001 or similar environmental management system validation.

V

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None

III.Corporate Governance Implementation Status Item (3) If the Company monitored the impact of climate change on the Company’s business operations, checked greenhouse gas inventory and established corporate strategies on energy conservation and reduction on carbon and greenhouse gas emission?

3. Preserving Public Welfare (1) If the Company followed relevant labor laws, and internationally recognized human rights principal,

Reason for Non-implement Yes

No

Summary Description

V

(3)a. Carbon emissions reduction goal: To comply with the government's energy conservation and carbon emissions reduction policy, the Company installed energy efficient equipment and educates employees in taking public transportation in their commute in order to reduce the air pollution and carbon dioxide emissions in Neihu Technology Park. The Company's target is to reduce carbon emissions by 5% this year. b. Energy saving goals: (a)The Systex Neihu headquarters building lowered its total electricity consumption in 2016 by 92,960 kWhs from 2015, which equals of a reduction of 49 tonnes of CO2 emissions and a conservation ratio of 1.5%. Variable frequency pumps and control system were installed in the air-conditioning cooling tower of the building at the end of 2016. The equipment is expected to lower electricity consumption by 120,000 kWhs, the equivalent of 63 tonnes of CO2 emissions. (b)The Company adjusted the temperature of the air-conditioning system to above 25 to 26 degrees Celsius. The pumps in the Systex Neihu headquarters building shall all be replaced by variable frequency pumps in 2017 to achieve higher energy savings and lower energy consumption of the chillers. The Company also adjusted the contracted capacity of each building with the goal of reducing carbon emissions by 5% this year. c. Waste reduction goal: The Company educates employees on recycling waste paper whenever possible and adopts systematic and digitized forms to replace paper application forms with the goal of reducing produced waste by 10% this year. d. Water conservation goal: The headquarters building of the Company installed automatic sensor faucets and adjusted the flush volume of toilets for the purpose of conserving water with the goal of reducing water consumption by 10% this year.

V

(1) In addition to following the regulations in the Labor Standards Act and related laws, the Company also established an Employee Welfare Committee to provide various subsidies and organize events. In order to develop employer-employee

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None

III.Corporate Governance Implementation Status Item and established appropriate management policies and procedures? (2) If the Company established grievance channel for employees and handled complaints appropriately? (3) If the Company provided safe and healthy working envirnonment to employees and conducted relevant training on safety and health management to employees periodically?

(4) If the Company established a periodical communication mechanism to employees and notified employees of significant changes that may impact the Company’s operation in a proper manner? (5) If the Company provided career planning, relevant training and skill development for employees?

Reason for Non-implement Yes

No

Summary Description relationships and foster cooperation, the Company has organized employer-employee meetings in accordance with regulations.

V

(2) The Company has established an Audit Committee mailbox and President mailbox for colleagues to file complaints or report on illegal activities.

V

(3) The Company conducts a "fire safety equipment inspection report" once every year to ensure the effectiveness of fire safety equipment in the building. The Company also organizes fire safety education and training every six months to enhance the education of fire safety and the management of workplace safety. The Company submits a report on the maintenance of the building every two years to ensure its safety. The Company also appoints general physicians to provide employees with consulting services every two months and educate employees on the correct way of seeking medical treatment. The building is equipped with automated external defibrillator (AED) to respond to sudden cardiac arrests and the Company provides periodic CPR and other first aid education. (4) The Company established the SYSTALK Club on Facebook to use the social media to display the Company's related activities and share information. It also uses the platform as a place to exchange opinions. A "Corporate Bulletin Board" is set up on the employee enterprise information portal (EIP) to provide related news and information of the Company and event information.

V

V

(5) Six categories of training are established in the Company's talent development system in accordance with the Company three core competitive strengths (project management, software development and integration, industry knowledge) and structure of job functions. The six categories include basic knowledge, personal performance, quality management, managerial development, technical development, and project management. They are used to cultivate top talents to be optimal IT strategy partners for clients. The Company conducts an inventory of key talents each year, arranges appropriate

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III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes

(6) If the Company established any consumer protection measures with regard to the process of research and development, procurement, production, operations and services and its grievance channels?

V

(7) If the Company followed relevant laws and regulations and international guidelines on marketing and labeling of products and services?

V

No

Summary Description education plans, and outline personal career development plans in accordance with job requirements. It allows employees to select the most suitable method of learning by providing diversified channels for continuous studies and retain their competitive capabilities. (6) The Company is a leading company in Taiwan's information service industry and it places high value on the protection of consumer rights in procedures including the provision, establishment, management, maintenance and operations of information services. The Company provides comprehensive systems and complaint procedures in accordance with individual requirements based on the operating methods and service procedures derived from the nature of the product and services in order to protect consumer rights. For instance, a customer service center has been established for financial related products and an online service and support center has been established for product and system maintenance to provide high quality support services to clients. The Company also actively introduced international certification and standards such as the ISO 9001 quality management certification, ISO 27001 information security management system, ISO 22301 business continuity management system, BS 10012 personal information management system etc. to enhance information security management and ensure data, system, equipment, and network security as well as personnel security, legal compliance, customer interests, protection of personal information etc. (7)a. The Company's "Information Management and Integration Service Department" received ISO 9001 quality management certification, ISO 27001 information security management certification, ISO 22301 business continuity management system certification, and BS 10012 personal information management system certification; the "Internet Operations Center and Finance Network Service Department" received ISO 27001 information security management certification. b. The design and construction services for government websites provided by the Company all comply with related regulations and international norms such as: the handicap-free web development guidelines, website version and content management regulations, government website construction and

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III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes

(8) Prior to engaging commercial dealings, if the Company assessed whether the supplier had track record o negative impact on the environment and society?

V

(9) If the contracts with major suppliers stipulated a clause that allowed the Company to terminate or rescind the contract at any time shall the suppliers violate CSR policies and cause significant impact to the environment and society?

V

No

Summary Description operations reference guide, Guidelines in Operation of Web 2.0, and the foreign language self-detection website system. They have also received multiple awards including the administrative institution website contest awards, innovative service quality awards, and website operations performance review awards. (8) Before conducting business with a supplier, the Company reviews its company registration form, business tax declaration form, and the supplier's basic information form. The Company also searches for related information on the Ministry of Finance and Ministry of Economic Affairs websites to verify whether it has violated related laws or social norms. The Company also periodically conducts investigation and monitoring on suppliers which have been reported as having bad credit to prevent unlawful activities. (9) The Company encourages its suppliers to participate in related CSR activities and comply with related requirements. If the Company learns of a violation by the supplier and is provided with specific evidence, investigations shall commence immediately. If the violation was proven to be true, the supplier shall be required to make improvements within a specified time period; in the event of severe violations, the supplier shall no longer be allowed to conduct business with the Company.

4. Enhancing Information Disclosure V (1) The Company discloses its related CSR information and charitable social events (1) If the Company disclosed CSR report None and other relevant information on its on the corporate website. corporate website and MOPS? 5. If the Company established any guideline of corporate social responsibility in accordance with “Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies” and please state the implementation status of the guideline and any reasons for non-implementation: N/A 6. .Other material information that helps to understand the operation of corporate social responsibility: (1) The Company actively and periodically discloses its related CSR information and multiple charitable social events on the corporate website. In 2016, the Company continued its dream-fulfillment project with the Hua Kuang Intelligence Development Center and continues to organize pastry purchase events to carry on the spirit of love and caring. The Company encourages colleagues to actively participate and use the power of kindness to help the angels of Hua Kuang maintain their capabilities for independence and help the Center to continue to provide social functions including occupational training, job placement, and activities in order to help more individuals with intellectual disabilities and disadvantaged families. (2) In 2016 the Company organized the Young Turing Program for the purpose of uncovering young software talents and use forces in the private sector to provide resources

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III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes

No

Summary Description

and encourage Taiwanese youths to join the software industry by teaming up with enterprises in the industry with similar perspective. The Program cultivates brilliant young software talents to achieve breakthroughs in a world where standards have been typically set by the West. The 2016 YTP programming challenge competition included close to 60 senior high school students from Taiwan in 20 teams. Students with outstanding performance can receive prizes and scholarships and they also have opportunities to visit new start-ups or universities in Silicon Valley. Systex Group dedicates its efforts on uncovering, encouraging, and assisting young talents and invests resources in helping them in hopes that they could become innovators and entrepreneurs to increase the standards of the software industry in Taiwan and build Taiwan's soft power. 7. Please provide further description for company product or corporate social responsibility report which is certified by relevant organization: None.

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III.Corporate Governance 3.4.6 Implementation of Ethical Corporate Management Best Practice Principles Implementation Status Item 1. Ethical Corporate Management Policy (1) If the Company clearly specified ethical corporate management and process in its internal policies and external document? If the Board of Directors and the management team committed to enforce such policies rigorously and thoroughly? (2) If the Company established any measures to prevent unethical conduct and clearly prescribed the specific ethical management practice including operational procedures, guiding principles, penalties and grievance channels? (3) If the Company adopted any preventive measures against business activities specified in the second paragraph of Article 7 of Ethical Corporate Management Best Practice Principles for TWSE/GTSE Listed Companies or in other business activities within the business scope which are possibly at a higher risk of being involved in an unethical conduct?

Reason for Non-implement Yes

No

Summary Description

V

(1) The Company has established the "Ethical Corporate Management Best Practice Principles" to assist the Company in fostering a corporate culture of ethical management and sound development, and offer a reference framework for establishing good commercial practices.

V

(2) The Company has established the "Ethical Corporate Management Operating Procedures and Code of Conduct" for the employees to maintain principles of honesty and integrity when conducting business and abide by laws and regulations while complying with professional code of conduct. The Company also established the "Employee Code of Conduct" to convert the Company's business ideals and values into institutionalized regulations.

V

(3) The "Employee Code of Conduct" was established for the employees to abide by laws and regulations, comply with professional code of conduct, and maintain principles of honesty and integrity when conducting business.

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None

III.Corporate Governance Implementation Status Item 2. Implementation of Ethical Corporate Management (1) If the Company checked whether the respective counterparty holds any record of unethical misconduct and if the contract terms required the compliance of ethical corporate management policy? (2) If the Company set up a unit, under the direct supervision of the Board of Directors, to handle the implementation of ethical corporate management and reported to the Board of Directors periodically? (3) If the Company established a policy on prevention of conflict ofinterests, provided appropriate reporting channel and executed rigorously and thoroughly?

(4) If the Company established an effective accounting system and internal control system to implement ethical corporate management, and if internal auditing department or CPA conducted periodic auditing?

Reason for Non-implement Yes

No

Summary Description

V

(1) Before conducting transactions, the Company shall assess the legitimacy of the transaction counterparty and consider whether it has prior records that are unethical. The Company maintains business ideals of honesty and integrity and it has established sound corporate governance and risk management mechanisms to be implemented in internal management and external business activities.

V

(2) The Company's various functional departments promote ethical corporate business ideals and supervise one another through organizational arrangements. The Audit Department is responsible for day-to-day implementation of various internal auditing tasks and the results of audits are reported to the Board of Directors.

V

(3) The Company has established a stakeholder area on the company website and assigned a contact window to be directly responsible for communications with stakeholders. The Company respects and maintains their legal rights and they may contact the Company through telephone or email at any time. The email of the Audit Committee is also established on the company website as a channel for stakeholders to provide suggestions or file complaints. (4) The Company established its accounting system and internal control system in compliance with regulations. The Audit Department established the Enforcement Rules of Internal Auditing and uses the Rules to implement and evaluate the current control systems, the effectiveness of procedures, and the compliance system. The Audit tasks mainly include audit plans approved by the Board of Directors as well as project auditing or review in accordance with requirements. The internal audit and review of the self-inspections conducted by various units and results of comprehensive

V

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None

III.Corporate Governance Implementation Status Item

(5) If the Company organized training and awareness programs on ethical corporate management to internal and external parties?

3. Implementation of whistleblowing system (1) If the Company established a whistleblowing and reward system? Upon receiving a reported case, is there a dedicated personnel handling the reported case?

(2) If the Company established standard operational procedures and relevant information confidentiality policy for investigation of reported cases? (3) If the Company established any measures for protecting whistleblowers from inappropriate disciplinary actions? 4. Information Disclosure (1) If the Company disclosed ethical corporate management policy

Reason for Non-implement Yes

V

V

V

No

Summary Description self-inspections are reported to the Board of Directors as evaluation of the effectiveness of the overall internal control system and the basis of the submission of the Statement on Internal Control. (5) The Company conducts education and training for employees and announces the "Employee Code of Conduct" on the Company's internal website. The Company also notifies each employee through mail each month to remind them to abide by laws and regulations, comply with professional code of conduct, and maintain principles of honesty and integrity when conducting business.

(1)The Company has established channels for filing internal complaints. If an employee learns of another employee's violation of the Employee Code of Conduct or any actions that could potentially conflict with company interests, he/she may email detailed information to the President's or the Audit Committee's mailbox. Dedicated personnel shall be responsible for processing and all complaints shall remain completely confidential. Verification shall be conducted through independent channels to protect the individual reporting the violation. (2) The Company has established the "Employee Code of Conduct" and provides complete confidentiality for whistleblowers and reported items.

V

(3) The company protects the identity of whistleblowers from inappropriate treatment and threats that may arise from the report.

V

(1) The Company discloses its ethical business policies in the internal regulations, corporate website, and annual reports.

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None

None

III.Corporate Governance Implementation Status Item

Reason for Non-implement Yes

No

Summary Description

and its status of implementation via corporate website or Market Observation Post System? 5. If the Company established any guideline of ethical business conduct in accordance with “Ethical Corporate Management Principles for TWSE/TPEx Listed Companies”, please state the implementation status of the guideline and any reasons for non-implementation? There have been no differences.

Best

Practice

6. If any other information that helped to understand the operation of ethical business conduct and its implementation? (1) The Company's "Rules and Procedures for Board of Directors Meetings" stipulates a recusal system for avoiding conflict of Directors' interests. Directors shall uphold a high level of self-discipline and in the event of a conflict of interest as Director or as a representative of an institutional entity with respect to a specific matter on the agenda that could potentially damage company interests, the Director may not take part in the discussion and voting processes nor represent any other Director during voting. (2) The Company's "Internal Material Information Disclosure Operating Guidelines" established regulations on the confidentiality of confidential information obtained in business activities to prevent inappropriate leaks of information.

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III.Corporate Governance

3.4.7 Corporate Governance Guidelines and Regulations Please refer to the Company’s website at www. systex.com. 3.4.8 Other Important Information Regarding Corporate Governance A. The Company has established the "Internal Material Information Disclosure Operating Guidelines" to prevent inappropriate disclosure when the Company's Directors, managerial officers or employees process or disclose material information and maintain consistency and accuracy in disclosure of information. The main contents are: (a) Applicable targets, scope of internal material information, and entities responsible for implementation. (b) Operating procedures for keeping internal material information confidential. (c) Operating procedures for disclosing internal material information. (d) Processing irregularities and violations. The "Internal Material Information Disclosure Operating Guidelines" have been passed by the Company's Board of Directors in a resolution and announced on the Company's internal website. To implement the Company's spokesperson system and confidentiality of internal material information, the Company has established the "Internal Material Information Disclosure Operating Guidelines" and the "Internal Material Information Confidentiality Firewall Operating Guidelines" which are also announced on the Company's internal website. B. Other Important Information Regarding Corporate Governance: please refer to pages 43-46 of “Corporate Governance Implementation Status and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies” “ No.8.

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III.Corporate Governance

3.4.9 Internal Control System Execution Status A. Statement of Internal Control System Please refer to page 43 of the Chinese annual report. B. If CPA was Engaged to Conduct a Special Audit of Internal Control System, Provide Its Audit Report: None. 3.4.10 Major Resolutions of Shareholders’ Meeting and Board Meetings A. Important resolutions from the annual shareholders' meeting on June 17, 2016 and current status: (a) Approved the amended "Articles of Incorporation." (b) Ratified the business report and the financial statements for 2015. (c) Ratified the earnings distribution proposal for 2015. (d) Approved the proposal for distributing cash dividend from the Company's capital reserve. (e) Approved the amended "Operating Procedures for Fund Lending. (f) Election of 8th-term Directors. (g) Approved the removal of non-compete clause for 8th-term Directors. Review of the current status of the implementation of resolutions: (a) The 2015 earnings distribution proposal and the proposal for distributing cash dividend from the Company's capital reserve have been carried out and all dividends have been distributed to shareholders on July 27, 2016 after the resolution in the annual shareholders' meeting. (b) The amended "Articles of Incorporation" and the "Operating Procedures for Fund Lending" have come into force after approval of the annual shareholders' meeting. (c) The election of 8th-term Directors had been completed. B. Important resolutions of Board meetings in 2016 and during the current fiscal year up to the date of publication of the annual report: (a) March 22, 2016: i. Approved the " Statement of Internal Control System" for 2015. ii. Approved the business report and the financial statements for 2015. iii. Approved the 2015 earnings distribution proposal. iv. Approved the proposal for distributing cash dividend from the Company's capital surplus. v. Approved the amended "Operating Procedures for Fund Lending." vi. Approved the proposed baseline date for issuance of new shares associated with employee exercising stock option plan. vii. Approved the proposal for the election of 8th-term Directors in the 2016 general shareholders' meeting. viii. Approved the nominated candidate list for Directors and Independent Directors. ix. Approved the removal of non-compete clause for 8th-term Directors. x. Approved the proposed calling of 2016 general shareholders' meeting. xi. Approved the 2015 employee remuneration distribution plan. xii. Approved the 2015 Director remuneration distribution plan. xiii. Approved the review results of managerial officers for the second half of 2015 and the calculation and distribution of non-financial indicator bonuses. xiv. Approved the 2016 KPI settings and remuneration structure for managerial officers. xv. Approved the year-end bonus, first group performance reward, and annual remuneration for managerial officers for 2015. (b) May 5, 2016: i. Reviewed and passed candidate qualifications for the 8th-term Directors and Independent Directors. ii. Approved the evaluation report concerning the independence of this Company's certifying accountant. iii. Formulated and passed the Company's financing loan credit line contract with financial institutions. iv. Approved the proposed endorsement guarantee for Systex Group (China) Ltd.

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III.Corporate Governance v. Approved the proposed endorsement guarantee for Systex Ucom (Shanghai) Information Technology Co., Ltd. (c) June 17, 2016 (I): i. Election of the Company's Chairman. ii. Approved the proposal for the establishment of an Audit Committee as a functional committee under the Board of Directors. iii. Approved the proposal for the establishment of a Remuneration Committee as a functional committee under the Board of Directors. (d) June 17, 2016 (II): i. Approved the proposal for investment in the cumulative corporate bonds without maturity date of Nan Shan Life Insurance Co., Ltd. (e) August 11, 2016: i. Approved the proposed endorsement guarantee for Systex Group (China) Ltd. by Systex Information (Shanghai) Ltd. and Ucom Information Ltd. (Shanghai). ii. Approved the amended "Regulations on Director Remuneration." iii. Approved the review results of managerial officers for the first half of 2016 and the calculation and distribution of non-financial indicator bonuses. iv. Approved the group performance reward and second employee bonus distribution for managerial officers for 2015. (f) October 11, 2016: i. Approved the subsidiary Systex Capital Group, Inc.'s disposition of shares in AFE Solutions Limited and Bisnews International Limited. (g) November 10, 2016: i. Approved the disposition of shares in Systex Solutions (HK) Limited by subsidiary Kimo.com (BVI) Corporation. (h) December 22, 2016: i. Approved the 2017 Internal Control Plan. ii. Approved the consolidated operating budget for 2017. iii. Formulated and passed the Company's financing loan credit line contract with financial institutions. iv. Approved the Company's endorsement guarantee for Systex Software & Service Corporation. v. Approved the Company's endorsement guarantee for Systex Solutions Corporation. vi. Approved the amended "Stock Trading Halt and Resumption Application Procedure." vii. Approved the amended "Corporate Governance Principles." (i) January 23, 2017: i. Approved the Company's disposition of shares in Shenzhen Forms Syntron Information Co., Ltd. ii. Approved the subsidiary Systex Capital Group, Inc.'s loans to subsidiary Systex Solutions (HK) Limited. (j) March 23, 2017: i. Approved the" Statement of Internal Control System" for 2016. ii. Approved the amended "Internal Control System." iii. Approved the business report and the financial statements for for 2016. iv. Approved the 2016 earnings distribution proposal. v. Approved the proposal for distributing cash dividend from the Company's Capital Surplus. vi. Approved the 2016 employee remuneration distribution plan. vii. Approved the 2016 Director remuneration distribution plan. viii. Approved the amended "Procedures for the Acquisition and Disposal of Assets." ix. Approved the proposed calling of 2017 general shareholders' meeting. x. Approved the Company's financing loan credit line contract with financial institutions. xi. Approved the endorsement guarantee for Systex Group (China) Ltd.

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III.Corporate Governance xii. Approved the amended regulations on salary and remuneration of managerial officers. xiii. Approved the review results of managerial officers for the second half of 2016 and the calculation and distribution of non-financial indicator bonuses. xiv. Approved the distribution of year-end bonus, group performance reward and employee remuneration, excess profit bonus and annual remuneration for managerial officers for 2016. xv. Approved the 2017 KPI settings and remuneration structure for managerial officers. (k) April 14, 2017: i. Approved the cancellation of agreement for transfer of shares of Shenzhen Forms Syntron Information Co Ltd. (l) May 4, 2017: None. 3.4.11 Major Issues of Record or Written Statements Made by Any Director or Independent Director Dissenting to Important Resolutions Passed by the Board of Directors: None. 3.4.12 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit and R&D: None. 3.5 Information Regarding the Company’s Audit Fee and Independence Audit Fee Accounting Firm

Name of CPA

Period Covered by CPA’s Audit

Deloitte & Touche Accounting Firm

Lin, Shu-Wan Shue, Shiow-Ming

2016.01.01~2016.12.31

Fee Items

Audit Fee

Fee Range 1

Under NT$ 2,000,000

2

NT$2,000,00 ~ NT$4,000,000

3

NT$4,000,00 ~ NT$6,000,000

4

NT$6,000,00 ~ NT$8,000,000

5

NT$8,000,00 ~ NT$10,000,000

6

Over NT$100,000,000

Non-audit Fee

Remarks

Total

V

V

V

Unit: NT$ thousands Accounting Firm

Deloitte & Touche Accounting Firm

Name of CPA

Non-audit Fee Period Audit Covered by Remarks Human Fee System of Company Others Subtotal CPA’s Audit Design Registration Resource

Lin, Shu-Wan Shue, Shiow-Ming

5,500

-

-

-63-

-

220

220

2016.01.01~ 2016.12.31

III.Corporate Governance

3.6 Information Regarding the Replacement of CPA 3.6.1 Regarding the former CPA Replacement Date

January 1, 2016

Replacement reasons and explanations

The internal adjustment of accounting firms. Parties

Describe whether the Company terminated or the CPA did not accept the appointment Other issues (except for unqualified issues) in the audit reports within the last two years

Status Termination of appointment No longer accepted (continued) appointment

CPA

The Company

N/A

N/A

N/A

N/A

Modified unqualified opinion The financial statements of part of investments accounted for using equity method are based solely on the reports of the other auditors. Accounting principles or practices Disclosure of Financial Statements Yes Audit scope or steps

Differences with the company Others None

V

Remarks/specify details:

Other Revealed Matters

None

3.6.2 Regarding the successor CPA Name of accounting firm

Deloitte & Touche Accounting Firm

Name of CPA

Lin, Shu-Wan ; Shue, Shiow-Ming

Date of appointment

January 1, 2016

Consultation results and opinions on accounting treatments or principles with respect to specified transactions and the company's financial reports that the CPA might issue prior to the engagement. Succeeding CPA’s written opinion of disagreement toward the former CPA

-64-

None

None

III.Corporate Governance 3.7 Audit Independence If the chairman, president, and financial or accounting manager of the Company who had worked for the independent auditor or the related party inthe most recent year, the name, title, and the term with the independent auditor or the related party must be disclosed: None. 3.8 Changes in Shareholding of Directors, Managers and Major Shareholders 2016

As of April 18, 2017

Title

Name

Holding Increase (Decrease)

Pledged Holding Increase (Decrease)

Holding Increase (Decrease)

Pledged Holding Increase (Decrease)

Chairman

Huang, Tsong-Jen

-

-

-

-

Director/ President

Lin, Lung-Fen

-

-

-

-

Director/ Chief Strategy Officer

Cheng, Deng-Yuan

(10,000)

-

(30,000)

-

Director

Lu, Ta-Wei

(1,700,000)

-

-

-

Director

Shaw, Shung-Ho

200,000

-

-

-

Director

Hsieh, Chin-Ho

-

-

-

-

Director

Huang, Ting-Rong (Note1)

-

-

-

-

Director

Huang, Chi-Rong (Note1)

-

-

-

-

Director

Joway Investment Co.,Ltd

-

-

-

-

Lin, Chih-Min

-

-

-

-

Huang, Yi-Shiung

-

-

-

-

Huang, Jih-Tsan

-

-

-

-

Cheng, Huang-Yen

-

-

-

-

Cheng, Wen-Feng

-

-

-

-

Vice President/ CFO

Chung,Chih-Chun

-

-

-

-

Senior Vice President

Yang, Shih-Chung

-

-

-

-

Senior Vice President

Fan, Jee-Der

-

(151,000)

-

Senior Vice President

Su, Kou-Lin

-

-

-

Vice President

Chang, Huang-Yu

-

-

-

Vice President

Yeh, Chen-Min

-

-

-

Vice President

Chang, Ying-Chin

75,000

-

-

-

Vice President

Lin, Wen-Kuei

125,000

-

(33,000) (Note 3)

-

Vice President

Lee, Su-Yue

-

-

-

-

Vice President

Tang, Yin-Soon

-

-

-

-

Accounting Manger

Cheng, Yuan-Yih

-

-

-

-

Vice President/ CHO

Huang, Yu-Jen (Note 2)

N/A

N/A

-

-

Vice President

Hsiao, Wei-Chun (Note 2)

N/A

N/A

-

-

Director Representative Director Representative Independent Director Independent Director Independent Director

118,000 (12,000) -

-65-

III.Corporate Governance 2016

As of April 18, 2017

Title

Name

Holding Increase (Decrease)

Pledged Holding Increase (Decrease)

Holding Increase (Decrease)

Pledged Holding Increase (Decrease)

Vice President

Fu, Hsiao-Chi (Note 2)

-

-

N/A

N/A

Vice President

Hsieh, Shu-Heng (Note 2)

-

N/A

N/A

Vice President

Huang, Chun-Chieh (Note 2)

-

-

-

-

Major Shareholder

None

N/A

N/A

N/A

N/A

60,000

Note 1: The comprehensive election of Directors was held on June 17, 2016 Huang, Ting-Rong and Huang, Chi-Rong(term expired on June 16, 2016), originally representatives of institutional director Joway Investment Co.,Ltd., were elected under their own names (their terms started on June 17, 2016). Note 2: Fu, Hsiao-Chi left in 2016.10, Hsieh, Shu-Heng retired in 2016.12, Huang, Chun-Chieh left in 2017/02, Huang, Yu-Jen took office in 2017/03 and Hsiao, Wei-Chun were promoted in 2017.03.(The increase or decrease in the number of shares held by the above-mentioned persons is the change before or after the expiry.) Note 3: Lin, Wen-Kuei filed for the transfer of 33,000 shares on April 18, 2017 (2017 shareholders' regular closing days), this transfer was not included in the count. 3.8.1 Shares Trading with Related Parties Name Director Lu, Ta-Wei Director Lu, Ta-Wei

Reason for Date of Transferee Transfer Transaction Given

2016.03.28

Given

2017.05.15

Relationship between Transferee and Directors, Supervisors, Managers and Major Shareholders

Hung, Tsai-Ling Hung, Tsai-Ling

3.8.2 Shares Pledge with Related Parties: None.

-66-

Shares

Transaction Price (NT$)

spouse

1,700,000

N/A

spouse

350,000

N/A

III.Corporate Governance

3.9 Relationship among the Top Ten Shareholders As of Apirl 18, 2017

Name

Current Shareholding

Shares Joray CO.,LTD Chairman: Lai, Yung-Sung Hanmore Investment Corp. Chairman: Wu, Cheng-Huan Huang, Tsong-Jen Ching Pu Investment Corp. Chairman: Huang, Tsong-Jen Chunghwa Post Co.,Ltd. Chairman: Weng, Wen-Chi Yu Yeh Investment Corp. Chairman: Wan, Chia-Chen Asiavest Capital Co.,Ltd Chairman: Huang, Tsong-Jen Hung Hsin International Ltd. Chairman:Cho, Yi-Tsui

%

Name and Relationship Shareholding Between the Company’s Top Spouse’s/minor’s by Nominee Ten Shareholders, or Spouses Shareholding Remarks Arrangement or Relatives Within Two Degrees Shares

%

Shares

%

Name

Relationship

23,072,559 8.56

-

-

-

-

-

-

21,316,678 7.91

-

-

-

-

-

-

-

Ching Pu Investment Corp. Asiavest Capital Co.,Ltd

20,755,750 7.70

2,008,634

0.75

-

Chairman Chairman

12,981,476 4.82

-

-

-

-

Huang, Tsong-Jen

Chairman

11,924,000 4.43

-

-

-

-

-

-

7,108,000 2.64

-

-

-

-

-

-

3,500,000 1.30

-

-

-

-

Huang, Tsong-Jen

Chairman

2,377,661 0.88

-

-

-

-

-

-

Norges Bank

2,225,700 0.83

-

-

-

-

-

-

NEW TALENT LIMITED

2,213,938 0.82

-

-

-67-

III.Corporate Governance

3.10 Ownership of Shares in Affiliated Enterprises Unit: shares/ % Affiliated Enterprises

Ownership by the Company Shares

Kimo.com (BVI) Corp.

%

As of December 31, 2016

Direct or Indirect Ownership by Directors, Supervisors, Managers Shares %

Total Ownership Shares

%

28,500,000

100.0

0

0

28,500,000

100.0

3,550

100.0

0

0

3,550

100.0

Ching Pu Investment Corp.

126,151,931

100.0

0

0

126,151,931

100.0

Systex Software & Service Corp.

54,450,000

100.0

0

0

54,450,000

100.0

Taifon Computer Co.,Ltd

20,000,000

100.0

0

0

20,000,000

100.0

Golden Bridge Information Corp.

23,000,000

100.0

0

0

23,000,000

100.0

Systex Solutions Corp.

26,000,000

100.0

0

0

26,000,000

100.0

Concord System Management Corp.

20,221,673

100.0

0

0

20,221,673

100.0

Nexsys Corp.

15,500,000

100.0

0

0

15,500,000

100.0

Naturint Ltd.

2,000,000

100.0

0

0

2,000,000

100.0

ETU Corp.

9,000,000

78.3

710,000

6.2

9,710,000

84.5

Hanmore Investment Corp.

9,640,680

48.9

0

0

9,640,680

48.9

Systemweb Technologies Co., Ltd

2,450,000

33.3

0

0

2,450,000

33.3

20,000

20.0

0

0

20,000

20.0

Yan Key Information Corp.

1,500,000

19.0

0

0

1,500,000

19.0

Sanfran Technology Inc.

2,114,594

13.8

0

0

2,114,594

13.8

900,000

4.5

15,914,470

79.6

16,814,470

84.1

Systex Capital Group, Inc.

Systex Infopro Co., Ltd.

Syspower Corp.

Note: Affiliated enterprises have been invested by equity method.

-68-

IV. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital A. Issued Shares As of April 18, 2017 Authorized Capital

Paid-in Capital

Remark Capital Increased by Other Assets Other than Cash

Month/ Year

Par Value (NT$)

2016/01

10

400,000,000 4,000,000,000 268,733,304 2,687,733,040

Employee options exercised: NT$1,450,000

-

2016/03

10

400,000,000 4,000,000,000 269,393,304 2,693,933,040

Employee options exercised: NT$6,200,000

-

Amount (NT$)

Shares

Amount (NT$)

Shares

Sources of Capital

B. Type of Stock As of April 18, 2017 Authorized Capital Type of Stock

Remarks Issued Shares

Un-issued Shares

Total Shares

269,393,304

130,606,696

400,000,000

Common Shares

None

C. Information for Shelf Registration:None.

4.1.2 Composition of Shareholders As of April 18, 2017 Government Agencies

Financial Institutions

Other Juridical Persons

Domestic Natural Persons

Foreign Institutions & Natural Persons

Total

Number of Shareholders

2

1

108

36,974

209

37,294

Shareholding (shares)

1,490,000

11,924,000

90,728,310

121,113,484

44,137,510

269,393,304

Holding Percentage (%)

0.55

4.43

33.68

44.96

16.38

100.00

Item Type of Shareholders

-69-

IV. Capital Overview 4.1.3 Distribution of Shareholding A. Common Shares As of April 18, 2017 Class of Shareholding (Unit: Share)

Number of Shareholders

Shareholding (Shares)

Percentage (%)

1

~

999

21,174

5,727,186

2.13

1,000

~

5,000

13,151

26,329,505

9.77

5,001

~

10,000

1,539

11,916,280

4.42

10,001

~

15,000

414

5,306,827

1.97

15,001

~

20,000

286

5,276,488

1.96

20,001

~

30,000

232

5,914,788

2.20

30,001

~

50,000

162

6,490,166

2.41

50,001

~

100,000

142

9,969,517

3.70

100,001

~

200,000

80

11,351,083

4.21

200,001

~

400,000

39

10,912,014

4.05

400,001

~

600,000

20

10,108,503

3.75

600,001

~

800,000

9

6,245,498

2.32

800,001

~

1,000,000

12

10,606,846

3.94

34

143,238,603

53.17

37,294

269,393,304

100.00

1,000,001 or over Total B. Preferred Shares: None.

4.1.4 Major Shareholders As of April 18, 2017 Shareholding Shareholder's Name

Shares

Percentage (%)

Joray CO., LTD

23,072,559

8.56

Hanmore Investment Corp.

21,316,678

7.91

Huang, Tsong-Jen

20,755,750

7.70

Total

65,144,987

24.17

-70-

IV. Capital Overview 4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Unit: NT$ Year

2015

2016

Current year to March 31, 2017

Diluted

85.00

62.00

70.00

Adjusted

85.00

62.00

-

Diluted

44.65

46.20

57.00

Adjusted

44.65

46.20

-

Diluted

65.61

55.11

63.56

Adjusted

65.61

55.11

-

Before Distribution

53.15

51.74

51.68

After Distribution

53.15

51.74

-

Weighted Average Shares

246,072,776

246,074,153

245,983,453

Diluted

2.29

4.50

1.35

Adjusted

2.29

4.50

-

5.00

5.00

-

-

-

-

-

-

-

-

-

-

Price / Earnings Ratio (Note 1)

25.83

11.99

-

Price / Dividend Ratio (Note 2)

11.83

10.79

-

Cash Dividend Yield Rate (Note 3)

8.45%

9.27%

-

Items Highest Market Price Market Price per Share

Lowest Market Price Average Market Price

Net Worth per Share

Earnings per Share

Earnings Per Share

Cash Dividends Dividends per Share

Return on Investment

Dividends from Retained Earnings Dividends from Capital Surplus Accumulated Undistributed Dividends Stock Dividends

Note 1: Price / Earnings Ratio = Average Market Price / Earnings per Share Note 2: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share Note 3: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price

-71-

IV. Capital Overview 4.1.6 Dividend Policy and Implementation Status A. Dividend policy under the Articles of Incorporation In accordance with the overall environment and the industry's characteristics of growth as well as the Company's long-term financial plans for sustainable and stable development, the Company has adopted a residual dividend policy, which requires that annual funding requirements based on the Company's future capital budget plans are duly assessed and that required funding in earnings is retained before residual earnings are distributed as dividend. The distribution procedures are as follows: (1) The optimal capital budget is determined. (2) The amount of capital required to satisfy the capital budget in Paragraph (1) is determined. (3) The amount of funding required for financing to be supported by the retained earnings (the remaining can be supported through cash capital increase or corporate bonds etc.) is determined. (4) An appropriate amount of the residual earnings shall be retained in accordance with operational requirements before dividends are distributed to shareholders. The Company distributes dividends through cash or stocks and cash dividends are prioritized. If dividends are distributed in stocks, the stock dividends shall not exceed 50% of the total dividends issued in the current year. The distribution of dividends may be dependent on the Company's current and future investment environment, funding requirements, domestic and foreign competition, and capital budgets while taking into consideration shareholder interests, balanced dividends, and the Company's long-term financial plans. The Board of Directors shall formulate dividend distribution methods or related options in accordance with the law and submit them to the shareholders' meeting for discussion and resolution. B. Implementation status (1) The 2016 annual shareholders' meeting resolved to distribute NT$673,483,260 in 2015 earnings and NT$673,483,260 in capital reserve. Based on the 269,393,304 shares in external circulation, each share shall receive a cash dividend of NT$5, the smallest unit of which is one dollar of the common currency (NT$), decimals excluded. (2) The 2015 earnings distribution and cash dividend from capital reserve have been distributed to shareholders on July 27, 2016.

-72-

IV. Capital Overview C. The proposal for the distribution of 2016 profits for 2017 Annual Shareholders’ Meeting Systex Corporation Earnings Distribution Porposal Decmber31, 2016 Unit: NTD Amount Items Subtotal Beginning unappropriated retained earnings

Total 1,587,221,713

Adjustment for investments accounted for using equity method

(7,497,500)

Remeasurement on net defined benefit plan

(6,678,000)

Add: Net income of 2016

1,108,267,790

Retained earnings available for distribution

2,681,314,003

Distribution items Legal reserve

(110,826,779)

Special reserve

(64,493,835)

Cash dividends (NT$3.5/per share)

(942,876,564)

Total distribution

(1,118,197,178)

Ending unappropriated retained earnings

1,563,116,825

Chairman

Huang, Tsong-Jen

President

Lin, Lung-Fen

Accounting Manager

Cheng, Yuan-Yih

4.1.7 Employee Bonus and Directors' Remuneration A. Information Relating to Employee Bonus and Directors’ Remuneration in the Articles of Incorporation: In the event the Company makes a profit during the fiscal year it shall set aside no less than 0.1% of the profits for employee remuneration. The remuneration for Directors shall be no higher than 2%. However, priority shall be given to reservation of funds for compensation of cumulative losses, if any. The preceding employee remuneration may be paid in cash or shares, and shall be payable to employees of subsidiary companies who meet the requirements stipulated by the Board of Directors. Remuneration of directors as specified above may be distributed in cash only.

-73-

IV. Capital Overview B. The basis for estimating employee and director remuneration amounts, basis for calculating the number of shares to be distributed as employee remuneration, and the accounting treatment of the discrepancy, if any, between the actual distributed amount and the estimated amount, for the current period: In the event of a material change to the distributed amount in the Board's decision after the end of the year, adjustment that reflect the change shall be made to the originally allocated annual expenses. C. Remuneration proposals approved by the Board of Directors: a. Remuneration of employees and Directors shall be paid in cash or stock. In case of any discrepancy between the amounts and the amortized estimates for the year, the differences, reasons, and responses shall be disclosed: The Company's Board of Director's meeting on March 23, 2017 has approved the resolution to distribute NT$1,101,742 as employee remuneration and NT$22,034,836 as Directors remuneration for the year 2016. b. Amount of employee remuneration distributed in the form of stocks, as a percentage of the net income after taxes provided in the standalone or consolidated financial statements of the current period, and as a percentage of total employee remuneration: Not applicable as no employee remuneration has been distributed in the form of stocks in the year 2016. D. Discrepancies, if any, between actual distribution of employee and Directors remuneration (including the number of shares distributed, amount and stock price) and the recognized remuneration of employees and Directors and disclosure of the differences, reasons and responses: a. Actual distribution status of employee and Directors remuneration: The Company's Board of Directors resolved on March 22, 2016 to distribute NT$644,086 in employee remuneration and NT$12,881,714 in remuneration for Directors. The distribution was carried out after the passage of the amended Articles of Incorporation in the general shareholders' meeting on June 17, 2016. There were no discrepancies between the distributed amount and the amount recognized in the financial report. b. In case of any discrepancy between the proposed and recognized amounts of employee and director remuneration, the differences, reasons, and responses shall be disclosed: Not applicable.

4.1.8 Buyback of Treasury Stock: None. 4.2 Corporate Bonds: None. 4.3 Preferred share: None. 4.4 Global Depository Receipts: None.

-74-

IV. Capital Overview 4.5 Employee Stock Options 4.5.1 Issuance of Employee Stock Options Unit: NT$ Type of Stock Option

The First in 2010 Tranche

Approval date

2010.04.12

Issue date

2011.02.17

Units issued

6,800

Shares of stock options to be issued as a percentage of outstanding shares

2.52%

Duration

5 years

Conversion measures

Conditional conversion periods and percentages (%)

Issue new shares Subscribers are entitled to exercise employee stock options after a period of two years at the percentages shown below. Percentage of stock options Percentage of exercisable vesting period (cumulative) stock options (cumulative) the expiration of 2 years

60%

the expiration of 3 years

100%

Converted shares

5,695,000

Exercised amount

NT$186,733,500

Number of shares yet to be converted

0

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

NT$29.9

Unexercised shares as a percentage of total issued shares

0%

Impact on possible dilution of shareholdings

The aforementioned stock options shall be exercised over the course of three years after a period of two years has passed. The dilution to the equities of original shareholders each year is gradual and effects are therefore limited.

Note 1: The discrepancies between the number of issued shares, the number of exercised options, and the total unexercised stock options are mainly due to employee separation. Note 2: The issuance period of the current employee stock options has expired on February 16, 2016.

-75-

IV. Capital Overview 4.5.2 List of Executives Receiving Employee Stock Options and the Top Ten Employees with Stock Options As of April 18, 2017

Title

Name

President

Lin, Lung-Fen

Exercised No. of Stock Options Stock as a No. of Amount Strike Price Options Percentage of Shares (NT$ (NT$) (thousands) Shares Issued Converted thousands)

Unexercised Converted Shares as a Percentage of Shares Issued

No. of Shares Converted

1.01%

-

Strike Price (NT$)

Amount (NT$ thousands)

Converted Shares as a Percentage of Shares Issued

-

-

-

Chief Strategy Cheng, Deng-Yuan Officer

Manager

CFO Senior Vice President Senior Vice President Senior Vice President Vice President Vice President Vice President Vice President Vice President Accounting Manager Vice President CHO

Chung, Chih-Chun Yang, Shih-Chung Fan, Jee-Der Su, Kou-Lin Chang, Huang-Yu Yeh, Chen-Min

2,725

1.01%

2,725

29.9

Chang, Ying-Chin Lin, Wen-Kuei Lee, Su-Yue Cheng, Yuan-Yih Hsieh, Shu-Heng (Note) Huang, Chun-Chieh (Note)

-76-

87,922

IV. Capital Overview Exercised

Top Ten Employees

Title

Name

Deputy Vice Lin, Jen-Shou President Deputy Vice Chen, Yu-Yu President Senior Assistant Vice Lai, Chen-Kuang President Senior Assistant Vice Shen,Ming-Ching President Assistant Vice Chou, Hui-Ching President Assistant Vice Chiang, Hsiang-Mu President Assistant Vice Lin, Ping-Jung President Sales Assistant Vice Wu,Chien-Pang President Senior Huang, Chin-Hung Director Senior Sales Chou, Yu-Ju Director

No. of Stock Options Stock as a No. of Strike Price Options Percentage of Shares (NT$) (thousands) Shares Issued Converted

1,040

0.39%

940

29.9

Note:Hsieh, Shu-Heng retired in 2016.12, Huang, Chun-Chieh left in 2017.02.

-77-

Unexercised

Amount (NT$ thousands)

Converted Shares as a Percentage of Shares Issued

No. of Shares Converted

31,650

0.35%

-

Strike Price (NT$)

Amount (NT$ thousands)

Converted Shares as a Percentage of Shares Issued

-

-

-

IV. Capital Overview

4.6 Issuance of New Restricted Employee Shares: None. 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions: None. 4.8 Financing Plans and Implementation: None.

-78-

V. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope A. Main business activities (1)F113050 (2)F118010

Wholesale of Computing and

(25)F399040 Retail Business Without Shop

Business Machinery Equipment

(26)F601010 Intellectual Property

Wholesale of Computer

(27)IE01010

Software (3)F113070

Wholesale of Telecom

(28)I103060

Instruments (4)F113020

Telecommunications Number Agencies Management Consulting Services

Wholesale of Household

(29)JE01010 Rental and Leasing Business

Appliance

(30)I401010

General Advertising Services

(5)F113110

Wholesale of Batteries

(31)IZ99990

Other Industry and Commerce

(6)F119010

Wholesale of Electronic

Services Not Elsewhere

Materials (7)E605010 (8)JA02010

Classified

Computing Equipments

(32)J304010

Installation Construction

(33)F401021 Restrained Telecom Radio

Electric Appliance and

Frequency Equipments and

Audiovisual Electric Products

Materials Import

Repair Shops (9)J399010

(34)J303010 Magazine and Periodical

Software Publication

Publication

(10)IG02010 Research Development Service (11)I599990

Book Publishers

(35)J305010 Audio Tape and Record

Other Designing

Publishers

(12)JZ99050 Agency Services

(36)J201031 Technique and Performing Arts

(13)F113030 Wholesale of Precision

Training

Instruments (14)E603050 Cybernation Equipments Construction

(37)I501010

Product Designing

(38)I199990

Other Consultancy

(39)CC01101Restrained Telecom Radio

(15)F401010 International Trade

Frequency Equipments and

(16)I301010

Software Design Services

Materials Manufacturing

(17)I301020

Data Processing Services

(18)I301030

Digital Information Supply

(40)F108031 Wholesale of Drugs, Medical Goods

Services

(41)F208031 Retail sale of Medical

(19)F213030 Retail sale of Computing and

Equipments

Business Machinery Equipment

(42)CC01110Computers and Computing

(20)F218010 Retail Sale of Computer

Peripheral Equipments

Software

Manufacturing

(21)F209060 Retail sale of Stationery

(43)CC01120 Data Storage Media

Articles, Musical Instruments

Manufacturing and Duplicating

and Educational Entertainment

(44)CC01060 Wired Communication

Articles

Equipment and Apparatus

(22)G902011 Type II Telecommunications

Manufacturing

Enterprise

(45)CC01030 Electric Appliance and

(23)E701010 Telecommunications

Audiovisual Electric Products

Construction

Manufacturing

(24)F213060 Retail Sale of Telecom

(46)CC01080 Electronic Parts and

Instruments

Components Manufacturing

-79-

V. Operational Highlights (47)CB01010 Machinery and Equipment

(69)F106020

Manufacturing

Wholesale of Articles for Daily Use

(48)C701010 Printing

(70)F107030

(49)C703010 Printings Bindery and

Wholesale of Cleaning Preparations

Processing

(71)F107070

Wholesale of Animal Medicines

(50)F113010 Wholesale of Machinery

(72)F108040

Wholesale of Cosmetics

(51)IZ13010

(73)F110010

Wholesale of Clocks and

Internet Identify Services

(52)EZ05010 Apparatus Installation

Watches

Construction

(74)F110020

Wholesale of Spectacles

(53)E701030 Restrained Telecom Radio

(75)F114030

Wholesale of Motor Vehicle

Frequency Equipments and

Parts and Supplies

Materials Construction

(76)F116010

(54)E601010 Electric Appliance Construction (55)F102170

Wholesale of Food and Grocery

(56)F104110

Wholesale of Cloths, Clothes,

(57)F105050

(77)F117010

Wholesale of Fire Fighting Equipments

Shoes, Hat, Umbrella and

(78)F203030

Retail Sale of Ethanol

Apparel, Clothing Accessories

(79)F206010

Retail Sale of Ironware

and Other Textile Products

(80)F206020

Retail Sale of Articles for Daily

Wholesale of Furniture,

Use

Bedclothes Kitchen Equipment

(81)F206050

and Fixtures (58)F109070

Wholesale of Photographic Equipment

Retail of pet food and appliances

Wholesale of Stationery

(82)F207030

Articles, Musical Instruments

Retail Sale of Cleaning Preparations

and Educational Entertainment

(83)F207070

Retail Sale of Animal Medicine

Articles

(84)F208040

Retail Sale of Cosmetics

(59)F203010

Retail sale of Food and Grocery

(85)F210010

Retail Sale of Watches and

(60)F204110

Retail sale of Cloths, Clothes,

Clocks

Shoes, Hat, Umbrella and

(86)F210020

Retail Sale of Spectacles

Apparel, Clothing Accessories

(87)F213010

Retail Sale of Household

and Other Textile Products (61)F205040

Appliance

Retail sale of Furniture,

(88)F213110

Bedclothes, Kitchen Equipment

(89)F216010

and Fixtures (62)F208050

Retail Sale of Batteries Retail Sale of Photographic Equipment

Retail Sale of the Second Type

(90)F219010

Patent Medicine

Retail Sale of Electronic Materials

(63)F102020

Wholesale of Edible Oil

(91)F301010

Department Stores

(64)F102040

Wholesale of Nonalcoholic

(92)I301040

the third party payment

Beverages

(93)ZZ99999 All business items that are not

(65)F102050

Wholesale of Tea

prohibited or restricted by law,

(66)F102180

Wholesale of Ethanol

except those that are subject to

(67)F103010

Wholesale of Animal Feeds

special approval.

(68)F106010

Wholesale of Ironware

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V. Operational Highlights B. Revenue Mix (a) Sales of computer software and hardware: 72%. (b) Services revenue and other operating revenue: 28%. C. Main products and Services SYSTEX employs innovative technologies in strategic applications and high quality services to provide professional services to vertical industry applications such as the finance industry, telecommunication industry, technology manufacturing, biomedicine, retail and distribution industry, government agencies and the transportation industry as well as integration with different platforms and IT infrastructure construction. The Company utilizes its broad knowledge in the field and international organization as well as collaboration capabilities to become the first choice long-term IT partner for enterprises and a leading IT service provider. Systex positions itself as the strategic partner of its customers and views customer success as an integral part to its own accomplishments. In addition to providing customers with the most advanced information technology software and hardware, the Company also helps customers improve their procedures, increase productivity, and integrate information technology in order to continuously create value for customers. At the same time, Systex shall continue to actively strengthen project management, software development, and integrate core capabilities in domain knowledge, and persist in the research, development, and innovation of its strategic transition in order to build a sustainable and stable foundation for the Company's growth. In the future, Systex shall continue to offer enterprises one-stop IT services and provide customers with access to more valuable services that are customer-oriented and service-oriented. The Company shall also utilize its advantages in superior technology applications, service capacity, industry knowledge, and actual experience to help customers succeed and to share with them the glory of mutual growth and prosperity. SYSTEX's current products and services primarily include the following: (a) Intelligent Finance: SYSTEX entered the securities information service sector in 1989 and gained access to the international market through collaboration with Reuters in 2000. The Company has extensive experience in constructing inter-regional/currency/product information and transaction platforms. SYSTEX has developed three core capabilities in "content, platform, and networks" and four major areas of expertise including quotation information, trading, operation, wealth and risk management (ITOM) to satisfy the comprehensive demands of financial clients and professional investors. The Company's main business include investment and financial information in securities, futures, warrants, bonds, bills, and foreign exchange, and the product quotation and purchasing transaction systems. In recent years, the Company has expanded to cloud-based financial services in overseas transactions, mobile and big data applications in the finance industry, investor community management, and other FinTech innovations. (b) New Retail Omni-channel Multi-payment Options: Systex provides outsourced bill printing and segment marketing services, card payment applications, and e-government system development services. The Company integrates its existing competition advantages (payment/mobile and financial/retail knowhow) to develop specific products and services that are "consumer market-oriented." Primary services include: e-commerce platform development, maintenance, and operations services, e-government and related mobile services, corporate mobile applications and retail, mobile payment in consumer-oriented business opportunities, banking and insurance information services, data processing and discounted advertisement, multi-payment billing, O2O customer guidance services, electronic coupon businesses/2C gifts (active expansion of brand and

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V. Operational Highlights channels)/2B corporate gift services. (c) Data Technology Products and Services: The Company provides comprehensive information technologies for customers, comprehensive IT basic structure products and added-value services (server, storage, software, security, database, network, application) that are integrated into availability, security, automation, performance (ASAP) solutions. Systex remains the best partner for corporate one-stop shopping from the construction of information technology infrastructure to the design of application software information systems and comprehensive services for construction and operations management. The Company also provides high-value IT outsourcing services for enterprises and government agencies including IT equipment maintenance and operations, network added-value services, outstanding large-scale service teams, over 20 years technical services and information integration experience, a large-scale customer service center, high-end computer rooms and other services to become the optimal strategic partner for customers pursuing performance in overall operations and IT maintenance and operations. Systex also distributes world-class application software to provide corporate clients with customized and strong software procurement plans and delve deep into solutions for industry applications to help corporate clients grasp IT trends and develop innovative applications for big data for the purpose of increasing profits, reducing costs and the analysis and management of data. In addition, the Company also provides complete and comprehensive professional information education training courses, digital online courses, publication business, and smart business solutions etc. based on customer requirements and the contents of education. D. New Products Planned for Development To provide customers with information services and vertical solutions of the highest quality in the industry, Systex continues to expand R&D resources and conduct new business strategic investment to achieve vertical integration and horizontal expansion in the industry and continue the momentum for innovation. Systex's new products (services) under development and distribution are as follows: (a) Big data and cloud platform management services for the finance industry. (b) Cloud service platform for the securities and futures industry. (c) Corporate social media engagement platforms. (d) New finance terminal transaction platform/mobile finance platform/financial management platform. (e) The Internet of things and smart city solutions. (f) O2O e-commerce service integration platforms and matchmaking platforms. (g) Interactive electronic statements. 5.1.2 Industry Outlook A. Use IT innovation as a force for advancing corporate growth Since its establishment, Systex has actively pursued the planning of long-term strategies to use its leading IT advantages and robust communication with customers and partners to continue to create and lead the development of the information service industry in Taiwan. In recent years, Systex has focused on using data to develop IT values, expand opportunities for servicing the market, and actively constructing an innovative and independent environment. In 2017, the Company shall use all major capabilities accumulated in the past to expand market opportunities and continue to use the three strategies including new economic transition, innovative software technology development, investment, merger and licensing alliances and the five new economic issues including the cloud, social, mobile, analytics, and cybersecurity to guide the continuous advancement of the IT industry. Systex shall also actively pursue and develop related new businesses, new product combinations, and business models for the purpose of focusing on

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V. Operational Highlights businesses with higher margins and more potential. Faced with changes in IT trends on both sides of the strait and across the world and the swift changes on the customer market, Systex shall face even harsher challenges if it insists upon using existing business models and business strategies. In addition to active investment in 2017, Systex also hopes to retain existing core capabilities and revenue in order to implement the established strategies and maintain interests and value for the Company, employees, and shareholders. In customer market services in the future, the Company shall provide long-term services to vertical industry applications such as the finance industry, telecommunication industry, manufacturing, medical facilities, distribution industry, government agencies and the transportation industry as well as integration with different platforms and IT infrastructure construction. The Company uses its broad knowledge in the field and international organization and collaboration capabilities to become the first choice long-term IT partner for enterprises and a leading information service provider. B. Industry Trends New technological development and information application innovations in recent years have advanced robust growth in the global information service industry. As information services grew, one can observe the vigorous use of new technologies such as mobile applications, big data, social media etc. on the market. As the global market economy continues to recover and the way is paved for system upgrades and technological applications, the key services provided by system integrators in recent periods have shifted to the establishment, maintenance, operations, and big data applications of private clouds. In Taiwan's information service market, the emphasis has shifted to system integration services which are dominated by the demand from large-scale enterprises in Taiwan and government agencies in the public sector. As major enterprises rush to develop their global markets, they must expand information software/hardware, update legal compliance protocols, and maintain existing systems. Information system solutions also require adjustment after mergers and consolidation of corporate organizations. According to the demand in Taiwan's information service trends, the market scale is expected to grow from the NT$164.6 billion in 2016 to NT$176.1 billion in 2018 with an annual growth rate of approximately 3-5%. New information technologies are not only current global trends but also important items that lead the development of Taiwan's information service industries. The survey conducted by the Institute for Information Industry (III) on Taiwan's top 101 corporations indicates that the top five most important new technologies for enterprises are virtual services, new information security, mobile applications, big data access, and cloud services. The focus of IT services shall also be on how to satisfy demands of corporate users under all conditions and environments. The transmission and implementation of information shall also be integrated in a more effective manner. Therefore the key to projecting full IT power and accurately obtain profits include the appropriate use of environmental awareness capabilities and the omnipresent accurate analytical skills. Therefore, the five major new economy issues including the cloud, social, mobile, analytics, and cybersecurity as well as various cloud, IoT, big data, mobile security, and corporate software applications are expected to form the main demand of companies in Taiwan. In the software market in Taiwan, the software service market continues its stable growth and risk management, cloud computing, International Accounting Standards, and the Personal Information Protection Act have become the main factors in driving market growth in recent periods. Looking ahead, the development of cloud computing, big data, social media, and mobile applications shall continue to mature. As large-scale companies and the public sector become more willing to adopt these technologies, the market shall also continue to grow. The market scale is expected to grow from the NT$67.8 billion in 2014 to NT$83.6 billion in 2019 with a compound annual growth rate of approximately 4.3%. In addition, embedded software, including software embedded in IoT devices, sensors, industrial automation equipment, and telecommunication equipment shall also grow due to the advancement of IoT applications.

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V. Operational Highlights Set software for the general market including productivity software, gaming software, mobile apps, and video editing software that rely on mobile applications shall also maintain growth. Corporate solutions including application software, information security, database, and development tools shall also experience small-scale growth. C. Industrial Market Analysis (a) Intelligent Finance: Systex has accumulated outstanding capabilities in decades of in-depth experience in finance and IT technology fields. The Company shall assist financial institutions to construct various financial transaction platforms, provide technical consulting services and assistance for maintenance, and play an important role in the development of the financial information industry. Systex has constructed an investment platform in Greater China in China, Hong Kong, and Taiwan. It also owns integrated financial information across platforms and markets in the world's most important market. Under FinTech (financial technology) trends, the Financial Supervisory Commission (FSC) took decisive steps in allowing bank investment in FinTech and drastically expanded the upper limit of financial institutions' investment in financial technologies from 5% in the past to 100%. The goal is to facilitate NT$5 billion in investment in the financial sector within 5 years and the establishment of 30 new FinTech companies. In addition, development in mobile application has created new markets and the FSC's Bank 3.0 declaration also spurred the competition between financial institutions in mobile services. The management and opening of Bank 3.0 policies pushed mobile financial services from a supporting role to the main stage. As various financial institutions expand mobile services, functions, and scope in response to the policy, they also hope to use the omnipresence of mobile services to create revenue from services or to lower the risk of services. The rise of FinTech trends including big data, cloud technologies, machine learning, mobile payment, automated investment financing consultancy, blockchain technology, biometrics, interface design, software research and development, Internet of things, wireless communications business, and other related services affect various related industries such as securities and futures firms, banks, life insurance operators, and investment trust and consultancies. The scale of operations includes financial holdings, foreign banks, and local operators. (b) New Retail Omni-channel Multi-payment Options: The online to offline channels in the new retail era will guide website visitors to physical stores to purchase products. Many retail operators of physical stores will also go online and use e-commerce services to extend their operations overseas. Due to the popularity of smart mobile devices, consumers can collect related product information at any time and continuously compare prices. They could also post reviews to discuss their thoughts on the use of products or exchange opinions with friends and provide increasingly challenging consumer demands. The future market shall be more digital and more mobile. The electronic statements and mobile applications are important areas of Systex's operations in the retail market. Customers will use electronic statement and mobile payment en masse to cut costs and lower restrictions. The market opportunities for electronic statements and mobile applications such as interactive electronic statements, video electronic statements, LBS discount information services, mobile payment, and mobile discount coupons would therefore be increased. As related regulations on mobile payment in Taiwan are gradually relaxed and collaboration between telecommunication operators, banks, and mobile phone manufacturers continued, the mobile payment application market is expected to develop rapidly. The application shall become the payment tool that promotes consumption, invigorates the

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V. Operational Highlights consumer market, and create business opportunities in consumption. The digitalization and mobilization of customer payment behavior are unavoidable trends. Based on the convenience provided by cloud services, the mobile business sector with mobile payment at its core shall continue expansion to the High Speed Rail, gas stations, parking lots, hypermarkets, supermarkets, catering, education and entertainment. Due to the diversity of payment options, payment for transportation ranging from small payments to airplane tickets and to remote payment in mobile shopping, and other transactions shall progress from physical to virtual transactions and from fixed points to mobile, till an innovative cloud-based service between the virtual and real world is finally established. People's daily lives will also step closer to mobile commerce. (c) Data Technology Products and Services: Business opportunities in cloud-based applications and the importance of real-time information drastically drove major IT firms to actively pursue related cloud-based applications. Cloud-based applications have an extremely wide scope and IT firms usually use mergers and acquisitions to quickly build core competitiveness and this in turn triggers the "acquisitions, mergers, and consolidation" development in the industry. The next-generation communication standards involve using 5G to build new network applications for facilitating user convenience. The leading mobile telecommunication operators of the future 5G network construction and services in Europe, the United States, and Asia such as Verizon and NTT DoCoMo etc. will continue conducting field tests in preparation for 5G commercialization in 2017 to 2018 at the earliest. This evolution in communications technology is expected to trigger new internet applications and create further sales opportunities for related hardware/software equipment. Industry 4.0 spearheaded the business opportunities for restructuring corporate information structures. The government is actively advancing Productivity 4.0 as global industries advance toward smart manufacturing and various equipment, control systems, and sensing devices are connected to the corporate information platform environment. Corporate information network structure may become more complicated and fragmented, and cause overlaps in IT and OT (operation technology) systems, intertwined old and new network environments, and errors in the security system. Productivity 4.0 is therefore expected to generate business opportunities in new types of "corporate diagnosis," "structure design," and "system reorganization." For SAP products, representative corporate-level software will shift toward big data, mobile devices, the IoT, and Internet communities. Faced with interwoven risks and threats, traditional information security protection strategies are no longer sufficient. Their responses to incidents are not sufficiently agile, and it is not enough to only reinforce the procurement of defensive equipment. Market research institute Gartner indicated in the report titled "Gartner Identifies the Top 10 Strategic Technology Trends for 2016" that one of the top ten strategic technical trends of the year 2016 is Adaptive Security Architecture, which serves as the basis for all ten trends. To counter future information security threats, the adaptive security architecture is an indispensable way for companies to formulate information security strategies in the future. Compared to traditional security strategies, the adaptive security architecture focuses more on the integration of four main defensive capabilities and preventative strategies before the occurrences of incidents. Companies can no longer rely on singular protective equipment to counter future threats and they should adopt the four major defensive capabilities and twelve core capabilities to construct corporate information security protection. Traditional information security protection only focuses on four capabilities including defense from attacks, detection of incidents, risk analysis, and incident forensics. Only the adaptive security architecture can construct an operations center that can continue to provide security for modern enterprises. Gartner also pointed out that in order to respond to threats in the new age,

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V. Operational Highlights companies should carefully select their information security service provider and seek firms that are able to provide vertical integration of defensive products or horizontal integration of products across a variety of brands. D. Relationships with suppliers in the industry's supply chain In the overall information industry, Systex remains Taiwan's largest information service company. Systex plans software licensing options and provides services based on customer requirements and budget. The Company seeks to become a leading brand with the most industrial value in the knowledge economy in the progress of advancing digitalization for the finance, telecommunication, channels, manufacturing industry, and other customer groups with requirements. Systex shall provide customers with services including system planning, software installation, education, training, and technical support services and play the role for the control of customers, maintenance of customers, and service of customers. Upstream firms include information software/hardware providers or distributors such as Microsoft, HP, Serena, BMC, SAP, and Oracle. Downstream firms consist mainly of the finance industry, telecommunication industry, e-commerce, retail and distribution industry, manufacturing, government authorities and schools etc. E. Product trends and competition Systex is a leading domestic information service provider and the most reputable technology leader in the industry. The Company values services and uses its core advantages in resource integration and implementation as well as innovative product lines and resources collaboration to achieve Systex's leading position in the IT service industry. The number of competitors in Taiwan's IT market is immense. Particularly with the global economic recession in recent years, the decrease in GDP in Taiwan and across the world, changes in the structure of the industry, the overall political and economic environment, regulatory systems, corporate mergers and consolidation, and continuous improvement of their own operational health, the overall IT service market in Taiwan will be affected. As companies continue to relocate overseas and IT firms fail to provide differentiated products and services, the price competition in the industry has become increasingly severe. As certain IT firms retain limited technical capabilities and do not hold pricing advantages under the intense competition on the market, large-scale service providers with quality IT services gradually expanded the gap between them and the small and medium companies.

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V. Operational Highlights 5.1.3 Research and Development R & D Expenses for current year Unit: NT$ thousands Year Item R & D Expenses

2016

As of March 31, 2017

459,143

107,109

The Company's technologies and R&D consist mainly of integration of business applications and important results include: Please refer to page 70 of the Chinese annual report. 5.1.4 Long-term and Short-term Development A. Intelligent Finance: (a) Short-Term Development Plan  Enrich Information Content Intensify the depth of the information of the entire product line and enrich added-value content to effectively segregate market competition and demonstrate the difference between the Company and other IT firms who only provide information services in order to increase the threshold for competitors' entry into the market. Systex follows information technology development trends to provide customers with the latest applications and services. For instance, as customers increasingly adopt smart mobile devices, the Company shall provide customers with more diversified mobile finance services, content, and tools. The Company also actively collaborates with international information firms (such as Reuters and Morning Star) across different industries to build a quality finance information platform and to provide customers with higher added-value services.  Create Value with Integration As the effects of the new system of one-by-one matching take hold, future market transactions shall be made mainly by corporate investors. The competition between financial institutions will increase demand for electronic and program transactions. With extensive experience in long-term product development and services, Systex shall effectively assist customers in the development of competitive products. The Company shall also focus on latest development in global economic trends, consider market demand, integrate multiple financial product information, provide comprehensive transnational and information one-stop service to satisfy customer demands in financial markets in China, Hong Kong, Taiwan, and various domestic and foreign markets and demonstrate the value of integration.  Energize Cross-Strait Finance Industry Service As cross-strait financial relations continue to develop, measures such as allowing financial institutions to set up service points in China, RMB financing, asset management, trade settlement and other operations have become hot topics. The FSC's "Development Plan for Financial Operations with Cross-strait Characteristics" included the full launch of DBU RMB operations, establishment of a modern cross-strait financial platform, assistance for financial institutions in setting up service points in China to provide service to Taiwanese companies, and other plans that are able to help consolidate domestic investment funds, promote economic growth, and allow financial institutions to increase regional competitiveness and strengthen business operations. Systex shall collaborate with the finance industry in the expansion to niche markets in Greater China and construct related platforms

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V. Operational Highlights for financial services in Greater China. The Company shall also use its high-performance R&D capabilities to develop exclusive versions that meet the financial business requirements on both sides of the strait and help the finance industry expand the scope of operations.  Develop New Business Requirements Systex shall continue to develop existing customer groups and uncover requirements for new types of businesses in order to assess whether to conduct independent R&D or import solutions from international brands. (b) Long-Term Development Plan  Intensify Customer Relations and Comprehensive Services The customer shall train the existing business team into A/C Sales that delve into customer relations and train sales consultation teams with CIO vision to allow sales teams to conduct overall planning from the perspective of customers. They shall also be equipped with capabilities for organizing various resources, provide comprehensive outsourcing services, fully control customer budgets, and help customers change service and profit models on existing platforms in order to allow customers to quickly position themselves in the market and grasp business opportunities.  Increase Market Share in Asia Pacific through Comprehensive Group Performance Systex has provided financial products, services, and R&D platform systems for a long time in the Taiwan market. The Company has acquired Syspower Corporation, Systemweb Technologies, Taisin Building System Corp., Cheng-Kung Technologies since 2011 to expand market share in financial IT services such as quotation, funding, asset management, property insurance, and life insurance. In the future, Systex shall gradually apply the combined JAMAL effects from securities and futures to banking and insurance for consolidated operations in order to increase the overall financial IT service competitiveness and use the Company's strength to create market scale to satisfy requirements of financial holding customers. The Company shall also develop and construct comprehensive financial service systems to complete the construction of financial transaction networks in Greater China to achieve the three channels in financial transactions (commissions, matchmaking, and information exchange).  Develop Consumer-Oriented IT Services Systex shall make use of the existing IT information platform and use the research on statistics accumulated through big data to develop community and individual users. The foundation in O2O (Online to Offline) shall be used as a niche to develop mobile payment tools to provide ease of access to consumers while future mobile devices can be turned into electronic wallets or credit cards. To facilitate business development requirements, the mobile tablets of sales representatives can be developed into a point of sale system (POS). The innovation shall increase the ease of consumption and the transaction records are more easily analyzed and managed, which shall promote more consumption and marketing models. The development of mobile apps coincides with the backstage financial cash flow and the customer only needs to scan the barcode to complete a purchase. Products can also be quickly delivered. In addition, tourists would find it more convenient to exchange currencies when they visit Taiwan and it would advance consumption opportunities.  Cultivation and Education of Professional IT Talents R&D and talent capabilities are essential elements in projecting service energy. Therefore, the Company shall increase overall technical capabilities and continue to cultivate certified professional technical personnel. It shall also use the indispensability of various professional added-value services to provide customers with complete technical support and comprehensive after sales services, which form the foundation of Systex's future competitiveness in sustainable corporate development. Systex

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V. Operational Highlights shall continue elite training programs in the future to stabilize team qualifications and enhance quality. B. New Retail Omni-channel Multi-payment Options: (a) Short-Term Development Plan  Enhance Core Capabilities and Market Management The Company values the enhancement of current solutions for information integration services in the retail industry. It shall conduct training for professional businesses and technical personnel as well as integration of sales planning and services for related products in order to provide customers with richer, more complete, and updated operation information services.  Electronic Statements Integration and Platform Services The Company provides bank statement printing services and continues to develop the market in Taiwan. It shores up existing customers, actively participates in stand-alone operating tenders and marketing through personalized colored statements, and provides differentiated services to increase customer satisfaction and average consumption.  Segment Marketing and Channels To increase the depth and breadth of segment marketing, Systex conducts marketing on regular brands and channels as well as department stores and retail chain channels by using the hks Promotions app to help partners reach performance goals through O2O. The Company also uses bank participation to facilitate closer integration of the brand, channels, and member companies with banks through Systex's hks Promotions app communication platform for mutual prosperity.  Mobile Promotion Information Platform Service Systex provides reservation services for various chain stores and credit card promotion information and introduces behavioral orientation sorting system to provide accurate marketing services. In the future, the Company shall integrate mobile membership cards, restaurant reservation, mobile payment, and electronic invoices into a one-stop service to provide functions closer to consumers and make "hks Promotions" an important marketing tool. (b) Long-Term Development Plan  Retail Cloud Service Integration The development in cloud environment, O2O, omni-channel, and data integration are key trends in customer relationship management (CRM) upgrades. As sources of future data grow in complexity, the integration and added-value operations of various operation data shall become indispensable and important service requirements. The Company's departments shall enhance knowledge in the industries, foster sales capacity, and focus on the development in omni-channel, data integration, and added-value services in CRM software in order provide support for customers' sustained development.  Cultivation and Education of Information Talent Pool R&D and talent capabilities are indispensable in the process of building the top brand in IT services in Asia. Therefore, the Company shall continue to cultivate certified professional technical personnel and increase overall technical capabilities to provide customers with overall technical support and comprehensive after sales services. It shall also use the indispensability of various professional added-value services to build the foundation of Systex's future competitiveness in sustainable corporate development. Systex shall continue seed training, headhunting, and talent training programs in the future to stabilize team qualifications and enhance quality

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V. Operational Highlights  Become the Optimal Comprehensive IT Service Partner for Distribution and Retail Industry Select a niche market - distribution and retail industry (retail, catering, and franchises) and intensify collaboration with customers. Satisfy the different IT requirements of customers based on their development stage and use the software as a service (SaaS) model to create recurring revenue and emphasize the value of total service to avoid direct confrontation with competitors from other sectors. Actively develop payment, retail, data processing, and finance/insurance solutions for O2O, consumer product development, mobile payment, consumer product distribution, and data management sectors.  Cross-Sector Integration of Electronic Statements Systex shall continue to establish the Data Management and Integration Service (DMIS) Business Unit into Taiwan's largest total data processing solution provider for printed statements, and electronic and mobile services. Increase integration of insurance policies, color personalization, digitalization, and mobilization to expand the market to consumers. The Company shall also seek opportunities to quickly duplicate the success to other regions or industries to achieve the goal of stable long-term revenue. C. Data Technology Products and Services: (a) Short-Term Development Plan  Increase Customer Value Establish a comprehensive customer consultation and support service system to increase maintenance or consulting service items, increase customer satisfaction, create business opportunities for recurring revenue, and increase customer value to create competitive advantages.  Enhance Core Capabilities and Market Management  Develop innovative industrial solutions to intensify development of the industry: Integrate industrial market demand to develop or introduce innovative industrial solutions, develop new customer and markets, increase competitive advantages, and create new value for customers.  Expand regional markets: Target middle to large-scale corporate customers and provide services in accordance with their industries. Employ professional service and technical support teams to provide customers with more professional and higher quality services and expand market share.  Expand Sales and Market Competitiveness The Company plans to gain customers by participating in tenders for public engineering projects. It seeks to uncover customers' system construction projects in joint contracts with government and use the land administration maintenance projects and web versions to create an SOP in order to continue expanding the gap between Systex and competitors. The Company shall also establish service models for direct sales and use the model for planning and distribution to rapidly increase market share. The Company shall also continue to develop added-value services to build competitiveness that are superior to the market.  Cloud and Mobile Product Development Systex shall increase revenue and margins through the promotion of cloud and mobile products and solutions, distribution of new software, and enhancement of tier two products. Office 365 and Microsoft Azure remain the backbone in sales and technical installation services of total solutions.  Build Distribution Partnerships Systex seeks to continue to increase the quality of services as a solution provide and increase customer satisfaction to consolidate partnerships with downstream distributors and system integrators and become their indispensable and high quality business partner. The Company also uses communication channels with existing distribution partners to build a tightly knit and closely integrated distribution community that builds professional division of labor and a collaboration model

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V. Operational Highlights of group sales through exchanges of market information, new technical advances, and updates on corporate users. The partnership and sharing of digitalization market opportunities not only include various information security services, but also assist companies in addressing information security risk management by assessing preventative measures incident processing and recovery to achieve the goal of corporate sustainability.  Establish Comprehensive Professional Certification Training Center Certification courses are its main source of income. Courses are certified by Microsoft, Cisco, EC-Council, Red Hat etc. and Systex provides almost all international certification courses and plays an indispensable role in related training courses. With the rising awareness in information security in recent years, companies have placed increased value on information security issues. Systex has planned a series of comprehensive courses on information security that included information security certification from non-profit international organizations such as SSCP, CISSP, and CSSLP of (ISC)2 as well as related ISO 27001 courses and the CEH, CHFI, ECSA information security courses of EC-Council. Lecturers have developed a series of exclusive corporate network security courses and free intrusion detection and solution courses to satisfy companies' requirements for information security. (b) Long-Term Development Plan  Build Competitive Advantages SYSTEX shall continue to enhance core capabilities and fully improve quality. It shall also actively provide the latest information security incidents and information security protection information to increase corporate response capabilities to information security incidents to build customer trust and satisfaction. Systex shall also provide customers on both sides of the strait with authorization services and technical know-how of the highest quality to exceed customer requirements and build the irreplaceable top brand in information security and software services.  Cultivation and Education of Information Talent Pool R&D and talent capabilities are indispensable in the process of building the top brand in IT services in Asia. Therefore, the Company shall continue to cultivate certified professional technical personnel and increase overall technical capabilities to provide customers with overall technical support and comprehensive after sales services. It shall also use the indispensability of various professional added-value services to build the foundation of Systex's future competitiveness in sustainable corporate development. Systex shall continue seed training, headhunting, and talent training programs in the future to stabilize team qualifications and enhance quality.  Win Government ITO Service Opportunities In response to the business opportunities in organizational adjustments of governments, the Company seeks to focus on demand in software/hardware equipment replacement, integrated account single login services, equipment transfer services, computer room performance adjustment/shared structure services, maintenance contracts, and increased value. At the same time, the Company shall be required to gain core technologies in land administration to facilitate the growth of land administration ITO and create differentiation in services.  Increase IT Application Management Plan Construct IT application management procedures (SOP, SOW, and contract) and supplier certification system and assessment plans and cultivate management personnel to conduct education, training, and management of suppliers. The objective is to increase the geographical scope of the services and enhance the installation and maintenance capabilities for large-scale system installation projects as well as to increase the turnkey contracting capabilities for non-specialty projects and to effectively

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V. Operational Highlights lower the cost and management risk of expansion.  Increase Maintenance Service Performance The Company designates dedicated leaders, review, revise, and maintains the SOP, SOW, Help Desk documents to establish a knowledge database through professional training programs for technical personnel and analysis of customer service (group) requirements. The Company also provides comprehensive customer service reports and service performance management statements with the maintenance and repair system. The Company conducts regular (monthly/quarterly) preventative plans and analyses to increase professional and project management capabilities, facilitate effective services through division of labor, increase management performance, and lower the cost of services.  Win Business Opportunities in Energy Conservation In response to trending issues such as energy conservation and carbon emissions reduction induced by global warming and to lower corporate operating costs, the Company provides installation services for central (headquarters) energy-saving monitoring and management platforms and energy-saving equipment (including air-conditioning and lighting) for service industry operators with multiple outlets. The Company targets large-scale directly managed chain retailers with high electricity consumption and long hours of operations and provides a management and monitoring platform for headquarters to monitor and manage multiple outlets. Systex also uses its service networks and resources across the nation to provide chain service industries with energy saving management services.  Develop Smart Services to Build a Business Model for Services Supported by Products The Company seeks to replace the product-oriented business model with one that provides consulting services and is supported by products. Systex's professional information security team has accumulated 18 years of professional expertise and services to provide customers with more than just individual defense systems but assistance from a higher perspective to help customers defend against threats and construct comprehensive defense systems. In an environment with a rising black industry, information security protection requires more than infrastructure and equipment. The establishment of a secure operations center for corporate continuity has become an key element for companies in future development. In a complex information environment with ominous external threats, only solutions based on smart services to provide customers with weakness scans, infiltration tests, behavioral analysis based on machine learning, and protection system structure assessment and consulting can create added value by providing extension products based on services.

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V. Operational Highlights 5.2 Market, Production and Sales Outlook 5.2.1 Market Analysis A. Region Revenus Area

Domestic

Overseas

Total

Sales percentage

76%

24%

100%

B. Future Market Supply and Demand and Future Growth Systex shall incorporate core capabilities in domain knowledge and advantages in rich IT infrastructure service experience to provide companies with innovative technology and strategy applications for vertical industry applications such as the finance industry, telecommunication industry, manufacturing, medical facilities, distribution industry, government agencies and the transportation industry, and e-commerce. The Company uses its broad knowledge in the field and international organization and collaboration capabilities to become the first choice long-term IT partner for enterprises and a leading information service provider. The main momentum of Systex's future growth shall be extracted from the IT software in service markets including cloud computing, mobile services, information security, and big data. The following trends will have material impact in 2017: (a) The global IT service market maintains stable growth. The market scale is expected to grow from the NT$164.6 billion in 2016 to NT$181.6 billion in 2019 with an annual growth rate of approximately 3-5%. (b) The five new economies including "cloud, social, mobile, analytics, and cybersecurity" shall be key issues in the Taiwan, Asia Pacific, and global IT service market in the next three years. (c) The overall IT service market in Taiwan will be affected by the global economic recession in recent years, the decrease in GDP in Taiwan and across the world, changes in the structure of the industry, the overall political and economic environment, regulatory systems, corporate mergers and consolidation, and continuous improvement of their own operational health. In the age of portable data and analytics, Systex shall continue to make rely on its advantages as the leader in technologies and services to develop capabilities for total solutions required in related digital ecosphere in order to provide domestic industries with the optimal IT solutions and structures and help them expand operations in a new information development stage. (d) 4G/5G infrastructure. Systex is Taiwan's largest IT service provider. The market offers a wide range of business opportunities provided the Company is able to make use of its installation experience overseas and facilitate cross-strait collaboration. C. Market Share (a) Systex ranks first in Taiwan in quotation information services:  The system is adopted by over 1,000 service outlets of securities firm and it has a market usage rate of over 90%.  It is adopted by most professional futures firms in Taiwan and has a market share of over 95%.  Systex provides banks and firms with complete international financial information for securities, futures, warrants, bonds, bills, and exchange rates with a top market share.  The Company also provides foreign futures firms with fully integrated information service systems for quotation, transactions, and accounts and it retains a market usage rate of over 90%  Systex's market share in mobile finance information services continues to increase and it has achieved number one positions on the app market in services for multiple services for vertical industry applications in the finance industry, telecommunications, medical facilities, distribution industry, government agencies, and the transportation industry.

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V. Operational Highlights (b) The e-commerce system and transaction account management system for securities, futures, and warrants are designed completely in accordance with government regulations and market features. An appropriate level of flexibility has been retained for future changes to respond to regulations of the competent authorities and facilitate additions of new businesses to fully control addition and revision in the system. The bond and bill business transaction system developed by Systex for clients in the finance industry has received recognition from over 30 financial institutions and remains the product with the highest market share in Taiwan. (c) Systex is a leading information service provider of the domestic digital ecosphere and the most reputable technology leader in the IT service industry. The Company values services and uses its core advantages in the wide range and in-depth resource integration and implementation as well as innovative product lines and resources collaboration to achieve Systex's leading position in the IT service industry. (d) With regard to the OM and ABS (bond and bill transaction management system), Systex has developed the professional realm of bond and bill for over ten years and is now an information service provider with extensive experience in Taiwan. In recent years, it has invested large quantities of resources to develop the optimal bond and bill system solution to satisfy modern finance requirements for the latest derivatives and asset securitization and other financial products in recent years. Systex current acts as distributor for many renowned international software including databases and information security products. It also designs and develops front/middle/back-stage applications for international finance services in futures, options, foreign exchange, bonds and bills. The professional technology and finance consulting services that were developed in recent years also performed well. (e) Systex has 12 service centers across Taiwan and employs over 400 professional engineers to conduct maintenance. It provides local and real-time IT software/hardware installation and repair services and it is the largest IT service provider in Taiwan. Systex also obtained tenders for land administration maintenance projects in 18 municipalities with a market share of 75%. (f) Systex is the largest data processing and outsourced print service provider. Its market share is over 80% in telecommunication and over 60% in financial institutions and banks. Systex outperforms the competition by far in terms of technical capabilities, certifications, and operations stability. It also performed well in its financial status, capital investment capabilities, and economies of scale. Systex continues to increase the breadth and technical levels of services and also actively expands digitalization and mobile services to provide more comprehensive and added-value services and undergoes active transformation to ensure stable revenue. (g) Systex has a market share of over 40% for large-scale corporate customers using Microsoft systems and over 50% for small to medium enterprises. Systex's market share for products such as Symantec, Trend Micro, AutoCAD, and Adobe falls between 10% and 30%. Overall, its market share in commercial software is between 10% and 50%. Systex was the Microsoft Licensing Solution Provider with the largest market share and has received the "Microsoft Taiwan Partner Hero Award" for 12 consecutive years since 2005. The Company is Microsoft Taiwan's largest distributor and partner. (h) Systex's Knowledge Product Business Unit is the leading brand in current IT education and training centers. It is also the technical education and training center that offers the most authorized courses from international brands. Courses encompass the popular IT certification required by enterprises and related training courses for providing over 250 comprehensive professional information education and training courses to meet demands for enhancing professional skills in different stages of corporate and personal studies. The international education and training courses are authorized by Microsoft, Cisco, Red Hat, Oracle, Trend Micro, SGS, Adobe, Autodesk, (ISC)2, IT preneurs and lecturers also participate in

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V. Operational Highlights the development of popular technical courses. Systex provides one of the few education and training centers with high-level and exclusive courses. D. Favorable Developments, Unfavorables Factors and Countermeasures Systex is dedicated to providing the best service quality and it firmly believes that customer services are central to consolidating customer loyalty. The Company hopes to foster mutual trust and mutual support in partnerships to create mutual prosperity. In addition to continuing to enhance customer services and improve quality, the Company also hopes to adopt project execution performance and customer satisfaction report mechanisms to ensure customer satisfaction. At the same time, the Company also proposes improvement plans based on customer opinions to continue to provide better services with higher value for customers. Moreover, the Company has actively adopted strategic investment, acquisition, mergers, and other external growth strategies in recent years to facilitate group operations. Systex provides competitive niches in the following products and services: (a) Intelligent Finance:  Favorable Developments  The Company has integrated information services and professional finance services to construct a transaction platform that integrates CRM and KM services. It also integrated business intelligence (BI) into a comprehensive service platform for decision-making analysis.  The Company has actual experience with Taiwan securities and futures firms that can satisfy multiple customer requirements in China.  The Company also collaborates with professional international finance and securities brokers to enhance the expansion of the transaction and information platform.  The Company retains R&D teams with professional knowledge in technologies and finance.  The Company provides transaction platforms for domestic and international securities, futures, warrants, bonds, bills, and foreign exchange as well as front/middle/back-stage finance solutions.  The Company has distributed renowned world-class software for long periods of time and has built a professional brand in the industry.  Unfavorable Factors  Taiwan's domestic market is reaching the point of saturation as market competition intensifies and product variation decreases.  International brand awareness requires improvement.  There are numerous competitors in the international financial information market and most have finance-related backgrounds.  Countermeasures  Continue to expand markets in China and Taiwan The Company shall target investment requirements of investors in four stock markets in China, Hong Kong, and Taiwan and gain real-time information in these markets, observe connections in the industries, provide comprehensive and a diversity of quotation combinations to allow investors to focus on investment opportunities in Greater China, observe trends in the stock markets in China, Hong Kong, and Taiwan, and grasp optimal investment opportunities.  Enhance R&D and Strategic Transition (1) The Company shall comply with industry requirements and regulations in launching various financial products and information services in order to create differentiation to satisfy requirements of individual customers and obtain higher profits. (2) In response to the coming of the internationalized product transaction era, the Company shall focus on the development and applications of different product transaction platforms.

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V. Operational Highlights (3) The Company has established the Financial Digital Content Developing Center (FDC) to develop new products for finance databases and high-end financial applications that meet customer requirements. It shall remain focused on the development of intensified and wide-ranged international financial information content. The Company has launched the finance information website - Money Link - to provide investors with comprehensive financial transaction information and integrate information services for mobile devices and Internet networks. The website has become the optimal financial information platform in Greater China for investors to gain knowledge of investment information at any time. (4) In response to development trends in FinTech, the Company shall continue to provide finance and corporate service mobilization plans, designs, and introduction services for finance operators to quickly adopt and build service plans

in order to gain market opportunities and

widen their lead over competitors. (b) New Retail Omni-channel Multi-payment Options:  Favorable Developments  Systex is Taiwan's largest information service provider and it is financially sound. The Company has numerous successes in various industries and enjoys high customer loyalty and satisfaction. Systex maintains excellent relations with original manufacturers and distributors and is trusted by original manufacturers. It also enjoys high brand recognition in the market and has become an important IT services supplier for customers.  Systex has outstanding talent pools with extensive experience and an abundance of technical personnel to provide professional consultation and consulting services to help companies quickly understand key market trends and help them build a sound digital environment and information security management system.  As the domestic catering distribution service industry develops, business opportunities will increase in stored value services and financial mobile payment.  In response to the popularity of smart phones, Systex has completed the development of the hks Promotions app. It now has over 1 million downloads and it continues to provide business opportunities in mobile media and applications by increasing precision marketing and purchase guidance services.  Unfavorable Factors  Difficulties in growth volume of statement notification letters are mainly due to changes in regulations on shareholder services, environmental protection trends, and digital finance services that expedite growth in electronic billing.  Original manufacturers' direct involvement in outsourced marketing services compress room for growth.  Countermeasures  In response to fast changes in the market, Systex quickly entered niche markets to increase competitiveness in the industries and actively sought alliances with competitors to quickly expand markets through integration in professional sectors.  Gradual growth in electronic statements: The Company has established electronic statement system platform services and provides differentiated added-value electronic statement services such as interactive electronic statements or mSense electronic statements. It also regularly analyzes the growth in electronic statements of main customers in the market, actively advances comprehensive information processing services, and provides integrated services for electronic statements and apps to lower the impact of electronic statements on revenue.

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V. Operational Highlights  Changes in shareholder services regulations: The Company has ventured into markets including insurance policy forms and notification market in order to supplement the gap in black-and-white printing. The Company has now completed installation and successfully obtained life insurance clients. (c) Data Technology Products and Services:  Favorable Developments  Systex is Taiwan's largest information service provider and it is financially sound. The Company has numerous successes in various industries and enjoys high customer loyalty and satisfaction. Systex maintains excellent relations with original manufacturers and distributors and is trusted by original manufacturers. It also enjoys high brand recognition in the market and has become an important IT services supplier for customers.  The Company provides comprehensive information technologies for customers, comprehensive IT basic structure products and added-value services (server, storage, software, security, database, network, application) that are integrated into availability, security, automation, performance (ASAP) solutions. Systex remains the best partner for corporate one-stop shopping from the construction of information technology infrastructure to the design of application software information systems and comprehensive services for construction and operations management. The Company distributes a wide range of products and provides added-value system solution installation services. It is also able to recommend combinations of diverse products to customers that top their respective industries in terms of overall economic scale. Systex is Taiwan's largest IT service provider and has secured the favor of many key customers by being able to quickly respond to customer requirements and provide high quality education and training services.  The Company constructs information services (cloud, mobile, and big data) for a comprehensive IT ecosphere to reduce customers' anxiety on the security and convenience of new technologies and increase the satisfaction rate of services.  The Company has a comprehensive technical support team and outstanding and experienced talents continue to join. It has the strongest presale capabilities among Microsoft Partners and it continues to increase the expertise and service quality of its technical personnel. The Company provides professional consultation and consultancy services in a sound division of labor.  Systex has outstanding talent pools with extensive experience and an abundance of technical personnel to provide professional consultation and consulting services to help companies quickly understand key market trends and help them build a sound digital environment and information security management system.  Systex has accumulated over ten years of extensive experience in information security technologies and actual experience. It retains comprehensive solutions, multiple product lines and technical support teams to help customers ensure information security, increase productivity, and maintain the highest security and stability of the information system at all times. Systex retains a high level of brand recognition on the market for outsourced information security services that is beneficial to the development of information security products and services.  Demands for outsourcing corporate information services will continue to climb and related software/hardware equipment installation and maintenance services will continue to grow.  Systex provides customers with professional maintenance services for various servers, personal computers, notebook computers, printers, peripherals, cash registers, credit card machines, mobile phones etc. and customer markets include government, finance, banking, distribution and private enterprises.

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V. Operational Highlights  Unfavorable Factors  The market in Taiwan is saturated and the intense price competition in the industry lowers profits.  The recent global economic downturn has continued to shrink the domestic IT service market as customers' budgets decreased and it became increasingly difficult to sustain growth.  The IT budget accounts for a low proportion of total national budget. It is lower than international standards and mostly used on hardware. Political uncertainties in recent years have led to delays and cuts in budget.  The challenge of large-scale Chinese SIs entering the Taiwanese market in the post-ECFA era.  Potential customers' understanding of the benefits of IT outsourcing requires improvement.  Competitors continue to lower prices for equipment maintenance in order to obtain market share, which has led to the reduction of gross margins.  Original manufacturers' direct involvement in outsourced marketing services compress room for growth.  Countermeasures  To respond to the increase of horizontal integration by original manufacturers, the Company shall seek integration with competitors to increase business opportunities for products and services to increase competitiveness.  Talents are critical assets in the IT industry. The Company shall establish professional service teams and employ outstanding talents to win customers through "industry expertise" and "sector expertise."  In response to fast changes in the market, Systex quickly entered niche markets to increase competitiveness in the industries and actively sought alliances with competitors to quickly expand markets through integration in professional sectors.  The Company shall expand the customer base for maintenance contracts to increase chances for signing contracts. The Company shall also expand the sales of equipment to increase market share and increase the technical capabilities of maintenance staff to construct comprehensive solutions and win the acceptance and trust of more customers. 5.2.2 Key Product Applications and Manufacturing Processes: Please refer to pages 79 to 81 of the Chinese annual report. 5.2.3 Supply of Essential Raw Materials: N/A 5.2.4 Key Suppliers and Customers in 2016 & 2015: A. Key Customers: There are not any customers for more than 10% of the total sales in 2016 & 2015.

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V. Operational Highlights B. Key Suppliers: Unit: NT$ thousands

35

None

3,405,981

33

None

Others

6,620,257

65

7,002,734

Total

10,203,021

100

10,408,715

Amount

Amount

Percentage of Total Purchase (%) Relationship with Issuer

3,582,764

Supplier

Relationship with Issuer

Company A

Amount

As of March 31, 2017

Percentage of Total Purchase (%)

2016 Relationship with Issuer

2015 Percentage of Total Purchase (%)

Year

814,053

37

None

67

1,391,304

63

100

2,205,357

100

5.2.5 Production in 2016 & 2015: SYSTEX is the Information Service Company, it’s not applicable. 5.2.6 Shipments and Revenue in 2016 & 2015 Unit: NT$ thousands 2015

Year Item

Domestic

2016 Overseas

Domestic

Overseas

Net sales

8,507,842

3,505,284

8,412,151

3,217,554

Service revenue

3,764,661

420,769

3,822,331

692,212

110,284

4,248

62,186

3,946

Other operating revenue Total

16,313,088

16,210,380

5.3 Human Resources Year

Number of

As of March 31, 2017

495

493

1,132

1,136

1,096

Programmer

938

930

912

Administration

345

348

370

2,922

2,909

2,871

Average Age

36

37

37

Average Years of Service

6.6

7.1

7.2

Ph.D.

0.07%

0.07%

0.14%

Master

13.14%

12.13%

11.88%

University & College

80.53%

81.23%

81.19%

High School

5.95%

6.29%

6.41%

Below High School

0.31%

0.28%

0.38%

Technician

Total

Education

2016

507

Employees

Sales & Market

2015

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V. Operational Highlights 5.4 Information on Environmental Protection Costs The Company's main businesses include information services, sales and other services of computer software, hardware, and related equipment. It is not a factory and therefore does not pollute the environment. 5.5 Labor Relations Harmonious labor and management relations are the foundations of corporate development. The Company's labor and management relations throughout the years have always been harmonious and stable as well as conducive to mutual prosperity. The Company dedicates itself to improving employee benefits, salary, and work environment and to maintain open communication channels between labor and management. The hard work of all employees and their demonstration of personal talents allow employees and the Company to grow together and create a better future together. The Company processes various recommendations from employees in an appropriate manner to create constructive consensus and facilitate cooperation between labor and management. The Company therefore has no labor and management disputes. The Company's employee benefits for studying, training, the pension system and its implementation status as well as labor agreements and employee rights maintenance measures are as follows: 5.5.1 Welfare measures for employees A. Establish comprehensive performance management and compensation systems to link performance goals of organizations and individuals and conduct periodic review, feedback, and evaluation. The results are used as important basis for employee training and development and for reward in accordance with the overall performance of the Company, department, and personal performance and contribution to meet the compensation policy of "high performance, high contribution, and high compensation" and create benefits for shareholders, the Company, and employees. B. Establish effective recruitment and talent selection mechanisms to achieve the purpose of placing the right person in the right position. C. Establish comprehensive management regulations system to allow employees to work on a legal, reasonable, and sensible management platform. The current regulations shall be appropriately revised in accordance with changes in regulation, environmental changes, and actual requirements. D. Establish smooth communication channels to allow employees to fully understand management strategies and ideals and allow them to fully express their opinions as reference for making improvements. E. Increase benefits by adopting regulations on leave that are superior to regulatory requirements and use related measures to maintain employees' physical and mental health. The Company also established an Employee Welfare Committee to organize dinner parties, tours, clubs, and other activities to improve the work environment and quality of life. Benefit measures are as follows: (a) Employees enjoy special leaves that are superior to regulations in the Labor Standards Act. (b) The Company provides regular health exams for employees. (c) The Company has established employee cafeteria and coffee shop to provide diverse catering options and places to relax. (d) The Company provides laundry services at discount prices. (e) The Company has established parking lots for use by all employees after filing applications. (f) The Company encourages employees to establish clubs and subsidizes club funding. (g) Employees enjoy promotional prices for products of the Group. (h) The Company organizes employee events and tours from time to time to enrich employees' leisure life

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V. Operational Highlights and promote friendship. (i) In addition to the legally required labor and health insurance, the Company also provides employees with group insurance. The group insurance is paid for by the Company and employees' family members can also pay for additional coverage. 5.5.2 Training and Career Development The Company values talent cultivation and the advancement of employee expertise. We firmly believe that employees are the Company's most important assets and the Company has systematic planning and provides employees with education development plans from professional technical skills to career development. Employees can participate in external training and professional license tests as well as comprehensive training courses planned by the Company in accordance with the Company's organizational strategy, job function models, and work requirement. The courses include basic training, management development, project management, quality management, and personal performance. In addition, the Company has also established comprehensive "Employee Training Development Management Regulations" to encourage employees to participate in a variety of studies and courses for which the Company provides subsidies. At the same time, the training and development are incorporated into the performance management system to motivate employees to maximize their performance to accomplish the Company's goals. In addition, the Company has introduced a comprehensive "Performance Management & People Development (PMPD) System" where employees can use the Individual Development Plan (IDP) to discuss the learning and development plan for the following year with the supervisor during the annual performance review to provide customized performance development plans. A total of 2,338 employees participated in the physical training courses (excluding digital learning courses) hosted by Systex in 2016 and the total training time exceeded 12,000 hours. In addition, there were 630 instances of external professional training courses which accounted for a total of 10,370 training hours. The training courses provided by the Company include: A. Foundation Training Programs: To help new recruits integrate into the organization, each new partner is required to attend foundation training programs when entering the organization. The training includes physical courses and online courses for new recruits and the contents include corporate culture, organization overview, and regulations. B. Management Development Programs: To enhance the management skills of supervisors, the Company has designed diverse management development training courses for different levels of managers in order to increase the leadership and management skills of supervisors and ensure the effective performance of the organization (e.g. the Strategy and Consensus Camp, recruitment skills, performance management etc.). C. Project Management Programs: To improve project efficiency and enhance the project management capabilities of employees, the Company has established systematic project management training courses and PM Workshops as well as subsidies for professional certification examinations to implement project management in daily lives and create corporate value. D. Technical Development Programs: Provide software development and integration skills and plan SA Workshop courses that are exclusive to Systex. Use the Company's best practice experience of over thirty years as the basis and coordinate with actual practice to effectively foster technical talent and ensure the quality of professional expertise in software development and integration. E. Personal Effectiveness Programs: To help employees increase work efficiency and implement organization talent strategies for high performance and high contribution, the Company arranges diverse personal performance courses (e.g. customer relations, marketing seminars, presentation skills, time management, communication efficiency etc.) in the annual plan in accordance with requirements for job

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V. Operational Highlights functions. F. Sales & Marketing Programs: The programs are established to increase sales techniques of sales and marketing personnel and effectively develop potential customers or enhance partnerships with existing customers. In addition, the Company also organizes the Systex Sales School for new sales personnel to fully explain all products, services, and solutions. In addition to physical courses, the Company also established a comprehensive "Learning Management System (LMS)" to assist employees develop core expertise quickly through automated information system and use digital learning to enhance their capabilities without time or space constraints. There are over 100 digital courses in the Digital Learning Programs for employees to choose from and the ten categories include New Employees Area (Company Introduction, Corporate Culture, Organization Environment and System Introduction, Workplace Safety, Employee Code of Conduct etc.), Quality Management (Comprehensive Quality Management), Management Development (Goal Setting, Performance Evaluation, Guidance, Leadership and Encouragement, Creating Advantages through Reform etc.), Personal Performance (Advanced Word/Excel Applications, EQ Management, Time Management etc.), Sales and Marketing (Sales Presentation Formulation, Product Introduction etc.), Project Management (Project Scheduling, Project Risk Management, Leadership of Project Managers etc.), Technical Development (Introduction to Software Development and Maintenance, Construction Management, How to Formulate Test Plans and Test Projects etc.), Safety and Health, System Operations, and Human Resources. 5.5.3 Retirement System The Company's retirement system is designed in accordance with the Labor Standards Act. Pension is appropriated each month in accordance with the Regulations for the Allocation and Management of the Workers' Retirement Reserve Funds to dedicated accounts in the Bank of Taiwan. The Company also established the Labor Retirement Reserve Supervisory Committee to supervise the implementation of the fund. Retirement regulations are also implemented in accordance with regulations of the Labor Standards Act and Labor Pension Act. 5.5.4 Working Environment and Protective Measures for Employees’ Personal Safety The Company has established a labor safety and health management agency and the Labor Safety and Health Committee in accordance with the "Regulations on the Management of Labor Safety and Health Organization." Meetings are convened each quarter to implement affairs related labor safety and health. The Company implements access management for the security of the building. It established a central surveillance system staffed by 24-hour security personnel. The Company conducts fire safety exercises every six months and annual "fire safety equipment inspection and reports" in accordance with fire safety regulations to improve employees' familiarity with fire safety. The Company established a "Fire Safety Protection Plan" and designated fire-safety managers to implement fire safety education. The Company files building safety inspection reports to ensure the safety of the building. With regard to health environment, the Company has installed high temperature sterilization dishwashers and disinfection cabinets in the employee cafeteria to ensure food safety for employees. The Company also regularly cleans the drinking water storage facility, conducts environmental disinfection operations, and inspects drinking fountains each month. The Company has appointed physicians to carry out health services at the Company every two months to provide employees with health consultation in accordance with the "Labor Health Protection Act." The Company also builds a friendly work environment and sets up breastfeeding rooms, gym facilities and badminton courts for employees in accordance with regulations of the Health Promotion Administration to provide employees with venues for leisure and sports. The Company also established wheelchair accessible facilities at the entrance of the building and lavatories. Systex passed the "Accredited Healthy Workplace" inspection by the Health Promotion Administration for a smoke-free workplace and provides employees with a healthy work

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V. Operational Highlights environment. 5.5.5 Employee Code of Conduct The Company has established the "Employee Code of Conduct" as the standard to be followed by the Company's employees when conducting business activities. The main contents include: A. Legal requirements and the Company's internal regulations shall be strictly implemented when conducting business activities in order to protect employees and the Company from legal penalties or prosecution by stakeholders. B. Protect the Company's reputation and assets. C. The Company's assets and information shall only be used to achieve the Company's goals and they shall be properly used, protected, and stored. D. Employees may not conduct activities that conflict with the interests of the Company. E. Applicable procedures and punishment measures in the event of violations. Each new employee shall be required to attend a digital learning course on "Employee Code of Conduct" after entering the Company. The course shall be announced on the Company's internal website. In addition, the Company shall issue regular email notifications and education each month to request compliance by supervisors and remind colleagues to read and sign so that all employees shall adhere and implement related regulations. 5.6 Material Contracts Agreement

Counterparty

Reseller

Oracle Taiwan LLC,

Agreement

Taiwan Branch

Reseller

IBM SINGAPORE PTE

Agreement

LTD.

Reseller

Microsoft Regional Sales

Agreement

Corporation

Period

Major Contents

Restrictions

2016.05.20-2017.05.19

Software proxy

None

2015.06.01-2016.05.31

Software proxy

None

2016.09.01-2017.08.31

Software proxy

None

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VI. Financial Information 6.1 Five-Year Financial Summary 6.1.1 Condensed Balance Sheet and Condensed Statement of Comprehensive Income A. Consolidated Condensed Balance Sheet Unit: NT$ thousands Financial Summary for The Last Five Years

Year Item

As of March 31, 2017

2012

2013

2014

2015

2016

11,995,855

13,087,278

13,596,623

13,592,648

15,264,070

13,241,251

577,003

552,902

516,336

458,967

432,971

429,609

1,179,805

1,268,976

1,226,036

1,652,940

397,656

1,164,213

2,515,940

2,449,264

2,278,120

2,089,497

2,009,673

1,973,116

Intangible assets

778,188

558,756

545,375

451,010

112,751

100,377

Other non-current assets (Note2)

318,700

420,628

396,265

417,795

865,507

893,252

17,365,491

18,337,804

18,558,755

18,662,857

19,082,628

17,774,818

4,583,315

4,985,779

4,826,640

5,240,030

6,064,585

4,783,690

4,061,875

4,187,709

3,489,683

5,240,030

-

-

253,694

248,277

208,349

265,124

258,848

250,467

4,837,009

5,234,056

5,034,989

5,505,154

6,323,433

5,034,157

4,315,569

4,435,986

3,698,032

5,505,154

-

-

12,246,166

12,940,300

13,445,542

13,101,677

12,728,192

12,711,795

2,599,345

2,630,693

2,671,113

2,688,383

2,693,933

2,693,933

8,880,385

8,486,264

8,685,259

8,197,220

7,634,980

7,634,980

8,358,945

8,486,264

7,749,389

7,523,737

-

-

2,148,815

2,990,925

2,944,585

3,046,792

3,467,402

3,800,513

2,148,815

2,192,855

2,543,498

2,373,309

-

-

Current assets Financial assets measured at cost - non-current Investments accounted for using equity method Property, plant and equipment (Note2)

Total assets Before distribution Current liabilities After distribution Non-current liabilities Before distribution Total liabilities After distribution Equity attributable to owners of the corporation Share capital Before distribution Capital surplus After distribution Before distribution Retained earnings After distribution Other equity Treasury share Non-controlling interests

(328,913)

(114,116)

97,837

136,780

(1,053,466)

(1,053,466)

(953,252)

(967,498)

78,224

56,026

282,316

163,448

(64,494)

(414,002)

(1,003,629)

(1,003,629)

31,003

28,866

Before 12,528,482 13,103,748 13,523,766 13,157,703 12,759,195 12,740,661 distribution Total equity After 12,007,042 12,305,678 12,186,809 11,810,736 distribution Note 1:The Company has adopted the International Financial Reporting Standards (IFRSs) for the compilation of consolidated financial information since 2013. The financial information of the preceding years has been

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VI. Financial Information audited and reviewed by the CPA. Note 2:No reevaluation of assets has been conducted throughout the years. Note 3:The earning distribution of 2016 is to be approved by the shareholders' meeting. B. Consolidated Condensed Statement of Comprehensive Income Unit: NT$ thousands

2012

2013

2014

2015

2016

As of March 31, 2017

14,257,601

15,657,262

15,809,321

16,313,088

16,210,380

3,705,351

3,813,573

4,270,556

4,219,091

4,300,486

4,332,060

1,015,525

86,439

489,018

436,548

419,362

279,268

119,265

Non-operating income and expenses

240,105

450,712

489,980

285,857

966,592

237,098

Income before tax

326,544

939,730

926,528

705,219

1,245,860

356,363

Net income

249,953

823,700

748,046

563,327

1,090,328

330,897

Other comprehensive income (loss) (income after tax)

(243,847)

231,948

203,567

(21,568)

(215,734)

(349,431)

Total comprehensive income

6,106

1,055,648

951,613

541,759

874,594

(18,534)

302,788

830,540

745,709

564,274

1,108,268

Financial Summary for The Last Five Years

Year Item Operating revenues Gross profit Profit from operations

Net income attributable to owners of the corporation Net income attributable to non-controlling interests Comprehensive income attributable to owners of the corporation Comprehensive income attributable to non-controlling interests Earnings per share (Note2)

(52,835) 65,586

(59,480) 1.29

(6,840) 1,063,171

(7,523) 3.51

2,337 949,775

1,838 3.07

(947) 542,237

(478) 2.29

333,111

(17,940)

(2,214)

892,819

(16,397)

(18,225)

(2,137)

4.50

1.35

Retroactively adjusted earnings 1.29 3.51 3.07 2.29 4.50 1.35 per share (Note3) Note 1:The Company has adopted the International Financial Reporting Standards (IFRSs) for the compilation of consolidated financial information since 2013. The financial information of the preceding years has been audited and reviewed by the CPA. Note 2: Calculated by the weighted average number of shares in external circulation. Note 3: Calculated by the retroactively adjusted number of shares.

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VI. Financial Information 6.1.2 Unconsolidated Balance Sheet and Condensed Statement of Comprehensive Income A. Unconsolidated Condensed Balance Sheet Unit: NT$ thousands Financial Summary for The Last Five Years (Note1)

Year Item Current assets

2012

2013

2014

2015

2016

4,111,084

4,027,746

3,493,385

3,358,680

3,333,550

395,971

394,971

360,473

326,976

311,305

8,301,239

8,503,891

9,362,801

9,411,179

9,174,361

1,991,242

1,945,915

1,885,134

1,704,946

1,658,175

Intangible assets

128,603

124,867

124,777

107,282

54,271

Other non-current assets (Note2)

234,623

341,465

271,556

243,268

435,427

15,162,762

15,338,855

15,498,126

15,152,331

14,697,089

2,726,015

2,206,329

1,866,565

1,812,301

1,940,356

2,204,575

1,408,259

529,608

1,812,301

190,581

192,226

186,019

238,353

298,541

2,916,596

2,398,555

2,052,584

2,050,654

2,238,897

2,395,156

1,600,485

715,627

2,050,654

-

12,246,166

12,940,300

13,445,542

13,101,677

12,728,192

2,599,345

2,630,693

2,671,113

2,688,383

2,693,933

8,880,385

8,486,264

8,685,259

8,197,220

7,634,980

8,358,945

8,486,264

7,749,389

7,523,737

2,148,815

2,990,925

2,944,585

3,046,792

2,148,815

2,192,855

2,543,498

2,373,309

97,837

136,780

(953,252)

(967,498)

Financial assets measured at cost - non-current Investments accounted for using equity method Property, plant and equipment (Note2)

Total assets Before distribution Current liabilities After distribution Non-current liabilities Before distribution Total liabilities After distribution Equity attributable to owners of the corporation Share capital Before distribution Capital surplus After distribution Before distribution Retained earnings After distribution Other equity interests Treasury shares Non-controlling interests

(328,913)

(114,116)

(1,053,466)

(1,053,466)

-

-

-

-

-

3,467,402 (64,494) (1,003,629) -

Before 12,246,166 12,940,300 13,445,542 13,101,677 12,728,192 distribution Total equity After 11,724,726 12,142,230 12,108,585 11,754,710 distribution Note 1:The Company has adopted the International Financial Reporting Standards (IFRSs) for the compilation of consolidated financial information since 2013. The financial information of the preceding years has been audited and reviewed by the CPA. Note 2:No reevaluation of assets has been conducted throughout the years.

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VI. Financial Information B. Unconsolidated Condensed Statement of Comprehensive Income Unit: NT$ thousands Year Item

Financial Summary for The Last Five Years (Note1) 2012

2013

2014

2015

2016

Operating revenues

9,287,130

7,978,440

6,406,809

6,100,657

5,733,038

Gross profit

2,589,465

2,364,719

1,963,616

1,943,215

1,912,678

329,378

329,240

184,089

147,366

92,889

19,109

571,058

662,924

483,194

985,716

Income before tax

348,487

900,298

847,013

630,560

1,078,605

Net income

302,788

830,540

745,709

564,274

1,108,268

Other comprehensive income (loss) (income after tax)

(237,202)

232,631

204,066

Total comprehensive income

65,586

1,063,171

949,775

542,237

892,819

302,788

830,540

745,709

564,274

1,108,268

-

-

-

-

-

949,775

542,237

892,819

Profit from operations Non-operating income and expenses

Net income attributable to owners of the corporation Net income attributable to non-controlling interests Comprehensive income attributable to owners of the corporation Comprehensive income attributable to non-controlling interests Earnings per share (Note2)

65,586

1,063,171

(22,037)

(215,449)

-

-

-

-

-

1.29

3.51

3.07

2.29

4.50

Retroactively adjusted 1.29 3.49 3.06 2.29 4.50 earnings per share (Note3) Note 1:The Company has adopted the International Financial Reporting Standards (IFRSs) for the compilation of consolidated financial information since 2013. The financial information of the preceding years has been audited and reviewed by the CPA. Note 2: Calculated by the weighted average number of shares in external circulation. Note 3: Calculated by the retroactively adjusted number of shares.

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VI. Financial Information 6.1.3 Auditors’ Opinions from 2012 to 2016 Item Year 2012

2013

2014

2015

2016

As of March 31, 2017

Accounting Firm & CPA Deloitte & Touche Accounting Firm Lin, Shu-Wan; Kuo, Cheng-Hung Deloitte & Touche Accounting Firm Lin, Shu-Wan; Kuo, Cheng-Hung Deloitte & Touche Accounting Firm Shue, Shiow-Ming; Kuo, Cheng-Hung Deloitte & Touche Accounting Firm Shue, Shiow-Ming; Kuo, Cheng-Hung

Audit Opinion

Modified unqualified opinion

Modified unqualified opinion

Modified unqualified opinion

Modified unqualified opinion

Deloitte & Touche Accounting Firm

Unmodified report with other

Lin, Shu-Wan ; Shue, Shiow-Ming

matter paragraph

Deloitte & Touche Accounting Firm Lin, Shu-Wan; Shue, Shiow-Ming

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Qualified review report

VI. Financial Information

6.2 Five-Year Financial Analysis 6.2.1 Financial Analysis – Based on IFRS (Consolidated) Year

Financial Analysis for the Last Five Years (Note1)

Item

2012

2013

2014

2015

2016

27.85

28.54

27.13

29.50

33.14

28.32

Ratio of long-term capital to property, plant and equipment (%)

508.05

545.14

602.78

642.40

647.77

658.41

Current ratio (%)

261.73

262.49

281.70

259.40

251.69

276.24

Quick ratio (%)

207.59

214.22

226.32

205.23

197.72

207.69

22.46

52.74

83.91

48.63

51.19

61.02

4.96

5.03

4.88

4.88

4.70

4.70

74

73

75

75

78

78

5.71

5.62

5.71

5.57

4.89

4.47

4.06

4.31

4.14

4.17

4.10

4.26

64

65

64

66

75

82

Property, plant and equipment turnover (times)

5.61

6.31

6.69

7.47

7.91

7.30

Total assets turnover (times)

0.81

0.88

0.86

0.88

0.86

0.81

Return on total assets (%)

1.50

4.70

4.11

3.09

5.89

7.37

Return on equity (%)

1.96

6.43

5.62

4.22

8.41

10.22

12.56

35.72

34.69

26.23

46.25

52.91

1.75

5.26

4.73

3.45

6.73

8.93

1.29

3.51

3.07

2.29

4.50

1.35

1.29

3.51

3.07

2.29

4.50

1.35

20.99

2.61

11.26

19.61

24.64

-

Cash flow adequacy ratio (%)

108.12

92.32

72.21

83.51

67.39

64.71

Cash flow reinvestment ratio (%)

3.92

(2.58)

(1.37)

(1.49)

1.97

-

Operating leverage

45.18

8.91

9.90

10.54

15.77

8.65

Financial leverage

1.21

1.04

1.03

1.04

1.10

1.05

Debt Ratio (%) Financial structure

Solvency

Operating performance

Times Interest earned ratio (times) Average collection turnover (times) Average collection period (days) Average inventory turnover (times) Accounts payable turnover (times) Average days in sales

Profit before tax to capital (%) Profitability

Profit to sales (%) Earnings per share (NT$) (Note 2) Retroactively adjusted earnings per share (Note 3) Cash flow ratio (%)

Cash flow

Leverage

As of March 31, 2017 (Note1)

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VI. Financial Information Analysis of financial ratio differences for the last two years. (Not required if the difference does not exceed 20%) 1. Return on total assets increased 90%: Because of income after tax increased. 2. Return on stockholders' equity increased 99%: Because of income after tax increased. 3. Pre-tax income to paid-in capital increased 76%: Because of income before tax increased. 4. Profit ratio increased 95%: Because of income after tax increased. 5. Cash flow ratio increased 26%: Net cash generated from operating activities increased 45%、current liabilities increased 16%. 6. Cash reinvestment ratio increased 232%:Because of net cash generated from operating activities increased 45%、long-term investment and Other non-current assets decreased 51%. 7. Operating leverage increased 50%:Because of profit from operations decreased 33%. Note 1:The Company has adopted the International Financial Reporting Standards (IFRSs) for the compilation of consolidated financial information since 2013. The financial information of the preceding years has been audited and reviewed by the CPA. Note 2: Calculated by the weighted average number of shares in external circulation. Note 3: Calculated by the retroactively adjusted number of shares.

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VI. Financial Information 6.2.2 Financial Analysis (Unconsolidated) Year Items

2012 Debt Ratio (%)

Financial structure

Solvency

2016

13.53

14.96

Ratio of long-term capital to property, plant and equipment (%)

624.57

674.88

723.11

782.43

785.61

Current ratio (%)

150.81

182.55

187.16

185.33

171.80

91.19

128.86

129.80

136.21

115.08

3,521

12,167

25,668

19,706

672

5.83

5.37

5.44

6.01

5.69

63

68

67

61

64

5.16

4.47

4.71

5.48

4.88

4.10

4.18

4.42

4.40

3.91

71

82

77

67

75

Property, plant and equipment turnover (times)

4.62

4.05

3.34

3.40

3.41

Total assets turnover (times)

0.60

0.52

0.42

0.40

0.38

Return on total assets (%)

1.97

5.45

4.84

3.68

7.37

Return on equity (%)

2.44

6.60

5.65

4.25

8.58

13.41

34.22

31.71

23.45

40.04

3.26

10.41

11.64

9.25

19.33

1.29

3.51

3.07

2.29

4.50

1.29

3.51

3.07

2.29

4.50

40.14

(2.86)

17.80

26.20

26.38

126.42

99.63

88.73

66.08

42.42

Quick ratio (%)

Average inventory turnover (times) Accounts payable turnover (times)

Profit before tax to capital (%) Profit to sales (%) Earnings per share (NT$) (Note 2) Retroactively adjusted earnings per share (Note 3) Cash flow ratio (%)

Leverage

2015

13.24

Average days in sales

Cash flow

2014

15.64

Average collection period (days)

Profitability

2013

19.24

Times interest earned ratio (times) Average collection turnover (times)

Operating performance

Financial Analysis for the Last Five Years (Note1)

Cash flow adequacy ratio (%) Cash flow reinvestment ratio (%)

4.52

(4.37)

(3.35)

(6.31)

(6.26)

Operating leverage

8.09

7.41

11.03

13.64

21.03

Financial leverage

1.00

1.00

1.00

1.00

1.02

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VI. Financial Information

Analysis of financial ratio differences for the last two years. (Not required if the difference does not exceed 20%) 1. Interest earned ratio decreased 97%: Because of interest expense of 2016 increased. 2. Return on total assets increased 100%: Because of income after tax and interest expense of 2016 increased. 3. Return on stockholders' equity increased 102%: Because of income after tax of 2016 increased. 4. Pre-tax income to paid-in capital increased 71%: Because of income before tax of 2016 increased. 5. Profit ratio increased 109%: Because of income after tax of 2016 increased. 6. Cash flow adequacy ratio decreased 36%: Because of inventories of 2016 increased. 7. Operating leverage increased 54%: Because of Because of profit from operations decreased. Note 1: The Company has adopted the International Financial Reporting Standards (IFRSs) for the compilation of consolidated financial information since 2013. The financial information of the preceding years has been audited and reviewed by the CPA. Note 2: Calculated by the weighted average number of shares in external circulation. Note 3: Calculated by the retroactively adjusted number of shares.

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VI. Financial Information 6.3 Audit Committee’s Report

Audit Committee’ s Review Report

The Board of Directors has prepared and submitted the 2016 business report, financial statements, and earnings distribution proposal, of which the financial statements have been audited by Deloitte. These have been reviewed by the Audit Committee as correctly portraying SYSTEX's business activities. In accordance withArticle 14-4 of the Securities and Exchange Act and Article 219, 208 of the Company Act, this report is submitted for your examination.

Systex Corporation Audit Committee Convener:

Huang, Jih-Tsan

March 23, 2017

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VI. Financial Information 6.4 Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report

Systex Corporation and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Systex Corporation Opinion We have audited the accompanying consolidated financial statements of Systex Corporation and its subsidiaries (collectively, the Group), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, based on our audits and the reports of the other independent auditors (refer to paragraph of Other Matter), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2016. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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Key audit matters of the Group’s consolidated financial statements for the year ended December 31, 2016 are addressed as follows: Valuation of Inventory Write-down As of December 31, 2016, the inventories amounted to $2,422,283 thousand, significant to the Group. The valuation of inventory write-down involves subjective judgements, including identification of slow-moving and obsolete inventories, estimation of net realizable value, and provision for already-identified issues. Therefore, we consider the valuation of inventory write-down as a key audit matter in 2016. For the disclosure related to inventories, refer to Notes 5 and 11. Our audit procedures for the abovementioned key audit matter included: 1.

We obtained and assessed the report of lower of cost or net realizable value prepared by management. We examined the amounts and categories in the aging analysis report of inventories. We assessed the reasonableness of net realizable value by sampling the latest and post year-end sales.

2.

We attended year-end inventory counts and assessed the condition of inventories to evaluate the completeness of inventory provisions for obsolete and damaged goods.

Valuation of Accounts Receivable Impairment As of December 31, 2016, the accounts receivables amounted to $3,304,915 thousand, significant to the Group. The decision of the determinant of the recoverability of accounts receivable involves subjective judgements, including the assumptions of credit risk to clients, the impairment rates based on historical experiences, and the provision for already-identified issues. Therefore, we consider the valuation of accounts receivable impairment as a key audit matter in 2016. For the disclosure related to accounts receivable, refer to Notes 5 and 10. Our audit procedures for the abovementioned key matter included: 1.

We obtained the reports of accounts receivable impairment and assessed the reasonableness of the methodology and data used in the reports. In order to evaluate the adequacy of the allowance for doubtful accounts, we reviewed the related calculation and validated the aging amounts as of the balance sheet date to understand, judge, and measure the potential risk in overdue balances.

2.

We tested recoverability of accounts receivables by verifying cash receipts in the subsequent period. For a receivable that was past due and not yet received, we assessed the reasonableness of the allowance for the doubtful accounts based on the customer’s payment history, the bank’s guarantee provided, and our understanding of macro-economic environment.

Investments Accounted for Using Equity Method The Group disposed of the investment (partial ownership of Shenzhen Forms Syntron Information Co., Ltd.) accounted for by the equity method, resulting in a gain of $1,168,277 thousand, an amount that is material to the 2016 consolidated financial statements of the Group. The calculation for the gain on sale of the investments accounted for using the equity method was complicated and involved in tax computation, which affected the ending balance of the investment accounted for using the equity method and the recognized gain on the sale of the investments. For the disclosure related to the investment under the equity method, refer to Note 15.

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Our audit procedures for the abovementioned key matter included: 1. We obtained and verified the documents regarding the disposal of the investment in Shenzhen Forms Syntron Information Co., Ltd., which was accounted for using the equity method, and regarding the transfer of the shares in order to confirm the completion of the transaction. 2.

We reviewed and verified the movements of the investment accounted for using the equity method and the related gain on sale of investments according to related regulations. We verified the tax payment receipts related to this transaction in order to assess the appropriateness of the recognition for related income, expense, and tax.

Other Matter We did not audit the financial statements for the years ended December 31, 2016 and 2015 of SoftMobile Technology Corporation, Rainbow Tech Information (HK) Limited and Systex Information (H.K.) Ltd., which are all consolidated subsidiaries. The aggregate assets of these subsidiaries as of December 31, 2016 and 2015 amounted to $505,825 thousand and $466,037 thousand, respectively, or 2.65% and 2.50% of the respective consolidated assets. The aggregate net operating revenues of these subsidiaries in 2016 and 2015 were $1,126,067 thousand and $866,911 thousand, respectively, or 6.95% and 5.31% of the respective consolidated net operating revenues. We also did not audit the financial statements as of and for the year ended December 31, 2016 of Sanfran Technologies and Forms Syntron Information (Shenzhen) Limited, and the financial statements for the year ended December 31, 2015 of AFE Solutions Limited, Bisnews International Limited, Sanfran Technologies Inc., Yankey Information Co., Ltd. and Forms Syntron Information (Shenzhen) Limited, the investments in which were accounted by the equity method, shown in the accompanying consolidated financial statements. The aggregate carrying amounts of these investments accounted by equity method as of December 31, 2016 and 2015, including those reclassified to noncurrent assets held for sale, were $838,453 thousand and $1,227,632 thousand, respectively, or 4.39% and 6.58% of the respective consolidated assets. The aggregate amounts of share of their profit and other comprehensive income in 2016 and 2015 were $4,339 thousand and $(13,636) thousand, respectively, or 0.5% and (2.52%) of the respective consolidated comprehensive income. The subsidiaries and investees’ financial statements were audited by other auditors whose reports have been provided to us and, our opinion, insofar as it relates to the amounts included for these subsidiaries and investees, is based solely on the reports of the other auditors. We have also audited the parent company only financial statements of Systex Corporation as of and for the years ended December 31, 2016 and 2015 on which we have issued an unmodified report with other matter paragraph. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1.

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

3.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6.

Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion. -118-

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2016 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Shu-Wan Lin and Shiow-Ming Shue.

Deloitte & Touche Taipei, Taiwan Republic of China March 23, 2017

Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China. For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail. Also, as stated in Note X to the financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English. -119-

SYSTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

2016 Amount

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss (Notes 4 and 7) Available-for-sale financial assets (Notes 4 and 8) Debt investments with no active market (Notes 4 and 9) Notes receivable, net (Notes 4 and 10) Accounts receivable, net (Notes 4, 5, 10 and 26) Other receivables (Notes 21 and 27) Inventories (Notes 4, 5 and 11) Prepayments Non-current assets held for sale (Notes 4 and 15) Refundable deposits - current Other current assets Total current assets NON-CURRENT ASSETS Held-to-maturity financial assets - non-current (Notes 4 and 12) Financial assets measured at cost - non-current (Notes 4 and 13) Debt investments with no active market-non-current (Notes 4 and 9) Investments accounted for using equity method (Notes 4 and 15) Property, plant and equipment (Notes 4, 16 and 27) Computer software (Note 4) Goodwill (Note 4) Technological expertise (Note 4) Other intangible assets (Note 4) Deferred tax assets (Notes 4 and 21) Refundable deposits - non-current (Note 28) Long-term receivables (Note 10) Other non-current assets (Notes 19 and 27) Total non-current assets TOTAL

2015 Amount

%

%

$ 4,245,282 2,879,956 18,984 102,339 67,579 3,304,915 217,270 2,422,283 850,922 890,095 210,691 53,754

22 15 1 17 1 13 5 5 1 -

$ 2,805,641 3,848,283 40,607 16,736 75,005 3,448,823 288,273 1,975,011 863,508 186,948 43,813

15 21 18 2 11 5 1 -

15,264,070

80

13,592,648

73

432,971 548,375 397,656 2,009,673 79,585 25,951 7,215 66,702 116,676 54,195 79,559

2 3 2 11 1 1 -

62,079 458,967 1,652,940 2,089,497 51,531 315,967 31,935 51,577 49,335 119,004 92,604 94,773

2 9 11 2 1 1 1

3,818,558

20

5,070,209

27

$ 19,082,628

100

$ 18,662,857

100

$ 1,046,022 2,953,992 901,816 168,439 882,226 112,090

5 15 5 1 5 1

6,064,585

LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term loans (Notes 17 and 27) Notes and accounts payable (Note 26) Other payables Current tax liabilities (Notes 4 and 21) Receipts in advance Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities (Notes 4 and 21) Net defined benefit liabilities - non-current (Notes 4 and 18) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION (Notes 4 and 19) Share capital Common shares Advance receipts for common shares Total share capital Capital surplus Retained earnings Legal reserve Unappropriated earnings Total retained earnings Other equity Treasury shares Total equity attributable to owners of the Corporation NON-CONTROLLING INTERESTS Total equity TOTAL The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 23, 2017)

-120-

$

589,821 2,833,633 754,534 99,871 841,304 120,867

3 15 4 1 4 1

32

5,240,030

28

5,894 246,379 6,575

1 -

17,719 240,113 7,292

2 -

258,848

1

265,124

2

6,323,433

33

5,505,154

30

2,693,933 2,693,933 7,634,980

14 14 40

2,687,733 650 2,688,383 8,197,220

14 14 44

786,087 2,681,315 3,467,402 (64,494) (1,003,629)

4 14 18 (5)

729,659 2,317,133 3,046,792 136,780 (967,498)

4 12 16 1 (5)

12,728,192

67

13,101,677

70

31,003

-

56,026

-

12,759,195

67

13,157,703

70

$ 19,082,628

100

$ 18,662,857

100

SYSTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2016 Amount OPERATING REVENUES (Notes 4 and 26) Sales Less: Sales returns and allowances Net sales Service revenue Other operating revenue

%

2015 Amount

%

$ 11,761,268 131,563 11,629,705 4,514,543 66,132

73 1 72 28 -

$ 12,072,818 59,692 12,013,126 4,185,430 114,532

74 1 73 26 1

16,210,380

100

16,313,088

100

9,961,443 1,895,107 21,770

61 12 -

10,188,147 1,769,840 54,615

63 11 -

11,878,320

73

12,012,602

74

GROSS PROFIT

4,332,060

27

4,300,486

26

OPERATING EXPENSES (Notes 18, 20 and 26) Selling expenses General and administrative expenses Research and development expenses

3,172,663 420,986 459,143

19 3 3

2,999,706 474,660 406,758

18 3 3

Total operating expenses

4,052,792

25

3,881,124

24

PROFIT FROM OPERATIONS

279,268

2

419,362

2

84,102 29,965 42,918 62,455 1,227,033 (69,545)

8 -

66,178 22,594 45,696 89,728 159,122 (35,007)

1 1 -

115,052 (24,823) (29,095)

1 -

(50,257) (14,805) (8,943)

-

17,804 (489,274)

(3)

147,685 (136,134)

1 (1)

966,592

6

Total operating revenues OPERATING COSTS (Notes 4, 11, 20 and 26) Cost of goods sold Service cost Other operating cost Total operating costs

NON-OPERATING INCOME AND EXPENSES Share of profit of associates (Notes 4 and 15) Interest income (Note 4) Dividend income (Note 4) Other income, net Gain on sale of investments, net (Note 20) Foreign exchange loss, net (Note 4) Gain (loss) on financial assets at fair value through profit or loss, net (Note 4) Interest expense Other expenses Gain on disposal of property, plant and equipment, net (Note 4) Impairment loss on assets (Notes 4 and 20) Total non-operating income and expenses

-121-

285,857 2 (Continued)

SYSTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2016 Amount INCOME BEFORE INCOME TAX

$

1

141,892

1

7

563,327

3

(15,384)

-

(61,989)

-

437 (14,947)

-

874 (61,115)

-

(129,765)

(1)

133,545

1

10,428

-

(2,720)

-

(81,450) (200,787)

(1) (2)

(91,278) 39,547

(1) -

(215,734)

(2)

(21,568)

-

$

874,594

5

$

541,759

3

$

1,108,268 (17,940)

7 -

$

564,274 (947)

3 -

$

1,090,328

7

$

563,327

3

3 -

OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Notes 4 and 18) Income tax relating to items that will not be reclassified subsequently to profit or loss (Notes 4 and 21) Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Unrealized gain (loss) on available-for-sale financial assets Share of the other comprehensive loss of associates accounted for using the equity method

Other comprehensive loss for the year, net of income tax

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Corporation Non-controlling interests

-122-

1,245,860

8

155,532 1,090,328

$

% 4

NET INCOME

NET INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Corporation Non-controlling interests

%

705,219

INCOME TAX EXPENSE (Notes 4 and 21)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

2015 Amount

$

892,819 (18,225)

5 -

$

542,237 (478)

$

874,594

5

$

541,759 3 (Continued)

SYSTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2016 Amount EARNINGS PER SHARE (Note 22) Basic Diluted

%

$4.50 $4.50

2015 Amount

%

$2.29 $2.29

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 23, 2017)

-123-

(Concluded)

SYSTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars) Equity Attributable to Owners of the Corporation (Notes 4 and 19)

Common Shares BALANCE, JANUARY 1, 2015

$

2,669,163

Share Capital Advance Receipts for Common Shares $

1,950

Total $

Capital Surplus

2,671,113

$

8,685,259

Legal Reserve $

655,188

Retained Earnings Unappropriated Special Reserve Earnings $

114,116

$

2,175,281

Appropriation of 2014 earnings Legal reserve Cash dividends - NT$1.5 per share Reversal of special reserve

-

-

-

-

74,471 -

Change in capital surplus from investments in associates accounted for by using equity method

-

-

-

280,377

-

-

-

Distribution in cash of the capital surplus NT$3.5 per share

-

-

-

(935,870 )

-

-

17,270

37,744

-

Issuance of common shares for exercised employee stock options

18,570

(1,300 )

(114,116 )

Other Equity Exchange Differences on Unrealized Gain Translating (Loss) on Financial Foreign Operations Instruments

Total $

(74,471 ) (401,087 ) 114,116

2,944,585

$

(401,087 ) -

86,276

$

11,561

Treasury Shares $

(953,252 )

Non-controlling Interests (Note 19)

Total $ 13,445,542

$

78,224

Total Equity $ 13,523,766

-

-

-

(401,087 ) -

-

(401,087 ) -

-

-

-

-

280,377

-

280,377

-

-

-

-

-

(935,870 )

-

(935,870 )

-

-

-

-

-

-

55,014

-

55,014

-

-

564,274

Net income (loss) for 2015

-

-

-

-

-

-

564,274

564,274

Other comprehensive income (loss) for 2015

-

-

-

-

-

-

(60,980 )

(60,980 )

41,663

(2,720 )

-

(22,037 )

Total comprehensive income (loss) for 2015

-

-

-

-

-

-

503,294

503,294

41,663

(2,720 )

-

542,237

Acquisition of the Corporation's shares by subsidiaries regarded as treasury share transaction

-

-

-

-

-

-

-

-

-

-

(47,091 )

(47,091 )

(49,168 )

Disposal of the Corporation's shares by subsidiaries regarded as treasury share transaction

-

-

-

21,188

-

-

-

-

-

-

32,845

54,033

56,417

110,450

Cash dividends received by subsidiaries from the Corporation

-

-

-

108,522

-

-

-

-

-

-

-

108,522

-

108,522

Decrease in non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

2,687,733

650

2,688,383

8,197,220

729,659

-

2,317,133

3,046,792

127,939

8,841

Appropriation of 2015 earnings Legal reserve Cash dividends - NT$2.5 per share

-

-

-

-

56,428 -

-

-

-

-

(673,483 )

-

(673,483 )

Change in capital surplus from investments in associates accounted for by using equity method

-

-

-

58,753

-

-

-

-

-

-

-

58,753

-

58,753

Distribution in cash of the capital surplus NT$2.5 per share

-

-

-

(673,483 )

-

-

-

-

-

-

-

(673,483 )

-

(673,483 )

5,550

11,045

-

-

-

-

-

-

-

16,595

-

16,595

1,108,268

1,108,268

-

-

-

1,108,268

(211,225 )

9,951

-

(215,449 )

(211,225 )

9,951

-

892,819

(18,225 )

874,594

(36,131 )

(37,728 )

(73,859 )

BALANCE, DECEMBER 31, 2015

Issuance of common shares for exercised employee stock options

6,200

(650 )

(56,428 ) (673,483 )

(673,483 )

(967,498 )

(947 ) 469 (478 )

(28,969 )

13,101,677

56,026

(21,568 ) 541,759

(96,259 )

(28,969 ) 13,157,703

Net income (loss) for 2016

-

-

-

-

-

-

Other comprehensive income (loss) for 2016

-

-

-

-

-

-

Total comprehensive income (loss) for 2016

-

-

-

-

-

-

1,094,093

1,094,093

Acquisition of the Corporation's shares by subsidiaries regarded as treasury share transaction

-

-

-

-

-

-

-

-

-

-

Cash dividends received by subsidiaries from the Corporation

-

-

-

116,457

-

-

-

-

-

-

-

116,457

-

116,457

Disposal of investments accounted for by using equity method

-

-

-

(83,588 )

-

-

-

-

-

-

-

(83,588 )

-

(83,588 )

Changes in percentage of ownership interest in subsidiaries (Note 23)

-

-

-

8,576

-

-

-

-

-

-

-

8,576

Increase in non-controlling interests

-

-

-

-

-

-

-

-

-

-

-

-

BALANCE, DECEMBER 31, 2016

$

2,693,933

$

-

$

2,693,933

$

7,634,980

$

786,087

$

-

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 23, 2017)

-124-

(14,175 )

$

2,681,315

(14,175 )

$

3,467,402

$

(83,286 )

$

18,792

(36,131 )

$ (1,003,629 )

$ 12,728,192

(17,940 )

563,327

(285 )

(8,576 )

$

1,090,328 (215,734 )

-

39,506

39,506

31,003

$ 12,759,195

SYSTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

2016 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for Depreciation expenses Amortization expenses Provision for allowance for doubtful accounts (Gain) loss on financial assets at fair value through profit or loss, net Interest expense Interest income Dividend income Share of profit of associates Gain on disposal of property, plant and equipment, net Gain on sale of investment, net Gain on sale of investments accounted for using equity method Impairment loss on financial assets Impairment loss on non-financial assets Write-down of inventories Unrealized gain on foreign currency exchange, net Changes in operating assets and liabilities Decrease in financial assets held for trading Decrease (increase) in notes receivable Decrease (increase) in accounts receivable Decrease (increase) in other receivables Increase in inventories Decrease (increase) in prepayments (Increase) decrease in other current assets Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Increase in receipts in advance (Decrease) increase in other current liabilities Decrease in net defined benefit liabilities Cash generated from operations Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds on sale of available-for-sale financial assets Acquisition of debt investments with no active market Acquisition of held-to-maturity financial assets Proceeds on sale of held-to-maturity financial assets Acquisition of financial assets measured at cost Proceeds on sale of financial assets measured at cost Return of capital from capital reduction and liquidation of financial assets investees measured at cost

-125-

2015

$ 1,245,860

$

705,219

130,915 61,760 18,811 (115,052) 24,823 (29,965) (42,918) (84,102) (17,804) (859) (1,168,277) 174,051 315,223 78,285 (5)

147,297 51,639 22,446 50,257 14,805 (22,594) (45,696) (66,178) (147,685) (142,864) 54,943 81,191 13,900 (6,763)

1,078,598 7,426 86,031 93,565 (527,021) 10,187 (10,024) 148,228 148,269 42,695 (8,285) (9,118) 1,651,297 (24,089) (132,989)

949,416 (6) (296,694) (3,505) (37,460) (145,872) 15,461 (150,095) (94) 156,483 5,925 (4,012) 1,199,464 (14,871) (156,816)

1,494,219

1,027,777

(548,836) 52,112 (43,212) 2,478 671

150,032 (60,025) (18,000) 91,064 1,303 (Continued)

SYSTEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)

2016 Acquisition of investments accounted for using equity method Proceeds on sale of investments accounted for using equity method Payments for property, plant and equipment Proceeds on disposal of property, plant and equipment Increase in refundable deposits Payments for intangible assets Proceeds on disposal of intangible assets Decrease in long-term receivables Decrease in pledged time deposits (Increase) decrease in time deposits with original maturity of more than 3 months (Increase) decrease in other non-current assets Interest received Dividends received Dividends received from associates Distribution in cash of the capital surplus received from financial assets measured at cost Net cash generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans Decrease in guarantee deposits received Dividends paid Proceeds from exercise of employee stock options Payments for buy-back of common shares Proceeds on sale of the Corporation's shares by subsidiaries Increase (decrease) in non-controlling interests Cash dividends received by subsidiaries from the Corporation Distribution in cash from the capital surplus Net cash used in financing activities EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

$

2015

1,361,442 (93,448) 36,039 (21,704) (41,179) 160 38,409 17,893 (85,931) (2,692) 24,136 42,949 42,430

$

(238,729) (111,948) 309,208 (26,118) (44,943) 17,761 3,759 440 14,213 21,083 45,696 108,437

75

13,401

781,792

276,634

462,229 (684) (673,483) 16,595 (73,859) 39,506 116,457 (673,483)

338,406 (1,555) (401,087) 55,014 (96,259) 110,450 (28,969) 108,522 (935,870)

(786,722)

(851,348)

(49,648)

42,595

NET INCREASE IN CASH AND CASH EQUIVALENTS

1,439,641

495,658

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR

2,805,641

2,309,983

$ 4,245,282

$ 2,805,641

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 23, 2017) -126-

(Concluded)

SYSTEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION Systex Corporation (the Corporation) was incorporated on January 7, 1997 under the provision of the Company Act of the Republic of China and other laws and regulations. The Corporation is mainly engaged in sales and leases of computer software and related equipment, transmission and security of value-added network, maintenance of database, and consultation. The Corporation’s shares had been traded on Emerging Stock Market since April 10, 2002 and Taipei Exchange since January 6, 2003. On December 30, 2010, the Corporation has changed the listing and trading of its shares to the Taiwan Stock Exchange. The consolidated financial statements are presented in the Corporation’s functional currency, New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Corporation’s board of directors on March 23, 2017.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS a. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the Financial Supervisory Commission (FSC) for application starting from 2017 Rule No. 1050050021 and Rule No. 1050026834 issued by the FSC stipulated that starting January 1, 2017, the Group should apply the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRS, IAS, IFRIC and SIC (collectively, the IFRSs) issued by the IASB and endorsed by the FSC for application starting from 2017. New, Amended or Revised Standards and Interpretations (the New IFRSs) Annual Improvements to IFRSs 2010-2012 Cycle Annual Improvements to IFRSs 2011-2013 Cycle Annual Improvements to IFRSs 2012-2014 Cycle Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities: Applying the Consolidation Exception” Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations” IFRS 14 “Regulatory Deferral Accounts” Amendment to IAS 1 “Disclosure Initiative”

Effective Date Announced by IASB (Note 1) July 1, 2014 (Note 2) July 1, 2014 January 1, 2016 (Note 3) January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 (Continued)

-127-

New, Amended or Revised Standards and Interpretations (the New IFRSs) Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization” Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” Amendment to IAS 27 “Equity Method in Separate Financial Statements” Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets” Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting” IFRIC 21 “Levies”

Effective Date Announced by IASB (Note 1) January 1, 2016 January 1, 2016 July 1, 2014 January 1, 2016 January 1, 2014 January 1, 2014 January 1, 2014 (Concluded)

Note 1: Unless stated otherwise, the above New or amended IFRSs are effective for annual periods beginning on or after their respective effective dates. Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014. Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016. The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the accounting policies of the Corporation and entities controlled by the Corporation (collectively, the “Group”), except for the following: 1) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets” The amendment clarifies that the recoverable amount of an asset or a cash-generating unit is disclosed only when an impairment loss on the asset has been recognized or reversed during the period. Furthermore, if the recoverable amount of an item of property, plant and equipment for which impairment loss has been recognized or reversed is fair value less costs of disposal, the Group is required to disclose the fair value hierarchy. If the fair value measurements are categorized within Level 2 or Level 3, the valuation technique and key assumptions used to measure the fair value are disclosed. The discount rate used is disclosed if such fair value less costs of disposal is measured by using present value technique. The amendment will be applied retrospectively. 2) Annual Improvements to IFRSs:

2010-2012 Cycle

Several standards, including IFRS 2 “Share-based Payment”, IFRS 3 “Business Combinations” and IFRS 8 “Operating Segments”, were amended in this annual improvement.

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The amended IFRS 2 changes the definitions of “vesting condition” and “market condition” and adds definitions for “performance condition” and “service condition”. The amendment clarifies that a performance target can be based on the operations (i.e. a non-market condition) of the Group or another entity in the same group or the market price of the equity instruments of the Group or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Group, but also of other entities outside the Group. The share-based payment arrangements with market conditions, non-market conditions or non-vesting conditions will be accounted for differently, and the aforementioned amendment will be applied prospectively to those share-based payments granted on or after January 1, 2017. IFRS 3 was amended to clarify that contingent consideration should be measured at fair value, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39. Changes in fair value should be recognized in profit or loss. The amendment will be applied prospectively to business combination with acquisition date on or after January 1, 2017. The amended IFRS 8 requires the Group to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”. The amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segments’ assets are regularly provided to the chief operating decision-maker. The judgements made in applying aggregation criteria should be disclosed retrospectively upon initial application of the amendment in 2017. When the amended IFRS 13 becomes effective in 2017, the short-term receivables and payables with no stated interest rate will be measured at their invoice amounts without discounting, if the effect of not discounting is immaterial. IAS 24 was amended to clarify that a management entity providing key management personnel services to the Group is a related party of the Group. Consequently, the Group is required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required. 3) Annual Improvements to IFRSs:

2011-2013 Cycle

Several standards, including IFRS 3, IFRS 13 and IAS 40 “Investment Property”, were amended in this annual improvement. The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32. 4) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers The amendments include additions of several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for application starting from 2017. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include emphasis on certain recognition and measurement considerations and add requirements for disclosures of related party transactions and goodwill. -129-

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second immediate family of the chairman of the board of directors or president of the Group are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Group has significant transaction. If the transaction or balance with a specific related party is 10% or more of the Group’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party. Except for the above impacts, as of the date the consolidated financial statements were authorized for issue, the Group continues assessing other possible impacts that application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Group’s financial position and financial performance, and will disclose these other impacts when the assessment is completed. b. New IFRSs in issue but not yet endorsed by the FSC The Group has not applied the following IFRSs issued by the IASB but not yet endorsed by the FSC. The FSC announced that IFRS 9 and IFRS 15 will take effect starting January 1, 2018. As of the date the consolidated financial statements were authorized for issue, the FSC has not announced the effective dates of other new IFRSs. Effective Date Announced by IASB (Note 1)

New IFRSs Annual Improvements to IFRSs 2014-2016 Cycle Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” IFRS 9 “Financial Instruments” Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9 and Transition Disclosures” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 15 “Revenue from Contracts with Customers” Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from Contracts with Customers” IFRS 16 “Leases” Amendment to IAS 7 “Disclosure Initiative” Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of investment property” IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

Note 2 January 1, 2018 January 1, 2018 January 1, 2018 To be determined by IASB January 1, 2018 January 1, 2018 January 1, 2019 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates. Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

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1) IFRS 9 “Financial Instruments” Recognition and measurement of financial assets With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below. For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows: a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method; b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss. Impairment of financial assets IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction. For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

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Transition Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed to apply IFRS 9 when it becomes effective. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in the current period and restatement of prior periods is not required. The requirements for general hedge accounting shall be applied prospectively and the accounting for hedging options shall be applied retrospectively. 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” The amendments stipulated that, when an entity sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction is recognized in full. Also, when an entity loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full. Conversely, when an entity sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does not contain a business but retains significant influence or joint control in an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated. 3) IFRS 15 “Revenue from Contracts with Customers” and related amendment IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2018. When applying IFRS 15, an entity shall recognize revenue by applying the following steps:     

Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contract; and Recognize revenue when the entity satisfies a performance obligation.

In identifying performance obligations, IFRS 15 and related amendment require that a good or service is distinct if it is capable of being distinct (for example, the Group regularly sells it separately) and the promise to transfer it is distinct within the context of the contract (i.e. the nature of the promise in the contract is to transfer each of those goods or services individually rather than to transfer combined items). When IFRS 15 and related amendment are effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application. 4) IFRS 16 “Leases” IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations. -132-

Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Group may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Group should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities. The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as lessor. When IFRS 16 becomes effective, the Group may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application. 5) Amendment to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” The amendment clarifies that the difference between the carrying amount of the debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows. In addition, in determining whether to recognize a deferred tax asset, the Group should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendment also stipulates that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Group’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Group will achieve the higher amount, and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences. 6) IFRIC 22 “Foreign Currency Transactions and Advance Consideration” IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration. The Group shall apply IFRIC 22 either retrospectively or prospectively to all assets, expenses and income in the scope of the Interpretation initially recognized on or after (a) the beginning of the reporting period in which the entity first applies IFRIC 22, or (b) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies IFRIC 22. Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed. -133-

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Statement of compliance The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC. b. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values. The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and 3) Level 3 inputs are unobservable inputs for the asset or liability. c. Classification of current and non-current assets and liabilities Current assets include: 1) Assets held primarily for the purpose of trading; 2) Assets expected to be realized within twelve months after the reporting period; and 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. Current liabilities include: 1) Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and 2) Liabilities for which the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. Assets and liabilities that are not classified as current are classified as non-current.

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d. Basis of consolidation  Principles for preparing consolidated financial statements The consolidated financial statements incorporate the financial statements of the Corporation and the entities controlled by the Corporation (i.e. its subsidiaries). Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Corporation. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Corporation and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Corporation. See Note 15 for the detailed information of subsidiaries (including the percentage of ownership and main business). e. Business combinations Acquisitions of businesses are accounted for using the acquisition method. are generally recognized in profit or loss as incurred.

Acquisition-related costs

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree, the excess are recognized immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value. f. Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

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Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including subsidiaries and associates in other countries that use currency different from the currency of the Corporation) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income attributed to the owners of the Corporation and non-controlling interests as appropriate. On the disposal of a foreign operation (i.e. a disposal of the Corporation’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Corporation are reclassified to profit or loss. In relation to a partial disposal of a subsidiary that does not result in the Corporation losing control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences recognized in other comprehensive income is reclassified to profit or loss. Goodwill and fair value adjustments on identifiable assets and liabilities acquired in the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in other comprehensive income. g. Inventories Inventories are stated at the lower of cost (monthly weighted average) or net realizable value. Net realizable value is the estimated selling price of inventories less all estimated costs necessary to make the sale. h. Investment in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. The Group uses the equity method to account for its investments in associates. Under the equity method, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of equity of associates. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

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When the Group subscribes for additional new shares of the associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus changes in the Group’s share of equity of associates. If the Group’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate. The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of the equity method from the date on which it ceases to have significant influence. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’ consolidated financial statements only to the extent of interests in the associate that are not related to the Group. i.

Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment loss. Freehold land is not depreciated. Depreciation on property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. If the lease term is shorter than the useful lives, assets are depreciated over the lease term. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

j.

Goodwill Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss. -137-

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods. If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal, and is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. k. Intangible assets 1) Intangible assets acquired separately Intangible assets (computer software) with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. 2) Internally-generated intangible assets - research and development expenditure Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the development phase of an internal project is recognized if, and only if, all of the following have been demonstrated: a) The technical feasibility of completing the intangible asset so that it will be available for use or sale; b) The intention to complete the intangible asset and use or sell it; c) The ability to use or sell the intangible asset; d) How the intangible asset will generate probable future economic benefits; e) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and f) The ability to measure reliably the expenditure attributable to the intangible asset during its development.

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The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately. 3) Intangible assets acquired in a business combination Intangible assets (technological expertise and client relationship) acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately. 4) Derecognition of intangible assets Gains or losses arising from derecognition of an intangible asset, which are measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized. l.

Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual or smallest group of cash-generating units on a reasonable and consistent allocation basis. Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss. When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

m. Non-current assets held for sale Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal groups) is available for immediate sale in its present condition. To meet the criteria for the sale being highly probable, the appropriate level of management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. When to a sale plan would result in loss of control of a subsidiary, regardless of whether the Group will retain a non-controlling interest in that subsidiary after the sale. However, such investment is still accounted for by the equity method.

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When the Group is committed to a sale plan involving disposal of an investment, or a portion of an investment, in an associate, only the investment or the portion of the investment that will be disposed of is classified as held for sale when the classification criteria are met, and the Group discontinues the use of the equity method in relation to the portion that is classified as held for sale. Any retained portion of an investment in an associate that has not been classified as held for sale continues to be accounted for using the equity method. If the Group ceases to have significant influence nor joint control over the investment after the disposal takes place, the Group accounts for any retained interest that has not been classified as held for sale in accordance with the accounting policies for financial instruments. Non-current assets (or disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Recognition of depreciation of those assets would cease. When a subsidiary, associate, or a portion of an interest in an associate previously classified as held for sale no longer meets the criteria to be so classified, it is measured at the carrying amount that would have been recognized had such interests not been classified as held for sale. Financial statements for the periods since classification as held for sale are amended accordingly. n. Financial instruments Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. 1) Financial assets All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. a) Measurement category Financial assets are classified into the following categories: Financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. i.

Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss that are assets held for trading. Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 25.

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Investments in equity instruments under financial assets at fair value through profit or loss that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are subsequently measured at cost less any identified impairment loss at the end of each reporting period and presented in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in profit or loss. ii. Held-to-maturity investments Corporate bonds, which the Group has positive intent and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment. iii. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available-for-sale financial assets are measured at fair value. Dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment loss at the end of each reporting period and are presented in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in profit and loss or other comprehensive income. Any impairment losses are recognized in profit and loss. iv. Loans and receivables Loans and receivables (including accounts receivable, cash and cash equivalent, and debt investments with no active market) are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial. Cash equivalent includes time deposits with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

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b) Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For financial assets carried at amortized cost, such as accounts receivable, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables, and so on. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for that financial asset because of financial difficulties. When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of accounts receivable, where the carrying amount is reduced through the use of an allowance account. When an account receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible accounts receivable that are written off against the allowance account.

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c) Derecognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. 2) Equity instruments Equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs. Repurchase of the Corporation’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Corporation’s own equity instruments. 3) Financial liabilities a) Subsequent measurement All the financial liabilities are measured at amortized cost using the effective interest method. b) Derecognition of financial liabilities The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss. o. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Revenues from sales of computer hardware and software are recognized when the items and the risks and rewards associated with the items are transferred to the customers. Revenue from integrated hardware and software solutions are generally recognized by reference to the stage of completion of the contract terms. Service income is generally recognized when service is rendered or is recognized over the term of the service contract under the straight-line method or the percentage-of-completion method. Contract profit for the current period is the difference between the cumulative profit at the end of the current period and the cumulative profit recognized in the prior periods. When total contract cost is estimated to be greater than total contract revenue at the end of a year, the excess should be recognized as operating cost in the current year. Other operating revenue is mainly comprised of rental revenue on leases of computer equipment, which is recognized over the term of the lease.

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Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. p. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 1) The Group as lessor Amounts due from lessees under finance leases are recognized as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. 2) The Group as lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term. q. Employee benefits 1) Short-term employee benefits Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. 2) Retirement benefits Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions. Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur, or when the plan amendment or curtailment occurs/when the settlement occurs. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Net defined benefit liability (asset) represents the actual deficit (surplus) in the Group’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

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r. Share-based payment arrangements The fair value determined at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Group’s best estimate of the number of employee share options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. At the end of each reporting period, the Corporation revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the capital surplus - employee share options. s. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. 1) Current tax According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. 2) Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and the corresponding tax bases used in the computation of taxable profit. If the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit, the resulting deferred tax asset or liability is not recognized. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, personnel training expenditures and investments to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 3) Current and deferred tax for the year Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income, in which case, the current and deferred tax are also recognized in other comprehensive income.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. a. Estimated impairment of accounts receivable When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise. b. Write-down of inventory Net realizable value of inventory is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. The estimation of net realizable value was based on current market conditions and the historical experience of selling products of a similar nature. Changes in market conditions may have a material impact on the estimation of net realizable value.

6. CASH AND CASH EQUIVALENTS December 31 2016 Cash on hand Checking and savings accounts Cash equivalent Time deposits with original maturities less than three months

Market interest rate interval Time deposits with original maturities less than three months -146-

$

747 3,308,374

2015 $

1,256 1,675,245

936,161

1,129,140

$ 4,245,282

$ 2,805,641

0.60%-1.25%

0.38%-3.10%

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS December 31 2016

2015

$ 2,661,604 27,433 190,919

$ 3,667,865 143,628 36,790

$ 2,879,956

$ 3,848,283

Financial assets held for trading Mutual funds Corporation bonds Listed shares

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS December 31

Listed shares Corporate bonds

2016

2015

$ 11,047 7,937

$ 40,607 -

$ 18,984

$ 40,607

9. DEBT INVESTMENTS WITH NO ACTIVE MARKET December 31 2016

2015

Current Time deposits with original maturity of more than 3 months

$ 102,339

$

16,736

$ 500,000 48,375

$

-

$ 548,375

$

-

Non-current Domestic corporate bonds Overseas convertible bonds

Market interest rate interval Time deposits with original maturity of more than 3 months Domestic corporate bonds Overseas convertible bonds

0.30%-1.01% 3.5% 5%-6%

0.30% -

In the second quarter of 2016, the Group acquired a domestic non-maturity subordinate debenture bonds at par value with a coupon rate of 3.5% and overseas convertible bonds with coupon rates ranging from 5% to 6%.

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10. NOTES RECEIVABLE, ACCOUNTS RECEIVABLE AND LONG-TERM RECEIVABLES, NET December 31 2016 Notes receivable Less: Allowance for doubtful accounts

Accounts receivable Less: Allowance for doubtful accounts

Long-term receivables Less: Unrealized interest income

2015

$

67,810 (231)

$

75,236 (231)

$

67,579

$

75,005

$ 3,444,783 (139,868)

$ 3,585,977 (137,154)

$ 3,304,915

$ 3,448,823

$

55,966 (1,771)

$

96,242 (3,638)

$

54,195

$

92,604

The average credit period on accounts receivable was 78 days. In determining the recoverability of accounts receivable, the Group considered any change in the credit quality of the accounts receivable since the date credit was initially granted to the end of the reporting period. Based on the historical experience, the risk of non-collection of receivable was higher when the receivables were not collected on due date. The Group assessed the receivables individually and recognized an allowance for doubtful accounts of 100% against receivables that are irrecoverable. Allowance for doubtful accounts was recognized against other receivables based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial position. The aging of receivables (based on invoice date) was as follows: December 31

Less than 90 days 91-120 days 121-180 days 181-360 days Over 361 days

2016

2015

$ 2,917,517 208,459 94,099 111,586 180,932

$ 3,006,365 174,910 117,996 135,197 226,745

$ 3,512,593

$ 3,661,213

The aging of receivables that were past due but not impaired (based on invoice date) was as follows: December 31

91-120 days 121-180 days 181-360 days Over 361 days

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2016

2015

$ 206,898 93,512 105,295 49,329

$ 174,910 117,204 134,741 90,667

$ 455,034

$ 517,522

Because there was no significant change in credit quality and the amounts were still considered recoverable, the Group did not hold any collateral or other credit enhancements for these balances. In addition, the Group does not have the legal right to offset receivables with accounts payable with the same counterparty. The Group’s transactions were made with a large number of unrelated customers; thus, the concentration of credit risk was limited. The movements of the allowance for doubtful trade receivables were as follows: Individually Assessed for Impairment Balance at January 1, 2015 Add: Impairment losses recognized on receivables Add: Amounts recovered from prior year write-off Less: Amounts written off during the year as uncollectible Foreign exchange translation gains and losses Balance at December 31, 2015 Add: Impairment losses recognized on receivables Less: Amounts written off during the year as uncollectible Foreign exchange translation gains and losses

$

Balance at December 31, 2016

$

73,988

Collectively Assessed for Impairment $

Total

51,503

$ 125,491

-

22,446

22,446

-

2,211

2,211

73,988

(12,635) (128) 63,397

(12,635) (128) 137,385

2,387

16,424

18,811

(14,546) (1,196)

(14,901) (1,196)

(355) 76,020

$

64,079

$ 140,099

11. INVENTORIES December 31

Merchandise Maintenance parts

2016

2015

$ 2,388,459 33,824

$ 1,938,955 36,056

$ 2,422,283

$ 1,975,011

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2016 and 2015 was $9,961,443 thousand and $10,188,147 thousand, respectively. The cost of goods sold included inventory write-downs of $78,285 thousand and $13,900 thousand, respectively.

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12. HELD-TO-MATURITY FINANCIAL ASSETS - NON-CURRENT December 31 2016 Corporate bonds Par value

$ $

2015 -

$ 62,079 $ 59,144

Coupon rates

-

3.60%-4.55%

Average years to maturity

-

1.63 years

In the third quarter of 2016, the Group sold the corporate bonds successively and reclassified the remains of the held-to-maturity financial assets to available-for-sale financial assets according to the requirements of IAS 39.

13. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT December 31

Unlisted common shares Others

Classified according to financial asset measurement categories Available-for-sale financial assets Financial assets at FVTPL

2016

2015

$ 416,026 16,945

$ 438,774 20,193

$ 432,971

$ 458,967

$ 432,971 -

$ 444,185 14,782

$ 432,971

$ 458,967

Management believed that the above unlisted equity investments held by the Group cannot be reliably measured due to the significant range of reasonable fair value estimates; therefore they were measured at cost less impairment at the end of reporting period.

14. SUBSIDIARIES Subsidiaries Included in the consolidated Financial Statements

Investor

Investee

The Corporation

Concord System Management Corporation (CSMC)

The Corporation

Systex Capital Group, Inc. (SCGI) Hanmore Investment Corporation (Hanmore) Systex Software & Service Corporation (SSSC)

The Corporation The Corporation

Main Business

% of Ownership December 31 2016 2015

Design, assessment and planning of computer system and application software and data-processing system, sale and lease of computer hardware, peripheral equipment and spare parts, and repairs and maintenance services. Investment activities including financial trust and holding. General investment activities.

100.0

100.0

100.0

100.0

48.9

48.9

Sale and development of computer software, data-processing services

100.0

100.0

Remark

a)

(Continued)

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Investor The Corporation The Corporation

Investee Golden Bridge Corporation (GBC) Taifon Computer Co., Ltd. (Taifon)

The Corporation, Ching Pu and GBC

Ching Pu Investment Corporation (Ching Pu) Kimo.com (BVI) Corporation (Kimo BVI) Syspower Corporation (Syspower)

The Corporation

Nexsys Corporation (Nexsys)

The Corporation

Systex Solutions Corporation II (Syxtex Solutions II)

The Corporation

Etu Corporation (Etu)

The Corporation

Naturint Corporation (Naturint)

GBC

SoftMobile Technology Corporation (Soft Mobile)

Ching Pu

Taiwan Electronic Data Processing Corporation (TEDP)

TEDP

Medincom Technology Corporation (Medincom)

Kimo BVI

Sysware Singapore Pte. Ltd. (Sysware Singapore) Systex Information (H.K.) Limited (Systex Info)

The Corporation The Corporation

Kimo BVI

Kimo BVI

Kimo BVI Kimo BVI

Sysware Shenglong Information Systems Co., Ltd. (Sysware Shenglong) Ucom Information Ltd. (Shanghai) (Ucom Shanghai) Systek Information (Shanghai) Ltd. (Systek)

Kimo BVI

Rainbow Tech Information (HK) Limited (RTIHK)

Kimo BVI

Systex Solutions (HK) Limited

Sysware Shenglong

Optima Financial Software Company (Optima)

Main Business

% of Ownership December 31 2016 2015

Remark

General investment activities.

100.0

100.0

Design of computer hardware and software equipment system, computer room installation, and maintenance, sale, lease and consultation. General investment activities.

100.0

100.0

100.0

100.0

Investment activities including financial trust and holding. Design, setup and maintenance of computer information and communication engineering, and design and sale of computer system software. Manufacturing of wire communication equipment and apparatus, electronic parts and components, and computers and peripheral equipment, installation of computer, and wholesale and retailing of computer and business machinery equipment. Design, construction and sale of telecom instrument, electronic calculator and computer. Software design and data processing, retailing and service of software. Installation, sale, information software, data processing and other consultation of computer software and related equipment, network certification and software publication. Manufacturing of wire communication equipment and apparatus, electronic parts and components, and computers and peripheral equipment, installation of computer, and wholesale and retailing of computer and business machinery equipment. Design, installation, maintenance, lease and consultation of computer software and hardware equipment system, computer room engineering, network equipment system integration, and wholesale and retailing of medical appliances. Installation, sale and consultation of computer software and related equipment, and wholesale and retailing of medical appliances. Computer system integration service and software. Sale of computer and peripheral equipment, retailing and processing of information of software. Design of computer system, information processing service provider, retailing of computer and peripheral equipment. Service, wholesale and retailing of information software. Sale of computer and peripheral equipment, retailing and processing of information software. Sale of computer and peripheral equipment, retailing and processing of information software. Investment activities including financial trust and holding. Research, development and production of computer hardware, and information system integration.

100.0

100.0

84.1

84.1

100.0

100.0

100.0

100.0

78.3

100.0

b)

100.0

-

c)

100.0

100.0

69.6

69.6

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

-

100.0

d)

(Continued)

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Investor

Investee

Systex Info

Systex Group (China) Ltd. (Systex China)

Systek and Ucom Shanghai

Rainbow Tech (Guangzhou) Inc. (RTGI)

Systex Group (China) Ltd. (Systex Group)

Systex Ucom (Shanghai) Information Ltd. Co. (Systex Ucom)

% of Ownership December 31 2016 2015

Main Business Management consultation, marketing and sale, and capital and operation financial management. Research, development, installation and wholesale of software and hardware technique and internet system. Software design and data processing, retailing and service of software.

100.0

100.0

100.0

100.0

100.0

100.0

Remark

e)

(Concluded) a. The Group holds a 48.9% interest in Hanmore. The directors of the Corporation consider the Group’s absolute size of holding in Hanmore and the relative size of and dispersion of the shareholdings owned by the other shareholders and concluded that the Group has the practical ability to direct the relevant activities of Hanmore and therefore the Group has control over Hanmore. b. Etu was incorporated in February 2015. In addition, the Corporation did not subscribed for additional new shares of Etu at the existing percentage of its ownership in Etu when Etu increased the capital in January and December, 2016, resulting in changes in the ownership percentage. c. Naturint was incorporated in July 2016. d. Optima completed nullification of registration process in May 2016. e. Systex Ucom was incorporated in April 2015. All accounts of subsidiaries were included in consolidated financial statements for the years ended December 31, 2016 and 2015. Among the abovementioned entities, the financial statements as of and for the year ended December 31, 2016 and 2015 of Sysware Singapore were not audited. The aggregate assets of the subsidiary as of December 31, 2016 and 2015 amounted to $8,995 thousand and $55,527 thousand, respectively, which were 0.05% and 0.30% of the respective consolidated assets, and the aggregate liabilities amounted to $707 thousand and $14,861 thousand, respectively, which were 0.01% and 0.27% of the respective consolidated liabilities. The aggregate net operating revenues of the subsidiary in 2016 and 2015 amounted to $30,493 thousand and $136,237 thousand, respectively, which were 0.19% and 0.84% of the respective consolidated net operating revenues, and the aggregate amounts of comprehensive loss amounted to $451 thousand and $32,602 thousand in 2016 and 2015, respectively, which were (0.05%) and (6.02%) of the respective consolidated total comprehensive income. The Corporation believes that any adjustment that might have resulted had the financial statements of the subsidiary been audited would not be material to the consolidated financial statements taken as a whole.

15. INVESTMENTS ACCOUNTED FOR BY USING THE EQUITY METHOD December 31 2016

2015

Investments in associates Material associates Forms Syntron Information (Shenzhen) Limited Associates that are not individually material

-152-

$

397,656

$ 1,046,770 606,170

$

397,656

$ 1,652,940

a. Material associates Proportion of Ownership and Voting Rights December 31 2016 2015

Name of Associates Forms Syntron Information (Shenzhen) Limited

14.16%

19.91%

In spite of holding less than 20% of the equity of Forms Syntron Information (Shenzhen) Limited, the Group has significant influence over the investee and adopts equity method, because the Group holds a director of the investee. As the Group planned to dispose all interests of Forms Syntron Information (Shenzhen) Limited in 2017, the Group has entered into a sale agreement in January 2017 and the sale transaction is to be completed in the second quarter of 2017. Therefore, the Group classified the carrying amount of the investment, amounting to $793,549 thousand, to non-current asset held for sale. Fair values (Level 1) of investments in associates with available published price quotation are summarized as follows:

Name of Associate

December 31, 2015

Forms Syntron Information (Shenzhen) Limited

$ 8,362,641

Summarized financial information in respect of the Group’s material associate is set out below. The summarized financial information below represents amounts shown in the associates’ financial statements prepared in accordance with IFRSs adjusted by the Group for equity accounting purposes. Forms Syntron Information (Shenzhen) Limited December 31 2016

2015

Assets Liabilities

$ 4,630,310 (276,832)

$ 4,117,980 (226,075)

Equity

$ 4,353,478

$ 3,891,905

14.16%

19.91%

Proportion of the Group’s ownership Equity attributable to the Group Goodwill Other accounts payable

$

616,614 182,345 (5,410)

$

774,955 278,790 (6,975)

Carrying amount

$

793,549

$ 1,046,770

For the Year Ended December 31 2016 2015 Operating revenue

$ 1,783,405

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$ 1,530,720 (Continued)

For the Year Ended December 31 2016 2015 Net profit for the year Other comprehensive income

$

367,485 2,818

$

254,840 3,745

Total comprehensive income for the year

$

370,303

$

258,585

Dividends received from Forms Syntron Information (Shenzhen) Limited

$

13,075

$

61,557 (Concluded)

b. Aggregate information of associates that are not individually material For the Year Ended December 31 2016 2015 The Group’s share of: Net profit for the year Other comprehensive loss Total comprehensive income (loss) for the year

$ 18,342 (13,365)

$

$

$ (16,134)

4,977

4,621 (20,755)

Except for AFE Solutions Limited, Bisnews International Limited, E-Customer Capital Limited, Systex Infopro Co., Ltd. and Yankey Inc., for the year ended December 31, 2016, and E-Customer Capital Limited and Systex Infopro Co., Ltd., for the year ended in December 31, 2015, investments accounted for by the equity method and the share of profit or loss and other comprehensive income were calculated based on the financial statements that have been audited. Management believes the financial statements that have not been audited would not have material impact on the investments under the equity method or the share of profit or loss and other comprehensive income in the consolidated financial statements. In addition, the Group planned to dispose all the interests of AFE Solutions Limited and Bisnews International Limited in 2017. Therefore, the Group reclassified the carrying amounts of these investment, amounting to $81,149 and $15,397, respectively, to non-current asset held for sale in October 2016.

16. PROPERTY, PLANT AND EQUIPMENT Land

Buildings

Computer Equipment

Transportation Equipment

Lease Equipment

Leasehold Improvements

Other Equipment

Total

Cost Balance at January 1, 2015 Additions Disposals Reclassification Effect of foreign currency exchange differences Balance at December 31, 2015

$

974,501 (139,129 ) -

$ 1,565,128 (27,429 ) -

-

$

835,372

$

14,853 -

$

(7,143 )

270,165 52,715 (49,980 ) (3,923 )

$

3

12,928 (136 ) -

$

(70 )

$ 1,530,556

$

268,980

$

$

$

163,651 56,870 (41,849 ) (2,700 )

$

12,722

96,281 26,817 (53,341 ) 17,354

$

(28 )

50,924 16,118 (11,345 ) (642 )

$

(109 )

$

87,083

$

54,946

$

$

44,744 37,611 (53,320 ) (47 )

$

28,299 13,831 (10,518 ) (642 )

$

98,522 16,298 (8,737 ) (4,307 )

$ 3,068,449 111,948 (290,097 ) 8,482

(1,187 )

(8,534 )

100,589

$ 2,890,248

Accumulated depreciation and impairment Balance at January 1, 2015 Depreciation expenses Disposals Reclassification Effect of foreign currency exchange differences

-

Balance at December 31, 2015

$

14,853

Carrying amounts at December 31, 2015

$

820,519

471,929 24,956 (14,532 ) (1,041 )

$

17

9,281 2,030 (136 ) (47 )

(7 )

(58 )

57,572 11,999 (8,219 ) (2,936 )

$

(840 )

481,312

$

175,989

$

11,128

$

28,981

$

30,912

$

57,576

$ 1,049,244

$

92,991

$

1,594

$

58,102

$

24,034

$

43,013

790,329 147,297 (128,574 ) (6,325 ) (1,976 )

$

800,751

$ 2,089,497

(Continued) -154-

Land

Buildings

Computer Equipment

Transportation Equipment

Lease Equipment

Leasehold Improvements

Other Equipment

Total

Cost Balance at January 1, 2016 Additions Disposals Reclassification Effect of foreign currency exchange differences Balance at December 31, 2016

$

835,372 (4,304 ) -

$ 1,530,556 (28,749 ) -

-

$

831,068

$

14,853 -

$

(24,702 )

268,980 59,901 (128,757 ) (3,181 )

$

(2,391 )

12,722 10,169 (9,220 ) -

$

(243 )

87,083 13,480 (13,901 ) (67 )

$

(399 )

54,946 5,330 (16,833 ) -

$

(637 )

100,589 4,568 (14,457 ) -

$ 2,890,248 93,448 (216,221 ) (3,248 )

(4,084 )

(32,456 )

$ 1,477,105

$

194,552

$

13,428

$

86,196

$

42,806

$

86,616

$ 2,731,771

$

$

175,989 53,653 (127,872 ) (2,152 )

$

11,128 1,211 (9,220 ) -

$

28,981 29,795 (13,901 ) (54 )

$

30,912 10,043 (16,833 ) -

$

57,576 13,161 (13,900 ) -

Accumulated depreciation and impairment Balance at January 1, 2016 Depreciation expenses Disposals Reclassification Effect of foreign currency exchange differences

-

481,312 23,052 (16,260 ) (4,180 )

(1,568 )

(202 )

(145 )

(481 )

$

800,751 130,915 (197,986 ) (2,206 )

(2,800 )

Balance at December 31, 2016

$

14,853

$

483,924

$

98,050

$

2,917

$

44,676

$

23,641

$

54,037

Carrying amounts at December 31, 2016

$

816,215

$

993,181

$

96,502

$

10,511

$

41,520

$

19,165

$

32,579

(9,376 )

$

722,098

$ 2,009,673

(Concluded) The above items of property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives as follows: Building Computer equipment and other equipment Transportation equipment Lease equipment Leasehold improvements

19-60 years 3-7 years 5-6 years 2-5 years 2-5 years or the period of lease, if shorter

Property, plant and equipment pledged as collateral for bank borrowings are set out in Note 27.

17. SHORT-TERM LOANS Bank Loans December 31 2016 Unsecured loans Secured loans

$

Annual interest rate Unsecured loans Secured loans

2015

576,000 470,022

$

388,000 201,821

$ 1,046,022

$

589,821

1.24%-2.37% 1.43%-4.57%

1.44%-2.37% 1.65%-4.79%

Refer to Note 27 for the carrying amounts of property, plant and equipment - buildings and the Corporation’s shares provided as collaterals for the above secured bank loans.

-155-

18. RETIREMENT BENEFIT PLANS a. Defined contribution plans The Corporation and its domestic subsidiaries adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. The employees of Systex Info, RTIHK, Systek, Ucom Shanghai, Sysware Shenglong, RTGI, Systex China, Systex Ucom and Sysware Singapore are members of state-managed retirement benefit plans operated by the governments of their respective jurisdictions. The subsidiaries are required to contribute specific percentages of payroll costs to the retirement benefit schemes to funds the benefits. The only obligation of the Group with respect to the retirement benefit plan is to make the specified contributions. b. Defined benefit plans The defined benefit plan adopted by the Corporation and several of its domestic subsidiaries in accordance with the Labor Standards Law is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. These entities contribute amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Group assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Group is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Group has no right to influence the investment policy and strategy. The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows: December 31 2016

2015

Present value of defined benefit obligation Fair value of plan assets

$ 510,678 (264,299)

$ 492,267 (253,194)

Net defined benefit liability

$ 246,379

$ 239,073

As of December 31, 2015, the net defined benefit liability of $239,037 thousand was defined liabilities of $240,113 thousand, net of defined benefit asset of $1,040 thousand (included in other non-current assets).

-156-

Movements in net defined benefit liability were as follows: Present Value of the Defined Benefit Obligation

Fair Value of the Plan Assets

Net Defined Benefit Liability

Balance at January 1, 2015 Service cost Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial loss - changes in demographic assumptions Actuarial loss - changes in financial assumptions Actuarial loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Benefits paid Balance at December 31, 2015 Service cost Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial loss - changes in demographic assumptions Actuarial loss - changes in financial assumptions Actuarial loss - experience adjustments Recognized in other comprehensive income Contributions from the employer Benefits paid Plan assets refund

$ 421,620

$ (239,484)

$ 182,136

2,459 9,171 11,630

(5,198) (5,198)

2,459 3,973 6,432

-

(757)

Balance at December 31, 2016

$ 510,678

229 44,032 18,485 62,746 (3,729) 492,267 2,667 7,397 10,064

(757) (11,484) 3,729 (253,194)

(757) 229 44,032 18,485 61,989 (11,484) 239,073

(3,947) (3,947)

2,667 3,450 6,117

-

2,211

2,211

4,851

-

4,851

15,459 (7,137) 13,173 (4,826) -

2,211 (14,220) 4,826 25 $ (264,299)

15,459 (7,137) 15,384 (14,220) 25 $ 246,379

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks: 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks. 2) Interest risk: A decrease in the government and corporate bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

-157-

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation. The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows: December 31

Discount rates Expected rates of salary increase

2016

2015

1.38%-1.75% 1.00%-2.50%

1.50%-1.75% 1.00%-2.50%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows: December 31

Discount rates 0.25%-0.5% increase 0.25%-0.5% decrease Expected rates of salary increase 0.25%-0.5% increase 0.25%-0.5% decrease

2016

2015

$ (25,514) $ 27,514

$ (29,786) $ 32,403

$ 26,794 $ (25,079)

$ 32,357 $ (30,056)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. December 31 2016

2015

The expected contributions to the plan for the next year

$ 14,164

$ 11,972

The average duration of the defined benefit obligation

15 years

14 years

19. EQUITY a. Share capital December 31

Number of common shares authorized (in thousands) Common shares authorized Number of common shares issued (in thousands) Common shares issued

2016

2015

400,000 $ 4,000,000 269,393 $ 2,693,933

400,000 $ 4,000,000 268,773 $ 2,687,733

In the year ended December 31, 2016, the shares increased due to exercised employee stock options. Fully paid common shares, which have a par value of $10, carry one vote per share and carry a right to dividends. -158-

b. Stock-based compensation plan For the Corporation to retain its qualitative professionals for its business and operations and deepen the employees’ sense of belonging, the Corporation adopted stock option plans (the “Plans”), which the board of directors approved on March 19, 2010, to grant employees 10,000 units of stock options. Each unit represented 1,000 common shares of the Corporation. The Securities and Futures Bureau under the FSC approved the Plans on April 12, 2010, respectively. The Corporation issued 6,800 units and 3,200 units, on February 17, 2011 and May 10, 2010, respectively. The options were granted to qualified employees of the Corporation and its subsidiaries. The options are valid for 5 years and exercisable at certain percentages after the second anniversary from the grant date. The exercise price of the stock options is equal to the closing price of the Corporation’s common shares listed on the Taiwan Stock Exchange on the date of the grant. If the number of the Corporation’s common shares changes after the granting of the stock option, the exercise price will be revised in accordance with the terms of the Plans. Information on employee stock options in 2016 and 2015 was as follows: 2016

Employee Stock Option Beginning outstanding balance Options exercised Options forfeited

Number of Outstanding Options 655 (555) (100)

Ending outstanding balance

-

Ending exercisable balance

-

2015 Weightedaverage Exercise Price (NT$) $ 29.90 $ 29.90 $ 29.90 $

-

Number of Outstanding Options 2,382 (1,727) 655

Weightedaverage Exercise Price (NT$) $ 32.12 $ 31.86 $ $ 29.90

655

Options granted in 2011 and 2010 were priced using the Black-Scholes pricing model and the inputs to the model were as follows:

Grant-date share price (NT$) Exercise price (NT$) Expected volatility Expected life (years) Expected dividend yield Risk-free interest rate

-159-

Issued on February 17, 2011

Issued on May 10, 2010

$40.50 $33.90 37.24%-37.76% 3.5-4 years 1%-1.045%

$42.70 $34.00 39.20%-39.45% 3.5-4 years 0.69%-0.87%

c. Capital surplus December 31 2016

2015

$ 6,042,332 544

$ 6,702,955 544

8,576

-

255,542 1,323,493 4,493 -

280,377 1,207,036 4,493 1,815

$ 7,634,980

$ 8,197,220

Maybe used to offset a deficit, distribute as cash dividends, or transfer to share capital (1) Issue of common shares Donations May not be used for any purpose Changes in percentage of ownership interest in subsidiaries (2) Share of changes in associates accounted for by using equity method Treasury share transactions Gain on sale of property and equipment Employee stock options

1) Such capital surplus may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Corporation’s capital surplus and once a year). 2) Such capital surplus arises from the effect of changes in ownership interest in subsidiary resulted from equity transactions other than actual disposal on acquisition, or from changes in capital surplus of subsidiaries accounted for by using the equity method. d. Appropriation of earnings and dividend policy In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The shareholders held their regular meeting on June 17, 2016 and, in that meeting, had resolved amendments to the Company’s Articles of Incorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and the addition of the policy on distribution of employees’ compensation. Under the dividend policy as set forth in the amended Articles, where the Corporation made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Corporation’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for distribution of dividends and bonus to shareholders. For the policies on distribution of employees’ compensation and remuneration of directors before and after amendment, please refer to b. employee benefits expense in Note 20. Following its Articles of Incorporation and considering the overall environment, growth trends in the industry, and the Corporation’s long-term financial planning and ongoing goal to have steady progress, the Corporation applies its residual dividends policy as follows: 1) Determine the appropriate capital budget. 2) Determine the funds needed for the capital budget.

-160-

3) Determine the amount to be funded by unappropriated earnings (the remaining may be funded through capital increase by cash or through issuance of bonds). 4) The remaining retained earnings, less an appropriate portion for the operational needs, may be distributed to shareholders. The Corporation’s dividends may be distributed in cash or stocks. The distribution of profits shall be made preferably by way of cash dividends. The distribution could also be made by way of stock dividends, which should not exceed 50% of the total distributed earnings in principle. In addition, dividend policy depends on criteria such as the Corporation’s current and future investment environment, cash requirements, domestic and international competition, capital budget, etc. Further, the Corporation also takes into consideration shareholders’ interests, balances of dividends and its long-term financial goals. Annually, the board of directors prepares a proposal on earnings appropriation for approval at the shareholders’ meeting. Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash. Under the local regulations, an amount equal to the net debit balance of total other equity items (including exchange differences on translating foreign operations and unrealized gain (loss) on available-for-sale financial assets) shall be appropriated as a special reserve. The special reserve may be reversed to the extent of the decrease in the net debit balance. If the Corporation’s shares are held by its subsidiaries at the end of the year and the market value of the shares held are lower than their carrying amounts, the Corporation should appropriate a special reserve equal to the difference between the carrying amounts and market value multiplied by its percentages of ownership in the subsidiaries. The special reserve can be reversed in proportion to the percentages of ownership in the subsidiaries when the market value of the shares increased. Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Corporation. The appropriations of earnings for 2015 and 2014 had been approved in the shareholders’ meetings held on June 17, 2016 and June 17, 2015, respectively, were as follows:

Appropriation of Earnings For the Year Ended December 31 2015 2014 Legal reserve Reversal of special reserve Cash dividends

$

56,428 673,483

$ 729,911

$

74,471 (114,116) 401,087

$ 361,442

Dividends Per Share (NT$) For the Year Ended December 31 2015 2014 $

2.5

$

1.5

$

2.5

$

1.5

The shareholders resolved the distribution in cash of the capital surplus arising from issuance of common shares in the shareholders’ meeting held on June 17, 2016 and June 17, 2015, respectively. The distribution amounted to $673,483 thousand (at NT$2.5 per share) and $935,870 thousand (at NT$3.5 per share), respectively.

-161-

The appropriations of earnings for 2016 had been proposed by the Corporation’s board of directors on March 23, 2017. The appropriations and dividends per share were as follows: Appropriation of Earnings

Dividends Per Share (NT$)

$ 110,827 64,494 942,877

Legal reserve Special reserve Cash dividends

$

3.5

In addition, the board of directors proposed in the same meeting the distribution in cash of the capital surplus arising from issuance of common shares, amounting to $404,090 thousand at NT$1.5 per share. The appropriations of 2016 earnings and distribution of capital surplus will be resolved by the shareholders in their meeting scheduled for June 2017. Information about the appropriations of earnings and distribution of capital surplus are available on the Market Observation Post System website of the Taiwan Stock Exchange. e. Others equity items 1) Exchange differences on translating foreign operations For the Year Ended December 31 2016 2015 Balance at January 1 Exchange differences arising on translating the net asset of foreign operations Share of exchange difference of associates accounted for using the equity method

$ 127,939

Balance at December 31

$ (83,286)

$

86,276

(129,765)

132,941

(81,460)

(91,278) $ 127,939

2) Unrealized gain (loss) on available-for-sale financial assets For the Year Ended December 31 2016 2015 Balance at January 1 Unrealized loss arising on revaluation of available-for-sale financial assets Cumulative loss reclassified to profit or loss on impairment of available-for-sale financial assets Share of unrealized gain on revaluation of available-for-sale financial assets of associates accounted for using the equity method

$

Balance at December 31

$ 18,792

-162-

8,841

$ 11,561

(22,278)

(2,720)

32,219

-

10

$

8,841

f. Treasury share

Purpose of Treasury Share

Number of Shares at January 1

Increase During the Year

Decrease During the Year

Number of Shares at December 31

2016 Reclassification of the Corporation’s shares held by subsidiaries from equity-method investments into treasury share

22,687

723

-

23,410

22,475

882

670

22,687

2015 Reclassification of the Corporation’s shares held by subsidiaries from equity-method investments into treasury share

The Corporation’s shares held by, subsidiaries at end of reporting period were as follows: December 31 2016

2015

21,317 $ 866,326 $ 1,238,499

19,839 $ 845,158 $ 1,053,434

Hanmore Share (in thousand) Investments cost Market value Ching Pu Share (in thousand) Investments cost Market value

$ $

12,982 358,416 754,224

$ $

12,982 390,870 689,316

For the Corporation’s shares held by Hanmore, the investment cost at 48.9% (the ownership percentage owned by the Corporation) was transferred from investment accounted for using equity method to treasury shares, amounting to $515,618 (10,428 thousand shares) and $479,487 (9,705 thousand shares) as of December 31, 2016 and 2015, respectively. The remaining was treated as recoveries from Hanmore’s non-controlling interests, accounted for deduction to non-controlling interests in balance sheets. In the year ended December 31, 2015, Hanmore sold 1,370 thousand shares of the Corporation’s shares, at the price of $110,450 thousand. The Corporation’s shares held by its subsidiaries are recorded as treasury shares, with the subsidiaries having the same rights as other common shareholders on these shares, except that the subsidiaries which are owned by the parent company for over 50% will not have the right to participate in any share issuance for cash or to vote.

-163-

g. Non-controlling interests For the Year Ended December 31 2016 2015 Balance at January 1 Attributable to non-controlling interests: Share of loss for the year Exchange difference arising on translation of foreign entities Unrealized gains on available-for-sale financial asset Remeasurement on defined benefit plans Cash dividends received from subsidiaries Non-controlling interests arising from cash dividends received by subsidiaries (Hanmore) from the Corporation No-controlling interests arising from subscription of capital increase in Etu Change in subsidiaries ownership Disposal of the Corporation’s shares by Hanmore regarding as treasury share transaction Acquisition of the Corporation’s shares by Hanmore regarding as treasury share transaction

$ 56,026

Balance at December 31

$ 31,003

$ 78,224

(17,940) 487 (772) (39,317)

(947) 604 (135) (74,819)

53,823

45,850

25,000 (8,576)

-

-

56,417

(37,728)

(49,168) $ 56,026

20. NET PROFIT a. Depreciation and amortization For the Year Ended December 31 2016 2015 Property, plant and equipment Intangible assets

An analysis of depreciation by function Operating costs Operating expenses

An analysis of amortization by function Operating costs Operating expenses

-164-

$ 130,915 61,760

$ 147,297 51,639

$ 192,675

$ 198,936

$

$

47,623 83,292

59,457 87,840

$ 130,915

$ 147,297

$

3,017 58,743

$

3,667 47,972

$

61,760

$

51,639

b. Employee benefits expenses (accounted for operating expenses) 1) Employees’ compensation and remuneration of directors for 2016 and 2015. For the Year Ended December 31 2016 2015 Post-employment benefits Defined contribution plans Defined benefits plans (Note 18)

$

Termination benefits Payroll and other employee benefits

127,295 6,117 133,412 10,188 2,875,750

$ 3,019,350

$

133,662 6,432 140,094 8,488 2,728,579

$ 2,877,161

As of December 31, 2016 and 2015, the Group has 2,909 and 2,922 employees, respectively. Articles of Incorporation of the Corporation approved by the shareholders in their meeting on June 2016, the Corporation accrued employees’ compensation and remuneration of directors and supervisors at the rates no less than 0.1% and no higher than 2%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors. The employees’ compensation and remuneration of directors for the years ended December 31, 2016 and 2015 which have been approved by the Corporation’s board of directors on March 23, 2017 and March 22, 2016, respectively, were as follows: Amount For the Year Ended December 31 2016 2015 Accrual Rate Cash Accrual Rate Employees’ compensation Remuneration of directors

0.1% 2.0%

$

1,102 22,035

0.1% 2.0%

Cash $

644 12,882

If there is a change in the proposed amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate. There was no difference between the actual amounts of employees’ compensation and remuneration of directors and supervisors paid and the amounts recognized in the consolidated financial statements for the year ended December 31, 2015. Information on the employees’ compensation and remuneration of directors resolved by the Corporation’s board of directors in 2017 and 2016 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

-165-

2) Bonus to employees and remuneration of directors for 2014 The bonuses to employees and remuneration to directors and supervisors for 2014 which has been approved in the shareholders’ meetings on June 17, 2015, respectively, were as follows: For the Year Ended December 31, 2014 Cash Bonus to employees Remuneration of directors

$

670 13,405

There was no difference between the amounts of the bonus to employees and the remuneration to directors approved in the shareholders’ meetings on June 17, 2015 and the amounts recognized in the consolidated financial statements for the year ended December 31, 2014. Information on the employees’ compensation and remuneration to directors and supervisors resolved by the Corporation’s board of directors are available on the Market Observation Post System website of the Taiwan Stock Exchange. c. Gain (loss) on sale of investments, net For the Year Ended December 31 2016 2015 Financial asset at fair value through profit or loss Available-for-sale financial assets Financial assets measured at cost Held to maturing financial assets Investments accounted for using the equity method

$

57,897 1,263 (404) 1,168,277

$ 1,227,033

$

16,258 58,351 84,513 -

$

159,122

d. Impairment losses on assets For the Year Ended December 31 2016 2015 Financial assets Financial assets measured at cost Available-for-sale financial assets Investments accounted for using the equity method

$

60,083 32,219 81,749 174,051

$

$

54,943 54,943

Non-financial assets Intangible assets Goodwill

-166-

315,223 315,223

1,208 79,983 81,191

$ 489,274

$ 136,134

For the year ended December 31, 2016, the Group performed impairment tests on investments accounted for using the equity method and identified that the carrying amounts of Systemweb Technology, Yankey Inc. and Investment Media Ltd. were higher than their recoverable amounts, and recognized impairment losses of $35,522 thousand, $12,233 thousand and $33,994 thousand, respectively. For the year ended December 31, 2016, the Group evaluated the recoverable amounts of goodwills and recognized impairment loss of $67,481 thousand, $18,445 thousand, $47,441 thousand, $14,053 thousand and 167,803 thousand on goodwills of the Corporation, RTGI, Syspower, CSMS and Nexsys, respectively, because their operating performance did not achieve the Group’s expectation. For the year ended December 31, 2015, the Group evaluated the recoverable amounts of goodwills and recognized impairment loss of $79,983 thousand on goodwill of RTGI because the net profit of RTGI was less than the Group’s expectation.

21. INCOME TAXES a. Income tax recognized in profit or loss The major components of tax expenses were as follows: For the Year Ended December 31 2016 2015 Current tax In respect of the current year Income tax expense of unappropriated earnings Land value increment tax Enterprise Income Tax on securities In respect of prior periods

$

Deferred tax In respected of the current year Income tax expense recognized in profit or loss

59,903 16 720 133,010 (9,362) 184,287

$ 108,703 27,070 8,348 (1,233) 142,888

(28,755)

(996)

$ 155,532

$ 141,892

A reconciliation of accounting profit and income tax expenses is as follows: For the Year Ended December 31 2016 2015 Profit before tax

$ 1,245,860

$

705,219

Income tax expense calculated at the statutory rate (17%) Nondeductible expenses in determining taxable income Tax-exempt income Additional income tax on unappropriated earnings Unrecognized temporary differences Unrealized investment tax credits Unrecognized loss carryforwards Effect of different tax rate of group entities operating in other jurisdictions

$

$

119,887 2,113 (72,084) 27,070 33,295 (3,753) 7,688

-167-

211,796 45,762 (235,148) 16 2,086 (26,247) 17,432 15,467

20,561 (Continued)

For the Year Ended December 31 2016 2015 Adjustments for prior years’ tax Land value increment tax Enterprise Income Tax on securities

$

(9,362) 720 133,010

$

Income tax expense recognized in profit or loss

$

155,532

$

(1,233) 8,348 141,892 (Concluded)

For the year ended December 31, 2016, the land value increment tax $720 thousand was incurred from the disposal land and building of the Corporation in June 2016. For the year ended December 31, 2015, the land value increment taxes $8,241 thousand and $107 thousand were incurred from the disposal land and building of the Corporation and Syspower in December and January 2015, respectively. Systex Solution (HK) Limited sold investments accounted for using equity method in August and September 2016 and incurred Enterprise Income Tax of $133,010 thousand according to the related tax laws in its jurisdiction. The applicable tax rate used above is the corporate tax rate of 17% payable by the group entities in ROC, while the applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions. As the status of 2017 appropriations of earnings is uncertain, the potential income tax consequences of 2016 unappropriated earnings are not reliably determinable. b. Income tax recognized in other comprehensive income For the Year Ended December 31 2016 2015 Deferred tax Remeasurement on defined benefit plan

$

437

$

874

c. Current tax assets and liabilities December 31 2016

2015

Current tax assets (included in other receivables) Tax refund receivable

$

17,385

$

82

Current tax liabilities Income tax payable In respect of prior years

$ 158,286 10,153

$

83,974 15,897

$ 168,439

$

99,871

As of December 31, 2016 and 2015, income tax payables were net of prepayments aggregating $34,633 thousand and $52,147 thousand, respectively.

-168-

d. The movements of deferred tax assets and liabilities For the year ended December 31, 2016

Opening Balance

Recognized in Profit or Loss

$ 19,901

$ (19,705)

15,648 2,255 2,688 2,090 3,000 45,582 3,753

4,883 (1,483) 3,280 490 1,931 (10,604) 1,287 26,247

Recognized in Other Comprehensive Income

Closing Balance

Deferred tax assets Temporary differences Unrealized cost of projects Allowance for loss on inventories Deferred revenue Payable for annual leave Defined benefit obligation Others Loss carry forwards Investment credits

$

-

$

196

437 437 -

20,531 772 5,968 3,017 4,931 35,415 1,287 30,000 $ 66,702

$ 49,335

$ 16,930

$

437

$ 11,472

$ (11,472)

$

-

4,969 1,278

(353)

$ 17,719

$ (11,825)

Deferred tax liabilities Temporary differences Goodwill Exchange differences on foreign operations Others

$

$

-

4,969 925

$

5,894

For the year ended December 31, 2015

Opening Balance

Recognized in Profit or Loss

Recognized in Other Comprehensive Income

Closing Balance

Deferred tax assets Temporary differences Unrealized cost of projects Allowance for loss on inventories Deferred revenue Payable for annual leave Defined benefit obligation Others Investment credits

$ 19,904

$

18,309 1,518 3,199 871 3,378 47,179 $ 47,179

-169-

(3)

$

(2,661) 737 (511) 345 (378) (2,471) 3,753 $

1,282

$

-

$ 19,901

874 874 -

15,648 2,255 2,688 2,090 3,000 45,582 3,753

874

$ 49,335 (Continued)

Opening Balance

Recognized in Profit or Loss

Recognized in Other Comprehensive Income

Closing Balance

Deferred tax liabilities Temporary differences Goodwill Exchange differences on foreign operations Others

$ 11,472

$

4,969 992 $ 17,433

-

$

286 $

286

$

-

$ 11,472

-

4,969 1,278

-

$ 17,719 (Concluded)

e. Unused loss carryforwards and unused investment credits for which no deferred tax assets have been recognized in the consolidated balance sheets December 31 2016 Loss carryforwards Expiry in 2016 Expiry in 2017 Expiry in 2018 Expiry in 2019 Expiry in 2020 Expiry in 2021 Expiry in 2022 Expiry in 2023 Expiry in 2024 Expiry in 2025 Expiry in 2026

$

Investment credits Equity investment

2015

145,132 54,678 122,513 19,687 4,316 78,990 14,698 9,989 85,255 102,548

$ 158,067 145,686 56,403 123,335 19,687 4,316 78,990 14,698 12,729 23,604 -

$ 637,806

$ 637,515

$

$

1,980

1,980

f. Information about unused investment credits and unused loss carryforward As of December 31, 2016, investment tax credits comprised of:

Laws and Statutes Act for promotion of private participation in infrastructure project

-170-

Tax Credit Source

Remaining Creditable Amount

Expiry Year

Investment in private

$ 31,980

2020

Loss carryforwards as of December 31, 2016 comprised of: Expiry Year

Total Credit

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

$ 145,132 54,678 122,513 19,687 4,316 78,990 14,698 9,989 85,255 110,117 $ 645,375

g. Integrated income tax December 31

Imputation credits accounts

2016

2015

$ 364,380

$ 355,767

For the Year Ended December 31 2016 (Estimate) 2015 10.09%

Creditable ratio for distribution of earnings

13.90%

h. Income tax assessments Income tax returns through 2015 of Etu and income tax returns through 2014 and undistributed earnings through 2013 of the Corporation, Taifon, Syspower, Nexsys, CSMC, Ching Pu, Hanmore, TEDP, SSSC, GBC, Medincom and Soft mobile have been assessed by the tax authorities. SCGI and KIMO are exempt from income tax under their local government regulations.

22. EARNINGS PER SHARE The earnings and weighted average number of common shares outstanding in the computation of earnings per share were as follows: For the Year Ended December 31 2016 2015 Net income for the year Net income for the year attributable to owners of the Corporation

-171-

$ 1,108,268

$

564,274 (Continued)

For the Year Ended December 31 2016 2015 Number of shares (thousand) Weighted average number of common shares in the computation of basic earnings per share Effect of potentially dilutive common shares: Employee stock option Employees’ compensation or bonus issue to employees Weighted average number of common shares in the computation of diluted earnings per share

246,074

246,073

19

428 12

246,093

246,513

Earnings per share (NT$) Basic earnings per share Dilutive earnings per share

$4.50 $4.50

$2.29 $2.29 (Concluded)

If the Corporation can settle bonus to employees in cash or shares, the Corporation assumes the entire amount of the bonus would be settled in shares and the resulting potential shares are included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, if the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year. The pro forma net income and earnings per share, assuming the Corporation’s share held by subsidiaries were treated as investment instead of treasury shares, were as follows: For the Year Ended December 31 2016 2015 Net income for the year Net income for the year attributable to owners of the Corporation

$ 1,166,497

$

620,699

Number of shares (thousand) Weighted average number of common shares in the computation of pro forma earnings per shares Effect of potentially dilutive common shares: Employee stock option Employees’ compensation or bonus issue to employees Weighted average number of common shares in the computation of pro forma diluted earnings per shares

269,362

268,288

19

428 12

269,381

268,728

$4.33 $4.33

$2.31 $2.31

Earnings per share (NT$) Basic earnings per shares Dilutive earning per share

-172-

23. EQUITY TRANSACTIONS WITH NON-CONTROLLING INTERESTS On January 15, 2016 and December 6, 2016, the Group subscribed for additional new shares of Etu at a percentage different from its existing ownership percentage, reducing its interest from 100% to 75% and increasing from 75% to 78.26%, respectively. The above transactions were accounted for as equity transactions, since the Group did not change the influence on these subsidiaries. Etu Corporation Cash consideration received The proportionate share of the carrying amount of the net assets of the subsidiary transferred to non-controlling interests

$ 25,000

Differences recognized from equity transaction

$

8,576

Line item adjusted for equity transaction Capital surplus - changes in percentage of ownership interest in subsidiaries

$

8,576

(16,424)

24. CAPITAL MANAGEMENT The capital structure of the Group consists of debt and equity of the Group (comprising issued capital, retained earnings and other equity). Key management personnel of the Corporation review the capital structure on a periodic basis. As part of this review, the Corporation considers the cost of capital and the risks associated with each class of capital. In order to balance the overall capital structure, the Corporation may adjust the amount of dividends paid to shareholders, the number of new shares issued or repurchased, and the amount of new debt issued or existing debt redeemed.

25. FINANCIAL INSTRUMENTS a. Fair value of financial instruments that are not measured at fair value Except that fair value of financial assets measured at cost could not be reliably measured, the management considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

-173-

b. Fair value of financial instruments that are measured at fair value on a recurring basis Fair value hierarchy Level 1

Level 2

Level 3

Total

December 31, 2016 Financial assets at FVTPL Non-derivative financial assets held for trading Available-for-sale financial assets Listed shares Corporation bond

$ 2,852,523

$

11,047 -

27,433

$

7,937

-

$ 2,879,956

-

11,047 7,937

$ 2,863,570

$

35,370

$

-

$ 2,898,940

$ 3,704,655

$

143,628

$

-

$ 3,848,283

-

40,607

-

$ 3,888,890

December 31, 2015 Financial assets at FVTPL Non-derivative financial assets held for trading Available-for-sale financial assets Listed shares

40,607 $ 3,745,262

$

143,628

$

There were no transfers between Levels 1 and 2 in 2016 and 2015. c. Categories of financial instruments December 31 2016

2015

$ 2,879,956 8,952,148 451,955

$ 3,863,065 62,079 7,143,924 484,792

4,908,405

4,185,280

Financial assets Fair value through profit or loss (FVTPL) Held for trading (1) Held to maturity investments Loans and receivables (2) Available-for-sale financial assets (3) Financial liabilities Amortized cost (4)

1) The balances included the carrying amount of fair value through profit or loss held for trading measured at cost. 2) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, debt instruments with no active market, notes receivable, accounts receivable, refundable deposits, other receivables, lease receivables - current (included in other current assets), long-term receivables, pledged time deposits - non-current (included in other non-current assets) and lease receivables - non-current (included in other non-current assets). -174-

3) The balances included the carrying amount of available-for-sale financial assets measured at cost. 4) The balances included financial liabilities measured at amortized cost, which comprise short-term loans, notes and accounts payable, other payables and guarantee deposits received (included in other non-current liabilities). d. Financial risk management objectives and policies The Group’s main target of financial risk management is to manage the market risk related to operating activity (including foreign currency risk, interest rate risk and other price risk) and other price risk, credit risk and liquidity risk. To reduce the potential and detrimental influence of the fluctuations in market on the Group’s financial performance, the Group endeavors to identify, estimate and hedge the uncertainties of the market. The Group’s significant financial activity is reviewed and approved by the board of directors and audit committee in compliance with related regulations and internal control policy, and the authority and responsibility are delegated according to the operating procedures. 1) Market risk a) Foreign currency risk The Group has foreign currency sales, purchases and borrowings, which were exposed to foreign currency risk. The Group has designated a department to monitor exchange rate fluctuations in timely manner and change foreign currency position to control and mitigate such risks as soon as possible. The sensitivity analysis focused on outstanding foreign currency denominated monetary assets and monetary liabilities (mainly USD and RMB) at the end of the reporting period. A positive number below indicates a decrease/increase in pre-tax loss associated with New Taiwan dollars strengthening/weakening 5% against the relevant currency. For the Year Ended December 31 2016 2015 USD Increase/decrease

$ 19,393

$ 11,832

62,430

16,946

RMB Increase/decrease b) Interest rate risk The carrying amounts of the Group’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows. December 31

Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets -175-

2016

2015

$ 1,586,875 1,046,022

$ 1,145,876 589,821

3,308,373

1,675,245

The Group acquired better interest rate through long-term cooperation with banks; therefore, the effect of interest rate fluctuations is immaterial. The sensitivity analyses below were determined based on financial assets and financial liabilities with floating interest rates at the end of reporting period. If interest rates had been 10 basis points (0.1%) higher/lower, the Group’s pre-tax net income effect would have been as follows: For the Year Ended December 31 2016 2015 Increase/decrease

$

3,308

$

1,675

c) Other price risk The Group was exposed to price risk through its investments in listed shares, TDR, corporate bonds and mutual funds. The Group has established a real-time control system for the price risk, and management does not anticipate any material loss due to this risk. The sensitivity analyses of the above investment were determined based on financial assets which were measured at fair value at the end of reporting period. If market prices had been 5% higher/lower, the effects on the Group’s pre-tax net income and other comprehensive income would have been as follows: For the Year Ended December 31 2016 2015 Pre-tax net income Increase/decrease Other comprehensive income Increase/decrease

$ 143,998

$ 192,414

949

2,030

2) Credit risk Credit risk represents the potential loss that would be incurred by the Group if the counterparties breached contracts. Generally, the maximum exposure to credit risk for financial assets at the balance sheet date are their carrying amounts. The Group has delegated a department responsible for managing accounts receivable, establishing credit limits, credit approvals and other monitoring procedures to ensure the profitability of the Group. The Group only transacts with creditworthy financial institutions to reduce credit risk. Since the counterparties are creditworthy financial institutions and enterprises and the concentration of credit risk is not significant, the credit risk is anticipated to be immaterial. 3) Liquidity risk The Group has put in place inventory management system, procedures for collections and payments, and develops cash flow forecast to ensure the liquidity of operating capital. In addition, the Group invests idle funds in short-term market under consideration of liquidity, security and profitability. The Group also maintains banking facilities to ensure the liquidity of cash.

-176-

The table below summarizes the maturity profile of the Group’s financial liabilities based on contractual terms. December 31, 2016 Less than 1 Year

1-5 Years

5+ Years

Total

Non-derivative financial liabilities Short-term bank loans

$ 1,046,022

$

-

$

-

$ 1,046,022

December 31, 2015 Less than 1 Year

1-5 Years

5+ Years

Total

Non-derivative financial liabilities Short-term bank loans

$

589,821

$

-

$

-

$

589,821

The Group has sufficient working capital to meet the cash needs for their operations. Thus, no material liquidity risk is anticipated. In addition, the Group’s investments in mutual funds and listed shares are publicly-traded in an active market and can readily be sold in the market at their approximate fair values. However, the Group also invested in unlisted stocks, subordinate debenture bonds and convertible bonds with significant liquidity risks because these assets do not have quoted market prices in an active market.

26. TRANSACTIONS WITH RELATED PARTIES Balances, transactions, revenue and expense between the Corporation and its subsidiaries, which are related parties of the Corporation, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. a. Operating revenue

Line Items Sales Service revenue

Related Party Categories Associates Associates

For the Year Ended December 31 2016 2015 $ $

5,124 3,740

$ $

1,972 6,835

b. Purchases of goods For the Year Ended December 31 2016 2015

Related Party Categories Associates

$

49,636

$ 170,024

c. Receivables from related parties December 31 Line Items Notes and accounts receivable

Related Party Categories Associates

2016 $

-177-

868

2015 $

3,665

d. Payables to related parties December 31 Line Items Accounts payable

Related Party Categories Associates

2016 $

21,774

2015 $

56,112

The product/service sales and purchase transactions with related parties were conducted underpricing terms similar to those for third parties, i.e., for purchases or sales of similar products/services, except those transactions on products/services with special specifications. Settlement terms for related-party transactions were similar to those for third parties. e. Other assets acquired

Line Items Intangible assets

Related Party Categories Associates

For the Year Ended December 31 2016 2015 $

5,827

$

-

f. Other transactions with related parties

Line Items Service cost Operating expenses

Related Party Categories Associates Associates

For the Year Ended December 31 2016 2015 $ $

20,381 99

$ $

19,429 105

g. Compensation of key management personnel For the Year Ended December 31 2016 2015 Short-term employee benefits Post-employment benefits Termination benefits

$ 113,537 3,404 -

$ 107,872 3,605 1,303

$ 116,941

$ 112,780

The remuneration of directors and key executives was determined by the remuneration committee having regard to the performance of individuals and market trends.

-178-

27. PLEDGED ASSETS The following assets were pledged as collateral for bank loans, contract guarantees, and import duty guarantee: December 31

Property, plant and equipment - buildings, net Pledged time deposits - current (included in other receivables) Pledged time deposits - non-current (included in other non-current assets) The shares of the Corporation (Note)

Note:

2016

2015

$ 117,189 160,085

$ 130,526 199,942

43,448 581,000

61,341 531,000

$ 901,722

$ 922,809

Hanmore pledged 10,000 thousand shares of the Corporation as of December 31, 2016 and 2015, and it was eliminated on consolidation.

28. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS Significant commitments and contingencies of the Group as of December 31, 2016 and 2015 were as follows: a. Unused letters of credit of the Corporation in aggregate amount were as follows: December 31 2016 $

2015

749

$

739

b. Outstanding sales contracts of the Group in the amount were as follows: December 31 2016

2015

$ 8,446,499

$ 6,834,628

c. The Group provided endorsements for Systex Solutions II, RTGI, Systek, SSSC, Systex Info, Systex Ucom, and Systex China up to $300,000 thousand, $48,375 thousand, $16,125 thousand, $1,000,000 thousand, $258,000 thousand, $34,868 thousand and $923,940 thousand, respectively. TEDP provided endorsement for Medincom up to $15,000 thousand. Ucom Shanghai provided endorsement for Systex China up to $116,225 thousand. Systek provided endorsement for Systex China up to $116,255 thousand.

-179-

d. As of December 31, 2016, the Group had lease contracts for office premises, parking lots and warehouse with rentals paid monthly or annually, expiring between June 2017 and August 2020, and the refundable deposits for above lease contracts amounted to $23,768 thousand (included in refundable deposits). Future rentals are as follows: Year

Amount

2017 2018 2019 2020

$ 84,251 22,483 9,539 280

29. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES The significant financial assets and liabilities denominated in foreign currencies were as follows: December 31, 2016 Foreign Currencies

Exchange Rate

Carrying Amount

312,365 20,638

4.65 32.25

$ 1,452,185 665,587

11,195 3,001

4.16 4.65

46,550 13,953

44,407 1,237

4.65 32.25

206,448 39,898

8,611 43,792

32.25 4.65

277,719 203,588

Financial assets Monetary items RMB USD Non-monetary items Financial assets at fair value through profit or loss HKD RMB Investment accounted for using equity method RMB USD

$

Financial liabilities Monetary item USD RMB

-180-

December 31, 2015 Foreign Currencies

Exchange Rate

Carrying Amount

17,500 67,047 2,845

32.83 5.06 4.24

$ 574,448 338,923 12,050

11,195 3,001

4.24 5.06

47,412 14,992

194,290 21,267

5.06 4.24

982,116 90,065

10,291

32.83

337,815

Financial assets Monetary items USD RMB HKD Non-monetary items Financial assets at fair value through profit or loss HKD RMB Investment accounted for using equity method RMB HKD

$

Financial liabilities Monetary item USD

For the years ended December 31, 2016 and 2015, unrealized net foreign exchange losses were $47,775 thousand and $35,007 thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the Group entities.

30. SEGMENT INFORMATION Information reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance focuses on financial information. The Group’s reportable segments were as follows: Financial business integration provides financial contents and information services. Customer market integration provides mobile payment, retail distribution, App development and O2O services. Ecological Integration provides information systems integration services, medical system development, government land system development, financial business solutions, mobile payment, telecommunications information platform and enterprises information services. Value-added service provides agency of word-class application software, tailored enterprise software purchase programs and in-depth industry solution, comprehensive professional education training courses, digital e-learning, book publishing and business intelligence solution. China group provides similar services in China. Investment department engages in investment activities.

-181-

a. Segment revenues and results Financial Business Integration

Consumer Market Integration

Ecological Integration

Value-added Business Integration

China Group

Investment Department

Adjustment and Elimination

Sales to customers Sales to other segments

$ 1,203,667 240,309

$ 2,038,302 94,020

$ 3,409,520 184,955

$ 5,641,512 850,989

$ 3,917,379 671,771

$

-

$

(2,042,044 )

$ 16,210,380 -

Total sales

$ 1,443,976

$ 2.132.322

$ 3,594,475

$ 6,492,501

$ 4,589,150

$

-

$ (2,042,044 )

$ 16,210,380

Segment income Corporate general expenses

$

$

$

$

$

$

692,025

$

$ 1,560,881 (315,021 )

Total

2016

289,105

255,865

39,073

272,812

12,001

-

Income before income tax Segment depreciation and amortization expenses Non-segment depreciation and amortization expenses

$ 1,245,860

$

35,281

$

38,432

$

25,748

$

37,923

$

27,732

$

-

$

27,559

Total depreciation and amortization expenses Segment assets General assets

165,116

$ $ 1,014,158

$

961,699

$ 2,612,972

$ 3,511,197

$ 2,553,449

$ 7,083,259

192,675

$ 17,736,734 1,345,894 $ 19,082,628

Total assets 2015 Sales to customers Sales to other segments

$ 1,418,938 231,512

$ 1,950,919 95,260

$ 3,566,457 159,452

$ 5,600,048 869,673

$ 3,776,726 845,317

$

Total sales

$ 1,650,450

$ 2,046,179

$ 3,725,909

$ 6,469,721

$ 4,622,043

Segment income Corporate general expenses

$

$

$

$

$

293,252

272,360

79,635

224,222

32,663

-

$

(2,201,214 )

$ 16,313,088 -

$

-

$ (2,201,214 )

$ 16,313,088

$

133,801

$

$ 1,035,933 (330,714 )

Income before income tax Segment depreciation and amortization expenses Non-segment depreciation and amortization expenses

$

36,678

$

42,380

$

34,650

$

30,753

$

23,265

$

-

$

705,219

$

167,726 31,210

Total depreciation and amortization expenses Segment assets General assets

-

$ $ 1,167,286

$

834,126

$ 2,730,991

$ 2,992,632

$ 2,811,043

$ 7,233,441

Total assets

198,936

$ 17,769,519 893,338 $ 18,662,857

Segment income represented the income before tax earned by each segment without allocation of central administration costs and directors’ salaries, rental revenue, interest income, gain or loss on disposal of property, plant and equipment, exchange gain or loss, interest expense and income tax expense. b. Geographical information The Group’s revenue from external customers by location of operations and information about its non-current assets by location of assets is detailed below. Revenue from External Customers 2016 2015 Domestic Asia

-182-

$ 12,296,668 3,913,712

$ 12,382,787 3,930,301

$ 16,210,380

$ 16,313,088

Non-current Assets December 31 2016 2015 Domestic Asia Others

$ 3,230,256 485,374 102,928

$ 3,257,047 1,571,781 241,381

$ 3,818,558

$ 5,070,209

c. Major customers No revenue from any individual customer exceeded 10% of the Group’s total operating revenue for the years ended December 31, 2016 and 2015.

-183-

TABLE 1

SYSTEX CORPORATION AND SUBSIDIARIES

THE RELATIONSHIP AND PERCENTAGE OF OWNERSHIP OF COMPANIES IN THE GROUP DECEMBER 31, 2016

The Corporation

Naturint Ltd.

Systex Solutions Corporation

Systex Software & Service Corporation

69.59%

Hanmore Investment Corporation

SoftMobile Technology Corporation

Medincom Technology Corporation

Systex Ucom (Shanghai) Information Ltd. Co.

Systex Group (China) Ltd.

Rainbow Tech (Guangzhou) Inc.

-184-

Golden Bridge Corporation

Taiwan Electronic Data Processing Corporation

Systex Information (H.K.) Ltd. Rainbow Tech Information (HK) Limited Systek Information (Shanghai) Ltd. Ucom Information Ltd. (Shanghai) Sysware Shenglong Information Systems Co., Ltd.

Sysware Singapore Pte. Ltd.

Systex Solutions (HK) Limited

Note: Percentage of ownership is 100% unless noted on the chart.

Syspower Corporation

Ching Pu Investment Corporation

Taifon Computer Co., Ltd.

Etu Corporation

Nexsys Corporation

Concord System Management Corporation

Kimo.com (BVI) Corporation

Systex Capital Group, Inc.

90% 10%

42.41% 37.16%

48.92% 4.5% 78.26%

VII. Review of Financial Conditions, Operating Results, and Risk Management 7.1 Analysis of Financial Status Unit: NT$ thousands Year

2016

Item Current assets

Difference

2015 Amount

%

15,264,070

13,592,648

1,671,422

12.30

830,627

2,111,907

(1,281,280)

(60.67)

2,009,673

2,089,497

(79,824)

(3.82)

Intangible assets

112,751

451,010

(338,259)

(75.00)

Other assets

865,507

417,795

447,712

107.16

Total assets

19,082,628

18,662,857

419,771

2.25

6,064,585

5,240,030

824,555

15.74

Other liabilities

258,848

265,124

(6,276)

Total liabilities

6,323,433

5,505,154

818,279

14.86

Capital stock

2,693,933

2,688,383

5,550

0.21

Capital surplus

7,634,980

8,197,220

(562,240)

(6.86)

Retained earnings

3,467,402

3,046,792

420,610

13.81

Other adjustments

(1,068,123)

(830,718)

(237,405)

28.58

Total stockholders' equity

12,728,192

13,101,677

(373,485)

(2.85)

Long-term investments Fixed assets

Current liabilities

(2.37)

Analysis of changes in financial ratios: 1. Decrease in Long-term investments by NT$ 1,281,280 thousands mainly due to the investments held for sale, which recognized by equity method, has been reclassified to current asset. 2. Decrease in Intangible assets by NT$ 338,259 thousands mainly due to decrease in Goodwill by NT$315,967 thousands. 3. Increase in Other Assets by NT$447,712 thousands mainly due to increase in Held-to-maturity financial assets - non-current by NT$548,375 thousands and Held-to-maturity financial assets - non-current by NT$62,079 and decrease in Long-term receivables by NT$38,409 thousands. 4. Decrease in Other Adjustments by NT$237,405 thousands mainly due to decrease in Other equity by NT$201,274 thousands.

-185-

VII. Review of Financial Conditions, Operating Results, and Risk Management 7.2 Analysis of Operating Results Unit: NT$ thousands 2016

Year Item Gross sales Less: sales returns & allowances

Subtotal

2015 Total

Subtotal

16,341,943

16,372,780

131,563

59,692

Difference Total

Amount (30,837) 71,871

% (0.19) 120.40

Net sales

16,210,380

16,313,088

(102,708)

(0.63)

Cost of sales

11,878,320

12,012,602

(134,282)

(1.12)

Gross profit

4,330,060

4,300,486

31,574

0.73

Operating expenses

4,052,792

3,881,124

171,668

4.42

279,268

419,362

1,579,329

531,003

1,048,326

197.42

612,737

245,146

367,591

149.95

1,245,860

705,219

540,641

76.66

155,532

141,892

13,640

9.61

Operating income Non-operating income and gains Non-operating expenses and losses Income before tax Tax expense

(140,094)

(33.41)

Other comprehensive loss for the year, net of (215,734) (21,568) (194,166) (900.25) income tax Total comprehensive 874,594 541,759 332,835 61.44 income for the year 1.Analysis of changes in financial ratios: (1) Decrease in Operating Income by NT$140,094 thousands mainly due to decrease in Operating ExpensesEmployee expenses. (2) Increase in non-operating income and expenses by NT$1,048,326 thousands mainly due to increase in Gain on sale of investments, net. (3) Increase in Non-operating Expenses and Losses by NT$367,591 thousands mainly due to Impairment loss on assets. (4) Decrease in Other comprehensive loss for the year, net of income tax by NT$194,166 thousands mainly due to decrease in the items that may be reclassified subsequently to profit or loss. 2. Mainly reason of expected sales growing up in 2017: SYSTEX's goal this year is to become the "optimal partner in corporate digital transformation." To this end, the Company will focus on three major sectors, including "new retail - omni-channel multiple payment options," "intelligent finance," and "TMT" The Company shall continue to engage in innovative applications and increase the value of its services, lead the integration of the digital ecosystem, endeavor to acquire maximum client budgets in digital transformation and data value-added services, and increase profitability in digital transformation leadership and integration.

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VII. Review of Financial Conditions, Operating Results, and Risk Management 7.3 Analysis of Cash Flow 7.3.1 Remedy for Cash Deficit and Liquidity Analysis Year

2016

2015

Variance (%)

Cash Flow Ratio (%)

24.64

19.61

25.62

Cash Flow Adequacy Ratio (%)

67.39

83.51

(19.30)

Cash Reinvestment Ratio (%)

1.97

(1.49)

232.01

Item

Analysis of changes in financial ratios: 1. Increase in Cash Flow Ratio by 26% mainly due to increase in net cash generated from operating activities by 45% and increase in current liabilities by 16%. 2. Increase in Cash Reinvestment Ratio by 232%:mainly due to increase in net cash generated from operating activities by 45% and decrease in long-term investment and Other non-current assets by 51%. 7.3.2 Cash Flow Analysis for the Coming Year Unit: NT$ thousands Estimated Cash Beginning Balance 1

Leverage of Cash Deficit Estimated Net Estimated Cash Cash Flow Estimated Cash Ending Balance from Operating Inflow (Shortage) Investment Plans Financing Plans Activities 3 1+2+3 2

4,245,282

250,174

2,280,450

6,775,906

-

-

1. Analysis of change in cash flow in the current year: Cash Inflow (Outflow) Item

2016

Operating activities

$ 1,494,219

Investing activities

781,792

$

Variance

2015

Amount

%

Remarks

1,027,777

$ 466,442

45

(1)

276,634

505,158

183

(2)

Financing activities (786,722) (851,348) 64,626 8 (1) The increase of NT$466,442 thousands in 2016 was mainly due to the increase of NT$446,686 thousands in accounts payable, the increase of NT$489,561 thousands in inventories, and the decrease of NT$487,227 thousands in accounts receivable which caused increased cash flow of NT$444,352 thousands. (2) The increase of NT$505,158 thousands in 2016 was mainly due to the increase of NT$1,361,442 thousands in investment funds disposed through the equity method, the expenditure of NT$548,836 thousands in investment in debt instruments with no active market, and the decrease of NT$273,168 thousands in the disposal of real property and equipment. 2. Remedial action for cash deficit: N/A. 3. Cash liquidity analysis for the next year: The Company expects business activities in the next year to generate positive cash flow. The cash outflow in the next year shall be primarily for the distribution of cash dividends that can be supported by the Company's cash balance and cash flow.

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VII. Review of Financial Conditions, Operating Results, and Risk Management 7.4 Major Capital Expenditure Items: There are no any Major Capital Expenditure in 2016. 7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year 7.5.1 Investment policy in the most recent year The Company's investment policies follow established strategies to expedite expansion in business opportunities in Greater China and actively conduct optimization and integration of resources on both sides of the strait. The business strategies of outstanding regional development, transition to premium service sectors, and implementation of quality assurance activities have allowed SYSTEX to consolidate its leading position in the Taiwan market, actively expand operations in the Greater China market, deploy channels in the Asia Pacific, and bring SYSTEX closer to its corporate objectives. 7.5.2 The main reason for profit or loss and improvement plan for reinvestment enterprises Unit: NT$ thousands

Item

Remarks Book Value Net Income (Loss) (Note1) 2016

Ching Pu Investment Corp.

Golden Bridge Information Corp.

Policies

Reasons for Gain or Loss

1,329,263

Shareholding in other companies 118,448 and reinvestment business

Assessed net profit and income from dividends of financial assets

230,087

Shareholding in other companies (4,133) and reinvestment business

Net profit from investment income recognized by the equity method

Systex Capital Group, Inc.

2,462,507

Kimo.com (BVI) Corp.

3,216,937

Systex Solutions (HK) Ltd.

1,997,310

Concord System Management Corp.

288,727

Nexsys Corp.

297,267

Shareholding in other companies (12,636) and reinvestment business Shareholding in other companies 1,033,328 and reinvestment business

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Enhanced management of reinvestment businesses after investment to increase operating performance

Assessed losses on Enhanced management financial of investment target instruments Recognized profits from investments

Revenue has reached economies of scale and generated profits for main business Revenue has Horizontal reached economies integration and of scale and 15,891 vertical expansion generated profits for in the industry main business Revenue has Horizontal reached economies integration and of scale and 51,481 vertical expansion generated profits for in the industry main business

Shareholding in other companies 1,056,180 and reinvestment business

Action Plan

VII. Review of Financial Conditions, Operating Results, and Risk Management

Item

Remarks Book Value Net Income (Loss) (Note1) 2016

Policies

Reasons for Gain or Loss

Action Plan

Revenue has Horizontal reached economies Systex Software & integration and of scale and 716,634 150,051 Service Corp. vertical expansion generated profits for in the industry main business Horizontal Continued business Taifon Computer integration and Losses in main integration and 247,027 (7,382) Co., Ltd vertical expansion business adjustment in the industry Horizontal Continued business Systex Solutions integration and Losses in main integration and 257,694 (3,930) Corp. vertical expansion business adjustment in the industry Revenue has Horizontal reached economies Syspower Corp. integration and of scale and 50,735 361,884 (Note2) vertical expansion generated profits for in the industry main business Developed Revenue has Systex overseas markets reached economies Information (H.K.) of scale and 745,299 22,080 and distribution Ltd. channels in generated profits for Greater China main business Developed Losses from main Systex overseas markets Continued business business and Information integration and (30,564) and distribution 247,992 recognized losses (Shanghai) Ltd. channels in adjustment from reinvestments Greater China Developed overseas markets Continued business Ucom Information Losses in main integration and 139,720 (9,755) and distribution Ltd. (Shanghai) business channels in adjustment Greater China Developed overseas markets Continued business Systex Group Losses in main integration and 270,344 (2,072) and distribution (China) Ltd. business channels in adjustment Greater China Developed overseas markets Continued business Systex Rainbow Losses in main integration and 208,166 (10,654) and distribution Tech Inc. business channels in adjustment Greater China Note 1: Refers to subsidiary companies with a carrying amount exceeding 5% of paid-in capital as of December 31, 2016. Note 2: Held directly and indirectly by the Company. 7.5.3 Investment Plans for the Coming Year: None.

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VII. Review of Financial Conditions, Operating Results, and Risk Management 7.6 Analysis of Risk Management The Company has established functional committees that report to the Board of Directors in accordance with the "Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies" promulgated by the competent authority to enhance the supervision and management functions of the Board of Directors. Proposals are submitted to the Board for resolution to reduce risks in operating and financial decisions. 7.6.1 Risk management policies and organization The Company's internal management system covers various business activities within the scope of its operations. Responsibilities for the management of risks in various operations are assigned to related units in accordance with the nature of business. The Company has also established the "Crisis Management Regulations," "M&A Management Regulations," and "Regulations on the Supervision and Management of Subsidiaries" to facilitate effective risk control. (1) Crisis Management The Company established the "Crisis Management Regulations" to ensure that the Company can effectively manage and respond to crises as they unfold and reduce the damage and impact caused by crises. The Company also established a Crisis Management Team to oversee crisis management and adopt management methods and measures to minimize the impact caused by crises to the Company. The organization and responsibilities of the Crisis Management Team are as follows: Team Member Person in Charge Job Description Convener President or personnel Leader of the Crisis Management Team; convenes meetings assigned by President and establishes guidance principles for crisis management; reports to top management periodically. Spokesperson Company Spokesperson Responsible for external communication on behalf of the and Acting Spokesperson Company; responsible for responding to media and journalists. Contact Person Supervisor of General Contact person for reporting crises; contact person for Affairs Division meetings of the Risk Management Team; follow up on meeting resolutions and progress. Legal Affairs Supervisor of Legal Assists in investigations and clarification of legal liabilities; Affairs Department collects evidence and pursues legal actions. Public Relations Supervisor of Marketing, Formulates statements, press releases, and Q&A drafts; Planning, and Public arranges press conferences, interviews, delivery of press Relations Division releases etc.; contact window for news media and journalists. Human Resource Supervisor of Human Verifies the list of employee casualties and consoles Resources Department employees; explains reasons for crises and delivers crisis management principles to employees; assists employees in applying for insurance claims; assists in emergency personnel dispatch. Procurement Supervisor of Assists in evaluation of the required time and cost of Procurement Division procuring equipment and raw material; assists front-line units in completing procurement procedures in the shortest time possible. General Affairs Supervisor of General Conducts inventory and transfer of assets and materials; Affairs Division verifies insurance coverage scope and files claims. Finance Supervisor of CFO Office Responsible for verifying whether incidents meet requirements in regulations on reports of public companies; assists Public Relations in formulating statements to stakeholders; assists in emergency funding operations.

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VII. Review of Financial Conditions, Operating Results, and Risk Management Front-Line Highest Ranking Officer of Reports the occurrence and affected scope of the incident; Command Center Business Unit/Subsidiary recommends crisis management principles and procedures; conducts recovery and processing on the front line in accordance with guidance principles; periodically reports processing procedures and files support requirements in accordance with conditions; formulates plans for resumption of work. (2) M&A Case Management The Company has established the "M&A Management Regulations" to effectively control the risks and performance of follow-up investment in Company's M&A (Merge & Acquisition) cases. The Regulations are applicable to cases where the Company acquires the operating rights, ownership, or specific assets of investees through acquisitions, mergers, business assignments, joint investments, demergers, or other methods. The responsibilities of each unit are as follows: Department All Business Units

Business Management Division

Information Management Department Legal Department

Marketing & Corporate Affairs Department Human Resources Division CFO Office

Responsibilities Responsible for the investment project; formulate business development strategies and seek potential investment targets; evaluate the business side of the investee or newly-established company and establish a business plan of at least three years; assess project risks; assess the value and investment structure design of the investment target. Review business plans submitted by Business Units; assists Business Units in assessing the value and investment structure design of the investment target; establishes subsidiary company management regulations; assists in the incorporation of operating procedures of investee companies into states manageable by the parent company; establishes standard operating procedures for supporting M&A operations. Plans the basic IT structure of the investee company or newly-established company and assists in the connection of its IT system with the parent company's IT system; establishes standard operating procedures for M&A IT. Ensures legal compliance of all operations in the Company's M&A projects; formulates related legal documents for M&A cases; assesses the reasonableness of the investment structure; executes legal due diligence (DD); establishes legal standard operating procedures for M&A. Organizes press conferences or publicizes information after the completion of investment plans; establishes standard operating procedures for M&A corporate communications. Assists in the design of talent retention plans; establishes standard operating procedures for M&A personnel and general affairs. Reviews assessment of the reasonableness of the investment structure; executes financial due diligence (DD); establishes financial standard operating procedures for M&A.

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VII. Review of Financial Conditions, Operating Results, and Risk Management (3) Subsidiary Supervision and Management The "Regulations on the Supervision and Management of Subsidiaries" are established to implement business management, disclosure of financial and business information at appropriate times, internal control system, and auditing management of subsidiaries in order to ensure their business performance. The responsibilities of each unit are as follows: Department Business Management Division

Information Management Department Legal Department

Human Resources Division

CFO Office

Audit Division

Responsibilities Establishment and revision of parent-subsidiary companies' operations and management guidelines; assists the supplement (revision) and review of related regulations of the operations and management of subsidiaries; provides supervision, support, and assistance for the operations of subsidiaries; conducts regular performance analyses and follow-up management on subsidiaries; reviews business strategies and plans of subsidiaries; facilitates communication between the parent company and subsidiaries (and between subsidiaries). Establishment and revision of parent-subsidiary companies' IT system operating guidelines; assists in the supplement (revision) and review of related regulations of the IT systems of subsidiaries; provides supervision, support, and assistance for the IT systems of subsidiaries. Establishment and revision of parent-subsidiary companies' legal affairs system operating guidelines; assists the supplement (revision) and review of related regulations of legal affairs of subsidiaries; provides supervision, support, and assistance for legal affairs of subsidiaries. Establishment and revision of parent-subsidiary companies' human resources and general affairs operating guidelines; assists the supplement (revision) and review of related human resources regulations of subsidiaries; provides supervision, support, and assistance for human resources and general affairs of subsidiaries. Establishment and revision of parent-subsidiary companies' finance and accounting operating guidelines; assists the supplement (revision) and review of related finance and accounting regulations of subsidiaries; provides supervision, support, and assistance for finance and accounting operations of subsidiaries. Assists the establishment of internal control systems, internal control self-inspection operations, and various business operations regulations of subsidiaries; audits and reviews the internal control systems and internal control self-inspection operations of subsidiaries.

7.6.2 Risks, Assessment, and Response Strategies A. Market Risks: The Company's forecast risks, pricing risks, production capacity risks, and inventory risks caused by changes in the industry. Risk Assessment: The characteristics of the IT service industry includes rapid changes in technologies, continuous flow of new products, continuous functional improvements, decline in cost, short product

lifecycle,

changes

in

customer

requirements,

and

manufacturer

standard

specifications. Due to high uncertainties, market risks will influence company operations. Response Strategy: Implement an annual budget system and rolling forecast system to fully account for the impact of market changes on revenue; organize monthly business review meetings to account for market conditions; actively increase the added-value of products and OEM product lines to maintain reasonable costs and comprehensive services; adopt full digitalization in the company, enhance education and training, and increase the efficiency of information delivery between departments to increase personnel productivity; adopt the principle of making purchases after receiving purchase orders to prevent excess inventory and control the value of inventories.

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VII. Review of Financial Conditions, Operating Results, and Risk Management B. Financial Risks: Additional risks imposed on the Company due to the use of financial leverages. Risk Assessment: Changes in the Company's industry occur fast and pose high risks in operations. High financial leverage operations will put the Company in greater risk. Response Strategy: The Company's source of funding consists mainly of equity funds; high financial leverage strategies are avoided. If financing is required, long-term funding obtained from the capital market shall be the primary means for financing to lower financial risks. C. Fluidity Risks: Risks in which the Company cannot cash in on assets or obtain sufficient funding in time, leading to the inability to perform due responsibilities. Risk Assessment: Due to high risks in the industry, the speed and capacity of cash flow will affect the Company's competitiveness and daily operations. Response Strategy: The Company shall strengthen its cash flow forecast, strictly control inventory backlog, and payment/collection conditions and procedures to ensure the fluidity of the Company's operating cash. Conduct short-term operations with idle funds under conditions of maintaining fluidity, security, and profitability. The Company shall also establish financing credit lines with banks to maintain fluidity of funds. D. Credit Risks: Risks in which customers and suppliers cannot perform payment or delivery. Risk Assessment: Due to industry characteristics, the Company faces longer payment cycles from clients. The unique transaction model of large projects also requires multiple suppliers of varying scales for which credit risks differ. The Company conducts various financial transactions with financial institutions in accordance with financial and business requirements. The credit risks of transaction partners shall also be taken into consideration. Response Strategy: The Company shall establish a department dedicated to the management of accounts receivable and payable and establish authorization management regulations to enhance credit investigation procedures and strictly control the credit line of customers to safeguard the interests of the Company. The Company selects reputable financial institutions with high ratings to lower credit risks. E. Legal Risks: Risks of serious impact or other negative impact on the Company's operations or finances due to illegal business activities of the Company or competitors' infringement of the Company's rights. Risk Assessment: The Company conducts businesses honestly and does not take part in illegal activities. The Company maintains ownership of multiple intellectual property rights and comprehensive legal protection from infringements that affect company interests. Response Strategy: The Company established a dedicated Legal Affairs Department to take charge of processing potential legal risks faced by the Company. The Legal Affairs Department also reviews all important contracts before signing to safeguard company interests. F. Strategy and Business Risks: Risks of immediate or potential impact on the Company's profits or capital due to unfavorable business decisions, inappropriate execution of related strategies, or a lack of response measures to changes in the industry. Risk Assessment: The Company operates in the technology industry which undergoes constant changes, numerous competitors, and therefore relatively higher operating risks. The implementation of strategies will affect overall normal operations. Response Strategy: The Company regularly organizes domestic and international senior management business meetings to fully communicate and review the Company's operating strategies and adopt appropriate response measures. The Company also established an Audit Committee to

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VII. Review of Financial Conditions, Operating Results, and Risk Management strengthen the functions of the Board of Directors and to help the Company establish major business strategies and supervise the performance of the management team. 7.6.3 Analysis of Risk Management A.Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on Corporate Finance, and Future Response Measures: (a) Interest rate Unit: NT$ thousands;% Year

2015 Amount

Item

2016

Percentage Percentage of Profit from of Net Sales Operation

Amount

Percentage Percentage of Profit from of Net Sales Operation

Interest income

22,594

0.14%

5.39%

29,965

0.18%

10.73%

Interest expense

14,805

0.09%

3.53%

24,823

0.15%

8.89%

The Company's operating funds are readily available and the Company conducts short-term operations with idle funds under conditions of maintaining fluidity, security, and profitability. The Company maintains close relations with banks in long-term collaboration and uses the banks' assistance to obtain favorable interest rates and conditions. The Company's income on interest remains higher than interest expenses and therefore changes in interest rates have limited effects on the Company's profitability. The Company shall continue to monitor trends in interest rate changes and maintain a high degree of profitability while taking into account the requirements for security and fluidity in order to reduce the impact of changes in interest rates. (b) Foreign exchange rates Unit: NT$ thousands;% 2015

Year Item

Amount

Foreign exchange loss, net

35,007

2016

Percentage Percentage of Profit from of Net Sales Operation 0.21%

8.35%

Amount

Percentage Percentage of Profit from of Net Sales Operation

69,545

0.43%

24.90%

Due to fluctuations in the RMB-USD exchange rates in 2016 that caused the net loss in exchange to increase from the previous year, the Company's corporate financing personnel used transactions with financial institutions and the Internet to collect information on changes in exchange rates, adjusted the Company's foreign exchange positions, and estimated the cash flow in foreign currency expenditure for the purpose of controlling risks as early as possible. In principle, the Company uses income in foreign currencies to pay for foreign currency expenditures to achieve natural hedging effects and therefore changes in interest rates have limited impact on the Company's profits and losses. (c) Inflation The Company maintains close and good relations with suppliers and customers and pays attention to fluctuations in market prices in order to make timely adjustments in response to market fluctuations in purchase and sales prices as well as to lower the impact of changes in inflation. The Company's main suppliers are IT firms and the Company pays attention to the changes in prices of products from original manufacturers at all times to prevent major impact of changes in cost on the Company's profits and losses.

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VII. Review of Financial Conditions, Operating Results, and Risk Management B. 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 conduct high-risk and high-leverage investments. The Company provides loans to others, endorsement or guarantee, and trade in derivatives in accordance with the Company's policies and response measured established in the Company's "Procedures for the Acquisition or Disposal of Assets," "Operating Procedures for Fund Lending," and "Procedures for Making Endorsements and Guarantees." No breaches of contract that caused profits or losses have occurred in Company's endorsements, guarantees, and loans to subsidiary companies for their financing requirements. C. Future Research & Development Projects and Corresponding Budget

Research Projects

mOpen

Completion (%)

Expected Research Expected Expenditure Completion (NT$ ten Schedule thousand)

Planning

150

2017/06

Upgrade of re-consigned trading planform

10%

500

2017/06

Upgrade of Fmidst

30%

70

2017/06

New Function of DQ2

Planning

200

2017/10

Others

Planning

900

2017/2H

Major Risk Factors

Human Resources Technology Human Resources Technology Human Resources Technology Human Resources Technology Human Resources Technology

and Core and Core and Core and Core and Core

D. Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales As the effects of the new system of one-by-one matching take hold, future market transactions shall be made mainly by corporate investors. The competition between financial institutions will increase demand for electronic and program transactions. With extensive experience in long-term product development and services, Systex shall effectively assist customers in the development of competitive products. The Company shall also focus on latest development in global economic trends, consider market demand, integrate multiple financial product information, provide comprehensive transnational and information one-stop service to satisfy customer demands in financial markets in China, Hong Kong, Taiwan, and various domestic and foreign markets and demonstrate the value of integration. Changes in shareholder services regulations have reduced the amount of mailing for printed materials. Systex has ventured into markets such as insurance policy forms and notification market in order to supplement the gap in black-and-white printing. The Company has now completed installation and successfully obtained life insurance clients. Government reorganization and information service outsourcing have become established policies and IoT development is gradually gaining attention. The government has increased budgets for smart city development, implementation of the Personal Information Act, and extension of cloud-based services. The Company shall seek business opportunities in government organizational adjustments such as demand in software/hardware equipment replacement, integrated account single login services, equipment transfer services, computer room performance adjustment/shared structure services, maintenance contracts, and increased value. At the same time, the Company shall be required to gain core technologies in land administration to facilitate the growth of land administration ITO and create differentiation in services.

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VII. Review of Financial Conditions, Operating Results, and Risk Management E. Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales In response to development trends in FinTech, Systex shall continue to provide finance and corporate service mobilization plans, designs, and introduction services for finance operators to quickly adopt and build service plans. The Company has established the Financial Digital Content Developing Center (FDC) to develop new products for finance databases and high-end financial applications that meet customer requirements. It shall remain focused on the development of intensified and wide-ranged international financial information content to gain key positions on the market and expand the lead over competitors. F. The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures The Company has always upheld the operation principles of professionalism and integrity as well as its emphasis on corporate image and risk management. Therefore the corporate image has been well-maintained and there has been no major incident detrimental to corporate image. G. Expected Benefits from, Risks Relating to and Response to Merger and Acquisition Plans: None. H. Expected Benefits from, Risks Relating to and Response to Factory Expansion Plans : None. I. Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration The Company maintains good relations with multiple domestic and international suppliers to ensure the diversity of products and security of sources. The Company's sales customers are distributed across the government, finance industry, telecommunications, distribution, and education. Customers are numerous and dispersed and the Company uses the dispersion strategy to reduce the risk of concentrated purchases or sales. J. Effects of, Risks Relating to and Response to Large Share Transfers or Changes in Shareholdings by Directors or Shareholders with Shareholdings of over 10%: With the exception of share transfers conducted for personal investment, financing, and taxation plans made by the Company's Directors or major shareholders holding over 10% of the Company's shares in the most recent year and as of the printing date of the prospectus, stable shareholding ratios were mostly maintained and have no major negative effect on the Company's operations. K. Effects of, Risks Relating to and Response to the Changes in Management Rights: None. L. Litigation or Non-litigation Matters: None. 7.7 Other Major Risks: None.

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VIII. Special Disclosure 8.1 Summary of Affiliated Companies 8.1.1 SYSTEX’s Subsidiaries Unit: NT(USD,RMB,HKD,SGD)$ thousands Company

Date of Incorporation

Place of Registration

Capital

As of Decmber31, 2016

Business Activities

Stock

Design, construction, and sales of Taifon Computer Co., Ltd

1992.10.14

Taipei, Taiwan

200,000

telecommunications, electronic calculators, and computer installation projects etc. Design, construction, and sales of

Systex Solutions Corp.

2014.04.29

Taipei, Taiwan

260,000

telecommunications, electronic calculators, and computer installation projects etc. Design of computer system

Concord System Management Corp.

1982.10.19

Taipei, Taiwan

202,217

software and software application programs, assessment and planning of computer systems etc.

Systex Software & Service Corp.

IT software and data processing 2011.08.25

Taipei, Taiwan

544,500 services, retail and services for IT software. Manufacture of electronic wired communication machinery and equipment, manufacture of electronic components,

SoftMobile Technology Corp.

2011.08.02

Taipei, Taiwan

27,125

manufacture of computers and peripheral equipment, installation of computer equipment, IT software retail, computer and office appliance wholesale and retail. Manufacture of electronic wired communication machinery and equipment, manufacture of electronic components,

Nexsys Corp.

2000.05.16

Taipei, Taiwan

155,000

manufacture of computers and peripheral equipment, installation of computer equipment, IT software retail, computer and office appliance wholesale and retail.

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VIII. Special Disclosure Company

Date of Incorporation

Place of Registration

Capital

Business Activities

Stock

Installation and sales of computer software and related equipment, IT Naturint Ltd.

2016.07.19

Taipei, Taiwan

20,000

software, data processing, and other consulting services, network certification, software publication etc. IT software and data processing

Etu Corp.

2015.02.26

Taipei, Taiwan

115,000 services, retail and services for IT software. Design, installation, and maintenance of computer

Syspower Corp.

1988.09.05

Taipei, Taiwan

200,000

information and telecommunication construction, design and sales of computer system software. Design, assessment, and planning of computer system software and

Taiwan Electronic Data Processing Corp.

software application programs, 1969.05.22

Taipei, Taiwan

258,537 sales and lease of data processing systems, computer peripheral hardware equipment and their components.

Mendincom Technology Corp.

Wholesale and retail of medical 2009.03.06

Taipei, Taiwan

100,000 equipment, retail of precision instruments etc.

Ucom Information Ltd. (Shanghai)

Systex Information (Shanghai) Ltd.

2003.03.26

Shanghai, China

USD14,800

IT software services, IT software wholesale, IT software retail. Data processing services, IT supply

2000.11.27

Shanghai, China

USD16,300 services, IT software services, international trade. Research, development, and production of computer software

Sysware Shenglong Information Systems Co., Ltd.

and hardware, sales of 2007.10.16

Shanghai, China

USD5,000 self-manufactured products, technical consulting services, technical services, training and transfer.

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VIII. Special Disclosure Company

Date of Incorporation

Place of Registration

Capital Stock

Business Activities Business management and

Systex Group (China) Ltd.

consulting services, market 2012.09.28

Shanghai, China

USD10,000 management and sales services, financial management services for fund operations etc. Computer software and hardware

Systex Rainbow Tech Inc.

technologies, research, 2001.03.16

Guangzhou,China

RMB50,000 development, installation, wholesale, and trade of computer network systems etc.

Systex Ucom(Shanghai) Information Ltd. Co.

2015.01.13

Shanghai, China

Systex Information (H.K.) Ltd.

1999.12.02

Hong Kong

Ranibow Tech Information (HK) Limited

2012.04.26

Hong Kong

HKD2,000

Sysware Singapore Pte. Ltd.

2003.03.31

Singapore

SGD2,769

Ching Pu Investment Corp.

1988.09.02

Taipei, Taiwan

1,261,519 General investment.

Golden Bridge Information Corp.

2011.08.25

Taipei, Taiwan

230,000 General investment.

Hanmore Investment Corp.

1989.04.21

Taipei, Taiwan

197,065 General investment.

1999.08.12

British Virgin Islands

USD28,500

2000.02.23

British Virgin Islands

USD4

2011.10.03

Hong Kong

Kimo.com (BVI) Corporation Systex Capital Group, Inc. Systex Solutions (HK) Ltd.

RMB2,000

IT software services, IT software wholesale, IT software retail.

HKD Sales of computers and 158,448 peripherals. Sales of computers and peripherals.

Computer information integration services, computer software.

Financial trust, shareholding and other investment businesses. Financial trust, shareholding and other investment businesses.

HKD Financial trust, shareholding and 136,000 other investment businesses.

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VIII. Special Disclosure 8.1. 2 SYSTEX’s Subsidiaries Chart (December 31, 2016 ): Please refer to page 184. 8.1.3 Shareholders in Common of SYSTEX and Its Subsidiaries with Deemed Control and Subordination: None. 8.1.4 Rosters of Directors, Supervisors, and Presidents of Systex’s Subsidiaries: As of December31, 2016 Shareholding Company

Title

Name

Taifon Computer

Chairman & SYSTEX Corp.

Co.,Ltd

President Director Director Supervisor

Systex Solutions Corp.

Chairman Director Director Supervisor President

SYSTEX Corp. Rep.: Lin, Jen-Shou (Note1) SYSTEX Corp.

Service Corp.

Chairman

Rep.: Lee, Chien-Lung (Note 2) SYSTEX Corp. Rep.: Lin, Lung-Fen SYSTEX Corp. Rep.: Lin, Jen-Shou (Note1) SYSTEX Corp. Rep.: Chung, Chih-Chun Lin, Wen-Kuei

SoftMobile Technology Corp.

-

SYSTEX Corp. Rep.: Lin, Lung-Fen SYSTEX Corp.

20,221,673

100.00%

54,450,000

100.00%

2,712,500

100.00%

Rep.: Lin, Jen-Shou (Note1) SYSTEX Corp. Rep.: Chung, Chih-Chun SYSTEX Corp. Rep.: Lin, Lung-Fen

President

Rep.: Lee, Su-Yue

Chairman

-

Rep.: Tao, Ya-Kuang

SYSTEX Corp.

Supervisor

100.00%

SYSTEX Corp.

Director &

Director

26,000,000

Rep.: Chung, Chih-Chun

Chairman & SYSTEX Corp.

Systex Software &

100.00%

SYSTEX Corp.

President

Supervisor

20,000,000

Rep.: Liu, Kuan-Lin (Note 1)

Management Corp.

Director

% (Investment Holding)

Rep.: Yang, Yun-Chang

Concord System

Director

Shares (Investment Amount)

SYSTEX Corp. Rep.: Lin, Jen-Shou SYSTEX Corp. Rep.: Cheng, Yuan-Yih Golden Bridge Information Corp. Rep.: Fan, Jee-Der

-200-

VIII. Special Disclosure Director Director Supervisor President Nexsys Corp.

Chairman

Rep.: Chung, Chih-Chun Wu, Wen-Shun

-

-

SYSTEX Corp. Rep.: Pan, Tieh-I

SYSTEX Corp.

15,500,000

100.00%

Rep.: Yang, Shih-Chung SYSTEX Corp. Rep.: Chung, Chih-Chun Chung, Cheng-Wen

-

-

Chairman & SYSTEX Corp.

Director Director Supervisor Chairman

Rep.: Fan, Jee-Der SYSTEX Corp. Rep.: Lin, Lung-Fen SYSTEX Corp.

0.22%

8,481,884

42.41%

7,432,586

37.16%

17,990,326

69.59%

SYSTEX Corp. Rep.: Chen, Chao-Yu (Note 3) Chung, Chih-Chun Golden Bridge Information Corp. Rep.: Fan, Jee-Der Golden Bridge Information Corp.

President

Rep.: Chen, Kuo-Chen

Chairman

25,000

Rep.: Lin, Lung-Fen

Director &

Supervisor

78.26%

SYSTEX Corp.

Rep.: Chiang, Chi-Yu

Director

9,000,000

Rep.: Chung, Chih-Chun

President

Chairman

100.00%

SYSTEX Corp.

SYSTEX Corp.

Supervisor

2,000,000

Rep.: Hsieh, Shu-Heng

Director &

Director

Processing Corp.

Golden Bridge Information Corp.

Rep.: Lin, Lung-Fen

President

Taiwan Electronic Data

Rep.: Hsieh, Shu-Heng

President

President

Syspower Corp.

Golden Bridge Information Corp.

SYSTEX Corp.

Supervisor

Etu Corp.

Rep.: Lin, Lung-Fen

Director &

Director

Naturint Ltd.

Golden Bridge Information Corp.

Golden Bridge Information Corp. Rep.: Lin, Lung-Fen Ching Pu Investment Corp. Rep.: Cheng, Yuan-Yih Ching Pu Investment Corp. Rep.: Lin, Lung-Fen

-201-

VIII. Special Disclosure Director Director

Rep.: Fan, Jee-Der (Note 1) Ching Pu Investment Corp. Rep.: Cheng, Yuan-Yih

Supervisor

Chung, Chih-Chun

-

-

President

Chen, Kuo-Chen

-

-

Mendincom Technology Corp.

Ching Pu Investment Corp.

Taiwan Electronic Data Chairman

Processing Corp. Rep.: Lin, Lung-Fen Taiwan Electronic Data

Director

Processing Corp. Rep.: Chung, Chih-Chun Taiwan Electronic Data

Director

10,000,000

100.00%

Processing Corp. Rep.: Fan, Jee-Der (Note 1) Taiwan Electronic Data

Supervisor

Processing Corp. Rep.: Cheng, Yuan-Yih

Ucom Information Ltd. (Shanghai)

Chairman

Kimo.com (BVI) Corp.

President

Rep.: Li, Jing

Supervisor

(Shanghai) Ltd.

Rep.: Cheng, Deng-Yuan

Director &

Director

Systex Information

Kimo.com (BVI) Corp.

Chairman

Kimo.com (BVI) Corp.

Rep.: Lin, Wen-Chou Kimo.com (BVI) Corp. Rep.: Cheng, Deng-Yuan

President

Rep.: Tan, Chien-Jung Kimo.com (BVI) Corp.

President

Supervisor

100.00%

Rep.: Lin, Wen-Chou

Information Systems

Director

USD16,300,000

Kimo.com (BVI) Corp.

Chairman & Kimo.com (BVI) Corp.

Director

(Investment)

Rep.: Lin, Lung-Fen

Sysware Shenglong Co., Ltd.

100.00%

Kimo.com (BVI) Corp.

Kimo.com (BVI) Corp.

Supervisor

USD14,800,000

Rep.: Lin, Lung-Fen

Director &

Director

(Investment)

Rep.: Fan, Jee-Der Kimo.com (BVI) Corp. Rep.: Lin, Lung-Fen Kimo.com (BVI) Corp. Rep.: Cheng, Deng-Yuan Kimo.com (BVI) Corp. Rep.: Lin, Wen-Chou

-202-

(Investment) USD5,000,000

100.00%

VIII. Special Disclosure Systex Group (China)

Chairman & Systex Information (H.K.) Ltd.

Ltd.

President Director Director Supervisor

Systex Rainbow Tech Inc.

Chairman

Ltd.Co. Systex Information (H.K.) Ltd.

Corp.

Rep.: Lin, Wen-Chou Systex Information (Shanghai) Ltd. Rep.: Cheng, Deng-Yuan

(Investment)

Ucom Information Ltd. (Shanghai)

President

Rep.: Hu, Hsiao-Tung

RMB2,000,000

100.00%

103,800,000

100.00%

2,000,000

100.00%

2,769,000

100.00%

126,151,931

100.00%

Rep.: Lin, Wen-Chou Kimo.com (BVI) Corp. Rep.: Cheng, Deng-Yuan Kimo.com (BVI) Corp. Rep.: Lin, Lung-Fen Kimo.com (BVI) Corp.

President

Rep.: Lin, Tsung-Ying Kimo.com (BVI) Corp. Rep.: Chek Khai Juat SYSTEX Corp. Rep.: Huang, Tsong-Jen

Director &

SYSTEX Corp.

President

Rep.: Lin, Lung-Fen

Supervisor

(Investment)

Kimo.com (BVI) Corp.

Director &

Director

10.00%

Rep.: Cheng, Deng-Yuan Kimo.com (BVI) Corp.

Chairman

RMB5,000,000

Kimo.com (BVI) Corp.

Director &

Chairman

(Investment)

Rep.: Lin, Wen-Chou

Rep.: Li, Jing

Chairman

90.00%

Ucom Information Ltd. (Shanghai) Rep.: Yen, Jung-Chung

Director

Director Ching Pu Investment

Systex Information (H.K.) Ltd.

Systex Group (China) Ltd.

Chairman

100.00%

Rep.:Chung, Chih-Chun

Executive

Limited Ltd.

USD10,000,000

Rep.::Tan, Chien-Jung

Ranibow Tech

Sysware Singapore Pte.

Systex Information (H.K.) Ltd.

(Investment)

President

Director

Information (HK)

Rep.::Lin, Lung-Fen

Systex Information (Shanghai) Ltd. RMB45,000,000

Supervisor

(Shanghai) Information

Systex Information (H.K.) Ltd.

Director &

Director

Systex Ucom

Rep.: Cheng, Deng-Yuan

SYSTEX Corp. Rep.: Chung, Chih-Chun SYSTEX Corp. Rep.: Cheng, Yuan-Yih

-203-

VIII. Special Disclosure Golden Bridge

Chairman & SYSTEX Corp.

Information Corp.

President Director Director Supervisor

Rep.: Lin, Lung-Fen SYSTEX Corp. Rep.: Chung, Chih-Chun SYSTEX Corp.

President

Kimo.com (BVI) Corp.

Director Director

Systex Capital Group, Inc.

Director Director

Systex Solutions (HK) Ltd.

Director Director

0.10%

9,640,680

48.92%

Rep.: Cheng, Yuan-Yih

Corp.

Supervisor

18,768

SYSTEX Corp.

Chairman & Joray CO.,LTD

Director

100.00%

Rep.: Lin, Jen-Shou(Note 1)

Hanmore Investment

Director

23,000,000

Rep.: Wu, Cheng-Huan Joray CO.,LTD Rep.: Lin, Chih-Min SYSTEX Corp. Rep.: Cheng, Yuan-Yih Chung, Chih-Chun

-

-

SYSTEX Corp. Rep.: Huang, Tsong-Jen SYSTEX Corp.

28,500,000

100.00%

3,550

100.00%

136,000,000

100.00%

Rep.: Lin, Lung-Fen SYSTEX Corp. Rep.: Huang, Tsong-Jen SYSTEX Corp. Rep.: Lin, Lung-Fen Kimo.com (BVI) Corp. Rep.: Lin, Lung-Fen Kimo.com (BVI) Corp.

Rep.: Chung, Chih-Chun Note 1:Be assigned at January 3, 2017. Note 2:Be assigned at January 5, 2017. Note 3:Be assigned at February 2, 2017.

-204-

VIII. Special Disclosure 8.1.5 Operational Highlights of SYSTEX’s Subsidiaries Unit: NT$ thousands, except EPS ($)

Company

Taifon Computer Co.,Ltd Systex Solutions Corp. Concord System Management Corp. Systex Software & Service Corp. SoftMobile

Income (Loss) from Operation

Net Income (Loss)

Capital Stock

Assets

200,000

452,308

202,909

249,399

609,170

(9,404)

(7,382)

(0.37)

260,000

545,172

287,478

257,694

830,251

(2,337)

(3,930)

(0.15)

202,217

567,971

278,675

289,296

869,990

31,078

15,891

0.79

544,500 2,355,099

1,630,586

724,513

4,425,479

174,216

150,051

2.76

270

0.10

Liabilities

Net Net Worth Revenues

As of Decmber31, 2016

27,125

52,028

23,012

29,016

98,558

Nexsys Corp.

155,000

364,269

90,065

274,204

378,347

63,723

51,481

3.32

Naturint Ltd.

20,000

21,023

951

20,072

1,000

57

73

0.04

Etu Corp.

115,000

28,080

18,606

9,474

21,493

(64,928)

(58,537)

(5.09)

Syspower Corp.

200,000

545,191

114,682

430,509

492,992

57,888

50,735

2.54

258,537

119,331

9,024

110,307

1,226

(3,071)

(26,724)

(1.03)

100,000

112,591

121,597

(9,006)

134,581

(24,528)

(26,008)

(2.60)

517,995

294,697

154,977

139,720

266,187

2,029

(9,755)

-

580,483

486,992

239,000

247,992

326,361

(15,530)

(30,564)

-

173,119

47,535

8,790

38,745

40,192

4,149

3,932

-

293,129 1,135,143

864,799

270,344

2,012,695

(5,982)

(2,072)

-

232,450

560,804

362,734

198,070

760,462

(10,368)

(10,654)

-

9,298

47,151

33,351

13,800

139,955

11,215

11,231

-

Technology Corp.

254

EPS

Taiwan Electronic Data Processing Corp. Mendincom Technology Corp. Ucom Information Ltd. (Shanghai) Systex Information (Shanghai) Ltd. Sysware Shenglong Information Systems Co., Ltd. Systex Group (China) Ltd. Systex Rainbow Tech Inc. Systex Ucom (Shanghai) Information Ltd.Co.

-205-

VIII. Special Disclosure

Company

Systex Information (H.K.) Ltd.

Net Income (Loss)

Assets

658,827

933,413

188,115

745,298

1,063,184

15,802

22,080

-

8,316

15,360

7,116

8,244

20,237

1,472

1,472

-

61,721

8,995

37,238

(28,243)

30,493

(7,234)

(63)

-

1,261,519 2,083,541

611

2,082,930

0

(444)

118,448

0.94

232,826

120

232,706

0

(177)

(4,133)

(0.18)

197,065 1,267,896

172,660

1,095,236

0

(3,941)

45,779

2.32

919,125 3,220,471

2,012

3,218,459

0

(9,898) 1,033,328

114 2,462,596

89

2,462,507

0

(560)

(12,636)

-

565,488 2,205,352

208,042

1,997,310

0

(230) 1,056,180

-

Liabilities

Net Net Worth Revenues

Income (Loss) from Operation

Capital Stock

EPS

Ranibow Tech Information (HK) Limited Sysware Singapore Pte. Ltd. Ching Pu Investment Corp. Golden Bridge Information Corp. Hanmore Investment Corp. Kimo.com (BVI) Corp. Systex Capital Group, Inc. Systex Solutions (HK) Ltd.

230,000

8.1.6 Subsidiaries’ Consolidated Financial Statements: Please refer to pages 115-184. 8.2 Private Placement Securities in the Most Recent Years: N/A

-206-

-

VIII. Special Disclosure 8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years

Ching Pu Investment Corp.

NT$ 197,065 thousands

NT$ 1,261,519 thousands

Own funds and bank loans

Hanmore Investment Corp.

Paid-in Capital

Own funds

Name of Subsidiary

Shareholdings Date of Shares and Amount Endorsement Shareholding Shares and Fund Acquisition and Investment as of the printing Amount Made Ratio of the Amount Mortgage Source or Amount Gain (Loss) date of this for the Company Acquired Disposition Disposed annual report Subsidiary (Note1)

2016/01

1,236,000 shares NT$61,456 thousands

-

2016/11

242,000 shares NT$12,399 thousands

-

48.9%

100.0%

-

-

-

-

-

-

21,316,678 10 million shares shares NT$1,372,794 (Note2) thousands

12,981,476 shares NT$836,007 thousands

-

-

-

-

-

Note 1: The amount held is the fair market value as of March 31, 2017. Note 2: Hanmore Investment Corp. pledged 10 million of the Company's shares as collateral; the pledge does not affect the Company's financial performance or financial status.

8.4 Other Necessary Supplement: None. 8.5 Any Events in 2016 and as of the Date of this Annual Report that Had Significant Impacts on Shareholders’ Right or Security Prices as Stated in Item 3 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None.

-207-

Amount Loaned to the Subsidiary

Unit: NT$ thousands;shares;%

SYSTEX Corporation

Chairman: Huang, Tsong-Jen

SYSTEX CORPORATION No.318, Ruiguang Rd., Neihu Dist., Taipei City 114, Taiwan Tel +886-2-7720-1888

Notice to readers 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 and Chinese versions, the Chinese version shall prevail.

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ANNUAL REPORT

2016 ANNUAL REPORT SYSTEX CORPORATION Stock Code: 6214 Annual Report Website Market Observation Post System: http://mops.twse.com.tw Company Website...

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